Source: http://lawlibrary.chanrobles.com/index.php?option=com_content&view=article&id=83381:57469&catid=1587&Itemid=566
Timestamp: 2019-04-22 09:08:14+00:00

Document:
ROLANDO C. DE LA PAZ,*, Petitioner, v. L & J DEVELOPMENT COMPANY, Respondent.
This is a Petition for Review on Certiorari2 assailing the February 27, 2008 Decision3 of the Court of Appeals (CA) in 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 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 Paz (Rolando) its principal obligation of P350,000.00, plus 12% interest per annum reckoned from the filing of the Complaint until full payment of the obligation.
Likewise assailed is the CA’s June 6, 2008 Resolution6 which denied Rolando’s Motion for Reconsideration.
On December 27, 2000, Rolando lent P350,000.00 without any security to L&J, a property developer with Atty. Esteban Salonga (Atty. Salonga) as its President and General Manager. The loan, with no specified maturity date, carried a 6% monthly interest, i.e., P21,000.00. From December 2000 to August 2003, L&J paid Rolando a total of P576,000.007 representing interest charges.
As L&J failed to pay despite repeated demands, Rolando filed a Complaint8 for Collection of Sum of Money with Damages against L&J and Atty. Salonga in his personal capacity before the MeTC, docketed as Civil Case No. 05-7755. Rolando alleged, among others, that L&J’s debt as of January 2005, inclusive of the monthly interest, stood at P772,000.00; that the 6% monthly interest was upon Atty. Salonga’s suggestion; and, that the latter tricked him into parting with his money without the loan transaction being reduced into writing.
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 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 to the P350,000.00 principal loan.
During trial, Rolando testified that he had no communication with Atty. Salonga prior to the loan transaction but knew him as a lawyer, a son of a former Senator, and the owner of L&J which developed Brentwood Subdivision in Antipolo where his associate Nilo Velasco (Nilo) lives. When Nilo told him that Atty. Salonga and L&J needed money to finish their projects, he agreed to lend them money. He personally met with Atty. Salonga and their meeting was cordial.
He narrated that when L&J was in the process of borrowing the P350,000.00 from him, it was Arlene San Juan (Arlene), the secretary/treasurer of L&J, who negotiated the terms and conditions thereof. She said that the money was to finance L&J’s housing project. Rolando claimed that it was not he who demanded for the 6% monthly interest. 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.
c) to pay the costs of this suit.
L&J insisted that the 6% monthly interest rate is unconscionable and immoral. Hence, the 12% per annum legal 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 interest it ought to pay from December 2000 to March 2003 and from April 2003 to August 2003, only amounts to P105,000.00. If this amount is deducted from the total interest payments already made, which is P576,000.00, the amount of P471,000.00 appears to have been paid over and above what is due. Applying the rule on compensation, the principal loan of P350,000.00 should be set-off against the P471,000.00, resulting in the complete payment of the principal loan.
WHEREFORE, premises considered, the Decision appealed from is hereby AFFIRMED in all respects, with costs against the appellant.
Undaunted, L&J went to the CA and echoed its arguments and proposed computation as proffered before the RTC.
In a Decision16 dated February 27, 2008, the CA reversed and set aside the RTC Decision.
The CA stressed that the parties failed to 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% monthly interest is still outrightly illegal and unconscionable because it is contrary to morals, if not against the law. Being void, this cannot be ratified and may be set up by the debtor as defense. For these reasons, Rolando cannot collect any interest even if L&J offered to pay interest. Consequently, he has to return all the interest payments of P576,000.00 to L&J.
WHEREFORE, the DECISION DATED APRIL 19, 2007 is REVERSED and SET ASIDE.
CONSEQUENT TO THE FOREGOING, respondent Rolando C. Dela Paz is ordered to pay to the petitioner the amount of P226,000.00, plus interest of 12% per annum from the finality of this decision.
Costs of suit to be paid by respondent Dela Paz.
In his Motion for Reconsideration,20 Rolando argued that the circumstances exempt both the application of Article 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 interest documented but, by way of legal maneuver, Atty. Salonga, whom he fully trusted and relied upon, tricked him into believing that the undocumented and uncollateralized loan was within legal bounds. Had Atty. Salonga told him that the stipulated interest should be in writing, he would have readily assented.
Furthermore, Rolando insisted that the 6% monthly interest rate could not be unconscionable as in the first place, the interest was not imposed by the creditor but was in fact offered by the borrower, who also dictated all the terms of the loan. He stressed that in cases where interest rates were declared unconscionable, those meant to be protected by such declaration are helpless borrowers which is not the case here.
Still, the CA denied Rolando’s motion in its Resolution21 of June 6, 2008.
Rolando argues that the 6% monthly interest rate should not have been invalidated because Atty. Salonga took advantage of his legal knowledge to hoodwink him into believing that no document was necessary to reflect the interest rate. Moreover, the cases anent unconscionable interest rates that the CA relied upon involve lenders who 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 scenario that ‘enslaves the borrower or that leads to the hemorrhaging of his assets’ that the courts seek to prevent.
L&J, in controverting Rolando’s arguments, contends that the interest rate is subject of negotiation and is agreed upon by both parties, not by the borrower alone. Furthermore, jurisprudence has nullified interest rates on loans of 3% per month and higher as these rates are contrary to morals and public interest. And while Rolando raises bad faith on Atty. Salonga’s part, L&J avers that such issue is a question of fact, a matter that cannot be raised under Rule 45.
The Court’s determination of whether to uphold the judgment of the CA that the principal loan is deemed paid is dependent 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 unconscionability of the interest rate.
Under Article 1956 of the Civil Code, no interest shall be due 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) express stipulation for the payment of interest; and b) the agreement to pay interest is reduced in writing.
between the parties proposed the rate.
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 P226,000.00 which Rolando is ordered to pay L&J shall earn an interest of 6% per annum from the finality of this Decision.
WHEREFORE, the Decision dated February 27, 2008 of the Court of Appeals in CA-G.R. SP No. 100094 is hereby AFFIRMED with modification that petitioner Rolando C. De La Paz is ordered to pay respondent L&J Development Company the amount of P226,000.00, plus interest of 6% per annum from the finality of this Decision until fully paid.
Carpio, (Acting Chief Justice),** Brion, Villarama, Jr.,*** and Leonen, JJ., concur.
* Also spelled as “Dela Paz” in some parts of the records.
** Per Special Order No. 1770 dated August 28, 2014.
*** Per Special Order No. 1767 dated August 27, 2014.
1 CIVIL CODE, Article 1956.
3 CA rollo, pp. 82-89; penned by Associate Justice Lucas P. Bersamin (now a member of this Court) and concurred in by Associate Justices Portia Aliño Hormachuelos and Estela M. Perlas-Bernabe (now also a member of this Court).
4 Id. at 18-26; penned by Judge Geraldine C. Fiel-Macaraig.
5 Id. at 39-43; penned by Judge Alex E. Ruiz.
14 CA rollo, pp. 18-26.
17 Article 1956. No interest shall be due unless it has been expressly stipulated in writing.
19 CA rollo, p. 88.
22Siga-an v. Villanueva, 596 Phil. 760, 769 (2009).
23Vales v. Villa, 35 Phil. 769, 788 (1916).
24 G.R. No. 141181, April 27, 2007, 522 SCRA 316, 361.
25 Act No. 2655 as amended by Presidential Decree 116.
26 Section 1 states: The rate of interest, including commissions, premiums, fees and other charges, on a loan or forbearance of any money, goods, or credits, regardless of maturity and whether secured or unsecured, that may be charged or collected by any person, whether natural or juridical, shall not be subject to any ceiling prescribed under or pursuant to the Usury Law, as amended.
27 523 Phil. 360 (2006).
29Macalinao v. Bank of the Philippine Islands, G.R. No. 175490, September 17, 2009, 600 SCRA 67, 77, citing Chua v. Timan, G.R. No. 170452, August 13, 2008, 562 SCRA 146, 149-150.
30 Prisma Construction & Development Corporation v. Menchavez, G.R. No. 160545, March 9, 2010, 614 SCRA 590, 599.
31Spouses Solangon v. Salazar, 412 Phil. 816, 823 (2001).
32 G.R. No. 186550, July 5, 2010, 623 SCRA 517.
34Menchavez v. Bermudez, G.R. No. 185368, October 11, 2012, 684 SCRA 168, 178.
35 CIVIL CODE, Article 2154. If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises.
36 Issued on June 21, 2013; It provides that the rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in the absence of an express contract as to such rate of interest, shall be six percent (6%) per annum.

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