STATE INVESTMENT HOUSE v CA

Facts:

On March 9, 1978, Lomuyon Timber Industries, Inc. (hereafter, Lomuyon) agreed to sell to plaintiff its receivables
at a discount on a with recourse basis (Exh. A). It was agreed in that sale that should a receivable remain unpaid,
plaintiff, at its discretion, may impose a penalty fee of 3% per month. To secure the payment of the receivables, the
Malonjaos also executed in favor of plaintiff, a real estate mortgage over their real property covered by Transfer
Certificates of Title Nos. (445856) S-65586 and No. (162775) S-65585 (Exh. B).

Pursuant to their agreement, on March 9, 10 and 15, 1978 and July 19, 1978, Lomuyon sold to plaintiff for a total
consideration of P2,558,073.75 (Exhs. C, D, E and F), various receivables consisting of checks.

TCBTC (The Consolidated Bank and Trust Corporation) checks were all drawn by Amanda Malonjao to the order of
payee Lomuyon which in turn, indorsed the checks to plaintiff. The MBTC (Metropolitan Bank and Trust Company)
check was drawn by one Antonietta Malonjao-Roque to the order of payee Amanda Malonjao who in turn, indorsed
said check to plaintiff.

When plaintiff presented the checks for payment to the drawee banks, the same were dishonored for having been
drawn against insufficient funds (Exhs. H to H-7) except for TCBTC 618821.

Plaintiff made repeated written demands on defendants to make good the checks they indorsed and to pay the
penalty charges it has imposed thereon, (Exhs. I, J, K, L, L-1, M and N).

Defendants failed to pay the value of the checks. Plaintiff thus decided to undertake foreclosure of the real estate
mortgage.

On October 6, 1982, plaintiff filed with the Provincial Sheriff of Rizal a petition for extrajudicial foreclosure of real
estate mortgage dated September 28, 1981. In said petition, plaintiff alleged among others, that as of said date,
September 28, 1981, defendants outstanding obligation, inclusive of interest and charges, is P4,809,187.12 (Exh. O).

On February 14, 1983, the Provincial Sheriff sold at public auction, defendants mortgaged properties to plaintiff
who was the highest bidder for P4,233,874.00. The following day, the Provincial Sheriff issued a Certificate of Sale
(Exh. P).

On June 27, 1983, plaintiff filed the complaint alleging that after deducting the price of the mortgaged properties
from defendants outstanding obligation, there remains a deficiency of P2,601,147.62 as of February 14, 1983, which
as of May 31, 1983 amounted to P2,876,929.27 inclusive of interest and charges. As an alternative cause of action,
plaintiff alleged that it is entitled to recover from the defendant the total value of the checks amounting to
P2,239,237.10. Plaintiff further prayed that it be awarded exemplary damages, attorneys fees and litigation expenses
(Records, pp. 1-38).

In their answer, defendants admitted having incurred the obligation with the plaintiff brought about by the dishonor
of the checks. However, defendants contended that plaintiffs computation of their outstanding obligation is
erroneous.

Issue:

THE COURT OF APPEALS GROSSLY MISAPPRECIATED THE FACTS AND APPLICABLE LAW BY NOT
DECLARING THAT SIHI IS STILL ENTITLED TO THE DEFICIENCY AFTER THE FORECLOSURE
AUCTION SALE.
Held:

NO. This contention is not well-taken.

The Court does not find any reversible error committed by the respondent court in ruling that the petitioner was no
longer entitled to recover any deficiency amount after the foreclosure sale on February 14, 1983. Per Statement of
Account dated September 21, 1981, the obligation of the private respondent was computed to be P4,809,187.12
inclusive of interest and penalty charges. Since the private respondent failed to fulfill its obligation, petitioner then
decided to foreclose the real estate mortgage on two properties of the private respondent. At the time of the auction
sale on February 14, 1983, the properties were sold in the amount of P4,223,874.00 with the petitioner as the highest
bidder. Deducting this amount from the outstanding obligation of P4,809,187.12 as stipulated in the Statement of
Account, there would therefore be a balance of only about P575,313.12.

Whether or not the alleged deficiency from the foreclosure sale was P575,313.12 or P2,601,147.62 as claimed by
petitioner was of no moment. The respondent court disallowed the payment of the deficiency altogether because it
found that the principal obligation of the private respondent would not have ballooned to such a horrendous amount
of P4.8M as of September 21, 1991 if not for the penalty charge of 3% per month or 36% per annum.

The lower court did not err in its ruling under its statement that since plaintiff had already recovered fully the
receivables from the defendants, the court, considering that the plaintiff for the two properties foreclosed by it
bidded the amount of P4,233,874.00, far and above the amount it had originally given to the defendants which was
only over P2,000,000.00, it is rather most shocking and unconscionable for plaintiff to still collect from the
defendants the alleged collectibles of P2,601,147.62 with 3% penalty charges. The plaintiff should have stopped
imposing the 3% penalty charges and other burdens when it had consolidated finally the two titles of the properties it
had foreclosed (Decision, p. 8). After due consideration and reflection on all the factual circumstances obtaining in
the case at bar, it is Our opinion that the lower court properly exercised its discretion under Article 1229 of the Civil
Code to reduce the penalty charges for being highly and grossly unconscionable.

CA decision AFFIRMED.

SOLANGON v SALAZAR

FACTS:

On 1986, 1987, and 1990 the Solangons executed 3 real estate mortgages in which they mortgaged a parcel of land
situated in Sta. Maria, Bulacan, in favor of the Salazar to secure payment of a loan of P60, 000.00 payable within a
period of four (4) months, with interest thereon at the rate of 6% per month, to secure payment of a loan of P136,
512.00, payable within a period of one (1) year, with interest thereon at the legal rate, and to secure payment of a
loan in the amount of P230, 000.00 payable within a period of four (4) months, with interest thereon at the legal rate.

This action was initiated by the Solangons to prevent the foreclosure of the mortgaged property. They alleged that
they obtained only one loan form the defendant-appellee, and that was for the amount of P60, 000.00, the payment
of which was secured by the first of the above-mentioned mortgages. The subsequent mortgages were merely
continuations of the first one, which is null and void because it provided for unconscionable rate of interest. They
have already paid the defendant-appellee P78, 000.00 and tendered P47, 000.00 more, but the latter has initiated
foreclosure proceedings for their alleged failure to pay the loan P230, 000.00 plus interest.
ISSUES:

Is a loan obligation that is secured by a real estate mortgage with an interest of 72% p.a. or 6% a month
unconscionable?

- Yes, although the C.B. Circular No 905 lifted the ceiling on interest rates there is nothing in the said circular that
grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead
to hemorrhaging of their assets.

- In the case of Medel vs. C.A. the S.C. has held that 5.5% per month was reduced for being iniquitous,
unconscionable and exorbitant hence it is contrary to morals (contra bonos mores)

- In this case the Solangons are in a worse situation than the Medel case (6% per month interest rate) the said
interest rate should be reduced equitably.

HELD:

WHEREFORE, the appealed decision of the Court of Appeals is AFFIRMED subject to the MODIFICATION that
the interest rate of 72% per annum is ordered reduced to 12 % per annum.

Obligations and Contracts Terms:

Legal Interest- the legal rate of interest for the loan or forbearance of any money, goods or credits, where such loan
or renewal or forbearance is secured in whole or in part by a mortgage upon real estate the title to which is duly
registered, in the absence of express contract as to such rate of interest, shall be 12% per annum, unless it is
unconscionable or contrary to laws, morals, public policy.

BARONS MARKETING CORP. v CA

Concept:

Article 1248. Unless there is an express stipulation to that

effect, the creditor cannot be compelled partially to receive the

prestation in which the obligation consists. Neither may the

debtor be required to make partial payments.

However, when the debt is in part liquidated and in

part unliquidated, the creditor may demand and the debtor

may effect the payment of the former without waiting for the

liquidation of the latter.

Facts:

August 31, 1973. Phelps Dodge appointed Barons Marketing as one of its dealers of electrical wires and
cables effective Sept. 1, 1973. Defendant was given 60 days credit for its purchases of Phelps Dodges electrical
products

Barons Marketing purchased, on credit, from Phelps Dodges electrical wires and cable in the total amount of
P4,102,483.30. This was then sold to MERALCO, Baron Mktg being the accredited supplier of the electrical
requirements of MERALCO.

Under the sales invoices issued by Phelps Dodge to Barons Mktg for the subject purchases, it is stipulated that
interest at 12% on the amount of attys fees and collection. Barons Mktg paid P300,000 out of its total purchases
leaving an unpaid account of P3,802,478.20. Phelps Dodge wrote Barons Mktg demanding payment of its
outstanding obligations due Phelps Dodge. Baron Mktg responded by requesting if it could pay its outstanding
account in monthly installments of P500,000 plus 1%interest per month until full payment, this request was rejected
and Phelps Dodge demanded full payment

Phelps Dodge then filed a complaint before the Pasig Trial Court for the recovery of P3,802,478.20 and it also
prayed to be awarded with attorneys fee at the rate of 25% of the amount demanded, exemplary damages in the
amount of P100,000, the expenses of litigation and the costs of suit.

The court ruled in favor of Phelps Dodge with the exemplary damages of P10,000 and recovery of P3,108,000

Both parties appealed. Phelps Dodge claimed that court should have awarded the sum of P3,802,478.20. It
also said that the amount awarded was a result of a typographical error.

Barons Mktg claimed that Phelps Dodges claim for damages is a result of creditors abuse and it also
claimed that Phelps Dodge failed to prove its cause of action against it.

CoA ruled in favor of Phelps Dodge with the correct amount but only with the 5% for the Attys fee. No
costs.

Barons Mktg then alleged that the Coa erred its decision

Issue: W/ON private respondent is guilty of abuse of right

Held: No. a creditor cannot be considered in delay if he refuses to accept partial performance because, unless
otherwise provided by law or stipulated by the parties, a creditor cannot be compelled to accept partial performance;
however, if good faith necessitates acceptance or if the creditor abuses his right in not accepting, the creditor will
incur in delay if he does not accept such partial performance.

MANILA RACING CLUB v MANILA JOCKEY CLUB

Facts: Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained a loan in the amount of P120,000.00 from
respondent Security Bank and Trust Company. Petitioners executed a promissorynote binding themselves, jointly
and severally, with an interest of 15.189% per annum upon maturityand to pay a penalty of 5% every month on the
outstanding principal and interest in case of default and also a 10% attorneys fees if the matter were indorsed to a
lawyer for collection.
 The obligation matured, the petitioners were not able to settle the obligation; The bank gave anextension, still the
same happened. Since the petitioners still defaulted, the former filed a complaint forrecovery of the due amount.

Issue: Whether the interest and penalty charge imposed by private respondent bank on petitioners loan are
manifestly exorbitant, iniquitous and unconscionable?

Ruling: The obligor would then be bound to pay the stipulated indemnity without the necessity of proof on the
existence and on the measure of damages caused by the breach. Although a court may not atliberty ignore the
freedom of the parties to agree on such terms and conditions as they see fit thatcontravene neither law nor morals,
good customs, public order or public policy, a stipulated penalty,nevertheless, may be equitably reduced by the
courts if it is iniquitous or unconscionable or if theprincipal obligation has been partly or irregularly complied
with.The question of whether a penalty is reasonable or iniquitous can be partly subjective and partlyobjective. Its
resolution would depend on such factors as, but not necessarily confined to, the type,extent and purpose of the
penalty, the nature of the obligation, the mode of breach and itsconsequences, the supervening realities, the standing
and relationship of the parties, and the like, theapplication of which, by and large, is addressed to the sound
discretion of the court.The CA exercised good judgment in reducing the stipulated penalty interest from 5% to 3% a
month. It was also been held that the 15.189% per annum stipulated interest and the 10% attorneys is reasonable
and not excessive. The interest prescribed in loan financing arrangements is a fundamental part of thebanking
business and the core of a bank's existence.