G.R. No.

144712 July 4, 2002

SPOUSES SILVESTRE and CELIA PASCUAL, petitioners,

vs.

RODRIGO V. RAMOS, respondent.

FACTS:

The case stemmed from the petition for consolidation of title or ownership filed with the
trial court by RAMOS against Spouses Silvestre and Pascual. In his petition, RAMOS alleged
that for and in consideration of P150,000, the PASCUALs executed in his favor a Deed of
Absolute Sale with Right to Repurchase over two parcels of land and the improvements
thereon located in Bambang, Bulacan, Bulacan. The PASCUALs did not exercise their right
to repurchase the property within the stipulated one-year period; hence, RAMOS prayed
that the title or ownership and improvements thereon be consolidated in his favor.

The PASCUALs admitted having signed the Deed of Absolute Sale with Right to Repurchase
for a consideration of P150,000 but averred that what the parties had actually agreed upon
and entered into was a real estate mortgage. They further alleged that there was no
agreement limiting the period within which to exercise the right to repurchase and that they
had even overpaid RAMOS.

RTC Ruling

The trial court found that the transaction between the parties was actually a loan in the
amount of P150,000, the payment of which was secured by a mortgage of the property
covered by TCT No. 305626. It also found that the PASCUALs had made payments in the
total sum of P344,000, and that with interest at 7% per annum, the PASCUALs had overpaid
the loan by P141,500.

MR by Ramos RTC Ruling

the trial court issued on 5 June 1995 an Order[9] modifying its decision by deleting the
award of P141,500 to the PASCUALs as overpayment of the loan and interest and ordering
them to pay RAMOS P511,000 representing the principal loan plus interest.
 It noted that during trial, the PASCUALs never disputed the stipulated interest
rate. However, the court declared that the 7% per month interest is too burdensome and
onerous. Invoking the protective mantle of Article 24 of the Civil Code, which mandates the
courts to be vigilant for the protection of a party at a disadvantage due to his moral
dependence, ignorance, indigence, mental weakness, tender age or other handicap, the trial
court unilaterally reduced the interest rate from 7% per month to 5% per month. Thus, the
interest due from 3 June 1987 to 3 April 1995 was P705,000. Deducting therefrom the
payments made by the PASCUALs in the amount of P344,000, the net interest due
was P361,000. Adding thereto the loan principal of P150,000, the total amount due from
the PASCUALs was P511,000.

CA Ruling

In its Decision of 5 November 1999, the Court of Appeals affirmed in toto the trial courts
Orders

Contention of Sps. Pascual

the interest of either 5% or 7% a month is exorbitant, unconscionable, unreasonable,

usurious and inequitable.

Invoking this Courts ruling in Medel v. Court of Appeals,[12] they argue that the 5% per
month interest is excessive, iniquitous, unconscionable and exorbitant. Moreover,
respondent should not be allowed to collect interest of more than 1% per month because he
tried to hide the real transaction between the parties by imposing upon them to sign a Deed
of Absolute Sale with Right to Repurchase.

Contention of Ramos

there was nothing illegal on the rate of interest agreed upon by the parties, since the ceilings
on interest rates prescribed under the Usury Law had expressly been removed, and hence
parties are left freely at their discretion to agree on any rate of interest. Moreover, there
was no scheme to hide a usurious transaction.

ISSUE: Whether or not the 7% interest charge is illegal or not.

HELD: It is a basic principle in civil law that parties are bound by the stipulations in the
contracts voluntarily entered into by them. Parties are free to stipulate terms and
conditions which they deem convenient provided they are not contrary to law, morals, good
customs, public order, or public policy.

The interest rate of 7% per month was voluntarily agreed upon by RAMOS and the
PASCUALs. There is nothing from the records and, in fact, there is no allegation showing
that petitioners were victims of fraud when they entered into the agreement with
RAMOS. Neither is there a showing that in their contractual relations with RAMOS, the
PASCUALs were at a disadvantage on account of their moral dependence, ignorance, mental
weakness, tender age or other handicap, which would entitle them to the vigilant protection
of the courts as mandated by Article 24 of the Civil Code. Apropos in our ruling in Vales vs.
Villa:

All men are presumed to be sane and normal and subject to be moved by substantially the
same motives. When of age and sane, they must take care of themselves. In their relations
with others in the business of life, wits, sense, intelligence, training, ability and judgment
meet and clash and contest, sometimes with gain and advantage to all, sometimes to a few
only, with loss and injury to others. In these contests men must depend upon themselves
upon their own abilities, talents, training, sense, acumen, judgment. The fact that one may
be worsted by another, of itself, furnishes no cause of complaint. One man cannot complain
because another is more able, or better trained, or has better sense or judgment than he
has; and when the two meet on a fair field the inferior cannot murmur if the battle goes
against him. The law furnishes no protection to the inferior simply because he is inferior,
any more than it protects the strong because he is strong. The law furnishes protection to
both alike to one no more or less than to the other. It makes no distinction between the
wise and the foolish, the great and the small, the strong and the weak. The foolish may lose
all they have to the wise; but that does not mean that the law will give it back to them again.
Courts cannot follow one every step of his life and extricate him from bad bargains,
protect him from unwise investments, relieve him from one-sided contracts, or annul the
effects of foolish acts. Courts cannot constitute themselves guardians of persons who are
not legally incompetent. Courts operate not because one person has been defeated or
overcome by another, but because he has been defeated or overcome illegally. Men may do
foolish things, make ridiculous contracts, use miserable judgment, and lose money by then
indeed, all they have in the world; but not for that alone can the law intervene and
restore. There must be, in addition, a violation of law, the commission of what the law
knows as an actionable wrong, before the courts are authorized to lay hold of the situation
and remedy it.

With the suspension of the Usury Law and the removal of interest ceiling, the parties are
free to stipulate the interest to be imposed on loans. Absent any evidence of fraud, undue
influence, or any vice of consent exercised by RAMOS on the PASCUALs, the interest agreed
upon is binding upon them. This Court is not in a position to impose upon parties
contractual stipulations different from what they have agreed upon. As declared in the
decision of Cuizon v. Court of Appeals,[17]
APPLICABILITY OF THE DOCTRINE ENUNCIATED IN MEDEL V. CA

Our ruling in Medel v. Court of Appeals is not applicable to the present case. In that case,
the excessiveness of the stipulated interest at the rate of 5.5 % per month was put in issue
by the defendants in the Answer. Moreover, in addition to the interest, the debtors were
also required, as per stipulation in the promissory note, to pay service charge of 2% per
annum and a penalty charge of 1% per month plus attorneys fee of equivalent to 25% of the
amount due. In the case at bar, there is no other stipulation for the payment of an extra
amount except interest on the principal loan. Thus, taken in conjunction with the stipulated
service charge and penalty, the interest rate of 5.5% in the Medel case was found to be
excessive, iniquitous, unconscionable, exorbitant and hence, contrary to morals, thereby
making such stipulation null and void.

WHEREFORE, in view of all the foregoing, the petition is DENIED. The assailed decision of the
Court of Appeals in CA-G.R. CV No. 52848 is AFFIRMED in toto.

Costs against petitioners.

[G.R. No. 130994. September 18, 2002]

SPOUSES FELIMON and MARIA BARRERA, petitioners, vs. SPOUSES EMILIANO and MARIA
CONCEPCION LORENZO, respondents.

Spouses Felimon and Maria Barrera, petitioners, borrowed P230,000.00 from spouses
Miguel and Mary Lazaro. The loan was secured by a real estate mortgage[1] over petitioners
residential lot consisting of 432 square meters located at Bunlo, Bocaue, Bulacan and
registered in their names.

A month and a half later, the Lazaro spouses needed money and informed petitioners that
they would transfer the loan to spouses Emiliano and Maria Concepcion Lorenzo,
respondents. Petitioners executed another real estate mortgage over their lot, this time in
favor of the respondents to secure the loan of P325,000.00, which the latter claimed as the
amount they paid spouses Lazaro. The mortgage contract provides, among others, that the
new loan shall be payable within three (3) months, or until August 14, 1991; that it shall earn
interest at 5% per month; and that should petitioners fail to pay their loan within the said
period, the mortgage shall be foreclosed.

When petitioners failed to pay their loan in full on August 14, 1991, respondents allowed
them to complete their payment until December 23, 1993. On this date, they made a total
payment of P687,000.00.

On January 17, 1994, respondents wrote petitioners demanding payment of P325,000.00,

plus interest, otherwise they would foreclose the mortgage. In turn, petitioners responded,
claiming that they have overpaid their obligation and demanding the return of their land
title and refund of their excess payment. This prompted respondents to file a petition for
extrajudicial foreclosure of mortgage.

The trial court held that the stipulated 5% monthly interest to be paid by petitioners
corresponds only to the period from May 14, 1991 up to August 14, 1991, the term of the
loan. Thereafter, the monthly interest should be 12% per annum. The trial court concluded
that petitioners made an overpayment of P214,750.00.

CA held that the law and jurisprudence clearly provide that if the debt produces interest,
payment of the principal shall not be deemed to have been made until the interests have
been covered. Once it is admitted that an obligation bears interest, partial payments are to
be applied first on account of the interest and then to reduce the principal. We thus find no
support, whether in law or in jurisprudence, for the Decision of the court a quo to apply the
bigger amounts of P40,000.00, P37,000.00, P50,000.00 among others, given several times by
the Barrera spouses x x x for the payment of the principal loan when the interests due on
the loan that have accumulated through the years have not been fully satisfied.

CA also did not agree that the stipulated monthly interest of 5% was to apply only to the
3-month effectivity period of the loan. This is a flawed and a grossly unfair interpretation of
the terms and conditions of the agreement of the parties. To rule in this wise is to sanction
the irregular performance of ones obligation. The Barrera spouses will be emboldened not
to pay their loan within the agreed period of 3-months since on the fourth month and
thereafter, they do not have to pay anymore the 5% monthly interest, but only the 12% legal
interest per annum, or a measly 1% interest per month. Such an interpretation is totally
unfair and unjust to the creditors who could have used their money in some other ways.
Until such time that the Barreras have fully paid their total indebtedness, the 5% monthly
interest subsists, there being no stipulation to the contrary.

Issue: Whether the 5% monthly interest on the loan was only for three (3) months, or from
May 14, 1991 up to August 14, 1991, as maintained by petitioners, or until the loan was fully
paid, as claimed by respondents.

HELD: When the terms of a contract are clear and leave no doubt as to the intention of the
contracting parties, the literal meaning of its stipulations governs. In such cases, courts have
no authority to alter a contract by construction or to make a new contract for the parties; its
duty is confined to the interpretation of the one which they have made for themselves
without regard to its wisdom or folly as the court cannot supply material stipulations or read
into the contract words which it does not contain.[16] It is only when the contract is vague
and ambiguous that courts are permitted to resort to construction of its terms and
determine the intention of the parties therein.

The salient provisions of the mortgage contract read:

a) Ang sanglaang ito ay sa loob lamang ng tatlong (3) buwan, o hanggang sa Agosto 14, 1991.

b) Ang tubo na aming napagkasunduan ay 5%, o cinco por ciento isang buwan.

c) Na sakaling mabayaran ko ang aming pagkakautang sa mag-asawa na P325,000.00 ang

kasulatang ito ay wala ng lakas at kabuluhan, subalit kung hindi ko mabayaran ang aming
pinagkakautangan sa takdang panahong 3 buwan sila ay binibigyan ko nang laya at
kapangyarihan na masubasta nila ang lupang aming ipinanagot sa labas ng hukuman sa bisa
ng Batas Blg. 3135 at susog nito at akong may utang ang siyang sagot sa lahat ng gastos at
pati bayad sa abogado sa nasabing subasta sa labas ng hukuman.[17] (emphasis supplied)

It is clear from the above stipulations that the loan shall be payable within three (3) months,
or from May 14, 1991 up to August 14, 1991. During such period, the loan shall earn an
interest of 5% per month. Furthermore, the contract shall have no force and effect once the
loan shall have been fully paid within the three-month period, otherwise, the mortgage shall
be foreclosed extrajudicially under Act No. 3135.

Records show that upon maturity of the loan on August 14, 1991, petitioners failed to pay
their entire obligation. Instead of exercising their right to have the mortgage foreclosed,
respondents allowed petitioners to pay the loan on a monthly installment basis until
December, 1993. It bears emphasis that there is no written agreement between the parties
that the loan will continue to bear 5% monthly interest beyond the agreed three-month
period.

Article 1956 of the Civil Code mandates that (n)o interest shall be due unless it has been
expressly stipulated in writing. Applying this provision, the trial court correctly held that the
monthly interest of 5% corresponds only to the three-month period of the loan, or from May
14, 1991 to August 14, 1991, as agreed upon by the parties in writing. Thereafter, the
interest rate for the loan is 12% per annum. In Eastern Shipping Lines, Inc. vs. Court of
Appeals,[19] this Court laid down the following doctrine:

When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12%
per annum to be computed from default, i.e., from judicial or extrajudicial demand under
and subject to the provisions of Article 1169 of the Civil Code.

The Court of Appeals erred in reversing the RTC Decision and holding that the 5% monthly
interest should be paid by petitioners even beyond August 14, 1991.

WHEREFORE, the assailed Decision of the Court of Appeals dated June 18, 1997 and its
Resolution dated October 17, 1997 are REVERSED and SET ASIDE. The Decision of the
Regional Trial Court, Branch 17, Malolos, Bulacan dated July 31, 1995 is REINSTATED.
[G.R. No. 160533. January 12, 2005]

FIRST FIL-SIN LENDING CORPORATION, petitioner, vs. GLORIA D. PADILLO, respondent.

On July 22, 1997, respondent Gloria D. Padillo obtained a P500,000.00 loan from petitioner
First Fil-Sin Lending Corp. On September 7, 1997, respondent obtained another P500,000.00
loan from petitioner. In both instances, respondent executed a promissory note and
disclosure statement.

For the first loan, respondent made 13 monthly interest payments of P22,500.00 each
before she settled the P500,000.00 outstanding principal obligation on February 2, 1999. As
regards the second loan, respondent made 11 monthly interest payments of P25,000.00
each before paying the principal loan of P500,000.00 on February 2, 1999.[3] In sum,
respondent paid a total of P792,500.00 for the first loan and P775,000.00 for the second
loan.

On January 27, 2000, respondent filed an action for sum of money against herein petitioner
before the Regional Trial Court of Manila. Alleging that she only agreed to pay interest at the
rates of 4.5% and 5% per annum, respectively, for the two loans, and not 4.5% and 5% per
month, respondent sought to recover the amounts she allegedly paid in excess of her actual
obligations.

the trial court dismissed respondents complaint, and on the counterclaim, ordered her to
pay petitioner P311,125.00 with legal interest from February 3, 1999 until fully paid plus
10% of the amount due as attorneys fees and costs of the suit.[5] The trial court ruled that
by issuing checks representing interest payments at 4.5% and 5% monthly interest rates,
respondent is now estopped from questioning the provisions of the promissory notes.

On appeal, the Court of Appeals (CA) reversed and set aside the decision of the court a quo.

Petitioner maintains that the trial court and the CA are correct in ruling that the interest
rates are to be imposed on a monthly and not on a per annum basis. However, it insists that
the 4.5% and 5% monthly interest shall be imposed until the outstanding obligations have
been fully paid.

As to the penalty charges, petitioner argues that the 12% per annum penalty imposed by the
CA in lieu of the 1% per day as agreed upon by the parties violates their freedom to stipulate
terms and conditions as they may deem proper.
Petitioner finally contends that the CA erred in deleting the trial courts award of attorneys
fees arguing that the same is anchored on sound and legal ground.

Respondent, on the other hand, avers that the interest on the loans is per annum as
expressly stated in the promissory notes and disclosure statements. The provision as to
annual interest rate is clear and requires no room for interpretation. Respondent asserts
that any ambiguity in the promissory notes and disclosure statements should not favor
petitioner since the loan documents were prepared by the latter.

Issue: WON the interest rates are valid

Held: YES. Perusal of the promissory notes and the disclosure statements pertinent to the
July 22, 1997 and September 7, 1997 loan obligations of respondent clearly and
unambiguously provide for interest rates of 4.5% per annum and 5% per annum,
respectively. Nowhere was it stated that the interest rates shall be applied on a monthly
basis.

When the terms of the agreement are clear and explicit that they do not justify an attempt
to read into it any alleged intention of the parties, the terms are to be understood literally
just as they appear on the face of the contract. It is only in instances when the language of a
contract is ambiguous or obscure that courts ought to apply certain established rules of
construction in order to ascertain the supposed intent of the parties. However, these rules
will not be used to make a new contract for the parties or to rewrite the old one, even if the
contract is inequitable or harsh. They are applied by the court merely to resolve doubts and
ambiguities within the framework of the agreement.

As such, since the terms and conditions contained in the promissory notes and disclosure
statements are clear and unambiguous, the same must be given full force and effect. The
expressed intention of the parties as laid down on the loan documents controls.

WHEREFORE, in view of the foregoing, the October 16, 2003 decision of the Court of Appeals
in CA-G.R. CV No. 75183 is AFFIRMED with the MODIFICATION that the interest rates on the
July 22, 1997 and September 7, 1997 loan obligations of respondent Gloria D. Padillo from
petitioner First Fil-Sin Lending Corporation be imposed and computed on a per annum basis,
and upon their respective maturities, the interest rate of 12% per annum shall be imposed
until full payment. In addition, the penalty at the rate of 12% per annum shall be imposed on
the outstanding obligations from date of default until full payment.