G.R. No. 146708 December 13, 2005
JOEL B. BORTIKEY, Petitioner, vs. AFP RETIREMENT AND SEPARATION BENEFITS SYSTEM, Respondent.

FACTS

On May 13, 1992, petitioner Joel B. Bortikey entered into a Contract to Sell with respondent AFPRSBS for a parcel of land. The contract stipulated a total price of ₱310,100.00, payable with a down payment and the balance in 60 monthly installments. The contract explicitly provided for an interest rate of 24% per annum on the unpaid balance, with a penalty of an additional 24% per annum in case of default after a seven-day grace period.
On June 28, 1996, petitioner filed a complaint with the HLURB, assailing the 24% annual interest as contrary to law and public morals. The HLURB dismissed the complaint, ruling the stipulation was valid as there was no interest rate ceiling at the contract’s perfection. This dismissal was affirmed by the Office of the President. Petitioner elevated the case to the Court of Appeals, which likewise upheld the validity of the stipulated interest, prompting this petition for review.

ISSUE

Whether the stipulated interest rate of 24% per annum in the Contract to Sell is valid and binding upon the parties.

RULING

The Supreme Court denied the petition and upheld the validity of the 24% interest stipulation. The Court anchored its decision on the fundamental principles of contract law and freedom of stipulation under Article 1306 of the Civil Code. Contracts, when not contrary to law, morals, good customs, public order, or public policy, have the force of law between the parties and must be complied with in good faith.
The legal logic is clear: petitioner freely and voluntarily chose the installment scheme, thereby consenting to pay interest on the deferred payments. The imposition of interest compensates the vendor for the opportunity cost of not receiving the full cash price upfront, which could have been invested to earn income. This is a standard and lawful commercial practice. The Court cited Relucio v. Brillante-Garfin, which held that a vendee opting for installment payment is obligated to pay interest on the cash price, whether specifically itemized or not, as the economic reality is that a series of future payments is less valuable than a lump sum received today.
Petitioner’s belated challenge, after years of possession and payment, constituted an impermissible unilateral withdrawal from his contractual obligations. The Court emphasized it would not relieve a party from the consequences of a lawful, voluntary agreement without impairing the constitutional sanctity of contracts. Since the stipulated rate was agreed upon without any legal prohibition at the time and was not shown to be unconscionable or contrary to public policy, it is valid and binding.