Development Bank of the Philippines v. Perez
REITERATIONFacts
The Antecedents: The Development Bank of the Philippines (DBP) approved an industrial loan of P214,000.00 for respondents Bonita and Alfredo Perez, with an additional P21,000.00 for price escalation, totaling P235,000.00. Respondents signed promissory notes due August 31, 1988, and September 19, 1988, secured by a mortgage. Due to non-compliance with amortization payments, DBP decided to foreclose. Mrs. Perez requested a restructuring due to collection difficulties. DBP approved the restructuring, and on May 6, 1982, respondents signed a new promissory note for P231,000.00 at 18% interest per annum, payable quarterly over ten years, with the first amortization due August 7, 1982. The note also stipulated penalty charges and additional interest. Procedural History: Respondents failed to make timely and full payments on the restructured loan, prompting DBP to initiate foreclosure proceedings. On October 24, 1985, respondents filed a complaint seeking nullification of the new promissory note, alleging bad faith in its restructuring, lack of explanation for the amount, usurious interest, and violation of the Truth in Lending Act. DBP denied the allegations. The RTC upheld the validity of the new promissory note and ordered respondents to pay P1,384,465.71 as of September 15, 1990, with 18% interest per annum. The Court of Appeals (CA) modified the RTC decision, setting aside the P1,384,465.71 amount and ordering the application of the formula under Central Bank (CB) Circular No. 158 for computing the total obligation. The CA found the restructured note to be a contract of adhesion, ruled the 18% interest rate usurious under CB Circular No. 817, and questioned the ballooning of the loan amount. Both parties moved for reconsideration, which the CA denied. The Petition: DBP filed a petition for review on certiorari, questioning the CA's findings on the Truth in Lending Act, the voluntary nature of the signing, the basis for the ballooning amount, and the ruling on usurious interest. The core issues presented were the voluntariness of the signing of the restructured note, the usurious nature of the interest rate, the applicability of CB Circular No. 158, and the determination of the total obligation.
Issue(s)
Whether the restructured promissory note was voidable for not having been voluntarily signed by the respondents and for being a contract of adhesion. Whether the interest rate agreed upon in the restructured promissory note was usurious. Whether Central Bank Circular No. 158 should be applied in computing the total obligations of the respondents. The amount of the total obligation of the respondents.
Ruling
The Supreme Court ruled that the petition is partly meritorious. The Court affirmed the CA's finding that the restructured promissory note was a contract of adhesion but held that this does not invalidate it per se. It reversed the CA's conclusion that the respondents did not voluntarily sign the note, stating that a threat to foreclose a legally secured debt does not vitiate consent. The Court agreed with the CA that the 18% interest rate was usurious at the time of execution, as the Usury Law was still in effect and CB Circular No. 905 had not yet suspended it. The Court also agreed that CB Circular No. 158's formula applies to the computation of the simple annual rate, not the total obligation. Due to insufficient records to determine the exact amount paid and the need to recompute the obligation based on the reduced interest rate, the case was remanded to the trial court.
Ratio Decidendi
On the voluntariness of signing and contract of adhesion: The Court held that the respondents' claim of being forced to sign the restructured note due to fear of foreclosure does not vitiate consent, as a threat to enforce a just or legal claim through competent authority is permissible under Article 1335 of the Civil Code. While acknowledging the restructured promissory note as a contract of adhesion, the Court reiterated that such contracts are not invalid per se and are binding if the adhering party freely chooses to accept them. The respondents' participation was limited to signing, but there was no evidence of mistake, violence, intimidation, undue influence, or fraud. Therefore, the signing was considered voluntary despite the nature of the contract. On the usurious interest rate: The Court affirmed the CA's ruling that the 18% interest rate was usurious. The restructured promissory note was executed on May 6, 1982, prior to the effectivity of CB Circular No. 905 (January 1, 1983), which suspended the Usury Law. At the time of execution, Act No. 2655, as amended by PD 116, was in force. This law, along with CB Circular No. 817, limited the interest rate on loans secured by registered real estate to 12% per annum. The stipulated 18% interest, plus additional interest and penalty charges, clearly exceeded this limit, rendering the stipulation on interest void. The principal debt, however, remains valid, and in the absence of a valid stipulation, the legal rate of 12% per annum shall be imposed. On the applicability of CB Circular No. 158: The Court agreed with the petitioner that CB Circular No. 158 does not prescribe a formula for computing a debtor's total monetary obligation. Instead, it provides the formula for computing the simple annual rate, which is a disclosure requirement under the Truth in Lending Act. The total obligation should be computed according to the terms and conditions agreed upon by the parties, subject to the reduction of the interest rate due to usury. The CA's application of the formula in CB Circular No. 158 to compute the total obligation was therefore incorrect. On the determination of the total obligation: The Court found the records insufficient to determine the total amount of the respondents' obligation. The evidence presented did not clearly establish the total payments made and their dates. Furthermore, the statement of account presented by DBP was based on the usurious interest rates, rendering it irrelevant for the recomputation of the obligation. Consequently, the case was remanded to the trial court for a proper determination of the total obligation, applying the reduced legal interest rate of 12% per annum.
Main Doctrine
A threat to enforce a just or legal claim through competent authority, such as the foreclosure of a mortgage due to non-payment, does not vitiate consent. Contracts of adhesion, while potentially disadvantageous, are not invalid per se and are binding if the adhering party freely chooses to accept them. Usurious interest rates on loans secured by real estate are void, and the principal debt remains valid, subject to the legal rate of interest.