G.R. No. 160533; January 12, 2005
First Fil-Sin Lending Corporation, petitioner, vs. Gloria D. Padillo, respondent.

FACTS

Respondent Gloria D. Padillo obtained two loans of P500,000.00 each from petitioner First Fil-Sin Lending Corporation in July and September 1997. She executed promissory notes and disclosure statements for each loan. For the first loan, she made 13 monthly interest payments of P22,500.00 before settling the principal. For the second, she made 11 monthly payments of P25,000.00 before paying the principal. In total, she paid P792,500.00 for the first loan and P775,000.00 for the second.
Padillo later filed an action for sum of money, alleging she agreed to pay interest at 4.5% and 5% per annum, not per month, and sought to recover her alleged overpayments. The Regional Trial Court dismissed her complaint, ruling she was estopped from questioning the loan terms due to her check payments, and ordered her to pay petitioner P311,125.00 plus attorney’s fees. The Court of Appeals reversed this, ordering petitioner to return P114,000.00 to Padillo and deleting the attorney’s fees award, ruling the monthly interest applied only for the 3-month loan term before legal interest applied, and reducing a penalty charge from 1% per day to 1% per month.

ISSUE

Whether the stipulated interest rates of 4.5% and 5% are to be applied on a per annum or per month basis, and whether the award of attorney’s fees was proper.

RULING

The Supreme Court affirmed the Court of Appeals with modification, ruling the interest rates are per annum. The legal logic is grounded in contract interpretation under the Civil Code. The promissory notes and disclosure statements, signed by both parties, clearly and unambiguously state interest rates of “4.5% per annum” and “5% per annum.” There is no stipulation for monthly application. When contract terms are clear and explicit, they must be understood literally as written, and courts cannot reconstruct the agreement or read into it an unstated intent. The lower courts erroneously relied on a “Loan Transactions Summary” prepared unilaterally by the petitioner; the binding documents are the jointly signed disclosure statements.
Since the terms are unambiguous, the expressed intention of the parties controls. Reformation is not permitted as the documents were not assailed for mutual mistake. Consequently, the interest must be computed on a per annum basis. Upon maturity of the loans, the legal interest rate of 12% per annum applies until full payment. The penalty charge is also reduced to 12% per annum from the unconscionable 1% per day. The award of attorney’s fees was correctly deleted, as none of the statutory grounds under Article 2208 of the Civil Code exist; Padillo was merely asserting her valid rights.