Ibarra v. Aveyro
REITERATIONFacts
The Antecedents: Plaintiff Alejandro Ibarra filed a complaint against defendants Leopoldo Aveyro and Emiliano Pre to recover P465 principal, plus P5 daily penalty for delinquency, based on a promissory note executed on November 30, 1914, due on December 4, 1914. The defendants denied the allegations and claimed the promissory note was executed under duress related to a prior sale with right of repurchase (pacto de retro) of a land for P300. Defendant Aveyro alleged he borrowed the title deed from the plaintiff multiple times to find a better buyer, and on the third instance, the plaintiff required him to execute the promissory note with a penal clause, conditional upon the sale of the land. If the sale did not materialize, the deed was to be returned, and the promissory note nullified. Procedural History: The Court of First Instance of Tarlac rendered judgment ordering the defendants to pay P465 jointly and severally with legal interest. However, it declared the penal clause of P5 per day null and void for being immoral, pursuant to Article 1255 of the Civil Code. The Appeal: The plaintiff appealed the decision, assigning as errors the admission of evidence to annul the promissory note, the sustaining of the defendants' evidence, and the declaration of the penal clause as null and void.
Issue(s)
Whether the penal clause in the promissory note, stipulating P5 per day for delinquency, is valid and enforceable. Whether the defendants are jointly and severally liable for the principal sum of P465.
Ruling
The Supreme Court affirmed the judgment of the lower court. It held that the defendants are jointly and severally liable for the principal sum of P465 with legal interest. However, it upheld the lower court's ruling that the penal clause of P5 per day for delinquency is null and void for being immoral and contrary to law.
Ratio Decidendi
On Issue 1: The Supreme Court affirmed the lower court's decision declaring the penal clause null and void. The Court cited Article 1255 of the Civil Code, which permits parties to stipulate terms in contracts, provided they do not contravene law, morals, or public order. The stipulated penalty of P5 per day was deemed immoral and unjust, as it would lead to a repugnant spoliation and iniquitous deprivation of property, especially given the circumstances under which the promissory note was executed. The Court reasoned that while parties are free to contract, such freedom is not absolute and must be exercised within the bounds of morality and justice. The penalty, in this case, was considered excessive and disproportionate, especially considering the principal amount and the potential for it to accumulate to ruinous sums, which would be contrary to the common sense of man and the principles of equity. Therefore, the contracting party favored by such an immoral penal clause lacks the right to enforce it. On Issue 2: The Supreme Court upheld the defendants' joint and several liability for the principal sum of P465. The Court found that the evidence, including the unrebutted testimony of defendant Aveyro, established that the promissory note was executed to attest to the obligation of P465. This amount was composed of P300 as the principal from the sale with right of repurchase, P150 as interest, and P15 for the plaintiff's traveling expenses. The Court concluded that the promissory note, Exhibit A, was a valid acknowledgment of this debt, and the defendants, having subscribed to it, were jointly and severally bound to pay the principal amount to the plaintiff.
Main Doctrine
The Supreme Court affirmed the lower court's decision, holding that while the principal obligation of P465 was valid and enforceable, the penal clause stipulating P5 per day as damages for delinquency was null and void for being immoral and contrary to law and public order. The Court emphasized that parties are free to contract, but such agreements must not contravene morals, law, or public order, and that courts will not enforce provisions that lead to unjust enrichment or spoliation.