RIVERA VS SPOUSES CHUA

GR NO. 184458
JANUARY 14, 2015
FACTS:
The parties were friends and kumpadres for a long time already. Rivera obtained a loan
from the Spouses Chua evidenced by a Promissory Note. The relevant parts of the note are the
following:
(a) FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay spouses SALVADOR
C. CHUA and VIOLETA SY CHUA, the sum of One Hundred Twenty Thousand
Philippine Currency (_120,000.00) on December 31, 1995.
(b) It is agreed and understood that failure on my part to pay the amount of (_120,000.00)
One Hundred Twenty Thousand Pesos on December 31, 1995. I agree to pay the sum
equivalent to FIVEPERCENT (5%) interest monthly from the date of default until the
entire obligation is fully paid for.
Three years from the date of payment stipulated in the promissory note, Rivera, issued
and delivered to Spouses Chua two (2) checks drawn against his account at Philippine
Commercial International Bank (PCIB) but upon presentment for payment, the two checks were
dishonored forthe reason account closed. As of 31 May 1999, the amount due the Spouses
Chua was pegged at P366,000.00 covering the principal of P120,000.00 plus five percent (5%)
interest per month from 1 January 1996 to 31 May 1999.
The Spouses Chua alleged that they have repeatedly demanded payment from Rivera to
no avail. Because of Riveras unjustified refusal to pay, the Spouses Chua were constrained to
file a suit before the MeTC, Branch 30, Manila.
The MeTC ruled against Rivera requiring him to pay the spouses Chua P120,000.00 plus
stipulated interest at the rate of 5% per month from 1 January 1996, and legal interest at the rate
of 12% percent per annum fromn11 June 1999 and was affirmed by the RTC of Manila. The
Court of Appeals further affirmed the decision upon appeal of the two inferior courts but with
modification of lowering the stipulated interest to 12% per annum. Hence, a petition at the
Supreme Court.
ISSUES:
1. Whether or not the Promissory Note executed as evidence of loan falls under Negiotiable
Instruments Law.
2. Whether or not a demand from spouses Chua is needed to make Rivera liable.
3. Whether or not the stipulated interest is unconscionable and should really be lowered.

RULINGS:
1. NO, the Promissory Note executed as evidence of loan does not fall under Negotiable
Instruments Law. The instrument is still governed by the Civil Code as to interpretation of
their obligations. The Supreme Court held that the Instrument was not able to meet the
requisites laid down by Section 1 of the Negotiable Instruments Law as the instrument
was made out to specific persons, herein respondents, the Spouses Chua, and not to order
or to bearer, or to the order of the Spouses Chua as payees.
2. NO, a demand from spouses Chua is not needed to make Rivera liable. Even if Riveras
Promissory Note is not a negotiable instrument and therefore outside the coverage of
Section 70 of the NIL which provides that presentment for payment is not necessary to
charge the person liable on the instrument, Rivera is still liable under the terms of the
Promissory Note that he issued. Article 1169 of the Civil Code explicitly provides that the
demand by the creditor shall not be necessary in order that delay may exist when the
obligation or the law expressly so declare. The clause in the Promissory Note containing
the stipulation of interest (letter B in the above facts) which expressly requires the debtor
(Rivera) to pay a 5% monthly interest from the date of default until the entire
obligation is fully paid for. Theparties evidently agreed that the maturity of the obligation
at a date certain, 31 December 1995, will give rise to the obligation to pay interest.
3. YES, the stipulated interest is unconscionable and should really be lowered. The Supreme

Court held that as observed by Rivera, the stipulated interest of 5% per month or 60% per
annum in addition to legal interests and attorneys fees is, indeed, highly iniquitous and
unreasonable and stipulated interest rates if illegal and are unconscionable the Court is
allowed to temper interest rates when necessary. Since the interest rate agreed upon is
void, the parties are considered to have no stipulation regarding the interest rate, thus, the
rate of interest should be 12% per annum computed from the date of judicial or
extrajudicial demand. However, the 12% per annum rate of legal interest is only
applicable until 30 June 2013, before the advent and effectivity of Bangko Sentral ng
Pilipinas (BSP) Circular No. 799, Series of 2013 reducing the rate of legal interest to 6%
per annum. Pursuant to our ruling in Nacar v. Gallery Frames,30 BSP Circular No. 799 is
prospectively applied from 1 July 2013.