ROLANDO DE LA PAZ VS L&J DEVELOPMENT [2014]
H. MTC judgment:
[Del Castillo, J.]
Summary and Doctrine:
Rolando lent Php 350K to L&J Development. The loan was
executed without maturity date and security. Interest rate of 6%
per month was agreed upon but not reduced into writing.
L&J paid a total of Php 576,000 already – including interest
charges from December 2000 to August 2003, and thereafter
defaulted. Rolando claims a balance of Php 772K.
Issue: Whether or not the unwritten 6% interest agreement
should be honored - No
Rationale/Doctrine: Under the Civil Code, an agreement
regarding loan interests should be stipulated in writing.
6% monthly rate was void void for being unconscionable and
contrary to morals and public policy – for at this time, an interest
rate of 3% and higher is considered excessive and exorbitant.
Dispositive: Rolando to return excess Php 226K with interest of
6% per annum.
I. FACTS:
A. Rolando dela Paz lent Php 350,000 to L&J Development
Corporation, a property developer represented by Atty.
Esteban Salonga as its president and general manager.
B. The loan was executed without any security and no maturity
date. Parties agreed on a 6% monthly interest (Php 21K).
C. L&J paid a total of Php 576,000 already – including interest
charges from December 2000 to August 2003.
D. L&J later failed to make payments due to financial difficulties
in the business. Rolando then filed a collection case with
the MTC and alleged as of January 2005, L&J still owes him
Php 772,000 inclusive of monthly interests.
E. L&J (represented by Atty. Salonga) did not deny that they did
incurred a debt from Rolando, and admitted that they failed
to pay due to a fortuitous event (financial difficulties).
F. L&J contended that the 6% monthly interest is
unconscionable and that their total payment of Php 576,000
should be applied to the principal loan which only amounts
to Php 350,000.
G. Rolando argues that Atty. Salonga tricked him to execute the
said loan plus interest without reducing the agreement in
writing. He also said that the 6% interest rate was at the
suggestion and insistence of L&J.
1. 6% interest rate valid. L&J complied to it as evidenced
by the payment they made. L&J is now estopped.
2. Reduced the legal interest to 12% per annum on the
remaining loan for reasons of equity.
3. Did not grant the prayer of moral damages - no bad
faith on the part of L&J.
I. L&J appealed the decision to the RTC – contending that
the 6% interest rate is unconscionable, and that their
previous total payment of Php 576K should be used to set
off the principal loan of Php 350,000. RTC affirmed the
decision of the MTC. L&J appealed to the CA.
J. L&J appealed to the CA - CA ruled in favor of L&J
1. Agreed 6% interest rate was not reduced in a written
agreement and hence, it should not be considered due.
2. The loan was already paid.
3. Rolando should return the excess Php 226K with
interest of 12% per annum.
II. ISSUE/S:
Whether or not the unwritten 6% interest agreement should be
honored – No.
III. RATIONALE:
1. SC held that under the Civil Code, an agreement regarding
loan interests should be stipulated in writing.
2. Even if the 6% monthly rate was done in writing, it will still be
void for being unconscionable and contrary to morals and
public policy – for at this time, an interest rate of 3% and
higher is considered excessive and exorbitant.
3. Furthermore, the lack of maturity date puts the total interest
to a whopping 72% per annum which the SC considered to
be “definitely outrageous and inordinate.”
4. SC affirmed CA’s ruling, but as to Rolando’s obligation to pay
the excess Php 226,000, the interest rate was reduced from
12% to 6% per annum.