Security Bank and Trust Company v. Regional Trial Court of Makati, Branch 61
NEW DOCTRINEFacts
The Antecedents: Private respondent Magtanggol Eusebio executed three (3) promissory notes in favor of petitioner Security Bank and Trust Company (SBTC) in the total principal amount of P265,000.00, with stipulated interest rates of 23% per annum. Private respondent Leila Ventura signed as co-maker on all notes. Upon maturity, respondent Eusebio failed to pay the remaining principal balances on the notes. Procedural History: SBTC filed a collection case. The Regional Trial Court (RTC) of Makati, Branch 61, rendered judgment ordering respondent Eusebio to pay the outstanding balances but imposed an interest rate of only 12% per annum, contrary to the 23% stipulated in the promissory notes. The RTC also held respondent Ventura jointly and severally liable. SBTC filed a motion for partial reconsideration, seeking the reinstatement of the 23% interest rate and the compounding of interest as stipulated. The RTC denied the motion regarding the interest rate but affirmed Ventura's joint and several liability. The Petition: SBTC filed a petition for review on certiorari, assailing the RTC's decision to lower the stipulated interest rate from 23% to 12% per annum.
Issue(s)
Whether the stipulated interest rate of 23% per annum on the loans is valid and enforceable despite the Usury Law, in light of Central Bank Circular No. 905. Whether the courts have the discretion to arbitrarily override stipulated interest rates and impose a 12% interest rate in the absence of evidence justifying a higher rate.
Ruling
The petition is granted. The decision of the respondent Regional Trial Court is affirmed with the modification that the rate of interest that should be imposed is 23% per annum.
Ratio Decidendi
On the validity of the stipulated interest rate: The Court found merit in the petition. Central Bank Circular No. 905, which took effect on December 22, 1982, lifted the ceilings prescribed under or pursuant to the Usury Law for loans or forbearances of money, goods, or credits. Section 1 of CB Circular No. 905 explicitly states that the rate of interest shall not be subject to any ceiling. Section 2 clarifies that in the absence of an express contract as to the rate of interest, it shall continue to be 12% per annum. The Court emphasized that CB Circular No. 905 did not repeal or amend the Usury Law but merely suspended its effectivity. The promissory notes in question were executed in 1983, thus falling under the coverage of CB Circular No. 905. The Court reiterated the principle that when the law is clear and unambiguous, it must be applied according to its express terms, leaving no room for interpretation or construction. The Court cited Quijano v. Development Bank of the Philippines to underscore that where a requirement or condition is made in explicit and unambiguous terms, no discretion is left to the judiciary. Therefore, the stipulated rate of 23% per annum, freely agreed upon by the parties, is binding and enforceable. On the discretion of the courts to override stipulated rates: The Court held that Article 1306 of the New Civil Code allows contracting parties to establish stipulations as they deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. In this case, the stipulated interest rate of 23% per annum was not illegal. The respondent court a quo had no valid reason to impose a lower rate of 12% per annum when there was a clear and valid stipulation for a higher rate. The Court clarified that the 12% rate is applicable only in the absence of a written stipulation on the interest rate. Since the promissory notes contained explicit stipulations on the interest rate, and the respondent did not question these stipulations, the court should have upheld the agreed-upon rate. The Court noted that respondent Eusebio himself did not question the decision and expressed a desire to negotiate settlement terms, further indicating the lack of dispute regarding the contractual stipulations.
Main Doctrine
The stipulated interest rate of 23% per annum agreed upon by the parties in the promissory notes is valid and binding, notwithstanding the Usury Law, in light of Central Bank Circular No. 905, which lifted interest rate ceilings. The court cannot arbitrarily impose a lower rate of 12% per annum when there is a clear and valid stipulation between the parties.