G.R. No. 90047 & G.R. No. 90425, June 18, 1990
L.M. HANDICRAFT MANUFACTURING CORPORATION, ET AL. vs. HON. COURT OF APPEALS AND ALLIED BANKING CORPORATION; and ALLIED BANKING CORPORATION vs. L.M. HANDICRAFT MANUFACTURING CORPORATION, ET AL.

FACTS

Allied Banking Corporation filed a collection suit against L.M. Handicraft Manufacturing Corporation and its individual guarantors, Leovigildo M. Diapo, Jr., Virgilita M. Diapo, and Leonora Q. Mabasa, based on twenty unpaid promissory notes. The trial court ruled in favor of the bank, ordering the defendants to pay the principal sums with interest, plus stipulated service charges of 2% per month and penalty charges of 1% per month from the filing of the complaint, along with attorney’s fees. The Court of Appeals affirmed the trial court’s decision but deleted the stipulated service and penalty charges. Both parties elevated the case to the Supreme Court via separate petitions.
The petitioners in G.R. No. 90047 (the corporation and guarantors) sought to reverse the appellate court’s decision, arguing the transactions were usurious and void due to alleged bank fraud, bad faith, and breach of trust. They also contested their liability under the guaranty agreements. The petitioner in G.R. No. 90425 (Allied Bank) sought modification of the appellate decision, praying for the reinstatement of the service and penalty charges as ordered by the trial court and an increase in attorney’s fees to 25% of the total obligation.

ISSUE

The core issues were: (1) whether the promissory notes and continuing guaranty agreements were valid and enforceable; (2) whether the stipulated service and penalty charges should be imposed; and (3) whether the award for attorney’s fees was proper.

RULING

The Supreme Court dismissed the petition in G.R. No. 90047 and partially granted the petition in G.R. No. 90425. The Court upheld the validity and enforceability of the promissory notes and the solidary guaranty agreements. The defense of usury was unavailing, and the allegations of fraud and bad faith were unsubstantiated. The Court found the guarantors’ claim that they signed blank documents was not credible, and their own settlement offer constituted an acknowledgment of the debt.
Regarding the charges, the Court ruled that the penalty charge of 1% per month, explicitly stipulated in the promissory notes, was valid and intended to protect the bank from default. Thus, the Court of Appeals erred in deleting it. However, the trial court’s order for a 2% per month service charge was incorrect. Citing Central Bank Circular No. 504, the Court held the allowable maximum was 2% per annum on the loan principal or outstanding balance. Therefore, the service charge was modified to 2% per annum. Both the service and penalty charges were to be computed from the filing of the complaint until full payment. The Court affirmed the award of P5,000.00 as reasonable attorney’s fees, deeming the bank’s claim for 25% of the obligation unjustified.