Tolomeo Ligutan v. Hon. Court of Appeals & Security Bank & Trust Company

Summary

This case involves a loan dispute between individual borrowers Ligutan and dela Llana and Security Bank. The borrowers obtained a P120,000 loan in 1981 but defaulted on payment. The bank filed suit and obtained judgment for P114,416.00 plus interest and penalties. The main issues were the reasonableness of the 5% monthly penalty charge, 15.189% annual interest, and 10% attorney's fees. The Court of Appeals reduced the penalty from 5% to 3% monthly, finding it still reasonable given the borrowers' repeated defaults. The Supreme Court affirmed this decision, rejecting petitioners' arguments that the charges were unconscionable. The Court also rejected the novation theory, holding that a subsequent real estate mortgage executed during litigation was merely an accessory contract that did not extinguish the original loan obligation. The decision emphasizes contractual freedom while allowing equitable reduction of penalties when justified.