Spouses Pascual vs. Ramos

A stipulated interest rate, even if seemingly high, is binding on the parties when voluntarily agreed upon without fraud, undue influence, or any vice of consent, particularly after the suspension of the Usury Law removed ceilings on interest rates; courts cannot alter a contract to impose stipulations different from what the parties themselves agreed upon.

Spouses Silvestre and Celia Pascual obtained a loan of ₱150,000 from Rodrigo V. Ramos on 3 June 1987. The loan was ostensibly secured by a Deed of Absolute Sale with Right to Repurchase over two parcels of land and improvements in Bambang, Bulacan, Bulacan, covered by TCT No. 305626. Simultaneously with the deed, the parties executed an unnotarized Sinumpaang Salaysay (sworn statement) that set forth the true agreement: the transaction was a loan bearing 7% per month interest (₱10,500 monthly), the deed served as collateral, and the Pascuals were given one year—until 3 June 1988—to repurchase the property by paying the principal and all accrued interest. The Sinumpaang Salaysay further stipulated that if the Pascuals failed to pay interest for six consecutive months after 3 June 1988, Ramos would acquire ownership of the property and the family would voluntarily vacate.

On 3 June 1987, Silvestre Pascual, experiencing financial need, approached Rodrigo Ramos and obtained a loan of ₱150,000. The parties executed a Deed of Absolute Sale with Right to Repurchase over two parcels of land and improvements in Bambang, Bulacan, Bulacan, covered by TCT No. 305626, which was annotated on the dorsal side of the title. Simultaneously, they executed an unnotarized Sinumpaang Salaysay signed by both Ramos and Silvestre Pascual, which set forth the true nature of the transaction: a loan of ₱150,000 bearing interest at 7% per month (₱10,500 monthly), with the deed serving as collateral security. The Pascuals were given one year, until 3 June 1988, to repurchase the property by paying the principal and all accrued interest. The Sinumpaang Salaysay further provided that even if the Pascuals failed to pay the full obligation within one year, Ramos would not foreclose or transfer title so long as the monthly interest was paid; but if the Pascuals failed to pay interest for six consecutive months after 3 June 1988, Ramos would have the right to own the property and the family would voluntarily vacate.

The Pascuals did not exercise their right to repurchase within the stipulated one-year period. On 5 July 1993, Ramos filed a petition for consolidation of title or ownership with the RTC of Malolos, Bulacan, Branch 21, praying that ownership over the subject parcels of land and improvements be consolidated in his favor. In their Answer, the Pascuals admitted signing the deed for ₱150,000 but averred that the parties had actually agreed upon a real estate mortgage. They alleged there was no agreed period for repurchase, claimed they had overpaid Ramos, and interposed several defenses including lack of jurisdiction, lack of legal capacity to sue, prescription, failure to state a cause of action, payment, and non-compliance with barangay conciliation. By way of counterclaim, they sought cancellation of the deed's annotation, return of the owner's duplicate of TCT No. T-305626, refund of overpayment, and damages.

During trial, Ramos presented the Sinumpaang Salaysay as evidence, while the Pascuals presented acknowledgment receipts (Exhibits "1" to "19") to prove payments they had made. The trial court found the transaction to be a loan secured by a mortgage, determined that the Pascuals had paid a total of ₱344,000, and—using an interest rate of 7% per annum—found they had overpaid by ₱141,500. In its 15 March 1995 Decision, the trial court dismissed Ramos's petition, ordered cancellation of the deed's annotation on the title, awarded the Pascuals ₱141,500 as overpayment, and granted attorney's fees and litigation expenses.

Ramos moved for reconsideration, pointing out that the Sinumpaang Salaysay stipulated 7% per month, not 7% per annum, and that the total interest due from 3 June 1987 to 3 April 1995 was ₱987,000, leaving a balance of ₱793,000 after deducting the ₱344,000 paid. The Pascuals did not oppose this motion. Finding merit, the trial court issued its 5 June 1995 Order correcting the interest rate to 7% per month but then unilaterally reducing it to 5% per month under Article 24 of the Civil Code, finding 7% per month too burdensome and onerous. At 5% per month, the interest due was ₱705,000; deducting ₱344,000 in payments yielded ₱361,000 in net interest, which together with the ₱150,000 principal totaled ₱511,000 due from the Pascuals. The Pascuals moved for reconsideration, arguing that Ramos's motion had violated the 3-day-notice rule, that they had overpaid, that Ramos as an individual could not charge more than 1% per month or 12% per annum, and that the interest was usurious. The trial court denied their motion on 7 September 1995.

The Pascuals appealed to the Court of Appeals, raising only the argument that Ramos's petition contained no prayer for general relief and thus the trial court had no basis to order payment of ₱511,000. The Court of Appeals affirmed in toto on 5 November 1999, holding that the issue of the outstanding balance was deemed raised under Section 5, Rule 10 of the Rules of Court, since receipts were presented during trial and a mathematical computation showed a balance due even at the reduced 5% per month rate. The Pascuals' motion for reconsideration was denied on 18 August 2000. It was only in their motion for reconsideration before the Court of Appeals that the Pascuals first raised the issue of the interest rate's unconscionability and prayed for its reduction to 12% per annum, invoking Medel vs. Court of Appeals.

• Unconscionability of Interest Rate: The Pascuals argued that the 5% per month interest is excessive, iniquitous, unconscionable, and exorbitant, invoking Medel vs. Court of Appeals.
• Limitation on Collectible Interest: Ramos should not be allowed to collect more than 1% per month interest because he tried to hide the real transaction between the parties by imposing upon them the execution of a Deed of Absolute Sale with Right to Repurchase.
• Lack of Basis for Monetary Award: In their appeal to the Court of Appeals, the Pascuals contended that since Ramos's petition only prayed for consolidation of title and contained no prayer for general relief, the trial court had no basis for ordering them to pay ₱511,000.
• Procedural and Substantive Defenses (at trial level): The Pascuals alleged that Ramos's motion for reconsideration violated the 3-day-notice rule, that they had already overpaid the principal, that Ramos as an individual could not charge more than 1% per month or 12% per annum, and that the interest rate of either 5% or 7% per month is exorbitant, unconscionable, unreasonable, usurious, and inequitable.

• Issue Not Properly Raised: Ramos contended that the issue of the validity of the stipulated interest rate cannot be entertained because it was neither raised in the complaint nor ventilated during trial.
• Validity of Agreed Rate: There was nothing illegal about the agreed interest rate, since the ceilings on interest rates prescribed under the Usury Law had been expressly removed, leaving parties free to agree on any rate of interest.
• No Concealment of True Transaction: There was no scheme to hide a usurious transaction, as the Sinumpaang Salaysay—which set forth the true agreement—was executed simultaneously with the Deed of Absolute Sale with Right to Repurchase.
• Cure of Procedural Defect: The non-compliance with the 3-day-notice rule was cured when the trial court gave the Pascuals an opportunity to file their opposition, but despite the lapse of the period given, no opposition was filed.
• Absence of Vice of Consent: In the absence of any evidence of fraud, force, or undue influence, the agreement embodied in the Sinumpaang Salaysay should be respected; the trial court had already reduced the rate to 5% per month, which is not exorbitant, unconscionable, unreasonable, or inequitable.
• Claim for Legal Interest on Interest Due: Ramos prayed that the Pascuals be further ordered to pay legal interest on the interest due from the time it was demanded.

• Validity of Stipulated Interest Rate: Whether the Pascuals are liable for 5% interest per month from 3 June 1987 to 3 April 1995.

• Validity of Stipulated Interest Rate: Yes. The 5% per month interest rate—reduced from the originally stipulated 7%—is binding on the Pascuals, who voluntarily agreed to it without fraud or vice of consent, and who failed to timely raise the issue of unconscionability during the proceedings.

• Validity of Stipulated Interest Rate: The Pascuals demonstrated a proclivity to change theory at nearly every stage of the case. They never raised the nullity of the stipulated interest rate as a defense or as basis for their counterclaim in the Answer; their pre-trial brief listed numerous issues but none touching on the validity of the stipulated interest; and their own evidence (Exhibits "1" to "8") expressly showed payments made for interest on the ₱150,000 loan at 7% per month. During trial, they never put the validity of the stipulated rate in issue. Having secured the trial court's declaration that the transaction was an equitable mortgage—a favorable ruling—they could not then repudiate the interest stipulation contained in the same document that established the loan. When Ramos moved for reconsideration of the 15 March 1995 Decision to correct the interest rate from 7% per annum to 7% per month, the Pascuals did not oppose. In their motion for reconsideration of the 5 June 1995 Order, they did argue that the rate was exorbitant and usurious, but in their Appellants' Brief before the Court of Appeals, they raised only the argument that the trial court lacked basis for the monetary award due to the absence of a prayer for general relief. It was only in their motion for reconsideration of the Court of Appeals' decision that they made the interest rate an issue and prayed for reduction to 12% per annum. Under Manila Bay Club Corp. vs. Court of Appeals, an issue raised only in a motion for reconsideration of the Court of Appeals' decision is treated as if it was never duly raised. Medel vs. Court of Appeals was distinguished: in that case, the excessiveness of the 5.5% per month interest was raised in the Answer, and the debtors were additionally burdened with a 2% per annum service charge, a 1% per month penalty charge, and 25% attorney's fees, making the total stipulation unconscionable. In the present case, there was no stipulation for any extra amount beyond interest on the principal. With the suspension of the Usury Law and removal of interest ceilings, parties are free to stipulate interest on loans. Absent any evidence of fraud, undue influence, or any vice of consent, the agreed rate is binding. There was no showing that the Pascuals were at a disadvantage under Article 24 of the Civil Code. The Sinumpaang Salaysay was executed simultaneously with the deed, so the Pascuals could not claim ignorance of the true transaction. As held in Cuizon vs. Court of Appeals, it is not the province of the court to alter a contract by construction or make a new contract for the parties. Ramos's claim for legal interest on the interest due was denied because he did not appeal from the trial court's 5 June 1995 Order, which simply ordered payment of ₱511,000 without interest thereon; no relief can be granted to a party who does not appeal.

• Freedom to Stipulate Interest Rates — Following the suspension of the Usury Law and the removal of interest ceilings, parties are free to stipulate the interest to be imposed on loans. Absent any evidence of fraud, undue influence, or any vice of consent, the interest agreed upon is binding. The Court is not in a position to impose upon parties contractual stipulations different from what they have agreed upon.
• Binding Force of Voluntary Contractual Stipulations (Article 1306, Civil Code) — Parties are bound by the stipulations in contracts voluntarily entered into by them, provided such stipulations are not contrary to law, morals, good customs, public order, or public policy. A party who obtains a favorable ruling on one aspect of a contractual declaration must also accept the necessary consequences of that declaration, including the interest stipulation in the same instrument.
• Timeliness of Issues (Section 5, Rule 10, Rules of Court; Manila Bay Club Corp. vs. Court of Appeals) — An issue raised only in a motion for reconsideration of the Court of Appeals' decision is treated as if it was never duly raised in that court at all. Issues not raised in the pleadings but tried with the express or implied consent of the parties are treated as if raised in the pleadings.
• Distinction from Medel on Unconscionability — A stipulated interest rate will not be struck down as unconscionable merely because it appears high. In Medel vs. Court of Appeals, the rate was struck down because (a) the excessiveness was raised in the Answer, and (b) the debtors were additionally burdened with service charges, penalty charges, and attorney's fees on top of the interest. Where only interest on the principal is stipulated, without additional charges, and the issue of unconscionability was not timely raised, Medel does not apply.
• Courts Cannot Make Contracts for Parties (Cuizon vs. Court of Appeals) — It is not the province of the court to alter a contract by construction or to make a new contract for the parties; its duty is confined to interpreting the contract the parties made, without regard to its wisdom or folly.
• No Relief for Non-Appealing Party — A party who does not appeal from a lower court's order cannot be granted relief beyond what that order provides, even if the party seeks such relief in a subsequent petition.

• "It is a basic principle in civil law that parties are bound by the stipulations in the contracts voluntarily entered into by them. Parties are free to stipulate terms and conditions which they deem convenient provided they are not contrary to law, morals, good customs, public order, or public policy." — This passage articulates the foundational principle of freedom of contract under Article 1306 of the Civil Code, applied to uphold the binding nature of the stipulated interest rate.

• "With the suspension of the Usury Law and the removal of interest ceiling, the parties are free to stipulate the interest to be imposed on loans. Absent any evidence of fraud, undue influence, or any vice of consent exercised by RAMOS on the PASCUALs, the interest agreed upon is binding upon them. This Court is not in a position to impose upon parties contractual stipulations different from what they have agreed upon." — This is the ratio decidendi on the validity of stipulated interest rates post-Usury Law suspension, establishing that the absence of fraud or vice of consent is the controlling test.

• "It is not the province of the court to alter a contract by construction or to make a new contract for the parties; its duty is confined to the interpretation of the one which they have made for themselves without regard to its wisdom or folly as the court cannot supply material stipulations or read into the contract words which it does not contain." — Quoted from Cuizon vs. Court of Appeals, this passage defines the limits of judicial intervention in contractual stipulations and is frequently cited in subsequent jurisprudence on freedom of contract.

• "Courts cannot follow one every step of his life and extricate him from bad bargains, protect him from unwise investments, relieve him from one-sided contracts, or annul the effects of foolish acts. Courts cannot constitute themselves guardians of persons who are not legally incompetent." — Quoted from Vales vs. Villa, this passage establishes that absent a violation of law or an actionable wrong, courts will not rescue parties from disadvantageous but voluntary contractual bargains.

• Medel vs. Court of Appeals, 299 SCRA 481 (1998) — Distinguished. In Medel, the 5.5% per month interest was struck down as unconscionable because the issue was raised in the Answer and the debtors were additionally burdened with service charges, penalty charges, and attorney's fees. The Court refused to extend Medel to the present case, where only interest was stipulated and the unconscionability issue was raised too late.
• Manila Bay Club Corp. vs. Court of Appeals, 245 SCRA 715 (1995) — Followed. The Court applied the rule that an issue raised only in a motion for reconsideration of the Court of Appeals' decision is treated as if it was never duly raised.
• Vales vs. Villa, 35 Phil. 769 (1916) — Followed. The Court relied on this early American-period precedent for the principle that courts cannot protect parties from bad bargains absent a violation of law, and that the law furnishes no protection to the inferior simply because he is inferior.
• Cuizon vs. Court of Appeals, 260 SCRA 645 (1996) — Followed. Cited for the doctrine that courts cannot alter a contract by construction or make a new contract for the parties.
• Consolidated Bank and Trust Corporation (Solidbank) vs. Court of Appeals, G.R. No. 114286, 19 April 2001 — Cited for the rule that no relief can be granted to a party who does not appeal, applied to deny Ramos's claim for legal interest on the interest due.

• Article 1306, Civil Code — Provides that parties may establish such stipulations, clauses, terms, and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. Applied to uphold the validity of the voluntarily stipulated 7% per month interest rate.
• Article 24, Civil Code — Mandates courts to be vigilant for the protection of a party at a disadvantage due to moral dependence, ignorance, indigence, mental weakness, tender age, or other handicap. The trial court invoked this provision to justify reducing the interest rate from 7% to 5% per month, but the Supreme Court found no evidence that the Pascuals suffered any such disadvantage.
• Section 5, Rule 10, Rules of Court — Provides that when issues not raised by the pleadings are tried with the express or implied consent of the parties, they shall be treated as if raised in the pleadings. Applied by the Court of Appeals to uphold the trial court's authority to order payment of the outstanding balance despite the absence of a prayer for general relief in Ramos's petition.

Vitug, Kapunan, Ynares-Santiago, and Austria-Martinez, JJ., concurred.