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

DIGESTS:
HELD: No. The Supreme Court held that, as provided under the Civil Code, an
TAN – SEE CASE SYNOPSIS 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
ROLANDO DE LA PAZ VS. L & J DEVELOPMENT COMPANY
higher is considered excessive and exorbitant.
G.R. NO. 183360
SEPTEMBER 8, 2014
Furthermore, the lack of maturity date puts the total interest to a whooping 72% per
FACTS: Out of trust and confidence, Rolando dela Paz lent a sum of money worth annum which the Supreme Court considered to be “definitely outrageous and
Php 350,000 to L & J Development Corporation, a property developer represented by inordinate.” The Supreme Court affirmed CA’s ruling, but as to Rolando’s obligation to
Atty. Esteban Salonga as its president and general manager. pay the excess Php 226,000, the interest rate was reduced from 12% to 6% per
annum.
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.