Professional Documents
Culture Documents
Isla v. Estorga
Isla v. Estorga
ESTORGA ISSUE: WON the CA correctly imposed the interest rate of 12% per annum on the principal
4 July 2018 obligation until full payment- YES
Topic: Interest
RULING:
DOCTRINE: -2 types of interest:
Jurisprudence is clear about the applicable interest rate if a written instrument fails to specify Monetary interest- compensation fixed by the parties for the use or forebearance
a rate- Art. 1956 NCC: In a loan or forbearance of money, according to the Civil Code, the of money; right to recover arises only either by virtue of contract
interest due should be that stipulated in writing, and in the absence thereof, the rate shall be
12% per annum mandatory and definite rule Compensatory interest- that imposed by law or courts as penalty or indemnity for
damages; right to recover arises only by virtue of damages for delay or failure to
In Nacar v. Gallery Frames (2013) the legal rate of interest has been reduced to 6% per pay principal loan on which interest is demanded
annum
-In monetary interest, parties are free to stipulate their preferred rate courts are allowed
Thus, it remains that where interest was stipulated in writing by the debtor and creditor in a to equitably temper interest rates that are found to be excessive, iniquitous, unconscionable,
simple loan or mutuum, but no exact interest rate was mentioned, the legal rate of interest and/or exorbitant (ie. 3% per month or higher)
shall apply. At present, this is 6% per annum, subject to Nacar's qualification on prospective
application. -Only the unconscionable interest rate is nullified and deemed not written in the contract but
the parties’ agreement on the payment of interest on the principal loan obligation subsists
FACTS: it will be as if the parties failed to specify the interest rate to be imposed on the principal
Petitioners obtained a loan in the amount of Pl00,000.00 from respondent, payable anytime amount, in which case the legal rate of interest prevailing at the time the agreement was
from 6 months-1 year and subject to interest at the rate of 10% per month, payable on or entered into is applied by the Court
before the end of each month.
-In this case, petitioners and respondent entered into a loan obligation and clearly stipulated
As security, a real estate mortgage was constituted over a parcel of land located in Pasay for the payment of monetary interest However, the stipulated interest of 10% per month
City and registered under the name of Edilberto Isla (Edilberto ), who is married to Catalina was found to be unconscionable, and thus, the courts a quo struck down the same and
(subject property). pegged a new monetary interest of 12% per annum, which was the prevailing legal rate of
interest for loans and forbearances of money at the time the loan was contracted on
When petitioners failed to pay the said loan, respondent sought assistance from the December 6, 2004
barangay, and consequently, a Kasulatan ng Pautang was executed Petitioners, however,
failed to comply with its terms, prompting respondent to send a demand letter dated -In addition, not only the principal amount but also the monetary interest due to respondent
Once more, petitioners failed to comply with the demand, causing respondent to file a as discussed above shall itself earn compensatory interest at the legal rate, pursuant to
Petition for Judicial Foreclosure 9 against them before the RTC Article 2212 of the Civil Code
Petitioners maintained: “Interest due shall earn legal interest from the time it is judicially demanded,
1. that the subject mortgage was not a REM but a mere loan, and that the stipulated although the obligation may be silent upon this point”
interest of 10% per month was exorbitant and grossly unconscionable
2. that since petitioners were not the absolute owners of the subject property - as -In cases where no monetary interest had been stipulated by the parties, no accrued
the same was allegedly owned by Edilberto - they could not have validly monetary interest could further earn compensatory interest upon judicial demand
constituted the subject mortgage thereon
-Thus, the principal amount and monetary interest due to respondent shall earn
compensatory interest of 12% per annum from judicial demand, ie:
RTC: directed petitioners to pay the P100k with 12% interest per annum from Dec 2007 until date of the filing of the complaint on July 24, 2007 to June 30, 2013
fully paid in the event that petitioners failed to pay/deposit with the Clerk of Court the and thereafter, at the rate of 6% per annum from July 1, 2013 until fully paid
said amounts within 6 months from receipt of RTC decision, the subj property will be
foreclosed and sold at a public auction
CA: affirmed- 12% per annum from date of extrajudicial demand until full payment (Nov
2007)