L.M. HANDICRAFT MANUFACTURING CORPORATION, LEOVIGILDO M. DIAPO, JR., VIRGILITA M. DIAPO AND LEONORA Q. MABASA, PETITIONERS, VS. HON. COURT OF APPEALS AND ALLIED BANKING CORPORAT…

These two petitions originated from an action to collect sums of
money with damages filed by Allied Banking Corporation against L.M. Handicraft
Manufacturing Corporation, Leovigildo M. Diapo, Jr., Virgilita M. Diapo and Leonora Q. Mabasa.  The complaint filed by the said bank is based
on 20 promissory notes executed by L.M. Handicraft Manufacturing Corporation
and guaranteed by the three above-named persons which were either not paid or
not fully paid despite formal demands.

After due trial, the lower court rendered a Decision favorable to
the Allied Banking Corporation dated January
4, 1988 with the following dispositive
portion:

WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in
favor of plaintiff and against the defendants, ordering them to pay plaintiff
jointly and severally the following amounts, with interests, plus stipulated
service charges of 2% per month and penalty charges of 1% per month from the
date of the filing of this complaint January 15, 1982, until fully paid,
pursuant to the causes of action:

II.    P5,000.00 as reasonable attorney’s fees.

III.
Costs of suit.

SO ORDERED.”^[1]

Not satisfied with the Decision of the trial court, L.M.
Handicraft Manufacturing Corporation, Leovigildo M. Diapo, Jr., Virgilita M. Diapo and Leonora Q. Mabasa
appealed the case to the Court of Appeals.

On August 31, 1989,
the appellate court rendered its Decision which affirmed the Decision of the
lower court with the modification that the stipulated service charge of 2% per
month and penalty charges of 1% per month should be deleted.^[2]

Both parties are now questioning the aforementioned Decision of
the Court of Appeals.

In G.R. No. 90425, petitioner Allied Banking Corporation alleges
that the Decision of the Court of Appeals should be modified by ordering the
private respondents to pay petitioner, jointly and severally, in addition to
the amounts stated in the Decision of the trial court, the stipulated service
charges of two percent (2%) per annum and penalty charges of one percent (1%)
per month from the date of filing of the complaint on January 15, 1982, until
full payment thereof and attorney’s fees equal to twenty-five percent (25%) of
the total amount due and outstanding.

On the other hand, petitioners in G.R. No. 90047, namely, L.M.
Handicraft Manufacturing Co., Leovigildo M. Diapo, Jr., Virgilita M. Diapo and Leonora Q. Mabasa argue
that the Decision of the Court of Appeals should be reversed and set aside on
the ground that the public respondent did not declare the transactions sued
upon as null and void for being contrary to law and for being usurious in
character and that the Court of Appeals should have declared that there was bad
faith, fraud, undue influence and breach of trust on the part of the Allied
Banking Corporation.  The three
petitioners therein also do not accept their liabilities on the personal
guaranties as found by the trial court.

The petition in G.R. No. 90047 is devoid of merit.  The promissory notes executed by the parties
are all valid and enforceable and must be paid in accordance with the
agreement.  The guaranty agreements which
secured the payment of the obligations were freely and intelligently signed by Leovigildo M. Diapo, Jr., Virgilita M. Diapo and Leonora Q.
Mabasa.  The
allegations of fraud and bad faith on the part of the Allied Banking
Corporation were not substantiated. 
Petitioners’ defense that the promissory notes and bank documents that
they signed were in blank is far from credible. 
Furthermore, petitioner Leovigildo M. Diapo, Jr. himself, in his letter dated October 21, 1981 offering a
settlement of the accountabilities amounting to P2,498,940.00 thereby
effectively made an admission of their outstanding obligation to the Allied
Banking Corporation.  Clearly then,
petitioners in G.R. No. 90047 have no valid ground to disavow their solidary liability on the unpaid promissory notes and the
continuing guaranty agreements.

Turning Our attention to G.R. No. 90425, We find the petition of
Allied Banking Corporation partly meritorious. 
We agree with petitioner Bank that the Court of Appeals erred in
deleting the payment to it of service and penalty charges as ordered by the trial
court in the dispositive portion of its Decision, to
wit:

“WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered
in favor of plaintiff and against the defendants, ordering them to pay
plaintiff jointly and severally the following amounts, with interests, plus
stipulated service charges of 2% per month and penalty charges of 1% per month
from the date of the filing of this complaint January 15, 1982, until fully
paid, pursuant to the causes of action.”^[3]
(Emphasis supplied.)

Petitioner Allied Banking Corporation is entitled to the 1%
penalty charge as agreed upon by the parties herein.  Paragraph 2 of the promissory notes
explicitly states that respondents (in G.R. No. 90425) agree to pay jointly and
severally a penalty equivalent to 1% of the amounts due for every month that
the loan remains unpaid from maturity date. 
This provision in the promissory notes is valid under the rules and
regulations of the Central Bank and is intended to protect the bank from borrowers
who fail to comply with their obligation to pay on the due date.

However, the bank is entitled to a 2% per annum service charge
only and not to a 2% per month service charge as ordered by the trial
court.  As in the payment of penalty
charges, respondents in G.R. No. 90425 also agreed to the deduction of
customary service charges recited in the second paragraph of the promissory
notes.  Under Central Bank Circular No.
504, commercial banks, specialized banking institutions, and non-bank financial
intermediaries authorized to engage in quasi-banking functions are allowed to
collect a maximum 2% service charge for amounts not over P500,000.00 on a per
annum basis on the loan principal or the outstanding balance thereof.  Hence, the 2% per month service charge stated
in the dispositive portion of the trial court must be
modified to 2% per annum.

The losses suffered by private respondents in G.R. No. 90425 do
not justify the deletion of the penalty and service charges.  Said charges were clearly stated in writing
in the contract which private respondents acknowledged and signed.  The bank cannot be said to have withheld the
information regarding these charges as the same were specified in the
promissory notes.  Having been agreed
upon, said charges must be paid.

Regarding the prayer of petitioner Allied Banking Corporation
that attorney’s fees in the sum equivalent to 25% of the total amount due and
outstanding be awarded to it.  We deem it
just and reasonable under the circumstances to award the amount of P5,000.00,
only as ordered by both the trial court and the Court of Appeals.

WHEREFORE, and by reason of the foregoing, the petition in
G.R. No. 90047 is dismissed for lack of merit. 
The questioned Decision of the Court of Appeals in CA-G.R. CV No. 17501
dated August 31, 1989 is affirmed, with the modification that respondents are
ordered to pay jointly and severally petitioner Allied Banking Corporation
service charges in the amount of 2% per annum as well as penalty charges of 1%
per month computed from the date of the filing of the complaint until full
payment pursuant to the causes of action as enumerated in the dispositive portion of the Decision of the trial
court.  No costs.

SO ORDERED.

Narvasa, (Chairman), Cruz, and Medialdea, JJ., concur.

Griño-Aquino, J., on leave.

^[1]
Pages 30-31, Rollo (G.R. No. 90425).

^[2]
Page 43, Rollo (G.R. No. 90425). The case was
docketed as Case No. CA – G.R. CV – No. 17501.

^[3]
Page 30, Rollo (G.R. No. 90425).