Case Digest: LAND BANK OF THE PHILIPPINES v. YOLANDA G. DAVID

LAND BANK OF THE PHILIPPINES v. YOLANDA G. DAVID

563 SCRA 172 (2008)

Whether an interest rate or penalty charge is reasonable or iniquitous is addressed to the sound discretion of the courts. In determining what is an iniquitous and unconscionable, courts must consider the circumstances of each case, for what may be just in one case may be iniquitous and unconscionable in another.

Yolanda David, proprietor of David Poultry Farm, obtained a loan from Landbank of the Philippines. The loan shall bear an interest ―based on the prevailing lender‘s rates/special financing rate‖ and penalty charge of 12% per annum in case of default in the settlement thereof. As security for the payment of the aforesaid loan, David mortgaged a parcel of land registered under her name in favor of Landbank. Due to serious business reverses, David was not able to pay although there were initial payments made. A Restructured Loan Agreement was subsequently executed. The Restructured Loan Agreement provided that the interest rate shall be adjusted to 17% per annum.

David defaulted in the payment of her monthly amortizations; hence, the whole amount became due and demandable. Demands for payment were made but David failed to settle her loan obligations, prompting Landbank to initiate foreclosure proceedings.

David filed a complaint seeking the nullification of the interest rates imposed by Landbank. The trial court however dismissed David‘s complaint and instead granted Landbank‘s counterclaim. On appeal, the Court of Appeals modified the lower court‘s decision by reducing the interest and penalty rates, and nullifying the extra-judicial foreclosure of David‘s property and deleting the award of damages and attorney‘s fees. Landbank moved for a reconsideration of the appellate court‘s decision, but the same was denied.

ISSUES:

Whether or not the interest rate is exorbitant and unconscionable and if such, whether or not the foreclosure proceedings can be nullified

HELD:

Jurisprudence empowers courts to equitably reduce interest rates. And the law empowers them to reduce penalty charges. Whether an interest rate or penalty charge is reasonable or iniquitous is addressed to the sound discretion of the courts. In determining what is an iniquitous and unconscionable, courts must consider the circumstances of each case, for what may be just in one case may be iniquitous and unconscionable in another.

While the nullity of the interest rate and penalty charge does not affect Landbank‘s right to recover the principal amount of the loan, the public auction of the mortgaged property is nevertheless void, the amount indicated as mortgage indebtedness having included excessive, iniquitous, and exorbitant interest rate and penalty charge.

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