In 1988, Honorio Bulos, Jr., Atty. Tabalingcos and Dr. Lim incurred a P2.5M loan from Koji Yasuma, a Japanese national. The terms of the loan provide that it is payable in 3 months at 4% interest rate; that in case of nonpayment, it shall continue at that rate until paid or 48% per annum. And in case of litigation, plus 20% of principal balance for atty’s fees. Dr. Lim signed the promissory note in behalf of the others as agreed upon. Each of them mortgaged their respective properties in favor of Yasuma.
The three failed to pay upon maturity in 1989. Loan’s balance then was already at P2.7M. Yasuma foreclosed the mortgaged properties. The sale amounted to P1.6M leaving a balance of P1.06M. Interest also accrued and other penalties ballooning the balance to P2.4M.
Yasuma won a subsequent collection suit. Bulos appealed. The Court of Appeals affirmed the lower court. It ruled that Yasuma is entitled to the 20% principal balance for atty’s fees as per contract. The CA however reduced the interest rate to 21% per annum.
In the main, Bulos claims that his obligation was extinguished when his property was foreclosed via dacion en pago and when he offered his shares of stock in the Rural Bank of Paranaque to Yasuma.
ISSUE: Whether or not Bulos is correct.
HELD: No. The dacion en pago merely paid off a portion of the loan. Second, Yasuma is a foreign national and is banned by law to be shareholder in a rural bank.
The additional penalty of paying an additional 20% for atty’s fees is valid for it was agreed upon in the promissory note. The parties are bound by it.
The 48% per annum interest rate is excessive as well as the reduced amount of 21% per annum. Though the ceiling of interest rate has been removed by Central Bank Circular No. 905, in no way shall interest rates be excessive as to enslave borrowers. Interest rates of 3% per month or higher is already excessive. Hence, the interest is reduced to the legal rate which was then at 12% per annum.