GR L 11306; (December, 1917) (Digest)
G.R. No. L-11306, December 6, 1917
ALEJANDRO IBARRA, plaintiff-appellant, vs. LEOPOLDO AVEYRO and EMILIANO PRE, defendants-appellees.
FACTS:
On November 30, 1914, defendants Leopoldo Aveyro and Emiliano Pre executed a promissory note in favor of plaintiff Alejandro Ibarra, jointly and severally binding themselves to pay P465 on December 4, 1914. The note included a penal clause stipulating damages of P5 per day from the date of default until full payment. When the defendants failed to pay, Ibarra filed a complaint to recover the principal sum and the penalty. The defendants alleged that the promissory note was executed as security for the loan of a title deed to a piece of land previously sold by Aveyro to Ibarra under a pacto de retro. They claimed the note was conditioned on Aveyro’s success in selling the land to a third party; if the sale failed, the deed was to be returned and the note cancelled. The trial court ordered the defendants to pay the principal with legal interest but declared the penal clause null and void for being immoral. Ibarra appealed, contesting the invalidation of the penalty.
ISSUE:
Whether the penal clause in the promissory note, imposing a penalty of P5 per day for delay in payment, is valid and enforceable.
RULING:
The Supreme Court affirmed the trial court’s decision. The penal clause is null and void for being contrary to morals under Article 1255 of the Civil Code. While the parties are free to stipulate terms, such agreements must not contravene law, morals, or public order. The penaltyaccumulating to P623 after five months and P1,825 after one yearwas deemed excessive, oppressive, and repugnant to justice and human conscience. The Court held that morality and justice cannot sanction such a ruinous and iniquitous deprivation of property, even if the obligation was assumed voluntarily. Thus, the plaintiff has no right to enforce the penal clause. However, the defendants remain jointly and severally liable for the principal debt of P465 with legal interest from December 5, 1914.
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