L.M. Handicraft Manufacturing Corporation v. Court of Appeals
REITERATIONFacts
The Antecedents: Allied Banking Corporation filed an action to collect sums of money with damages against L.M. Handicraft Manufacturing Corporation and its guarantors, Leovigildo M. Diapo, Jr., Virgilita M. Diapo, and Leonora Q. Mabasa. The lawsuit was based on twenty promissory notes executed by L.M. Handicraft Manufacturing Corporation, which were allegedly not paid or not fully paid despite formal demands. The guarantors were also held liable. Procedural History: The Regional Trial Court rendered a decision in favor of Allied Banking Corporation, ordering the defendants to pay the bank jointly and severally various amounts, plus stipulated service charges, penalty charges, and attorney's fees. L.M. Handicraft Manufacturing Corporation and its guarantors appealed this decision to the Court of Appeals. The Court of Appeals affirmed the trial court's decision but modified it by deleting the stipulated service charges of 2% per month and penalty charges of 1% per month. The Petition: Both parties filed petitions with the Supreme Court. Allied Banking Corporation, in G.R. No. 90425, sought to reinstate the service and penalty charges ordered by the trial court and increase attorney's fees. L.M. Handicraft Manufacturing Corporation and its guarantors, in G.R. No. 90047, argued for the reversal of the Court of Appeals' decision, seeking to have the transactions declared null and void due to usury, bad faith, fraud, undue influence, and breach of trust, and to be absolved of their liabilities as guarantors.
Issue(s)
Whether the promissory notes and guaranty agreements are valid and enforceable. Whether the allegations of fraud, bad faith, undue influence, and breach of trust against Allied Banking Corporation are substantiated. Whether the transactions are null and void for being usurious. Whether the defendants are jointly and severally liable on the unpaid promissory notes and continuing guaranty agreements. Whether Allied Banking Corporation is entitled to service charges and penalty charges, and at what rate. Whether the award for attorney's fees is justified.
Ruling
The Supreme Court dismissed the petition in G.R. No. 90047 for lack of merit and affirmed the decision of the Court of Appeals in G.R. No. 90425 with modification. The defendants were ordered to pay jointly and severally Allied Banking Corporation service charges at the rate of 2% per annum and penalty charges at the rate of 1% per month, computed from the date of filing of the complaint until full payment.
Ratio Decidendi
On the validity and enforceability of the promissory notes and guaranty agreements: The Court held that the promissory notes executed by the parties are valid and enforceable and must be paid in accordance with the agreement. The guaranty agreements were freely and intelligently signed by the individual defendants, establishing their solidary liability. The defense that the documents were signed in blank was found to be not credible, especially in light of a letter from one of the petitioners offering a settlement. On allegations of fraud, bad faith, undue influence, and breach of trust: The Court found that the allegations of fraud and bad faith on the part of Allied Banking Corporation were not substantiated by the petitioners. The evidence presented did not support claims of undue influence or breach of trust. The petitioners failed to prove any misconduct by the bank that would invalidate the transactions. On the claim of usury: The Court found no basis for the claim that the transactions were usurious. The promissory notes and bank documents were deemed valid and enforceable as per the agreement. The petitioners' attempt to disavow their solidary liability on the unpaid promissory notes and continuing guaranty agreements was rejected. On the solidary liability of the defendants: The Court rejected the petitioners' attempt to disavow their solidary liability on the unpaid promissory notes and continuing guaranty agreements. On the entitlement to service and penalty charges: The Court found the petition of Allied Banking Corporation partly meritorious regarding the service and penalty charges. It agreed that the bank was entitled to the 1% penalty charge as agreed upon in the promissory notes, which is valid under Central Bank regulations to protect the bank from late payments. However, the Court modified the trial court's order regarding service charges, limiting it to 2% per annum, not 2% per month, in accordance with Central Bank Circular No. 504, which allows a maximum of 2% service charge on a per annum basis for loans not exceeding P500,000.00. On the award for attorney's fees: The Court deemed it just and reasonable to award P5,000.00 as attorney's fees, as ordered by both the trial court and the Court of Appeals, and denied the bank's prayer for 25% of the total amount due.
Main Doctrine
The Court affirmed the joint and several liability of the defendants on the promissory notes and guaranty agreements, modified the award of service charges to 2% per annum, and upheld the 1% per month penalty charge as agreed upon by the parties, dismissing the claims of fraud and usury due to lack of substantiation.