Facts:
Petitioner Antonio Tan obtained two loans totaling Four Million Pesos from respondent Cultural Center of the Philippines (CCP) on May 14, 1978, and July 6, 1978. These loans were evidenced by two promissory notes with maturity dates a year after each respective loan was taken out. Tan defaulted on these loans but later managed to restructure them into a single promissory note on August 31, 1979, for Three Million Four Hundred Eleven Thousand Four Hundred Twenty-One Pesos and Thirty-Two Centavos (P3,411,421.32), to be paid in five installments. Tan failed to pay any installment on the restructured loan, resulting in the final installment being due on December 31, 1980.
Despite proposals for repayment by Tan in January 1982 and October 1983, CCP, through counsel, demanded full payment in a letter dated May 30, 1984. CCP then filed a complaint for the collection of sum money against Tan in the RTC of Manila on August 29, 1984. Tan’s defense was that he merely assisted a friend in obtaining the loan but this claim was not found credible by the RTC. On May 8, 1991, the RTC ruled in favor of CCP, ordering Tan to pay P7,996,314.67 covering the outstanding account as of August 28, 1986, with other charges and fees. Tan appealed the ruling, particularly contesting the interest, surcharges, attorney’s fees, and exemplary damages. The Court of Appeals modified the RTC’s decision by removing the exemplary damages and reducing attorney’s fees but affirmed the imposition of surcharges and interest.
Issues:
1. The contractual and legal bases for the imposition of the penalty, interest on the penalty, and attorney’s fees.
2. Whether partial payments made by Tan justify a reduction of the penalties.
3. The applicability of compounding interest on surcharges.
4. The suspension of interest during a period of alleged non-assistance by CCP in seeking relief from liability through administrative means.
Court’s Decision:
The Supreme Court found no basis for eliminating attorney’s fees or further reducing the penalties. It held that the penalty may include monetary interest as a separate entity and may be demanded separately. The Court also clarified that penalty clauses can take the form of compensatory interest and that interest could accrue on penalty interest under Article 1959 of the New Civil Code. Regarding the suspension of the running of interest and surcharge, the Court found that CCP did not explicitly agree to suspend these charges while Tan sought condonation for these amounts. The decision of the Court of Appeals was thus affirmed with the modification that the penalty charge was reduced to a straight twelve percent per annum starting from August 28, 1986.
Doctrine:
In obligations with a penal clause, the penalty shall substitute for damages and the payment of interests in case of non-compliance unless stipulated otherwise. The imposition of both monetary interest and penalty charge is distinct, and compounding of the penalty interest is allowed under Article 1959 of the New Civil Code.
Class Notes:
– A penal clause in a loan agreement may endure the imposition of penalties separate from the interest on the loan amount.
– Article 1226 and Article 1959 of the New Civil Code govern penalties in obligations and the imposition of interest on unpaid interest, respectively.
– Partial payments may indicate good faith of the debtor and justify the reduction of penalties but do not automatically lead to their significant reduction.
– The agreement for suspending the calculation or accrual of interest and penalties requires explicit stipulation and cannot be presumed from promises or suggestions of assistance in seeking relief.
Historical Background:
This case occurs within the broader context of contractual obligations and defaults in loan agreements, highlighting the need for explicit agreements and the application of the New Civil Code on matters concerning penalties and interest in the Philippines. The decision reaffirms and clarifies the conditions under which penalties and interest apply and are compounded in cases of default, shaping future contractual practices and litigation in similar scenarios.
Leave a Reply