Asymptotes

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Case Digest No. II-16 | GR No. 138677 | Ligutan v Court of

Appeals | Vitug
FACTS:

Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained a loan in the amount of
P120,000.00 from Security Bank and Trust Co. The obligation matured and the bank granted an
extension. Despite several demands from the Bank, petitioners failed to settle the debt which
then amounted to P114,416.10. The Bank sent a final demand letter however petitioners still
defaulted on their obligation. The Bank then filed a complaint for recovery of the due amount.
Petitioners instead of presenting their evidence had the schedule reset for two consecutive
occasions. On the third hearing date, the trial court resolved to consider the case submitted for
decision.

Two years later petitioners filed a motion for reconsideration which was denied by the trial
court. Petitioners then interposed an appeal with the Court of Appeals, the appellate court
affirmed the judgement of the trial court except the 2% service charge which was deleted
pursuant to Central Bank Circular No. 763. The two parties filed their motions for
reconsiderations and the Court of Appeals resolved the two motions: that the payment of interest
and penalty commence on the date when the obligation became due and a penalty of 3% per
month would suffice. The petitioners filed an omnibus motion for reconsideration which was
then denied by the Court of Appeals.

ISSUE:

Whether or not the 15.189% interest and the penalty of 3% per month (36% per annum) is
exorbitant, iniquitous, and unconscionable.

RULING:

Petition is DENIED.

HELD:

The question of whether a penalty is reasonable or iniquitous can be partly subjective and partly
objective. Its resolution will depend on such factors as, but not confined to, the type, extent and
purpose of the penalty, the nature of the obligation, the mode of breach and its consequences, the
supervening realities, the standing and relationship of the parties, and the like, the application of
which, by and large, is addressed to the sound discretion of the court.

The Court of Appeals, exercising its good judgement has reduced the penalty interest from 5% a
month to 3% a month. Given the circumstances and the repeated acts of breach by petitioners of
their contractual obligation, the Court sees no cogent ground to modify the ruling of the appellate
court.

The stipulated interest of 15.189% per annum, does not appear as being excessive. The essence or
rationale for the payment of interest, quite often referred to as cost of money, is not exactly the
same as that as a surcharge or a penalty. A penalty stipulation is not necessarily preclusive of
interest, if there is an agreement to that effect, the two being distinct concepts which may
separately be demanded. The interest prescribed in loan financing arrangements is a
fundamental part of the banking business and the core of a banks existence.

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coreyremetre

Law student at University of the East - Manila. A graduate of BS Chemical Engineering at TIP -
Manila. Mother of 2 boys and 11 dogs.

December 28, 2017

Case Digest, Community, Credit Transactions

Interest, Usury Law

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