RIVERA v SPS.

CHUA

FACTS: The parties to this case are long standing friends who have known each other since
1973. In February 1995, Rivera obtained a loan from Spouses Chua for an amount of PhP120,
000.00, as evidenced by a promissory note, payable on December 31, 1995. 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 (P120,000.00) 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 FIVE PERCENT
(5%) interest monthly from the date of default until the entire obligation is fully paid for.

Should this note be referred to a lawyer for collection, I agree to pay the further sum equivalent to twenty
percent (20%) of the total amount due and payable as and for attorney’s fees which in no case shall be
less than ₱5,000.00 and to pay in addition the cost of suit and other incidental litigation expense.

In October 1998, Rivera, as payee, issued as partial payment for his loan, a check
drawn against his current account with Phil. Commercial International Bank (PCIB) in the
amount of PhP25, 000.00 (another debt he borrowed in October 1998). In December 1998, the
Spouses again received a check, presumably issued by Rivera that was blank as to payee and
amount. The check was issued in the amount of P133,454.00 with "cash" as payee.
Purportedly, both checks were partial payments for Rivera’s loan.

Upon presentation for payment, however, the two checks were dishonored for the
reason "account closed." Despite repeatedly demanding payment from Rivera, the latter refused
to pay. As such, the Spouses filed a suit against him before the MeTC on June 1999. For his
defense, in the main, Rivera claimed that the Promissory Note was forged, and denied his
indebtedness thereunder. The spouses submitted the testimony of an NBI Document Examiner
who concluded that the signature on the promissory note was indeed Rivera’s. After trial, the
MeTC ruled in favour of the Spouses Chua and requiring Rivera 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.

ISSUE: 1. Whether or not the Negotiable Instruments Law is applicable in the case at hand
2. Whether or not the stipulated interest is unconscionable.

RULING:
AS A NEGOTIABLE INSTRUMENT
1. No, it is not. The subject promissory note is not a negotiable instrument and hence, the
provisions of the NIL do not apply to this case.

Section 1 of the NIL requires the concurrence of the following elements to be a negotiable
instrument: (a) It must be in writing and signed by the maker or drawer; (b) Must contain an
unconditional promise or order to pay a sum certain in money; (c) Must be payable on demand,
or at a fixed or determinable future time; (d) Must be payable to order or to bearer; and (e)
Where the instrument is addressed to a drawee, he must be named or otherwise indicated
therein with reasonable certainty.

The Promissory Note in this case is 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.
However, even if Rivera’s Promissory Note is 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.

AS TO INTEREST

2. YES, the stipulated interest is unconscionable. 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 effectivity of 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, BSP Circular No. 799 is prospectively
applied from 1 July 2013. In short, the applicable rate of legal interest from 1 January
1996, the date when Rivera defaulted, to date when this Decision becomes final and executory
is divided into two periods reflecting two rates of legal interest: (1) 12% per annum from 1
January 1996 to 30 June 2013; and (2) 6% per annum FROM 1 July 2013 to date when this
Decision becomes final and executory. As for the legal interest accruing from 11 June 1999,
when judicial demand was made, to the date when this Decision becomes final and executory,
such is likewise divided into two periods: (1) 12% per annum from 11 June 1999, the date of
judicial demand to 30 June 2013; and (2) 6% per annum from 1 July 2013 to date when this
Decision becomes final and executory. We base this imposition of interest on interest due
earning legal interest on Article 2212 of the Civil Code which provides that "interest due shall
earn legal interest from the time it is judicially demanded, although the obligation may be silent
on this point."
Petitioner Rodrigo Rivera is ordered to pay respondents Spouse Salvador and Violeta Chua the
following:
(1) the principal amount of ₱120,000.00;
(2) legal interest of 12% per annum of the principal amount of ₱120,000.00 reckoned from 1
January 1996 until 30 June 2013;
(3) legal interest of 6% per annum of the principal amount of ₱120,000.00 form 1 July 2013 to
date when this Decision becomes final and executory;
(4) 12% per annum applied to the total of paragraphs 2 and 3 from 11 June 1999, date of
judicial demand, to 30 June 2013, as interest due earning legal interest;
(5) 6% per annum applied to the total amount of paragraphs 2 and 3 from 1 July 2013 to date
when this Decision becomes final and executor, as interest due earning legal interest;
(6) Attorney’s fees in the amount of ₱50,000.00; and
(7) 6% per annum interest on the total of the monetary awards from the finality of this Decision
until full payment thereof.

CITING NACAR CASE:

With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. 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 6% 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.

2. When an obligation, not constituting a loan or for bearance of money, is breached, an interest
on the amount of damages awarded may be imposed at the discretion of the court at the rate of
6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages,
except when or until the demand can be established with reasonable certainty. Accordingly,
where the demand is established with reasonable certainty, the interest shall begin to run from
the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when such
certainty cannot be so reasonably established at the time the demand is made, the interest shall
begin to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably ascertained). The actual
base for the computation of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the
rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be
6% per annum from such finality until its satisfaction, this interim period being deemed to be by
then an equivalent to a forbearance of credit. And, in addition to the above, judgments that have
become final and executory prior to July 1, 2013, shall not be disturbed and shall continue to be
implemented applying the rate of interest fixed therein.