Security Bank and Trust Company v RTC (Credit Transactions)

SECURITY BANK AND TRUST COMPANY v RTC-MAKATI 

G.R. No. 113926 

October 23, 1996  

FACTS:  

In 1983, Eusebio acquired 3 separate loans from Security Bank amounting to P265k. The agreed interest rate was 23% per annum. The promissory note was freely and voluntarily signed by both parties. Leia Ventura was the co-maker. Eusebio defaulted from paying. Security Bank sued for collection.  

DECISION OF LOWER COURTS: 

* RTC: Judge Gorospe of the Makati RTC ordered Eusebio to pay but he lowered the interest rate to 12% per annum. 

* directly to SC in petition for certiorari.  

ISSUES & RULING: 

1. Should the rate of interest on a loan or forbearance of money, goods or credits, as stipulated in a contract, far in excess of the ceiling prescribed under or pursuant to the Usury Law, prevail over Section 2 of Central Bank Circular No. 905 which prescribes that the rate of interest thereof shall continue to be 12% per annum? or whether or not the 23% rate of interest per annum agreed upon by petitioner bank and respondents is allowable and not against the Usury Law?  

Yes, the rate per contract prevails.  

From the examination of the records, it appears that indeed the agreed rate of interest as stipulated on the three (3) promissory notes is 23% per annum.  The applicable provision of law is the Central Bank Circular No. 905 which took effect on December 22, 1982:  

Sec. 1. The rate of interest, including commissions, premiums, fees and other charges, on a loan or forbearance of any money, goods or credits, regardless of maturity and whether secured or unsecured, that may be charged or collected by any person, whether natural or judicial, shall not be subject to any ceiling prescribed under or pursuant to the Usury Law, as amended.  

Only in the absence of stipulations will the 12% rate be applied or if the stipulated rate is grossly excessive.  

Further, Eusebio never questioned the rate. He merely expressed to negotiate the terms and conditions. The promissory notes were signed by both parties voluntarily. Therefore, stipulations therein are binding between them.  

2. Do the Courts have the discretion to arbitrarily override stipulated interest rates of promissory notes and stipulated interest rates of promissory notes and thereby impose a 12% interest on the loans, in the absence of evidence justifying the imposition of a higher rate?  

NO. The rate of interest was agreed upon by the parties freely. Significantly, respondent did not question that rate. It is not for respondent court a quo to change the stipulations in the contract where it is not illegal. Furthermore, Article 1306 of the New Civil Code provides that contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. We find no valid reason for the respondent court a quo to impose a 12% rate of interest on the principal balance owing to petitioner by respondent in the presence of a valid stipulation. In a loan or forbearance of money, the interest due should be that stipulated in writing, and in the absence thereof, the rate shall be 12% per annum. Hence, only in the absence of a stipulation can the court impose the 12% rate of interest. 

APPLICABLE PROVISION OF LAW: 

Central Bank Circular No. 905 which took effect on December 22, 1982, particularly Sections 1 and 2 which state:  

Sec. 1. The rate of interest, including commissions, premiums, fees and other charges, on a loan or forbearance of any money, goods or credits, regardless of maturity and whether secured or unsecured, that may be charged or collected by any person, whether natural or judicial, shall not be subject to any ceiling prescribed under or pursuant to the Usury Law, as amended.  

Sec. 2. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall continue to be twelve per cent (12%) per annum.  

All the promissory notes were signed in 1983 and, therefore, were already covered by CB Circular No. 905. Contrary to the claim of respondent court, this circular did not repeal nor in anyway amend the Usury Law but simply suspended the latter's effectivity.