GR 183360; (September, 2014) (Digest)
G.R. No. 183360, September 8, 2014
ROLANDO C. DE LA PAZ, Petitioner, vs. L & J DEVELOPMENT COMPANY, Respondent.
FACTS
Petitioner Rolando C. De La Paz lent PHP 350,000.00 to respondent L & J Development Company on December 27, 2000. The loan was without security and had no specified maturity date. It carried a 6% monthly interest, which respondent paid from December 2000 to August 2003, totaling PHP 576,000.00. The agreement on the interest rate was not reduced to writing. After respondent failed to pay further, petitioner filed a collection case. The Metropolitan Trial Court (MeTC) ordered respondent to pay the principal plus 12% per annum interest from the filing of the complaint. The Regional Trial Court (RTC) affirmed this. The Court of Appeals (CA) reversed, holding that no interest was due because there was no written stipulation as required by Article 1956 of the Civil Code, and that the 6% monthly interest was unconscionable. The CA applied legal compensation, setting off the principal against the interest payments made, resulting in an excess that petitioner was ordered to pay to respondent.
ISSUE
Whether the Court of Appeals erred in ruling that no interest is due on the loan and in declaring the 6% monthly interest unconscionable, thereby deeming the principal obligation extinguished by compensation.
RULING
The Supreme Court denied the petition and affirmed the CA decision. The Court held that under Article 1956 of the Civil Code, no interest is due unless expressly stipulated in writing. Since the agreement for a 6% monthly interest was not reduced to writing, petitioner cannot collect any interest. Furthermore, the 6% monthly interest rate is unconscionable and void, as it is contrary to morals and public policy. Consequently, petitioner had no right to receive the interest payments. Applying the principle of solutio indebiti under Article 2154, petitioner must return the PHP 576,000.00 in interest payments to respondent. Through legal compensation under Article 1279, the principal debt of PHP 350,000.00 was extinguished by setting it off against the interest to be returned, leaving an excess of PHP 226,000.00 payable by petitioner to respondent. The legal interest rate of 12% per annum on this excess, as stipulated in the CA decision, was modified to 6% per annum from finality of judgment until full payment, following Bangko Sentral ng Pilipinas Circular No. 799, Series of 2013.