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Dela Paz Vs L & J Development Company
Dela Paz Vs L & J Development Company
Dela
G.R. No. 183360 September 8, 2014
Paz, and against the defendant, L & J Development Co., Inc., as follows:
ROLANDO C. DE LA PAZ,* Petitioner,
a) ordering the defendant L & J Development Co., Inc. to pay plaintiff the amount of Three Hundred Fifty
vs.
Thousand Pesos (₱350,000.00) representing the principal obligation, plus interest at the legal rate of 12% per
L & J DEVELOPMENT COMPANY, Respondent.
annum to be computed from January 20, 2005, the date of the filing of the complaint, until the whole obligation
DECISION is fully paid;
DEL CASTILLO, J.: b) ordering the defendant L & J Development Co., Inc. to pay plaintiff the amount of Five Thousand Pesos
(₱5,000.00) as and for attorney’s fees; and
"No interest shall be due unless it has been expressly stipulated in writing."1
c) to pay the costs of this suit.
This is a Petition for Review on Certiorari2 assailing the February 27, 2008 Decision3 of the Court of Appeals (CA) in
SO ORDERED.11
CA-G.R. SP No. 100094, which reversed and set aside the Decision4 dated April 19, 2007 of the Regional Trial Court
(RTC), Branch 192, Marikina City in Civil Case No. 06-1145-MK. The said RTC Decision affirmed in all respects the Ruling of the Regional Trial Court
Decision5 dated June 30, 2006 of the Metropolitan Trial Court (MeTC), Branch 75, Marikina City in Civil Case No. 05-
7755, which ordered respondent L & J Development Company (L&J) to pay petitioner Architect Rolando C. De La L&J appealed to the RTC. It asserted in its appeal memorandum12 that from December 2000 to March 2003, it paid
Paz (Rolando) its principal obligation of ₱350,000.00, plus 12% interest per annumreckoned from the filing of the monthly interest of ₱21,000.00 based on the agreed-upon interest rate of 6%monthly and from April 2003 to August
Complaint until full payment of the obligation. 2003, interest paymentsin various amounts.13 The total of interest payments made amounts to ₱576,000.00 – an
amount which is even more than the principal obligation of ₱350,000.00
Likewise assailed is the CA’s June 6, 2008 Resolution6 which denied Rolando’s Motion for Reconsideration.
L&J insisted that the 6% monthly interest rate is unconscionable and immoral. Hence, the 12% per annumlegal
Factual Antecedents interest should have been applied from the time of the constitution of the obligation. At 12% per annum interest rate,
it asserted that the amount of interestit ought to pay from December 2000 to March 2003 and from April 2003 to
On December 27, 2000, Rolando lent ₱350,000.00 without any security to L&J, a property developer with Atty.
August 2003, only amounts to ₱105,000.00. If this amount is deducted from the total interest paymentsalready
Esteban Salonga (Atty. Salonga) as its President and General Manager. The loan, with no specified maturity date,
made, which is ₱576,000.00, the amount of ₱471,000.00 appears to have beenpaid over and above what is due.
carried a 6% monthly interest, i.e., ₱21,000.00. From December 2000 to August 2003, L&J paid Rolando a total of
Applying the rule on compensation, the principal loan of ₱350,000.00 should be set-off against the ₱471,000.00,
₱576,000.007 representing interest charges.
resulting in the complete payment of the principal loan.
As L&J failed to pay despite repeated demands, Rolando filed a Complaint8 for Collection of Sum of Money with
Unconvinced, the RTC, inits April 19, 2007 Decision,14 affirmed the MeTC Decision, viz: WHEREFORE, premises
Damages against L&J and Atty. Salonga in his personal capacity before the MeTC, docketed as Civil Case No. 05-
considered, the Decision appealed from is hereby AFFIRMED in all respects, with costs against the appellant.
7755. Rolando alleged, amongothers, that L&J’s debtas of January 2005, inclusive of the monthly interest, stood at
₱772,000.00; that the 6% monthly interest was upon Atty. Salonga’s suggestion; and, that the latter tricked him into SO ORDERED.15
parting with his money without the loan transaction being reduced into writing.
Ruling of the Court of Appeals
In their Answer,9 L&J and Atty. Salonga denied Rolando’s allegations. While they acknowledged the loan as a
corporate debt, they claimed that the failure to pay the same was due to a fortuitous event, that is, the financial Undaunted, L&J went to the CA and echoed its arguments and proposed computation as proffered before the RTC.
difficulties brought about by the economic crisis. They further argued that Rolando cannot enforce the 6% monthly
interest for being unconscionable and shocking to the morals. Hence, the payments already made should be applied In a Decision16 dated February 27, 2008, the CAreversed and set aside the RTC Decision. The CA stressed that the
to the ₱350,000.00 principal loan. parties failedto stipulate in writing the imposition of interest on the loan. Hence, no interest shall be due thereon
pursuant to Article 1956 of the Civil Code.17 And even if payment of interest has been stipulated in writing, the 6%
During trial, Rolando testified that he had no communication with Atty. Salonga prior to the loan transaction but knew monthly interest is still outrightly illegal and unconscionable because it is contrary to morals, if not against the law.
him as a lawyer, a son of a former Senator, and the owner of L&J which developed Brentwood Subdivision in Being void, this cannot be ratified and may be set up by the debtor as defense. For these reasons, Rolando cannot
Antipolo where his associate Nilo Velasco (Nilo) lives. When Nilo told him that Atty. Salonga and L&J needed money collect any interest even if L&J offered to pay interest. Consequently, he has to return all the interest payments of
to finish their projects, heagreed to lend them money. He personally met withAtty. Salonga and their meeting was ₱576,000.00 to L&J.
cordial.
Considering further that Rolando and L&J thereby became creditor and debtor of each other, the CA applied the
He narrated that when L&J was in the process of borrowing the ₱350,000.00 from him, it was Arlene San Juan principle of legal compensation under Article 1279 of the Civil Code.18 Accordingly, it set off the principal loan of
(Arlene), the secretary/treasurer of L&J, who negotiated the terms and conditions thereof.She said that the money ₱350,000.00 against the ₱576,000.00 total interest payments made, leaving an excess of ₱226,000.00, which the
was to finance L&J’s housing project. Rolando claimed that it was not he who demanded for the 6% monthly interest. CA ordered Rolando to pay L&J plus interest. Thus:
It was L&J and Atty. Salonga, through Arlene, who insisted on paying the said interest as they asserted that the loan
was only a short-term one. WHEREFORE, the DECISION DATED APRIL 19, 2007 is REVERSED and SET ASIDE.
Ruling of the Metropolitan Trial Court CONSEQUENT TO THE FOREGOING, respondent Rolando C. Dela Paz is ordered to pay to the petitioner the
amount of ₱226,000.00,plus interest of 12% per annumfrom the finality of this decision.
The MeTC, in its Decision10 of June 30, 2006, upheld the 6% monthly interest. In so ruling, it ratiocinated that since
L&J agreed thereto and voluntarily paid the interest at suchrate from 2000 to 2003, it isalready estopped from Costs of suit to be paid by respondent Dela Paz.
impugning the same. Nonetheless, for reasons of equity, the saidcourt reduced the interest rate to 12% per annumon
the remaining principal obligation of ₱350,000.00. With regard to Rolando’s prayer for moral damages, the MeTC SO ORDERED.19
denied the same as it found no malice or bad faith on the part ofL&J in not paying the obligation. It likewise relieved
Atty. Salonga of any liability as it found that he merely acted in his official capacity in obtaining the loan. The MeTC In his Motion for Reconsideration,20 Rolando argued thatthe circumstances exempt both the application of Article
disposed of the case as follows: 1956 and of jurisprudence holding that a 6% monthly interest is unconscionable, unreasonable, and exorbitant. He
alleged that Atty. Salonga, a lawyer, should have taken it upon himself to have the loan and the stipulated rate of contracts,or annul the effects of foolish acts. Courts cannotconstitute themselves guardians of persons who are not
interest documented but, by way of legal maneuver, Atty. Salonga, whom he fully trusted and relied upon, tricked him legally incompetent."23
into believing that the undocumented and uncollateralized loan was withinlegal bounds. Had Atty. Salonga told him
that the stipulated interest should be in writing, he would have readily assented. Furthermore, Rolando insisted that It may be raised that L&J is estopped from questioning the interest rate considering that it has been paying Rolando
the 6% monthly interest ratecould not be unconscionable as in the first place, the interest was not imposed by the interest at such ratefor more than two and a half years. In fact, in its pleadings before the MeTCand the RTC, L&J
creditor but was in fact offered by the borrower, who also dictated all the terms of the loan. He stressed that in cases merely prayed for the reduction of interest from 6% monthly to 1% monthly or 12% per annum. However, in Ching v.
where interest rates were declared unconscionable, those meant to be protected by such declaration are helpless Nicdao,24 the daily payments of the debtor to the lender were considered as payment of the principal amount of the
borrowers which is not the case here. loan because Article 1956 was not complied with. This was notwithstanding the debtor’s admission that the
payments made were for the interests due. The Court categorically stated therein that "[e]stoppel cannot give validity
Still, the CA denied Rolando’s motion in its Resolution21 of June 6, 2008. to an act that is prohibited by law or one thatis against public policy."
Hence, this Petition. Even if the payment of interest has been reduced in writing, a 6% monthly interest rate on a loan is unconscionable,
regardless of who between the parties proposed the rate.
The Parties’ Arguments
Indeed at present, usury has been legally non-existent in view of the suspension of the Usury Law25 by Central Bank
Rolando argues that the 6%monthly interest rateshould not have been invalidated because Atty. Salonga took Circular No. 905 s. 1982.26 Even so, not all interest rates levied upon loans are permitted by the courts as they have
advantage of his legal knowledge to hoodwink him into believing that no document was necessaryto reflect the the power to equitably reduce unreasonable interest rates. In Trade & Investment Development Corporation of the
interest rate. Moreover, the cases anent unconscionable interest rates that the CA relied upon involve lenders who Philippines v. Roblett Industrial Construction Corporation,27 we said:
imposed the excessive rates,which are totally different from the case at bench where it is the borrower who decided
on the high interest rate. This case does not fall under a scenariothat ‘enslaves the borrower or that leads to the While the Court recognizes the right of the parties to enter into contracts and who are expectedto comply with their
hemorrhaging of his assets’ that the courts seek to prevent. terms and obligations, this rule is not absolute. Stipulated interest rates are illegal if they are unconscionable and the
Court is allowed to temper interest rates when necessary. In exercising this vested power to determine what is
L&J, in controverting Rolando’s arguments, contends that the interest rate is subject of negotiation and is iniquitous and unconscionable, the Court must consider the circumstances of each case. What may be iniquitous
agreedupon by both parties, not by the borrower alone. Furthermore, jurisprudence has nullified interestrates on and unconscionable in onecase, may be just in another. x x x28
loans of 3% per month and higher as these rates are contrary to moralsand public interest. And while Rolando raises
bad faithon Atty. Salonga’s part, L&J avers thatsuch issue is a question of fact, a matter that cannot be raised under Time and again, it has been ruled in a plethora of cases that stipulated interest rates of 3% per month and higher,
Rule 45. are excessive, iniquitous, unconscionable and exorbitant. Such stipulations are void for being contrary to morals, if
not against the law.29 The Court, however, stresses that these rates shall be invalidated and shall be reduced only in
Issue cases where the terms of the loans are open-ended, and where the interest rates are applied for an indefinite period.
Hence, the imposition of a specific sum of ₱40,000.00 a month for six months on a ₱1,000,000.00 loan is not
The Court’s determination of whether to uphold the judgment of the CA that the principal loan is deemed paid
considered unconscionable.30
isdependent on the validity of the monthly interest rate imposed. And in determining such validity, the Court must
necessarily delve into matters regarding a) the form of the agreement of interest under the law and b) the alleged In the case at bench, there is no specified period as to the payment of the loan. Hence, levying 6% monthly or 72%
unconscionability of the interest rate. Our Ruling interest per annumis "definitely outrageous and inordinate."31 The situation that it was the debtor who insisted on the
interest rate will not exempt Rolando from a ruling that the rate is void. As this Court cited in Asian Cathay Finance
The Petition is devoid of merit.
and Leasing Corporation v. Gravador,32 "[t]he imposition of an unconscionable rate of interest on a money debt, even
The lack of a written stipulation to pay interest on the loaned amount disallows a creditor from charging monetary if knowingly and voluntarily assumed, is immoral and unjust. It is tantamount to a repugnant spoliation and an
interest. iniquitous deprivation of property, repulsive to the common sense of man."33 Indeed, "voluntariness does notmake
the stipulation on [an unconscionable] interest valid."34
Under Article 1956 of the Civil Code, no interest shall bedue unless it has been expressly stipulated in writing.
Jurisprudence on the matter also holds that for interest to be due and payable, two conditions must concur: a) As exhaustibly discussed,no monetary interest isdue Rolando pursuant to Article 1956. The CA thus correctly
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express stipulation for the payment of interest; and b) the agreement to pay interest is reduced in writing. adjudged that the excess interest payments made by L&J should be applied to its principal loan. As computed by the
CA, Rolando is bound to return the excess payment of ₱226,000.00 to L&J following the principle of solutio indebiti.35
Here, it is undisputed that the parties did not put down in writing their agreement. Thus, no interest is due. The
collection of interest without any stipulation in writing is prohibited by law.22 However, pursuant to Central Bank Circular No. 799 s. 2013 which took effect on July 1, 2013,36 the interest imposed
by the CA must be accordingly modified. The ₱226,000.00 which Rolando is ordered to pay L&J shall earn an
But Rolando asserts that his situation deserves an exception to the application of Article 1956. He blames Atty. interest of 6% per annumfrom the finality of this Decision.
Salonga for the lack of a written document, claiming that said lawyer used his legal knowledge to dupe him. Rolando
thus imputes bad faith on the part of L&J and Atty. Salonga. The Court, however, finds no deception on the partof WHEREFORE, the Decision dated February 27, 2008 of the Court of Appeals in CA-G.R. SP No. 100094 is hereby
L&J and Atty. Salonga. For one, despite the lack of a document stipulating the payment of interest, L&J nevertheless AFFIRMED with modification that petitioner Rolando C. De La Paz is ordered to pay respondent L&J Development
devotedly paid interests on the loan. It only stopped when it suffered from financial difficulties that prevented it from Company the amount of ,₱226,000.00, plus interest of 6o/o per annum from the finality of this Decision until fully
continuously paying the 6% monthly rate. For another,regardless of Atty. Salonga’s profession, Rolando who is an paid.
architect and an educated man himself could have been a more reasonably prudent person under the
circumstances. To top it all, he admitted that he had no prior communication with Atty. Salonga. Despite Atty. Salonga SO ORDERED.
being a complete stranger, he immediately trusted him and lent his company ₱350,000.00, a significant amount.
Moreover, as the creditor,he could have requested or required that all the terms and conditions of the loan
agreement, which include the payment of interest, be put down in writing to ensure that he and L&J are on the same
page. Rolando had a choice of not acceding and to insist that their contract be put in written form as this will favor
and safeguard him as a lender. Unfortunately, he did not. It must be stressed that "[c]ourts cannot follow one every
step of his life and extricate him from bad bargains, protect him from unwise investments, relieve him from one-sided