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Bautista vs. Pilar Development

The petitioners obtained a loan to purchase a home, signing a promissory note with a 12% interest rate. Due to missed payments, a second note was created with a higher 21% interest rate, unknown to the petitioners. The Supreme Court ruled that the higher interest rate did not violate banking regulations in effect at the time and that both parties had agreed to the terms, replacing the original note. Lack of bad faith in opposing an increased interest rate does not reduce liability for agreed-upon damages.

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Jerome Gonzales
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43 views1 page

Bautista vs. Pilar Development

The petitioners obtained a loan to purchase a home, signing a promissory note with a 12% interest rate. Due to missed payments, a second note was created with a higher 21% interest rate, unknown to the petitioners. The Supreme Court ruled that the higher interest rate did not violate banking regulations in effect at the time and that both parties had agreed to the terms, replacing the original note. Lack of bad faith in opposing an increased interest rate does not reduce liability for agreed-upon damages.

Uploaded by

Jerome Gonzales
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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GONZALES, Jerome DP.

BSLM 3C

SPOUSES FLORANTE and LAARNI BAUTISTA, petitioners,


vs.
PILAR DEVELOPMENT CORPORATION, respondent.
G.R. No. 135046           August 17, 1999

DOCTRINE:
Lack of bad faith in opposing the increase in interest rate does not excuse or reduce the liability
for the agreed-upon liquidated damages.

FACTS:
The petitioners, a married couple, obtained a loan from Apex Mortgage & Loan Corporation to
partially finance the purchase of a house and lot in Pilar Village, Las Piñas. They signed the first
promissory note, which had an interest rate of 12% per year and a service charge of 3%, with a
repayment term of 240 months, or 20 years, in monthly payments of P1,378.83. However, due to
their failure to pay several installments, a second promissory note was created with a higher
interest rate of 21% per year and a penalty charge of 1 ½% for late payments, to be paid over
16.33 years in monthly payments of P2,576.68. The second promissory note was sent to the
respondent without the petitioners' knowledge as a result of their own bad faith.

ISSUE:
Whether or not the interest rate from 12% per year in the first promissory note to 21% per year in
the second promissory note against the law?

RULING: 
The increase in interest rate is not in violation of any escalation clauses. The Central Bank
Circulars Nos. 705 and 712 were in effect when the second promissory note was created, and
they provide a fixed interest rate of 21% per year for secured loan transactions with a maturity
period of more than two years. The interest rate stated in the second promissory note is legal, and
both parties have clearly agreed to it. Thus the first promissory note with an interest rate of 12%
per year is replaced.

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