G.R. No. 243891, May 07, 2021
MEGALOPOLIS PROPERTIES, INC. (NOW, KAIZEN BUILDERS, INC.), GERALDINE FAJARDO AND SPOUSES HILARIO AND CECILLE APOSTOL, PETITIONERS, VS. D’NHEW LENDING CORPORATION, JONATHAN DEL PRADO AND PRADEEP “PAUL” LALWANI, RESPONDENTS.

FACTS

Petitioner Megalopolis Properties, Inc. obtained a loan of P4,000,000.00 from respondent D’Nhew Lending Corporation, payable in monthly installments with an add-on interest of 3% per month, secured by a Real Estate Mortgage executed by petitioner Geraldine Fajardo and a Continuing Surety Agreement by petitioner spouses Hilario and Cecille Apostol. Petitioners issued postdated checks for payment, but several were dishonored. After paying some in cash, the parties restructured the loan on October 16, 2008, capitalizing unpaid interest and increasing the principal to P3,219,000.00, with the same 3% monthly add-on interest, payable over 24 months as outlined in a new Promissory Note and secured by the same mortgage. Petitioners again issued checks, but those dated May 16, June 16, and July 16, 2009 were dishonored. Petitioners filed a complaint with the RTC seeking to nullify the 3% monthly interest as excessive. During the case, the mortgaged property was extrajudicially foreclosed, with D’Nhew Lending as the highest bidder for P5,345,202.00. The RTC dismissed the complaint, upheld the 3% interest, but using a diminishing balance method, computed a remaining obligation and ordered the return of P1,263,651.26 as excess foreclosure proceeds. The CA affirmed the validity of the 3% interest, set aside the RTC’s order for return of excess proceeds, and disagreed with the imposition of a diminishing balance computation.

ISSUE

Whether the stipulated interest rate of 3% per month (36% per annum) is excessive, iniquitous, unconscionable, and exorbitant, and thus void.

RULING

Yes. The Supreme Court granted the petition, reversed the CA Decision and Resolution, and declared the 3% monthly interest invalid for being excessive and unconscionable. Applying the guidelines in Spouses Abella v. Spouses Abella, the Court found the rate to be unreasonable. It considered the prevailing interest rates prescribed by the Bangko Sentral ng Pilipinas, the nature of the business of the lender (a lending corporation not a bank), and the compensatory purpose of interest. The Court imposed in its stead the legal interest rate of 12% per annum on the principal loan amount, computed from the date of judicial demand (filing of the complaint). Consequently, petitioners’ total interest obligation was reduced by P1,545,120.00. The Court also held that the issue of entitlement to any excess foreclosure proceeds should be resolved in a separate civil action for collection.