[G.R. No.

183360, September 8, 2014]

ROLANDO DE LA PAZ VS. L & J DEVELOPMENT COMPANY

Facts:

Out of trust and confidence, Rolando dela Paz lent a sum of money worth Php 350,000 to L & J
Development Corporation, a property developer represented by Atty. Esteban Salonga as its president
and general manager.

The loan was executed without any security and no maturity date. It was however agreed between the
parties that the loan will have a 6% monthly interest (amounting to Php 21,000). So far, L&J paid a total of
Php 576,000 already – including interest charges from December 2000 to August 2003.

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.

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). They also 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.

Rolando also contends 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.

The MTC rendered judgment in favor of Rolando and upheld the 6% interest rate as valid since L&J
complied to it as evidenced by the payment they made from December 2000 to August 2003. L&J is now
estopped to impugn said interest rate.

The MTC also reduced the legal interest rate to 12% per annum on the remaining loan for reasons of
equity. They did not grant the prayer of moral damages to Rolando since there was no bad faith on the
part of L&J.

L&J appealed the decision to the RTC – contending once again that the 6% interest rate is
unconscionable, and that their previous payment which totaled Php 576,000 should be used to set off the
principal loan of Php 350,000. RTC however affirmed the decision of the MTC. L&J appealed to the CA.

CA ruled in favor of L&J, noting that the agreed 6% interest rate was not reduced in a written agreement
and hence, it should not be considered due. CA ruled that the loan was already paid, and that Rolando
should return the excess Php 226,000 with interest of 12% per annum. The case has now reached the
Supreme Court.

Issue:

Whether or not the unwritten 6% interest agreement should be honored.

Held:
No. The Supreme Court held that, as provided under the Civil Code, an agreement regarding loan
interests should be stipulated in writing. 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.

Furthermore, the lack of maturity date puts the total interest to a whooping 72% per annum which the
Supreme Court considered to be “definitely outrageous and inordinate.” The Supreme Court 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.