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DBP Vs CA, 344 SCRA 492 (2000)

The Development Bank of the Philippines (DBP) sold land to the respondent spouses under a deed of conditional sale. The spouses made payments totaling ₱289,600 but DBP claimed they still owed ₱221,86.85 due to unpaid interest and penalties. The Court of Appeals ruled that while the principal had been complied with, the penalty could be reduced if excessive. The Supreme Court affirmed, finding that though payments were irregular, the spouses made them in good faith and already paid more than the principal amount. It reduced the additional interest to 10% per annum and found the 8% penalty sufficient to cover DBP's damages from the delayed payments.

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254 views2 pages

DBP Vs CA, 344 SCRA 492 (2000)

The Development Bank of the Philippines (DBP) sold land to the respondent spouses under a deed of conditional sale. The spouses made payments totaling ₱289,600 but DBP claimed they still owed ₱221,86.85 due to unpaid interest and penalties. The Court of Appeals ruled that while the principal had been complied with, the penalty could be reduced if excessive. The Supreme Court affirmed, finding that though payments were irregular, the spouses made them in good faith and already paid more than the principal amount. It reduced the additional interest to 10% per annum and found the 8% penalty sufficient to cover DBP's damages from the delayed payments.

Uploaded by

Rebuild Bohol
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© © 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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DEVELOPMENT BANK OF THE PHILIPPINES, 

petitioner,
vs.
COURT OF APPEALS, CELEBRADA MANGUBAT and ABNER
MANGUBAT, respondents.

G.R. No. 110053 October 16, 1995

REGALADO, J.:

Doctrine:
The judge shall equitably reduce the penalty when the principal obligation has been
partly or irregularly complied with by the debtor

Facts:
Petitioner Development Bank of the Philippines is the owner of a parcel of land in
Bulacan. It sold the land to respondent spouses Nilo and Esperanza De La Peña
under a Deed of Conditional Sale for ₱207,000.00, that: a.     the down payment shall
be ₱41,400.00; b.the balance of P165,600.00 to be paid in six (6) years on the semi-
annual amortization plan at 18% interest per annum; c.The first amortization of
₱23,126.14 shall be due and payable six (6) months  from the date of execution of the
Deed of Conditional Sale; and d.    all subsequent amortizations shall be due and
payable every six (6) months thereafter.

After the execution of the contract, the spouses De La Peña constructed a house on
the said lot and began living there. They also introduced other improvements
therein. The spouses made the total payment of ₱289,600.00, after which they  asked
DBP for the execution of a Deed of Absolute Sale and for the issuance of the title to
the property. However, DBP informed them that there was still a balance of
₱221,86.85, which demanded from them, otherwise, it would rescind the sale. The
spouses filed a complaint against petitioner for specific performance and damages
with a prayer for the issuance of a temporary restraining order to enjoin the DBP
from rescinding the sale and selling the land to interested buyers.

The trial court dismissed the complaint as plaintiffs have still to pay the defendant
the sum of ₱54,200.00 as interest to be able to sue for specific performance, but
declared the writ of preliminary injunction permanent, with attorney’s fee and costs
of suit against DBP.  The CA affirmed the RTC ruling but deleted attorney’s fee.

On petition, DBP cited that the courts erroneously took into account only the 18%
annual interest on the remaining balance of ₱165,000.00, resulting in the difference of
P54,200.00, and in disregarding paragraph 8 of the contract on additional interests
and penalty charges of 8% per annum so that the respondent spouses still owed DBP
the amount of ₱225,855.86

Issue:
WoN the court can reduce the penalty when the principal obligation has been partly
or irregularly complied with by the debtor.

Held:
Yes, the Court agrees with the CA that the payment of the penalty charge can be
reduced for being excessive and unwarranted under the circumstances.

Article 1229 of the Civil Code states that "Even if there has been no performance, the
penalty may also be reduced by the courts if it is iniquitous or unconscionable."

In the instant case, private respondents made regular payments to petitioner DBP in
compliance with their principal obligation. They failed only to pay on the dates
stipulated in the contract. This indicates the absence of bad faith on the part of
private respondents and their willingness to comply with the terms of the contract.
Moreover, of their principal obligation in the amount of ₱207,000.00, private
respondents have already paid ₱289,600.00 in favor of petitioner.

These circumstances convince the Court of the necessity to equitably reduce the
interest due to petitioner and does so by reducing to 10% the additional interest of
18% per annum computed on total amortizations past due. The penalty charge of 8%
per annum is sufficient to cover whatever else damages petitioner may have incurred
due to respondents’ delay in paying the amortizations, such as attorney’s fees and
litigation expenses. Thus, the CA decision is affirmed with modification.

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