SPS MALLARI VS PRUDENTIAL BANK was void for being contrary to morals.
In 1984, Petitioner Florentino Mallari obtained a loan from
respondent Prudential Bank in the amount of P300,000.00. It In the case at bar, the interest rate agreed upon by the parties was
was subject to an interest rate of 21% per annum and, in case of only 23% per annum or less than 2% per month, which aremuch
default, a penalty of 12% per annum of the total amount due and lower thn those interest rates agreed upon by the parties in the 3
attorneys fees equivalent of 15% of the total amount due. This cases: Medel vs CA, Toring vs Sps Ganzon-Olan, and Chua vs
was secured by a Deed of Assignment (DOA) over petitioner's Timan.
time deposit account. In 1989, Spouses Florentino and Aurea Article 1306 of the Civil Code provides “The contracting parties
Mallari obtained another loan from respondent for P1.7 million, may establish such stipulations, clauses, terms and conditions as
stipulating interest of 23% per annum with the same penalties in they may deem convenient, provided they are not contrary to
case of default. This was secured by Real Estate Mortgage law, morals, good customs, public order, or public policy.”
(REM). Hence, if the stipulations in the contract are valid, the parties
Petitioners defaulted. When computed in 1992, the total debt thereto are bound to comply with them, since such contract is the
was P571,218.54 and P2,991,294.82 for the first and second law between the parties. Under the contract of loan, the borrower
loans respectively. cannot renege on their obligation toc comply with what is
Respondent tried to extrajudicially foreclose the mortgage. incumbent upon them.
Petitioners on the other hand tried to nullify the mortgage
claiming that the Bank imposed onerous terms and conditions Medel vs CA:
and that the bank was unilaterally increasing its charges and The stipulated interest rate of 66% p.a. Or a 5.5% per month
interest over and above those stipulated. The Bank claimed that on a P500,000 loan excessiv,unconscionable and
the basis for its computation was all written in the Promissory exorbitant,hence contary to morals if not against the law and
Notes. declared such stipulation void.
The RTC ruled in favor of respondent bank. CA affirmed. Toring vs Sps Ganzon-Olan:
ISSUE: The stipulated interest rates involved were 3% and 3.81%
1.) Whether or not an interest rate of 23% per annum is per month on a P10M loan, which the SC find under the
unconscionable circumstances excessive and reduced the same to 1% per month.
Chua vs Timan:
2. ) Whether or not 12% per annum penalty is unconscionable The stipulated interest rates were 7% and 5% a month,which
are equivalent to 84% and 60% p.a. respectively, were reduced
HELD: to 1% per month or 12% p.a.
1.) No. The Court has affirmed in a plethora of cases that Sps Bacolor vs Banco Filipino Savings:
stipulated interest rates of 3% per month and higher are The interest rate of 24% per annum on a loan of P244,000,
excessive, unconscionable and exorbitant, hence the stipulation agreed upon by the parties, may not be considered as
unconscionable and excessive.
Garcia vs CA:
The agreement of the parties to a 24% per annum interest on
an P8M loan is reasonable.
2.) No. The 1% surcharge on the principal loan for every month
of default is valid. This surcharge or penalty stipulated in a loan
agreement in case of default partakes of the nature of liquidated
damages under Art.2227 of the Civil Code, and is separate and
distinct from interest payment (also known as penalty clause).
DBP vs Family Foods Manufacturing:
The enforcement of the penalty can be demanded by the
creditor only when the non-performance is due to the fault or
fraud of the debtor. In order to avoid the payment of the penalty,
the debtor has the burden of proving an excuse -the failure of the
performance was due to either force majeure or the acts of the
creditor.
In the case at bar, petitioners defaulted in the payment of their
loan obligation with the bank. Their contract provided for the
payment of 12% p.a. Penalty charge. Since there was no
showing that petitioners’ failure to perform their obligation was
due to force majeure or to the bank’s acts, petitioners cannot
back out now on their obligation on their obligation to pay the
penalty charge.
