G.R. No. 91494 July 14, 1995 THE CONSOLIDATED BANK AND TRUST CORPORATION (SOLIDBANK), petitioner, vs.

COURT O APPEALS FACTS: Private respondent George King Tim Pua had two sets of accounts with petitioner ban : his persona! account and his account for George and George Trade, "nc. For his persona! account, he obtained from petitioner on different dates si# separate !oans with different due dates, viz: $oan " % &&'Apr'(( Pa+ab!e August &&, ,-(( % &-'Apr'(( Pa+ab!e August &-, ,-(( % )/0/(( Pa+ab!e September ), ,-(( % 2a3 &/&,/,-(( 2b3 2c3 % )**,***.**

$oan ""

% .**,***.**

$oan """

.*****.**

$oan "1

% % %

% Pa+ab!e on 4a+ 5, ,-(( % T6TA$ &,*5),***.** 7777777 77777

&&*,***. ** .)*,***. ** 0),***.* * %%%%% (5),***. **

A!! of these !oans bore a ,.8 rate of interest, which was to be compounded month!+, in case of fai!ure on the part of respondent George King Tim Pua to pa+ on maturit+. "n which case, he further undertoo to pa+ an additiona! sum e9uiva!ent to ,*8 of the tota! amount due but in no case !ess than P&**.** as attorne+:s fees. The maturit+ dates of the !oans were e#tended up to either ;ecember , or ;ecember ), ,-(( and a!! interests were paid up to 4arch ), ,-(<. =nder the account of George and George Trade, "nc., respondent George King Tim Pua, together with his co'ma er, respondent Pua Ke Seng, obtained the fo!!owing !oans: $oan A % &5'>an'(Pa+ab!e >une &&, ,-(,-'Apr'(Pa+ab!e 4a+ &,, ,-(</&/(Pa+ab!e Sept. ,(, % 5**,***.**

$oan ?

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$oan C

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,-(T6TA $ P 0)*,***.** 77777777 7777 The first !oan bore an annua! interest of ,5.&58, which was to be increased to ,.8 in case of fai!ure to pa+ on due date, compounded month!+, unti! fu!!+ paid. An additiona! amount e9uiva!ent to ,*8 of the tota! amount but not !ess than P&**.** was to be imposed in case of fai!ure to pa+ on due date as attorne+:s fees. The second and third !oans bore an interest rate of ,.8 per annum and carried a pena!t+ of 58 per annum on the amount due in case of fai!ure to pa+ on the date of maturit+. An additiona! sum e9uiva!ent to ,*8 of the tota! amount due, but not !ess than P&**.**, was to be imposed as and for attorne+:s fees. "nterest were paid on the !oans up to their date of maturit+. George King Tim Pua assigned unto the p!aintiff the proceeds of a fire insurance po!ic+ issued b+ the Kerr "nsurance Compan+ in the amount of P&,-*<,.<).**. The proceeds of the insurance po!ic+ were subse9uent!+ paid to the p!aintiff which app!ied the same to the persona! account of defendant George King Tim Pua. The persona! account of defendant George King Tim Pua was fu!!+ satisfied through the remittances of the fire insurance proceeds. Petitioner ban then deducted from the insurance proceeds the entiret+ of respondent George King Tim Pua:s persona! account, there remained of the insurance proceeds the amount of P5<5,5*&..&. "t then proceeded to app!+ said amount to the unpaid !oans of respondent George and George Trade, "nc. which amounted to P0(,,((&.&& as of September (, ,-(-, thus !eaving a ba!ance of P&<<,.0-.<* of the !oans. Petitioner instituted on Apri! (, ,-<* an action against private respondents for the recover+ of the unpaid ba!ances on the three promissor+ notes, inc!uding attorne+:s fees e9uiva!ent to ,*8 of the amount recoverab!e. Private respondents c!aimed that the !oans had been e#tinguished b+ wa+ of pa+ment through the assignment b+ respondent George King Tim Pua of the fire insurance proceeds and that it was in fact petitioner which owed them b+ reason of its fai!ure to return to the !atter the ba!ance of said insurance proceeds. "n a decision, p!aintiff'appe!!ee Conso!idated ?an and Trust Corporation 2So!idban 3 was ordered to pa+ appe!!ant George King Tim Pua the amount of P.00,,<&.5-, with !ega! interest thereon per annum from September <, ,-(- unti! said amount is fu!!+ paid, p!us P,*,***.** attorne+:s fees and the costs of this suit. ISSUE!"N P#$%$%o&#' ()&* +)& +,)'-# .'%/)$# '#0.o&1#&$0 0u+, +,)'-#0. HELD! The ,.8 interest rate charged b+ petitioner was within the !imits set b+ Section 5 of the =sur+ $aw. The charging of compounded interest has been he!d as proper as !ong as the pa+ment thereof has been agreed upon b+ the parties. "n the instant case , .'%/)$# '#0.o&1#&$0 )-'##1 $o $,# .)y2#&$ o3 144 %&$#'#0$ per annum, +o2.ou&1#1 2o&$,ly, 0,oul1 $,#y 3)%l $o .)y $,# .'%&+%.)l lo)& o& $,# 1)$# o3 2)$u'%$y. As to hand!ing charges, ban s are authori@ed under Centra! ?an Circu!ar Ao. )*. to co!!ect such charges on !oans. Section ( of the same Circu!ar, however, provides that a!! ban s and non'ban financia! intermediaries authori@ed to engage in 9uasi'ban ing functions are re9uired to strict!+ adhere to the provisions of Bepub!ic Act Ao. 5(0) otherwise nown as the CTruth in $ending ActC and sha!! ma e the true and effective cost of borrowing an integra! part of ever+ !oan contract.

T,# .'o2%00o'y &o$#0 0%-&#1 (y .'%/)$# '#0.o&1#&$0 1o &o$ +o&$)%& )&y 0$%.ul)$%o& o& $,# .)y2#&$ o3 ,)&1l%&- +,)'-#0. P#$%$%o&#' ()&* +)&&o$, $,#'#3o'#, +,)'-# .'%/)$# '#0.o&1#&$0 0u+, ,)&1l%&- +,)'-#0. The pa+ment of pena!t+ is sanctioned b+ !aw, a!though the pena!t+ ma+ be reduced b+ the courts if it is ini9uitous or unconscionab!e. T,# .)y2#&$ o3 .#&)l$y 5)0 .'o/%1#1 3o' u&1#' $,# $#'20 )&1 +o&1%$%o&0 o3 $,# .'o2%00o'y &o$#0 3o' Lo)&0 B )&1 C o3 G#o'-# )&1 G#o'-# T')1#, I&+. T,# .#&)l$y )+$u)lly %2.o0#1, (#%&- o&ly 64 per annum o3 $,# u&.)%1 ()l)&+# o3 $,# .'%&+%.)l o3 0)%1 Lo)& B, %0 +o&0%1#'#1 '#)0o&)(l# )&1 .'o.#' . A stipu!ation regarding the pa+ment of attorne+:s fees is neither i!!ega! nor immora! and is enforceab!e as the !aw between the parties as !ong as such stipu!ation does not contravene !aw, good mora!s, good customs, pub!ic order or pub!ic po!ic+ . A0 0$)$#1 %& $,# .'o2%00o'y &o$#0, '#0.o&1#&$ G#o'-# K%&- T%2 Pu) )-'##1 $o .)y )$$o'&#y70 3##0 o&ly 8%& )11%$%o& $o #9.#&0#0 )&1 +o0$0 o3 0u%$.8 I& o$,#' 5o'10, .#$%$%o&#' %0 #&$%$l#1 $o +oll#+$ 3'o2 '#0.o&1#&$ G#o'-# K%&- T%2 Pu) $,# )$$o'&#y70 3##0 )-'##1 u.o& o&ly %& +)0# %$ 5)0 +o2.#ll#1 $o l%$%-)$# 5%$, $,%'1 .#'0o&0 o' $o %&+u' #9.#&0#0 $o .'o$#+$ %$0 %&$#'#0$. T,#0# +o&1%$%o&0 )'# &o$ o($)%&%&- %& $,# +)0# )$ (#&+,. There was no need for petitioner to !itigate to protect its interest inasmuch as private respondents had fu!!+ paid their ob!igations months before it fi!ed the comp!aint for recover+ of sum of mone+. Aeither has it been shown b+ competent proof that petitioner had to engage the services of a !aw+er or incur e#penses in co!!ecting the fire insurance proceeds from Kerr and Compan+.The CTentative ComputationC to which respondent George King Tim Pua a!!eged!+ affi#ed his initia!s to the item CAttorne+:s Fees, ,*8C cannot be ta en as amending the stipu!ation contained in the promissor+ notes on the pa+ment of attorne+:s fees. T,# )5)'1 o3 P1:,:::.:: )0 )$$o'&#y70 3##0 $o .'%/)$# '#0.o&1#&$0 5)0 '#)0o&)(l# )&1 ;u0$%3%#1 )0 $,#y 5#'# +o2.#ll#1 $o l%$%-)$# )&1 %&+u' #9.#&0#0 $o .'o$#+$ $,#%' %&$#'#0$.