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51) de La Paz vs. L & J Development Company, 734 SCRA 364 (2014)

1) Rolando lent ₱350,000 to L&J Development Company without a written agreement specifying the interest rate or maturity date of the loan. L&J paid ₱576,000 in interest charges over several years at a rate of 6% per month. 2) When L&J failed to pay despite demands, Rolando filed a case in court. L&J argued the high interest rate was unconscionable. Lower courts upheld the interest but reduced the rate. 3) The appellate court reversed, finding no written agreement on interest meant none was due under the Civil Code. It also found the 6% monthly rate unconscionably high and ordered Rolando to return

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92 views1 page

51) de La Paz vs. L & J Development Company, 734 SCRA 364 (2014)

1) Rolando lent ₱350,000 to L&J Development Company without a written agreement specifying the interest rate or maturity date of the loan. L&J paid ₱576,000 in interest charges over several years at a rate of 6% per month. 2) When L&J failed to pay despite demands, Rolando filed a case in court. L&J argued the high interest rate was unconscionable. Lower courts upheld the interest but reduced the rate. 3) The appellate court reversed, finding no written agreement on interest meant none was due under the Civil Code. It also found the 6% monthly rate unconscionably high and ordered Rolando to return

Uploaded by

Zyrene Cabaldo
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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51. DE LA PAZ,* Petitioner, vs. L & J DEVELOPMENT COMPANY, Respondent.

FACTS:
Rolando lent ₱350,000.00 without any security to L&J, a property developer with Atty. Salonga
as its President and General Manager. The loan, with no specified maturity date, carried a 6%
monthly interest, i.e., ₱21,000.00. From December 2000 to August 2003, L&J paid Rolando a
total of ₱576,000.007 representing interest charges. As L&J failed to pay despite repeated
demands, Rolando filed a Complaint against L&J and Atty. Salonga before the MeTC. L&J
claimed that the failure to pay 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 ₱350,000.00 principal loan.The MeTC upheld the 6%
monthly interest. Nonetheless, for reasons of equity, it reduced the interest rate to 12% per
annum on the remaining principal obligation of ₱350,000.00. RTC affirmed the MeTC Decision.
CA reversed the Decision and 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. 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 and that Rolando cannot collect any interest even if L&J offered to pay
interest. Rolando argues that the case at bench is one where it is the borrower who decided
on the high interest rate. L&J contends that the interest rate is subject of negotiation and is
agreed upon by both parties, not by the borrower alone.

ISSUE:
Whether or not the 6% monthly interest is valid

RULING:
NO. The lack of a written stipulation to pay interest on the loaned amount disallows a creditor
from charging monetary interest. 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. 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. In the case at
bench, there is no specified period as to the payment of the loan. Hence, levying 6% monthly or
72% interest per annum is "definitely outrageous and inordinate." The CA thus correctly
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. 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 interest of 6%
per annum from the finality of this Decision.

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