Rolando De La Paz vs L&J Development – Case Digest Shelf 23/08/2018, 10:39 AM

ROLANDO DE LA PAZ VS L&J DEVELOPMENT

Rolando De La Paz vs. L & J Development Company

G.R. No. 183360

September 8, 2014

FACTS: Out of trust and confidence, Rolando dela Paz lent a sum of money worth Php
350,000 to L & J Development Corporation, a property developer represented by Atty.
Esteban Salonga as its president and general manager.

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.

https://strugglinglawstudentofph.wordpress.com/2017/12/13/rolando-de-la-paz-vs-lj-development/ Page 1 of 2
Rolando De La Paz vs L&J Development – Case Digest Shelf 23/08/2018, 10:39 AM

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.

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

HELD: No. The Supreme Court held that, as provided under the Civil Code, an 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 higher is considered excessive
and exorbitant.

Furthermore, the lack of maturity date puts the total interest to a whooping 72% per
annum which the Supreme Court considered to be “definitely outrageous and inordinate.”
The Supreme Court affirmed CA’s ruling, but as to Rolando’s obligation to pay the excess
Php 226,000, the interest rate was reduced from 12% to 6% per annum.

Related Topic: Credit Transactions

Advertisements

https://strugglinglawstudentofph.wordpress.com/2017/12/13/rolando-de-la-paz-vs-lj-development/ Page 2 of 2