G.R. No. 177348 October 17, 2008
SPOUSES RAMON PATRON and LUZVIMINDA PATRON, petitioners, vs. UNION BANK OF THE PHILIPPINES, THE INTERNATIONAL CORPORATE BANK, and THE QUEDAN AND RURAL CREDIT GUARANTEE CORPORATION, respondents.

FACTS

Petitioners Spouses Ramon and Luzviminda Patron, doing business as Ala Golden Grains Rice Mill, obtained a ₱2,000,000 quedan loan from respondent International Corporate Bank (Interbank) on September 9, 1988, guaranteed by respondent Quedan and Rural Credit Guarantee Corporation (Quedancor). This loan was renewed multiple times. On March 1, 1990, petitioners obtained an additional ₱1,500,000 loan, and their outstanding loans totaling ₱3,500,000 were consolidated into a ₱5,000,000 loan covered by Promissory Note No. AGL90-0011. This consolidated loan was renewed several times, culminating in Promissory Note No. AGL93-0004, maturing on August 9, 1993. Before this maturity, petitioners applied for renewal, accomplishing Promissory Note No. AGL93-0022 for ₱4,900,000 (the balance after some payments) to mature on February 4, 1994. Interbank was later merged with respondent Union Bank of the Philippines (UBP). UBP’s witness testified that the renewal application for Promissory Note No. AGL93-0022 was internally disapproved. On September 14, 1994, Quedancor paid UBP ₱3,771,348.89 as guarantor. UBP then demanded from petitioners the unpaid balance of ₱2,645,889.84, which they failed to pay. Petitioners filed a complaint for Cancellation of Documents, Declaration of Nullity, Injunction, and Damages (Civil Case No. 22072), claiming their renewal application was disapproved/cancelled, they never received the proceeds, and thus they were not liable. UBP filed a collection case (Civil Case No. 22105) for the balance. The cases were consolidated. The Regional Trial Court ruled in favor of respondents, declaring petitioners liable for ₱2,645,889.84 plus 12% interest per annum from September 14, 1994. The Court of Appeals affirmed but modified the interest rate, erroneously basing liability on the disapproved Promissory Note No. AGL93-0022. Petitioners elevated the case to the Supreme Court.

ISSUE

Whether petitioners are liable for the loan obligation despite the disapproval of their renewal application for Promissory Note No. AGL93-0022.

RULING

Yes, petitioners are liable. The Supreme Court held that the disapproval of the renewal application for Promissory Note No. AGL93-0022 did not extinguish petitioners’ existing loan obligation under the prior Promissory Note No. AGL93-0004 which matured on August 9, 1993. The Court found that the renewal process involved an exchange of promissory notes, with the proceeds of a renewed note applied to pay the maturing one, and no actual cash was released to petitioners during renewals. Petitioners’ own letters (dated January 10, 1994, from their counsel, and January 31, 1994, from Ramon Patron) appealing for condonation of penalty charges and requesting loan restructuring constituted admissions of their liability for the loan that matured on August 9, 1993. However, the Court modified the award. It found the stipulated interest rate in Promissory Note No. AGL93-0004 was 16.5% per annum, but UBP had applied 24% in its computation. Citing the Court’s discretion to reduce excessive interest, and noting the 2% per month penalty charge was iniquitous and unconscionable, the Court reduced the interest to 12% per annum and deleted the penalty charge. It recalculated the principal obligation as of September 30, 1994, to be ₱1,634,464.44, bearing 12% interest per annum from extrajudicial demand on September 30, 1994, until fully paid. Petitioners were also ordered to pay attorney’s fees of ₱163,446.44. The petition was denied with modification.