Asiatrust Development Bank v. Concepts Trading Corporation
REITERATIONFacts
The Antecedents: Respondent Concepts Trading Corporation (Concepts) obtained a credit accommodation of ₱2,000,000 from petitioner Asiatrust Development Bank (Asiatrust), secured by real and chattel mortgages. The loan was covered by Promissory Note (PN) No. 3574 with an interest rate of 23% per annum and a penalty of 36% per annum in case of default. Concepts failed to pay amortizations due in August and November 1987. Asiatrust sent a demand letter on January 25, 1988, for the outstanding loan. Concepts expressed willingness to settle and negotiated for a modified payment scheme. On March 30, 1988, they entered into a Memorandum of Agreement (MOA) acknowledging the overdue loan and setting a new payment schedule: an initial payment of ₱159,259.14 on May 5, 1988, followed by monthly payments of ₱150,000 until full payment. The MOA stipulated that all other provisions of the PN would remain in force unless inconsistent with the MOA, and that default under the MOA would automatically accelerate the loan. Concepts made several payments as per the MOA. On March 30, 1989, Asiatrust requested the remaining checks. Concepts failed to deliver, prompting Asiatrust to send a final demand on April 25, 1989, for the entire obligation of ₱2,361,970.10. Procedural History: Concepts filed a petition for declaratory relief, alleging it was up to date with payments and praying for a determination of the parties' rights under the MOA. Asiatrust countered that Concepts had breached its obligations and sought damages. Concepts amended its complaint, claiming overpayment and praying for a refund and release of mortgages. The Regional Trial Court (RTC) dismissed Concepts' complaint, ordered Concepts to pay Asiatrust ₱395,210.30 with interest, declared the mortgages valid, and awarded attorney's fees. On appeal, the Court of Appeals (CA) affirmed with modification, finding Concepts' outstanding obligation to be ₱309,298.58 as of September 5, 1989, subject to a reduced penalty of 3% per annum and the original interest rate of 23% per annum. The Petition: Asiatrust filed a petition for review on certiorari, arguing that the CA erred in holding that the MOA waived the collection of accrued penalties and charges, and in disregarding the statement of account due to insufficient authentication.
Issue(s)
Whether the execution of the Memorandum of Agreement (MOA) constituted a waiver of the collection of accrued penalties and charges under the original Promissory Note (PN). Whether the Court of Appeals erred in disregarding Asiatrust's statement of account due to insufficient authentication.
Ruling
The petition is denied for lack of merit. The Decision dated July 18, 1997, and Resolution dated September 12, 1997, of the Court of Appeals in CA-G.R. CV No. 44211 are affirmed in toto.
Ratio Decidendi
On the issue of waiver of accrued penalties and charges: The Court held that the MOA, entered into out of the bank's liberality, provided a new payment schedule that suspended the demandability of the entire loan at the time of its execution. This effectively meant that Concepts was not in default under the original terms, thereby waiving the penalties imposable for such default. However, the Court clarified that this did not mean Concepts could no longer be held in default; non-payment of monthly installments under the MOA would trigger default and allow the imposition of penalties. The CA correctly determined that Concepts defaulted after September 1989, and it was only then that penalty charges could be rightfully imposed. The MOA's provision that "all other provisions and stipulations in the existing promissory notes and other documents... shall remain in force and effect, except those which are inconsistent with the above-mentioned Mode of Payment" did not preserve the right to collect penalties that were waived by the very act of granting a new payment schedule out of liberality. The Court also affirmed the CA's equitable reduction of the penalty rate from 36% to 3% per annum, citing Article 1229 of the Civil Code, which allows reduction when the principal obligation has been partly complied with or when the penalty is iniquitous or unconscionable. The Court noted that Concepts had partially complied with its obligation and that the original penalty rate was excessive given the interest rate already charged. On the issue of the statement of account's probative value: The Court sustained the CA's decision to disregard Asiatrust's statement of account. It reiterated the parol evidence rule, stating that when terms of an agreement are reduced to writing, the writing is deemed to contain all agreed terms, and no other evidence is admissible unless an exception applies. The MOA clearly fixed the loan obligation and the manner of payment. The statement of account was found to be belied by Asiatrust's own witness and inconsistent with the terms of the promissory note and MOA, as also noted by the trial court. Therefore, the CA did not err in refusing to give it probative value, as it is not the Court's function under Rule 45 to re-evaluate evidence already passed upon by the lower courts.
Main Doctrine
The execution of a Memorandum of Agreement (MOA) providing a new payment schedule for an overdue loan, entered into out of the bank's liberality, effectively waives the demandability of the entire loan at that moment, thereby suspending the imposition of penalties until a new default occurs under the MOA. However, penalties may be equitably reduced by courts when the principal obligation has been partly or irregularly complied with by the debtor, or if the penalty is iniquitous or unconscionable.