Civil Law 2- ObliCon- Danilo Solangon and Ursula Solangon vs. Jose Avelino Salazar

This case is with regard to Art 1170 of the NCC (Stipulated interest held unconscionable)

Case of DANILO SOLANGON AND URSULA SOLANGON vs JOSE AVELINO SALAZAR
G.R.No. 125994 29June2001

FACTS OF THE CASE:
On 1986, 1987, and 1990 the Solangons’ executed 3 real estate mortgages in which they mortgaged a parcel of land situated in Sta. Maria, Bulacan, in favor of the Salazar to secure payment of a loan of P60, 000.00 payable within a period of four (4) months, with interest thereon at the rate of 6% per month, to secure payment of a loan of P136, 512.00, payable within a period of one (1) year, with interest thereon at the legal rate, and to secure payment of a loan in the amount of P230, 000.00 payable within a period of four (4) months, with interest thereon at the legal rate.
This action was initiated by the Solangons to prevent the foreclosure of the mortgaged property. They alleged that they obtained only one loan form the defendant-appellee, and that was for the amount of P60, 000.00, the payment of which was secured by the first of the above-mentioned mortgages. The subsequent mortgages were merely continuations of the first one, which is null and void because it provided for unconscionable rate of interest. They have already paid the defendant-appellee P78, 000.00 and tendered P47, 000.00 more, but the latter has initiated foreclosure proceedings for their alleged failure to pay the loan P230, 000.00 plus interest.

ISSUES OF THE CASE:

Is a loan obligation that is secured by a real estate mortgage with an interest of 72% p.a. or 6% a month unconscionable?

- Yes, although the C.B. Circular No 905 lifted the ceiling on interest rates there is nothing in the said circular that grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to hemorrhaging of their assets.
- In the case of Medel vs. C.A. the S.C. has held that 5.5% per month was reduced for being iniquitous, unconscionable and exorbitant hence it is contrary to morals (contra bonos mores)
- In this case the Solangons’ are in a worse situation than the Medel case (6% per month interest rate) the said interest rate should be reduced equitably.
-

HELD:
WHEREFORE, the appealed decision of the Court of Appeals is AFFIRMED subject to the MODIFICATION that the interest rate of 72% per annum is ordered reduced to 12 % per annum.

Obligations and Contracts Terms:

Legal Interest- the legal rate of interest for the loan or forbearance of any money, goods or credits, where such loan or renewal or forbearance is secured in whole or in part by a mortgage upon real estate the title to which is duly registered, in the absence of express contract as to such rate of interest, shall be 12% per annum, unless it is unconscionable or contrary to laws, morals, public policy.

I hope this helps.

Jeff David

Civil Law 2- ObliCon- SECURITY BANK AND TRUST COMPANY vs. REGIONAL TRIAL COURT OF MAKATI, BRANCH 61, MAGTANGGOL EUSEBIO and LEILA VENTURA,

This is with regard to ART 1170- Interest rate from damages as stipulated by parties

Case of Security Bank and Trust Company vs. R.T.C MAKATI BR. 61 MAGTANGGOL EUSEBIO AND LEILA VENTURA
G.R.No. 113926 23October1996

FACTS OF THE CASE:
On April 27, 1983, private respondent Magtanggol Eusebio executed 3 Promissory Notes from different dates in favor of petitioner Security Bank and Trust Co. (SBTC) in the amounts of 100,000, 100,000, and 65,000. Respondent bound himself to pay the said amounts in six (6) monthly installments plus 23% interest per annum.On all the abovementioned promissory notes, private respondent Leila Ventura had signed as co-maker. Upon maturity there were still principal balance remaining on the notes. Eusebio refused to pay the balance payable, so SBTC filed a collection case against him. The RTC rendered a judgment in favor of SBTC, although the rate of interest imposed by the RTC was 12% p.a. instead of the agreed upon 23% p.a. The court denied the motion filed by SBTC to apply the 23% p.a. instead of the 12% p.a.

ISSUES OF THE CASE:

Did the RTC err in using 12% instead of the 23% as agreed upon by the parties?

- Yes, the rate of interest was agreed upon by the parties freely. Significantly, respondent did not question that rate.
- P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting parties to stipulate freely regarding any subsequent adjustment in the interest rate that shall accrue on a loan or forbearance of money, goods or credits.
- 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.
- The 12% shall be applied for obligations arising from loans, or forbearance of money in the absence of express stipulations

HELD:
IN VIEW OF THE FOREGOING, the decision of the respondent court a quo, is hereby AFFIRMED with the MODIFICATION that the rate of interest that should be imposed be 23% per annum.

Obligations and Contracts Terms:
PROMISSORY NOTE - A written document in which a borrower agrees (promises) to pay back money to a lender according to specified terms. A written promise to pay a certain sum of money, at a future time, unconditionally.

A promissory note differs from a mere acknowledgment of debt, without any promise to pay, as when the debtor gives his creditor an I 0 U. In its form it usually contains a promise to pay, at a time therein expressed, a sum of money to a certain person therein named, or to his order, for value received. It is dated and signed by the maker. It is never under seal.

He who makes the promise is called the maker, and he to whom it is made is the payee.

I hope this helps.

Jeff David

Civil Law 2- ObliCon- Ernesto Ang and Rosalinda Ang vs. Court of Appeals and Lee Chuy Realty Corporation

This case is with regard to Art 1170 of the NCC- Damages

Ernesto Ang and Rosalinda Ang vs. C.A. and Lee Chuy Realty Corporation
GR No 80058 13February 1989

Facts:
On December 1979 Lee Chuy Realty Corporation (buyer) issued in favour of Ernesto and Rosalinda Ang (seller), MBTC check in the amount of 50,000.00 as initial down payment for the purchase of the property. In the receipt that was accompanied the payment it supposedly embodied the terms and conditions of their agreement. This accompanying receipt was not returned and instead the buyers where sent another receipt prepared and signed by the Angs. The first receipt indicated the purchase price of 1.6 million while the new receipt did not. On January 12, 1980 the seller informed the buyer that they only have until January 24,1980 to pay the balance of the purchase price, with which the failure to do so will result in the cancellation of their agreement.
In response the buyers duly informed the sellers that they have been ready to comply with the obligation, while the sellers have not yet complied with their obligation to clear the subject properties of the obstructions thereon. By March 3, 1980 the buyers through their counsel, demanded for the refund of the down payment on account of the failure of the sellers to comply with their obligations, and their subsequent withdrawal from the sale. After the failure of the sellers to return the 50,000.00 the buyers filed a complaint for the collection of a sum of money plus damages before the RTC. The RTC decided in favour of the sellers. On appeal, the Court of Appeals overturned the decision of the RTC and held that it was the sellers that committed the breach of agreement.

Issue:
Was the court of Appeals correct in holding the Angs liable for breach of the agreement?

- Yes, as was shown the sellers breached the agreement when they failed to fulfil the obligation incumbent upon them namely: (1) That seller will undertake to remove and clear the subject property of all occupants and obstructions within the month of December 1979 and (2) That when the subject property is cleared of all occupants and obstructions, the seller shall deliver a deed of absolute sale in favour of private respondent with all pertinent papers necessary for the issuance of a certificate of title in the name of the buyer.
- It was the failure of the seller to comply with aforementioned conditions of the agreement that caused the delay in the payment of the obligation of the buyer (which is to pay the balance of the total payment on or before January 24, 1980).  this was merely a slight breach of agreement and does not merit a rescission of the contract
- Furthermore, the seller refused to proceed with the sale unless the buyer agreed to the higher price of 2,340,000.00 the seller with this action committed a serious breach of agreement. There already existed a perfected contract of sale between the parties and the purchase price was set at 1,600,000.00. The seller cannot increase the price that was agreed upon, without the consent of the buyer.  the disagreement with the price due to the seller’s refusal to sell means that it is a serious breach of contract and that it grants the buyer the right to rescind the agreement

Held:
The decision of the Court of Appeals is Affirmed. (As a consequence of the resolution of the sale, the parties should be restored to their original situation. Seller should refund the down payment with legal interest from the date of the extra-judicial demand made on March 3, 1980.)

Obligations and Contracts terms:
Reciprocal Obligations- The power to rescind is implied and any of the contracting parties may, upon non-fulfilment by the other party of his part of the obligation, resolve the contract. It shall not be permitted for slight or casual breaches of contract. It may only be granted on breaches that are so substantial and fundamental as to defeat the object of the parties making the agreement.

I hope this helps.

Jeff David