Rivera vs. Chua, G.R. No.

184458 January 14, 2015

Full Text

FACTS: The parties were friends and kumpadres for a long time already. Rivera obtained a loan from the
Spouses Chua evidenced by a Promissory Note. The relevant parts of the note are the following:

(a) FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay spouses SALVADOR C. CHUA and VIOLETA
SY CHUA, the sum of One Hundred Twenty Thousand Philippine Currency (_120,000.00) on December
31, 1995.

(b) It is agreed and understood that failure on my part to pay the amount of (_120,000.00) One Hundred
Twenty Thousand Pesos on December 31, 1995. I agree to pay the sum equivalent to FIVEPERCENT (5%)
interest monthly from the date of default until the entire obligation is fully paid for.

Three years from the date of payment stipulated in the promissory note, Rivera, issued

and delivered to Spouses Chua two (2) checks drawn against his account at Philippine Commercial
International Bank (PCIB) but upon presentment for payment, the two checks were dishonored forthe
reason “account closed.” As of 31 May 1999, the amount due the Spouses Chua was pegged at
P366,000.00 covering the principal of P120,000.00 plus five percent (5%) interest per month from 1
January 1996 to 31 May 1999.

The Spouses Chua alleged that they have repeatedly demanded payment from Rivera to no avail.
Because of Rivera’s unjustified refusal to pay, the Spouses Chua were constrained to file a suit before
the MeTC, Branch 30, Manila.

The MeTC ruled against Rivera requiring him to pay the spouses Chua P120,000.00 plus stipulated
interest at the rate of 5% per month from 1 January 1996, and legal interest at the rate of 12% percent
per annum from 11 June 1999 and was affirmed by the RTC of Manila. The Court of Appeals further
affirmed the decision upon appeal of the two inferior courts but with modification of lowering the
stipulated interest to 12% per annum. Hence, a petition at the Supreme Court.

ISSUES:

1. Whether or not the Promissory Note executed as evidence of loan falls under Negiotiable Instruments
Law.

2. Whether or not a demand from spouses Chua is needed to make Rivera liable.

3. Whether or not the stipulated interest is unconscionable and should really be lowered.

Held: 1. NO, the Promissory Note executed as evidence of loan does not fall under Negotiable
Instruments Law. The instrument is still governed by the Civil Code as to interpretation of their
obligations. The Supreme Court held that the Instrument was not able to meet the requisites laid down
by Section 1 of the Negotiable Instruments Law as the instrument was made out to specific persons,
herein respondents, the Spouses Chua, and not to order or to bearer, or to the order of the Spouses
Chua as payees.

cals not a negotiable instrument and therefore outside the coverage of Section 70 of the NIL which
provides that presentment for payment is not necessary to charge the person liable on the instrument,
Rivera is still liable under the terms of the Promissory Note that he issued. Article 1169 of the Civil Code
explicitly provides that the demand by the creditor shall not be necessary in order that delay may exist
when the obligation or the law expressly so declare. The clause in the Promissory Note containing the
stipulation of interest (letter B in the above facts) which expressly requires the debtor (Rivera) to pay a
5% monthly interest from the “date of default” until the entire obligation is fully paid for. Theparties
evidently agreed that the maturity of the obligation at a date certain, 31 December 1995, will give rise to
the obligation to pay interest.

3. YES, the stipulated interest is unconscionable and should really be lowered. The Supreme Court held
that as observed by Rivera, the stipulated interest of 5% per month or 60% per annum in addition to
legal interests and attorney’s fees is, indeed, highly iniquitous and unreasonable and stipulated interest
rates if illegal and are unconscionable the Court is allowed to temper interest rates when necessary.
Since the interest rate agreed upon is void, the parties are considered to have no stipulation regarding
the interest rate, thus, the rate of interest should be 12% per annum computed from the date of judicial
or extrajudicial demand. However, the 12% per annum rate of legal interest is only applicable until 30
June 2013, before the advent and effectivity of Bangko Sentral ng Pilipinas (BSP) Circular No. 799, Series
of 2013 reducing the rate of legal interest to 6% per annum. Pursuant to our ruling in Nacar v. Gallery
Frames,30 BSP Circular No. 799 is prospectively applied from 1 July 2013.