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. Time and again, it has been ruled in a plethora of cases that stipulated interest rates of 3%
per month and higher, are excessive, iniquitous, unconscionable and exorbitant. Such
stipulations are void for being contrary to morals, if not against the law. The Court, however,
stresses that these rates shall be invalidated and shall be reduced only in 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 considered unconscionable (Trade & Investment Development
Corporation of the Philippines v. Roblett Industrial Construction Corporation).