Bacolor v. Banco Filipino
REITERATIONFacts
The Antecedents: Spouses Zacarias and Catherine Bacolor obtained a loan of P244,000.00 from Banco Filipino Savings and Mortgage Bank, secured by a mortgage on their property. The loan agreement stipulated a 24% annual interest rate, a 3% annual service charge, and penalties for late payments, including attorney's fees and liquidated damages. The petitioners made payments totaling P412,199.36 but subsequently failed to pay the remaining balance. The bank issued a statement of account indicating an indebtedness of P840,845.61 and later informed the petitioners of impending foreclosure proceedings. Procedural History: In response to the bank's impending foreclosure, the petitioners filed a complaint against Banco Filipino, alleging violations of the Usury Law due to the interest rate, penalties, service charges, and other fees. They also contended that the bank, during its closure, lost its capacity to charge interest and initiate foreclosure. The Regional Trial Court (RTC) dismissed the petitioners' complaint, finding the loan terms legal and not usurious, and affirming the bank's authority to conduct normal operations, including collections and foreclosures, even during its closure. The Court of Appeals affirmed the RTC's decision, and the petitioners' motion for reconsideration was denied. The Petition: The petitioners seek review of the Court of Appeals' decision via a Petition for Review on Certiorari under Rule 45 of the Rules of Civil Procedure. They argue that while the Usury Law's ceiling on interest rates was lifted, the 24% annual interest rate is still excessive and unconscionable. The respondent bank maintains that the petitioners freely consented to the loan terms by signing the promissory note and mortgage, and that the agreed-upon interest rate is not usurious. The petition raises the sole issue of whether the interest rate is excessive and unconscionable.
Issue(s)
Whether the stipulated interest rate of 24% per annum is excessive and unconscionable. Whether the bank could continue charging interest and instituting foreclosure proceedings during its closure.
Ruling
The petition is denied, and the challenged Decision and Resolution of the Court of Appeals are affirmed. The interest rate is not excessive or unconscionable, and the bank could continue its operations, including collecting interest and foreclosing mortgages, during its closure.
Ratio Decidendi
On the issue of the interest rate being excessive and unconscionable: Article 1956 of the Civil Code requires that interest must be expressly stipulated in writing, which was done by the parties in this case. At the time of the loan, the Usury Law (Act 2655), as amended by P.D. No. 166, was applicable. However, Central Bank Circular No. 783, effective July 1, 1981, removed the ceiling on interest rates for loans with a maturity of more than 730 days. The loan in question had a 10-year term, thus falling under this provision. Furthermore, Central Bank Circular No. 905 explicitly states that the rate of interest, including commissions, premiums, fees, and other charges, shall not be subject to any ceiling prescribed under the Usury Law, regardless of maturity. This Court has consistently held that usury has been legally non-existent, and parties are free to agree on interest rates. The stipulated 24% per annum is not inherently unconscionable, especially when compared to cases where rates were unilaterally increased to 68% or imposed at 66% per annum. The petitioners freely consented to the terms of the promissory note and deed of mortgage, and there is no evidence of fraud, undue influence, or any vice of consent. Therefore, the agreed-upon interest rate is binding. On the issue of the bank's operations during closure: This Court has previously ruled in Banco Filipino Savings & Mortgage Bank v. Monetary Board, Central Bank of the Philippines and Banco Filipino Savings and Mortgage Bank v. Ybañez that the closure of a bank does not diminish the authority and powers of the designated liquidator to administer the bank's affairs. Acts such as receiving receivables, paying creditors, and prosecuting suits for collection and foreclosure of mortgages are considered normal banking operations. The pendency of cases challenging the closure did not suspend the liquidator's authority. Therefore, Banco Filipino could continue collecting interest from petitioners and pursue foreclosure proceedings even during its period of closure and liquidation, provided the interests collected were legal.
Main Doctrine
The Usury Law ceiling on interest rates has been lifted, and parties are free to stipulate interest rates as they may agree upon, provided there is no fraud, undue influence, or vice of consent. A bank's closure does not suspend its authority to collect loan receivables and foreclose mortgages.