51. ANTONIO TAN vs.
COURT OF APPEALS and the CULTURAL CENTER
OF THE PHILIPPINES
G.R. No. 116285 October 19, 2001
Topic: Article 1959, NCC
Doctrine: Equity cannot be considered inasmuch as there is a contractual stipulation
in the promissory note whereby the petitioner expressly agreed to the compounding
of interest in case of failure on his part to pay the loan at maturity. Inasmuch as the
said stipulation on the compounding of interest has the force of law between the
parties and does not appear to be inequitable or unjust, the said written stipulation
should be respected.
Facts: Petitioner Antonio Tan obtained two (2) loans from respondent Cultural
Center of the Philippines (CCP) evidenced by two (2) promissory notes with maturity
one year after. Petitioner defaulted but after a few partial payments he had the loans
restructured by respondent CCP. Petitioner Tan failed to pay any installment on the
said restructured loan. Respondent CCP, through counsel, wrote a letter to the
petitioner demanding full payment of the petitioner’s restructured loan. Failing to
collect, respondent CCP filed in the RTC of Manila a complaint against the petitioner
after the latter failed to settle his said restructured loan obligation. The trial court
rendered a decision in favor of CCP. The petitioner appealed the decision of the trial
court to the Court of Appeals insofar as it charged interest, surcharges, attorney’s
fees and exemplary damages against the petitioner. In his appeal, the petitioner
asked for the reduction of the penalties and charges on his loan obligation. The
appellate court affirmed the decision of the trial court with modification as to the
attorney’s fees and exemplary damages. Petitioner filed for a motion for
reconsideration but was denied hence this petition.
Issue: Whether or not there are contractual and legal bases for the imposition of the
penalty, interest on the penalty, and attorney's fees.
Ruling: Yes, the Court finds their bases in accordance with Article 1226 and
Article 1959 of the New Civil Code.
In the case at bar, the promissory note expressly provides for the imposition of both
interest and penalties in case of default on the part of the petitioner in the payment of
the subject restructured loan.
Furthermore, the compounding of the penalty or compensatory interest is sanctioned
by and allowed pursuant to the provision of Article 1959 of the New Civil Code
considering that there is an express stipulation in the promissory note permitting the
compounding of interest. The fifth paragraph of the said promissory note provides
that: "Any interest which may be due if not paid shall be added to the total amount
when due and shall become part thereof, the whole amount to bear interest at the
maximum rate allowed by law." Therefore, any penalty interest not paid, when due,
shall earn the legal interest of twelve percent (12%) per annum, in the absence of
express stipulation on the specific rate of interest, as in the case at bar.
Hence, the courts a quo did not err in ruling that the petitioner is bound to pay the
interest on the total amount of the principal, the monetary interest and the penalty
interest. The Court affirms CA decision with modifications.
