DBP v CA

G.R. No. 137557; October 30, 2000

Art. 1229 – 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.