Bortikey v. Armed Forces of the Philippines Retirement and Separation Benefits System
REITERATIONFacts
The Antecedents: Petitioner Joel B. Bortikey entered into a contract to sell with respondent Armed Forces of the Philippines Retirement and Separation Benefits System (AFPRSBS) for a parcel of land. The contract stipulated a purchase price of ₱310,100.00, payable with a down payment and the balance in 60 monthly installments. The contract included a stipulation for 24% annual interest on the balance, with a grace period and a penalty of 24% per annum from the first day of default in case of non-payment within the grace period. Procedural History: On June 28, 1996, petitioner filed a complaint with the Housing and Land Use Regulatory Board (HLURB) questioning the validity of the 24% annual interest. The HLURB dismissed the complaint, ruling that the stipulated interest was valid as there was no interest rate ceiling at the time of the contract's perfection. The Office of the President affirmed this decision, emphasizing that contracts have the force of law between the parties and must be complied with in good faith. The Court of Appeals also upheld the validity of the stipulated interest, finding it not contrary to law and public morals, as it was mutually agreed upon. The Petition: Petitioner filed a petition for review on certiorari with the Supreme Court, assailing the Court of Appeals' decision and reiterating the issue of the legality of the 24% annual interest.
Issue(s)
Whether the stipulated 24% annual interest in the contract to sell is valid and binding. Whether the Court of Appeals erred in upholding the validity of the stipulated interest.
Ruling
The Supreme Court denied the petition and declared the stipulated 24% annual interest valid and binding.
Ratio Decidendi
On the validity of the stipulated 24% annual interest: The Court reiterated the basic principle that contracting parties are free to establish stipulations as they deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy, as stated in Article 1306 of the New Civil Code. Obligations arising from contracts have the force of law between the parties and must be complied with in good faith, pursuant to Article 1159 of the New Civil Code. Petitioner voluntarily opted to purchase the land on an installment basis, thereby consenting to the imposition of interest on the contract price. He cannot unilaterally withdraw from this obligation by disavowing the stipulation. The Court cited Relucio v. Brillante-Garfin to support the principle that vendors and vendees are legally free to stipulate on the manner of payment, and a vendee opting for installments is obligated to pay interest. The higher sum paid in installments compensates the vendor for the delay in receiving the full payment, which is an economic reality and a fundamental principle of commerce. The contract was entered into freely and voluntarily, and petitioner had been in possession of the property and paying installments before challenging the interest stipulation. To relieve him of the consequences of his lawful act would impair the constitutional right to the obligation of contracts, as held in LL and Company Development and Agro-Industrial Corporation v. Huang Chao Chun and Yang Tung Fa. Therefore, the stipulated 24% annual interest was declared valid and binding. On the Court of Appeals upholding the validity of the stipulated interest: The Court of Appeals did not err in upholding the validity of the stipulated interest because the 24% annual interest was deemed valid and binding based on the principles of freedom of contract and the obligation of contracts. The petitioner voluntarily agreed to the interest rate, and the rate was not contrary to law, morals, good customs, public order, or public policy.
Main Doctrine
The stipulated 24% annual interest on the price of a parcel of land purchased on installment basis is valid and binding, provided it is not contrary to law, morals, good customs, public order, or public policy, and was mutually agreed upon by the parties freely and voluntarily.