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De la Paz vs L & J Development Company

GR No. 183360, September 8, 2014


Del Castillo, J.:

Facts:
Dela Paz lent ₱350,000.00 without any security to L&J, a property developer with Atty. Esteban
Salonga (Atty. Salonga) as its President and General Manager. The loan, with no specified maturity
date, carried a 6% monthly interest.

As L&J failed to pay despite repeated demands, Dela Paz filed a Complaint for Collection of Sum of
Money with Damages against L&J and Atty. Salonga in his personal capacity. Dela Paz alleged that the
latter tricked him into parting with his money without the loan transaction being reduced into writing.

L&J and Atty. Salonga claimed that the failure to pay the same was due to a fortuitous event, that is, the
financial difficulties brought about by the economic crisis. They further argued that Dela Paz cannot
enforce the 6% monthly interest for being unconscionable and shocking to the morals.

Dela Paz insisted that the 6% monthly interest rate could not be unconscionable as in the first place, the
interest was not imposed by the creditor but was in fact offered by the borrower, who also dictated all
the terms of the loan.

Issue:
Is the 6% monthly interest of the loan 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 bedue 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.
Here, it is undisputed that the parties did not put down in writing their agreement. Thus, no interest is
due. The collection of interest without any stipulation in writing is prohibited by law.
As the creditor, Dela Paz could have requested or required that all the terms and conditions of the loan
agreement, which include the payment of interest, be put down in writing to ensure that he and L&J are
on the same page. Dela Paz had a choice of not acceding and to insist that their contract be put in
written form as this will favor and safeguard him as a lender.

Imperial vs Jaucian
GR No. 149004, April 14, 2004
Panganiban, J.:
Facts:
Imperial obtained from Jaucian six (6) separate loans for which the former executed in favor of the
latter six (6) separate promissory notes and issued several checks as guarantee for payment. The face
value of each promissory notes is bigger [than] the amount released to defendant because said face
value already include[d] the interest from date of note to date of maturity. Said promissory notes, which
indicate the interest of 16% per month, date of issue, due date.

When the said loans became overdue and unpaid, especially when Imperial’s checks were dishonored,
Jaucian made repeated oral and written demands for payment.

The RTC ordered Imperial to pay with regular and compensatory interests thereon at the rate of twenty-
eight (28%) per centum per annum.

Imperial raised that the charging of interest of twenty-eight (28%) per centum per annum without any
writing is illegal.

Issue:
Was the interest rate of 28% ordered by RTC illegal?

Ruling:
No.

The records show that there was a written agreement between the parties for the payment of interest on
the subject loans at the rate of 16 percent per month. As decreed by the lower courts, this rate must be
equitably reduced for being iniquitous, unconscionable and exorbitant. "While the Usury Law ceiling
on interest rates was lifted by C.B. Circular No. 905, nothing in the said circular grants lenders carte
blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a
hemorrhaging of their assets."

Since the stipulation on the interest rate is void, it is as if there were no express contract thereon.
Hence, courts may reduce the interest rate as reason and equity demand. We find no justification to
reverse or modify the rate imposed by the two lower courts.

Sps. Mariano and Florendo vs. CA and LBP


GR No. 101771, December 17, 1996
Panganiban, J.:

Facts:
Gilda Florendo was an employee of LBP when she voluntarily resigned. However, before her
resignation, she applied for a housing loan of P148,000.00, payable within 25 years from Provident
Fund. Together with the Housing Loan Agreement, a Real Estate Mortgage and Promissory
Note were also executed.

After the resignation, LBP increased the interest rate from 9% per annum to 17%. LBP first informed
Florendo of the said increase in a letter reminding the latter about the escalation provision of
increase/decrease in interest rate in the Housing Loan Agreement and the mortgage contract.
Florendo argued that the increased rate of interest is onerous and was imposed unilaterally, without the
consent of the borrower-spouses.

Issue:
Did LBP have a valid and legal basis to impose an increased interest rate on the Florendo’s housing
loan?

Ruling:
NO.

The unilateral determination and imposition of increased interest rates by the herein respondent bank is
obviously violative of the principle of mutuality of contracts ordained in Article 1308 of the Civil
Code.

LBP tried to sidestep this difficulty by averring that Florendo as a former bank employee was very
knowledgeable concerning respondent bank's lending rates and procedures, and therefore, she was "on
an equal footing" with respondent bank as far as the subject loan contract was concerned. However,
that does not hold true when it comes to the determination and imposition of escalated rates of interest
as unilaterally provided in the ManCom Resolution, where she had no voice at all in its preparation and
application.

LBP’s position that the concessional interest rate was really intended as a means to remunerate its
employees and thus an escalation due to resignation would have been a valid stipulation. But no such
stipulation was in fact made, and thus the escalation provision could not be legally applied and
enforced as against Florendo.

Silos vs PNB
GR No. 181045, July 2, 2014
Del Castillo, J.:

Facts:
Spouses Eduardo and Lydia Silos have been in business for about two decades of operating a
department store and buying and selling of ready-to-wear apparel. To secure a one-year revolving credit
line obtained from PNB, they constituteda Real Estate Mortgage over their lot. In July 1988, the credit
line was increased and the mortgage was correspondingly increased. In addition, petitioners issued
Promissory Notes and signed a Credit Agreement containing a stipulation on interest rate of 19.5% per
annum and granting PNB the right to increase or reduce interest rates "within the limits allowed by law
or by the Monetary Board."

But in 1997, petitioners faltered when the interest rates soared due to the Asian financial crisis.
Petitioners’ sole outstanding promissory notebecame past due, and despite repeated demands,
petitioners failed to make good on the note.

Issue:
Ruling: