Republic of the Philippines


G.R. No. 194781               June 27, 2012




At bar is a Petition for Review on Certiorari, under Rule 45 of the Rules of Court, seeking to annul and set aside the Decision1 dated July 23, 2010 of the Court of Appeals (CA) in CA-G.R. CV No. 87727 which affirmed with modification the Decision2 dated April 11, 2005 of the Regional Trial Court (RTC), Branch 147 of Makati City, in Civil Case No. 99-1888, ordering RGM Industries, Inc. (petitioner) to pay its obligation to United Pacific Capital Corporation (respondent). The RTC's judgment was modified as to the interest rates and penalty charges imposed.

Likewise assailed is the CA's Resolution3 dated December 14, 2010 denying the petitioner's motion for reconsideration.

The uniform factual findings of the courts a quo4

The respondent is a domestic corporation engaged in the business of lending and financing. On March 3, 1997, it granted a thirty million peso short-term credit facility in favor of the petitioner. The loan amount was sourced from individual funders on the basis of a direct-match facility for which a series of promissory notes were issued by the petitioner for the payment of the loan.

The petitioner failed to satisfy the said promissory notes as they fell due and the loan had to be assumed in full by the respondent which thereby stepped into the shoes of the individual funders.

Consequently, on April 4, 1998, the petitioner issued in favor of the respondent a consolidated promissory note in the principal amount of ₱27,852,075.98 for a term of fourteen (14) days and maturing on April 28, 1998. The stipulated interest on the consolidated promissory note was 32% per annum. In case of default, a penalty charge was imposed in an amount equivalent to 8% per month of the outstanding amount due and unpaid computed from the date of default.

The petitioner failed to satisfy the consolidated promissory note, the principal balance of which as of April 28, 1998 was ₱27,668,167.87.

The respondent thus sent demand letters to the petitioner but the latter failed to pay and instead asked for restructuring of the loan. The respondent declined the request and on October 5, 1999, filed the herein complaint for collection of sum of money against the petitioner.

The petitioner did not dispute the loan it owes but claimed that the agreed interest rate was fixed at 15.5% per annum and not the varying interest rates imposed by the respondent which reached as high as 40% per annum. The petitioner asserted that the respondent unilaterally imposed the increased interest rates in violation of the principle of mutuality of contracts.

The respondent, on the other hand, argued that the increased interest rates were mutually agreed upon and that the same cannot be considered usurious because usury is legally non-existent in this jurisdiction.

Ruling of the RTC

The RTC ruled in favor of the respondent and held thus:

WHEREFORE, premises considered, Judgment is hereby rendered for the (respondent) ordering the (petitioner) RGM Industries[,] Inc. as the Issuer of the consolidated promissory note, to pay (respondent) the amount of [₱]27,668.167.87 representing the outstanding principal obligation plus interest at the rate of 32% per annum and penalty charges at the rate of 8% per month from date of default on the consolidated promissory note until fully paid, and an amount equivalent to 25% of the amount due as and for attorney's fees, and to pay the costs of suit.


Ruling of the CA

On appeal, the CA affirmed the RTC's judgment but modified the interest rates and penalty charges imposed. The CA held that the interest rates levied by the respondent were excessive and unconscionable hence, must be reduced to 12% per annum. The CA likewise lowered the penalty charges to 2% per month considering that the ₱7,504,522.27 paid by the petitioner was already applied thereto and the nature of the contract between the parties was a short-term credit facility. The attorney's fees were reduced from 25% to 10% of the outstanding obligation. The decretal portion of the CA Decision reads:

WHEREFORE, premises considered, the instant appeal is hereby PARTLY GRANTED. The impugned Decision is AFFIRMED with MODIFICATIONS. The interest rate of 32% per annum is equitably reduced to 12% per annum, the penalty charge of 8% per month to 2% per month and attorney's fees of 25% of the total unpaid obligation to 10%.


Its motion for reconsideration7 of the foregoing issuance having been denied,8 the petitioner interposed the present petition arguing that the modified interest rates and penalty charges decreed by the CA are still exorbitant and that the CA failed to appreciate the partial payments already made when it upheld the amount of ₱27,668,167.87 as petitioner's outstanding balance.

Our Ruling

The petition is partially impressed with merit.

The issue on partial payments and their application to the outstanding balance involves a calibration of the evidence presented, hence, factual in nature and not reviewable in the petition at bar. Oft-repeated is the rule that petitions for review under Rule 45 of the Rules of Court may be brought only on questions of law, not on questions of fact.9

Nevertheless, we are convinced that the courts a quo, in concluding the outstanding balance of the petitioner, have both carefully considered and appreciated the evidence of partial payments adduced. As found by the CA, the payments made by the petitioner before the complaint was filed were duly deducted from the outstanding balance; while the payments made during the pendency of the case were applied to the due and outstanding penalty charges.

We affirm the interest rate decreed by the CA. Stipulated interest rates are illegal if they are unconscionable and courts are allowed to temper interest rates when necessary. In exercising this vested power to determine what is iniquitous and unconscionable, the Court must consider the circumstances of each case. What may be iniquitous and unconscionable in one case, may be just in another.10

We cannot uphold the petitioner's invocation of our ruling in DBP v. Court of Appeals,11 wherein the interest rate imposed was reduced to 10% per annum.1awp++i1 The overriding circumstance prompting such pronouncement was the regular payments made by the borrower. Evidently, such fact is wanting in the case at bar, hence, the petitioner cannot demand for a similar interest rate.

The circumstances attendant herein are similar to those in Trade & Investment Development Corporation of the Philippines v. Roblett Industrial Construction Corporation12 wherein we levied the legal interest rate of 12% per annum.

However, pursuant to Bank of the Philippine Islands, Inc. v. Yu,13 we deem it proper to further reduce the penalty charge decreed by the CA from 2% per month to 1% per month or 12% per annum in view of the following factors: (1) respondent has already received ₱7,504,522.27 in penalty charges, and (2) the loan extended to respondent was a short-term credit facility.

On the basis of the same precedent, the attorney's fees must likewise be equitably reduced considering that: (1) the petitioner has already made partial payments; (2) the attorney's fees are not an integral part of the cost of borrowing but a mere incident of collection;14 and (3) the attorney's fees were intended as penal clause to answer for liquidated damages, hence, the rate of 10% of the unpaid obligation is too onerous.15 Under the premises, attorney’s fees equivalent to one percent (1%) of the outstanding balance is reasonable.16

WHEREFORE, in consideration of the foregoing, the Petition is hereby PARTLY GRANTED. The Decision dated July 23, 2010 of the Court of Appeals in CA-G.R. CV No. 87727 is AFFIRMED with the MODIFICATIONS that: (1) the penalty charge is reduced to 1% per month or 12% per annum; and (2) the attorney's fees is reduced to 1% of the total unpaid obligation.


Associate Justice


Senior Associate Justice
Chairperson, Second Division

Associate Justice
Associate Justice

Associate Justice


I certify that the conclusions in the above Resolution had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

Senior Associate Justice
(Per Section 12, R.A. 296, The Judiciary Act of 1948, as amended)


1 Penned by Associate Justice Priscilla J. Baltazar-Padilla, with Associate Justices Fernanda Lampas Peralta and Rodil V. Zalameda, concurring; rollo, pp. 9-24.

2 Penned by Presiding Judge Maria Cristina J. Cornejo; id. at 49-51.

3 Id. at 7-8.

4 Supra notes 1 and 2.

5 Rollo, p. 51.

6 Id. at 23.

7 Id. at 45-48.

8 Id. at 7-8.

9 Imperial v. Jaucian, 471 Phil. 484, 493 (2004).

10 Trade & Investment Development Corporation of the Philippines v. Roblett Industrial Construction Corporation, 523 Phil. 360, 366 (2006).

11 398 Phil. 413 (2000).

12 Supra note 10.

13 G. R. No. 184122, January 20, 2010, 610 SCRA 412.

14 New Sampaguita Builders Construction, Inc. (NSBCI) v. PNB, 479 Phil. 483, 510 (2004).

15 Civil Code, Article 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable.

16 Supra note 13, at 425.

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