Sum of money interst must be written

SECOND DIVISION

G.R. No. 183360 September 8, 2014

ROLANDO C. DE LA PAZ,* Petitioner,

vs.
L & J DEVELOPMENT COMPANY, Respondent.

DECISION

DEL CASTILLO, J.:

"No interest shall be due unless it has been expressly stipulated in writing."1

This is a Petition for Review on Certiorari2 assailing the February 27, 2008 Decision3 of the Court of
Appeals (CA) in CA-G.R. SP No. 100094, which reversed and set aside the Decision4 dated April 19,
2007 of the Regional Trial Court (RTC), Branch 192, Marikina City in Civil Case No. 06-1145-MK.
The said RTC Decision affirmed in all respects the Decision5 dated June 30, 2006 of the Metropolitan
Trial Court (MeTC), Branch 75, Marikina City in Civil Case No. 05-7755, which ordered respondent L
& J Development Company (L&J) to pay petitioner Architect Rolando C. De La Paz (Rolando) its
principal obligation of ₱350,000.00, plus 12% interest per annumreckoned from the filing of the
Complaint until full payment of the obligation.

Likewise assailed is the CA’s June 6, 2008 Resolution6 which denied Rolando’s Motion for
Reconsideration.

Factual Antecedents

On December 27, 2000, Rolando 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, i.e., ₱21,000.00. From December 2000 to
August 2003, L&J paid Rolando a total of ₱576,000.007 representing interest charges.

As L&J failed to pay despite repeated demands, Rolando filed a Complaint8 for Collection of Sum of
Money with Damages against L&J and Atty. Salonga in his personal capacity before the MeTC,
docketed as Civil Case No. 05-7755. Rolando alleged, amongothers, that L&J’s debtas of January
2005, inclusive of the monthly interest, stood at ₱772,000.00; that the 6% monthly interest was upon
Atty. Salonga’s suggestion; and, that the latter tricked him into parting with his money without the
loan transaction being reduced into writing.

In their Answer,9 L&J and Atty. Salonga denied Rolando’s allegations. While they acknowledged the
loan as a corporate debt, they 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
Rolando cannot enforce the 6% monthly interest for being unconscionable and shocking to the
morals. Hence, the payments already made should be applied to the ₱350,000.00 principal loan.

During trial, Rolando testified that he had no communication with Atty. Salonga prior to the loan
transaction but knew him as a lawyer, a son of a former Senator, and the owner of L&J which
developed Brentwood Subdivision in Antipolo where his associate Nilo Velasco (Nilo) lives. When
Nilo told him that Atty. Salonga and L&J needed money to finish their projects, heagreed to lend
them money. He personally met withAtty. Salonga and their meeting was cordial.

He narrated that when L&J was in the process of borrowing the ₱350,000.00 from him, it was Arlene
San Juan (Arlene), the secretary/treasurer of L&J, who negotiated the terms and conditions
thereof.She said that the money was to finance L&J’s housing project. Rolando claimed that it was
not he who demanded for the 6% monthly interest. It was L&J and Atty. Salonga, through Arlene,
who insisted on paying the said interest as they asserted that the loan was only a short-term one.

Ruling of the Metropolitan Trial Court

The MeTC, in its Decision10 of June 30, 2006, upheld the 6% monthly interest. In so ruling, it
ratiocinated that since L&J agreed thereto and voluntarily paid the interest at suchrate from 2000 to
2003, it isalready estopped from impugning the same. Nonetheless, for reasons of equity, the
saidcourt reduced the interest rate to 12% per annumon the remaining principal obligation of
₱350,000.00. With regard to Rolando’s prayer for moral damages, the MeTC denied the same as it
found no malice or bad faith on the part ofL&J in not paying the obligation. It likewise relieved Atty.
Salonga of any liability as it found that he merely acted in his official capacity in obtaining the loan.
The MeTC disposed of the case as follows:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff, Arch.
Rolando C. Dela Paz, and against the defendant, L & J Development Co., Inc., as follows:

a) ordering the defendant L & J Development Co., Inc. to pay plaintiff the amount of Three
Hundred Fifty Thousand Pesos (₱350,000.00) representing the principal obligation, plus
interest at the legal rate of 12% per annum to be computed from January 20, 2005, the date
of the filing of the complaint, until the whole obligation is fully paid;

b) ordering the defendant L & J Development Co., Inc. to pay plaintiff the amount of Five
Thousand Pesos (₱5,000.00) as and for attorney’s fees; and

c) to pay the costs of this suit.

SO ORDERED.11

Ruling of the Regional Trial Court

L&J appealed to the RTC. It asserted in its appeal memorandum12 that from December 2000 to
March 2003, it paid monthly interest of ₱21,000.00 based on the agreed-upon interest rate of
6%monthly and from April 2003 to August 2003, interest paymentsin various amounts.13 The total of
interest payments made amounts to ₱576,000.00 – an amount which is even more than the principal
obligation of ₱350,000.00

L&J insisted that the 6% monthly interest rate is unconscionable and immoral. Hence, the 12% per
annumlegal interest should have been applied from the time of the constitution of the obligation. At
12% per annum interest rate, it asserted that the amount of interestit ought to pay from December
2000 to March 2003 and from April 2003 to August 2003, only amounts to ₱105,000.00. If this
amount is deducted from the total interest paymentsalready made, which is ₱576,000.00, the
amount of ₱471,000.00 appears to have beenpaid over and above what is due. Applying the rule on
compensation, the principal loan of ₱350,000.00 should be set-off against the ₱471,000.00, resulting
in the complete payment of the principal loan.
Unconvinced, the RTC, inits April 19, 2007 Decision,14 affirmed the MeTC Decision, viz:
WHEREFORE, premises considered, the Decision appealed from is hereby AFFIRMED in all
respects, with costs against the appellant.

SO ORDERED.15

Ruling of the Court of Appeals

Undaunted, L&J went to the CA and echoed its arguments and proposed computation as proffered
before the RTC.

In a Decision16 dated February 27, 2008, the CAreversed and set aside the RTC Decision. The CA
stressed that the parties failedto stipulate in writing the imposition of interest on the loan. Hence, no
interest shall be due thereon pursuant to Article 1956 of the Civil Code.17 And even if payment of
interest has been stipulated in writing, the 6% monthly interest is still outrightly illegal and
unconscionable because it is contrary to morals, if not against the law. Being void, this cannot be
ratified and may be set up by the debtor as defense. For these reasons, Rolando cannot collect any
interest even if L&J offered to pay interest. Consequently, he has to return all the interest payments
of ₱576,000.00 to L&J.

Considering further that Rolando and L&J thereby became creditor and debtor of each other, the CA
applied the principle of legal compensation under Article 1279 of the Civil Code.18 Accordingly, it set
off the principal loan of ₱350,000.00 against the ₱576,000.00 total interest payments made, leaving
an excess of ₱226,000.00, which the CA ordered Rolando to pay L&J plus interest. Thus:

WHEREFORE, the DECISION DATED APRIL 19, 2007 is REVERSED and SET ASIDE.

CONSEQUENT TO THE FOREGOING, respondent Rolando C. Dela Paz is ordered to pay to the
petitioner the amount of ₱226,000.00,plus interest of 12% per annumfrom the finality of this decision.

Costs of suit to be paid by respondent Dela Paz.

SO ORDERED.19

In his Motion for Reconsideration,20 Rolando argued thatthe circumstances exempt both the
application of Article 1956 and of jurisprudence holding that a 6% monthly interest is
unconscionable, unreasonable, and exorbitant. He alleged that Atty. Salonga, a lawyer, should have
taken it upon himself to have the loan and the stipulated rate of interest documented but, by way of
legal maneuver, Atty. Salonga, whom he fully trusted and relied upon, tricked him into believing that
the undocumented and uncollateralized loan was withinlegal bounds. Had Atty. Salonga told him that
the stipulated interest should be in writing, he would have readily assented. Furthermore, Rolando
insisted that the 6% monthly interest ratecould 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. He stressed that in cases where interest rates were declared unconscionable,
those meant to be protected by such declaration are helpless borrowers which is not the case here.

Still, the CA denied Rolando’s motion in its Resolution21 of June 6, 2008.

Hence, this Petition.

The Parties’ Arguments

Rolando argues that the 6%monthly interest rateshould not have been invalidated because Atty.
Salonga took advantage of his legal knowledge to hoodwink him into believing that no document
was necessaryto reflect the interest rate. Moreover, the cases anent unconscionable interest rates
that the CA relied upon involve lenders who imposed the excessive rates,which are totally different
from the case at bench where it is the borrower who decided on the high interest rate. This case
does not fall under a scenariothat ‘enslaves the borrower or that leads to the hemorrhaging of his
assets’ that the courts seek to prevent.

L&J, in controverting Rolando’s arguments, contends that the interest rate is subject of negotiation
and is agreedupon by both parties, not by the borrower alone. Furthermore, jurisprudence has
nullified interestrates on loans of 3% per month and higher as these rates are contrary to moralsand
public interest. And while Rolando raises bad faithon Atty. Salonga’s part, L&J avers thatsuch issue
is a question of fact, a matter that cannot be raised under Rule 45.

Issue

The Court’s determination of whether to uphold the judgment of the CA that the principal loan is
deemed paid isdependent on the validity of the monthly interest rate imposed. And in determining
such validity, the Court must necessarily delve into matters regarding a) the form of the agreement
of interest under the law and b) the alleged unconscionability of the interest rate. Our Ruling

The Petition is devoid of merit.

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.22

But Rolando asserts that his situation deserves an exception to the application of Article 1956. He
blames Atty. Salonga for the lack of a written document, claiming that said lawyer used his legal
knowledge to dupe him. Rolando thus imputes bad faith on the part of L&J and Atty. Salonga. The
Court, however, finds no deception on the partof L&J and Atty. Salonga. For one, despite the lack of
a document stipulating the payment of interest, L&J nevertheless devotedly paid interests on the
loan. It only stopped when it suffered from financial difficulties that prevented it from continuously
paying the 6% monthly rate. For another,regardless of Atty. Salonga’s profession, Rolando who is an
architect and an educated man himself could have been a more reasonably prudent person under
the circumstances. To top it all, he admitted that he had no prior communication with Atty. Salonga.
Despite Atty. Salonga being a complete stranger, he immediately trusted him and lent his company
₱350,000.00, a significant amount. Moreover, as the creditor,he 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. Rolando 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. Unfortunately, he did not. It must be stressed that "[c]ourts cannot follow one every step of
his life and extricate him from bad bargains, protect him from unwise investments, relieve him from
one-sided contracts,or annul the effects of foolish acts. Courts cannotconstitute themselves
guardians of persons who are not legally incompetent."23
It may be raised that L&J is estopped from questioning the interest rate considering that it has been
paying Rolando interest at such ratefor more than two and a half years. In fact, in its pleadings
before the MeTCand the RTC, L&J merely prayed for the reduction of interest from 6% monthly to
1% monthly or 12% per annum. However, in Ching v. Nicdao,24 the daily payments of the debtor to
the lender were considered as payment of the principal amount of the loan because Article 1956 was
not complied with. This was notwithstanding the debtor’s admission that the payments made were
for the interests due. The Court categorically stated therein that "[e]stoppel cannot give validity to an
act that is prohibited by law or one thatis against public policy."

Even if the payment of interest has been reduced in writing, a 6% monthly interest rate on a loan is
unconscionable, regardless of who between the parties proposed the rate.

Indeed at present, usury has been legally non-existent in view of the suspension of the Usury
Law25 by Central Bank Circular No. 905 s. 1982.26 Even so, not all interest rates levied upon loans are
permitted by the courts as they have the power to equitably reduce unreasonable interest rates. In
Trade & Investment Development Corporation of the Philippines v. Roblett Industrial Construction
Corporation,27 we said:

While the Court recognizes the right of the parties to enter into contracts and who are expectedto
comply with their terms and obligations, this rule is not absolute. Stipulated interest rates are illegal if
they are unconscionable and the Court is allowed to temper interest rates when necessary. In
exercising this vested power to determine what is iniquitous and unconscionable, the Court must
consider the circumstances of each case. What may be iniquitous and unconscionable in onecase,
may be just in another. x x x28

Time and again, it has been ruled in a plethora of cases that stipulated interest rates of 3% per
month and higher, are excessive, iniquitous, unconscionable and exorbitant. Such stipulations are
void for being contrary to morals, if not against the law.29 The Court, however, stresses that these
rates shall be invalidated and shall be reduced only in cases where the terms of the loans are open-
ended, and where the interest rates are applied for an indefinite period. Hence, the imposition of a
specific sum of ₱40,000.00 a month for six months on a ₱1,000,000.00 loan is not considered
unconscionable.30

In the case at bench, there is no specified period as to the payment of the loan. Hence, levying 6%
monthly or 72% interest per annumis "definitely outrageous and inordinate."31 The situation that it
was the debtor who insisted on the interest rate will not exempt Rolando from a ruling that the rate is
void. As this Court cited in Asian Cathay Finance and Leasing Corporation v. Gravador,32 "[t]he
imposition of an unconscionable rate of interest on a money debt, even if knowingly and voluntarily
assumed, is immoral and unjust. It is tantamount to a repugnant spoliation and an iniquitous
deprivation of property, repulsive to the common sense of man."33 Indeed, "voluntariness does
notmake the stipulation on [an unconscionable] interest valid."34

As exhaustibly discussed,no monetary interest isdue Rolando pursuant to Article 1956. The CA thus
1âwphi1

correctly adjudged that the excess interest payments made by L&J should be applied to its principal
loan. As computed by the CA, Rolando is bound to return the excess payment of ₱226,000.00 to
L&J following the principle of solutio indebiti.35

However, pursuant to Central Bank Circular No. 799 s. 2013 which took effect on July 1, 2013,36 the
interest imposed by the CA must be accordingly modified. The ₱226,000.00 which Rolando is
ordered to pay L&J shall earn an interest of 6% per annumfrom the finality of this Decision.
WHEREFORE, the Decision dated February 27, 2008 of the Court of Appeals in CA-G.R. SP No.
100094 is hereby AFFIRMED with modification that petitioner Rolando C. De La Paz is ordered to
pay respondent L&J Development Company the amount of ,₱226,000.00, plus interest of 6o/o per
annum from the finality of this Decision until fully paid.

SO ORDERED.

MARIANO C. DEL CASTILLO

Associate Justice

WE CONCUR:

ANTONIO T. CARPIO**
Associate Justice

ARTURO D. BRION MARTIN S. VILLARAMA, JR.***

Associate Justice Associate Justice

MARVIC MARIO VICTOR F. LEONEN

Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above
Decision had been reached in consultation before the case was assigned to the writer of the opinion
of the Court's Division.

ANTONIO T. CARPIO
Associate Justice
Acting Chief Justice

Footnotes

* Also spelled as "Dela Paz" in some parts of the records.

** Per Special Order No. 1770 dated August 28, 2014.

*** Per Special Order No. 1767 dated August 27, 2014.

1
CIVIL CODE, Article 1956.

2
Rollo, pp. 10-18

3
CA rollo, pp. 82-89; penned by Associate Justice Lucas P. Bersamin (now a member of this
Court) and concurred in by Associate Justices Portia Alifio Hormachuelos and Estela M.
Perlas-Bernabe (now also a member of this Court).
4
Id. at 18-26; penned by Judge Geraldine C. Fiel-Macaraig.

5
Id. at 39-43; penned by Judge Alex E. Ruiz.

6
Id. at 106.

7
Id. at 45-46. A total of 30 payments, L & J paid the following:

Date Check No. Amount

12/27/2000 SB 302190 P 21,000.00
1/29/2001 MBTC 435175 21,000.00

3/01/2001 SB 302232 21,000.00

4/30/2001 SB 302296 21,000.00

5/29/2001 SB 302341 21,000.00

6/30/2001 SB 302369 21,000.00
7/30/2001 MBTC 3160280305 21,000.00

8/29/2001 MBTC 3160280332 21,000.00

9/27/2001 MBTC 3160280349 21,000.00

10/29/2001 MBTC 3160280387 21,000.00

11/29/2001 MBTC 3160280421 21,000.00

12/18/2001 MBTC 3160280430 21,000.00
1/29/2002 MBTC 3160280474 21,000.00

2/28/2002 MBTC 3160280501 21,000.00

3/25/2002 MBTC 3160280517 21,000.00

4/29/2002 MBTC 3160280552 21,000.00

5/31/2002 MBTC 3160280588 21,000.00
7/02/2002 MBTC 3160280600 21,000.00

8/06/2002 MBTC 3160280627 21,000.00

8/29/2002 MBTC 3160280648 21,000.00
10/02/2002 MBTC 3160280666 21,000.00
11/12/2002 MBTC 3160280683 21,000.00

1/06/03 21,000.00
1/31/03 21,000.00
 3/06/2003 ATB 435323 21,000.00
4/15/2003 16,000.00
5/14/2003 5,000.00
7/04/2003 MBTC 435345 5,000.00

8/04/2003 10,000.00

8/14/2003 15,000.00

Total ₱576,000.00

8
Id. at 28-34.

9
Id. at 35-38.

10
Id. at 39-43.

11
Id. at 43.

12
Id. at 44-53.

13
See note 7.

14
CA rollo, pp. 18-26.

15
Id. at 26.

16
Id. at 82-89.

17
Article 1956. No interest shall be due unless it has been expressly stipulated in writing.

18
Article 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable,
they be of the same kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due;

(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor.

19
CA rollo, p. 88.
 20
Id. at 93-99.

21
Id. at 106.

22
Siga-an v. Villanueva, 596 Phil. 760, 769 (2009).

23
Vales v. Villa, 35 Phil. 769, 788 (1916).

24
G.R. No. 141181, April 27, 2007, 522 SCRA 316, 361.

25
ACT NO. 2655 as amended by Presidential Decree 116.

Section 1 states: The rate of interest, including commissions, premiums, fees and other
26

charges, on a loan or forbearance of any money, goods, or credits, regardlessof maturity and
whether secured or unsecured, that may be charged or collected by any person, whether
natural or juridical, shall not be subject to any ceiling prescribed under or pursuant to the
Usury Law, as amended.

27
523 Phil. 360 (2006).

28
Id. at 366.

Macalinao v. Bank of the Philippine Islands, G.R. No. 175490, September 17, 2009, 600
29

SCRA 67, 77, citing Chua v. Timan, G.R. No. 170452, August 13, 2008, 562 SCRA 146,
149-150.

30
Prisma Construction & Development Corporation v. Menchavez, G.R. No. 160545, March
9, 2010, 614 SCRA 590, 599.

31
Spouses Solangon v. Salazar, 412 Phil. 816, 823 (2001).

32
G.R. No. 186550, July 5, 2010, 623 SCRA 517.

33
Id. at 524.

34
Menchavez v. Bermudez, G.R. No. 185368, October 11, 2012, 684 SCRA 168, 178.

CIVIL CODE, Article 2154. If something is received when there is no right to demand it,
35

and it was unduly delivered through mistake, the obligation to return it arises.

Issued on June 21, 2013; It provides that the rate ofinterest for the loan or forbearance of
36

any money, goods or credits and the rate allowed in

6per month valid

FIRST DIVISION

G.R. No. 172139 December 8, 2010

JOCELYN M. TOLEDO, Petitioner,
vs.
MARILOU M. HYDEN, Respondent.

DECISION

DEL CASTILLO, J.:

It is true that the imposition of an unconscionable rate of interest on a money debt is immoral and
unjust and the court may come to the aid of the aggrieved party to that contract. However, before
doing so, courts have to consider the settled principle that the law will not relieve a party from the
effects of an unwise, foolish or disastrous contract if such party had full awareness of what she was
doing.

This Petition for Review on Certiorari1 assails the Decision2 dated August 24, 2005 of the Court of
Appeals (CA) in CA-G.R. CV No. 79805, which affirmed the Decision dated March 10, 20033 of the
Regional Trial Court (RTC), Branch 22, Cebu City in Civil Case No. CEB-22867. Also assailed is the

Resolution dated March 8, 2006 denying the motion for reconsideration.

Factual Antecedents

Petitioner Jocelyn M. Toledo (Jocelyn), who was then the Vice-President of the College Assurance
Plan (CAP) Phils., Inc., obtained several loans from respondent Marilou M. Hyden (Marilou). The
transactions are briefly summarized below:

1) August 15, 1993 ……… ₱ 30,000.00

2) April 21, 1994 ……… 100,000.00
3) October 2, 1995 ……… 30,000.00 with 6% monthly interest
4) October 9, 1995 ……… 30,000.00
5) May 22, 1997 ……… 100,000.00 with 7% monthly interest
TOTAL AMOUNT OF LOAN ……… ₱ 290,000.00 4

From August 15, 1993 up to December 31, 1997, Jocelyn had been religiously paying Marilou the
stipulated monthly interest by issuing checks and depositing sums of money in the bank account of
the latter. However, the total principal amount of ₱290,000.00 remained unpaid. Thus, in April 1998,
Marilou visited Jocelyn in her office at CAP in Cebu City and asked Jocelyn and the other employees
who were likewise indebted to her to acknowledge their debts. A document entitled
"Acknowledgment of Debt"5 for the amount of ₱290,000.00 was signed by Jocelyn with two of her
subordinates as witnesses. The said amount represents the principal consolidated amount of the
aforementioned previous debts due on December 25, 1998. Also on said occasion, Jocelyn issued
five checks to Marilou representing renewal payment of her five previous loans, viz:

Check No. 0010761 dated September 2, 1998 . . . . . . . . . ₱ 30,000.00

Check No. 0010762 dated September 9, 1998 ......... 30,000.00
Check No. 0010763 dated September 15, 1998 ......... 30,000.00
Check No. 0010764 dated September 22, 1998 ......... 100,000.00
Check No. 0010765 dated September 25, 1998 ......... 100,000.00
TOTAL ₱ 290,000.00
In June 1998, Jocelyn asked Marilou for the recall of Check No. 0010761 in the amount of
₱30,000.00 and replaced the same with six checks, in staggered amounts, namely:

Check No. 0010494 dated July 2, 1998 . . . . . . . . . ₱ 6,625.00

Check No. 0010495 dated August 2, 1998 ......... 6,300.00
Check No. 0010496 dated September 2, 1998 ......... 5,975.00
Check No. 0010497 dated October 2, 1998 ......... 6,500.00
Check No. 0010498 dated November 2, 1998 ......... 5,325.00
Check No. 0010499 dated December 2, 1998 ......... 5,000.00
TOTAL ₱ 35,725.00

After honoring Check Nos. 0010494, 0010495 and 0010496, Jocelyn ordered the stop payment on
the remaining checks and on October 27, 1998, filed with the RTC of Cebu City a complaint6 against
Marilou for Declaration of Nullity and Payment, Annulment, Sum of Money, Injunction and Damages.

Jocelyn averred that Marilou forced, threatened and intimidated her into signing the
"Acknowledgment of Debt" and at the same time forced her to issue the seven postdated checks.
She claimed that Marilou even threatened to sue her for violation of Batas Pambansa (BP) Blg. 22 or
the Bouncing Checks Law if she will not sign the said document and draw the above-mentioned
checks. Jocelyn further claimed that the application of her total payment of ₱528,550.00 to interest
alone is illegal, unfounded, unjust, oppressive and contrary to law because there was no written
agreement to pay interest.

On November 23, 1998, Marilou filed an Answer7 with Special Affirmative Defenses and
Counterclaim alleging that Jocelyn voluntarily obtained the said loans knowing fully well that the
interest rate was at 6% to 7% per month. In fact, a 6% to 7% advance interest was already deducted
from the loan amount given to Jocelyn.

Ruling of the Regional Trial Court

The court a quo did not find any showing that Jocelyn was forced, threatened, or intimidated in
signing the document referred to as "Acknowledgment of Debt" and in issuing the postdated checks.
Thus, in its March 10, 2003 Decision the trial court ruled in favor of Marilou, viz:

WHEREFORE, premised on the foregoing, the Court hereby declares the document
"Acknowledgment of Debt" valid and binding. PLAINTIFF is indebted to DEFENDANT [for] the
amount of TWO HUNDRED NINETY THOUSAND (₱290,000.00) PESOS since December 25, 1998
less the amount of EIGHTEEN THOUSAND NINE HUNDRED (₱18,900.00) PESOS, equivalent to
the three checks made good (₱6,625.00 dated 07-02-1998; ₱6,300.00 dated 08-02-1998; and
₱5,975.00 dated 09-02-1998).

Consequently, PLAINTIFF is hereby ordered to pay DEFENDANT the amount of TWO HUNDRED
SEVENTY ONE THOUSAND ONE HUNDRED (₱271,100.00) PESOS due on December 25, 1998
with a 12% interest per annum or 1% interest per month until such time that the said amount shall
have been fully paid.

No pronouncement as to costs.

SO ORDERED.8
On March 26, 2003, Jocelyn filed an Earnest Motion for Reconsideration,9 which was denied by the
trial court in its Order10 dated April 29, 2003 stating that it finds no sufficient reason to disturb its
March 10, 2003 Decision.

Ruling of the Court of Appeals

On appeal, Jocelyn asserts that she had made payments in the total amount of ₱778,000.00 for a
principal amount of loan of only ₱290,000.00. What is appalling, according to Jocelyn, was that such
payments covered only the interest because of the excessive, iniquitous, unconscionable and
exorbitant imposition of the 6% to 7% monthly interest.

On August 24, 2005, the CA issued its Decision which provides:

WHEREFORE, premises considered, the Decision dated March 10, 2003 and the Order dated April
29, 2003, of the Regional Trial Court, 7th Judicial Region, Branch 22, Cebu City, in Civil Case No.
CEB-22867 are hereby AFFIRMED. No pronouncement as to costs.

SO ORDERED.11

The Motion for Reconsideration12 filed by Jocelyn was denied by the CA through its
Resolution13 dated March 8, 2006.

Issues

Hence, this petition raising the following issues:

I.

Whether the CA gravely erred when it held that the imposition of interest at the rate of six
percent (6%) to seven percent (7%) is not contrary to law, morals, good customs, public
order or public policy.

II.

Whether the CA gravely erred when it failed to declare that the "Acknowledgment of Debt" is
an inexistent contract that is void from the very beginning pursuant to Article 1409 of the New
Civil Code.

Petitioner’s Arguments

Jocelyn posits that the CA erred when it held that the imposition of interest at the rates of 6% to 7%
per month is not contrary to law, not unconscionable and not contrary to morals. She likewise
contends that the CA erred in ruling that the "Acknowledgment of Debt" is valid and binding.
According to Jocelyn, even assuming that the execution of said document was not attended with
force, threat and intimidation, the same must nevertheless be declared null and void for being
contrary to law and public policy. This is borne out by the fact that the payments in the total amount
of ₱778,000.00 was applied to interest payment alone. This only proves that the transaction was
iniquitous, excessive, oppressive and unconscionable.

Respondent’s Arguments
On the other hand, Marilou would like this Court to consider the fact that the document referred to as
"Acknowledgment of Debt" was executed in the safe surroundings of the office of Jocelyn and it was
witnessed by two of her staff. If at all there had been coercion, then Jocelyn could have easily
prevented her staff from affixing their signatures to said document. In fact, petitioner had admitted
that she was the one who went to the tables of her staff to let them sign the said document.

Our Ruling

The petition is without merit.

The 6% to 7% interest per month paid by Jocelyn is not excessive under the circumstances of this
case.

In view of Central Bank Circular No. 905 s. 1982, which suspended the Usury Law ceiling on interest
effective January 1, 1983, parties to a loan agreement have wide latitude to stipulate interest rates.
Nevertheless, such stipulated interest rates may be declared as illegal if the same is
unconscionable.14 There is certainly nothing in said circular which 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.15 In fact, in Medel v. Court of Appeals,16 we annulled a stipulated 5.5%
per month or 66% per annum interest with additional service charge of 2% per annum and penalty
charge of 1% per month on a ₱500,000.00 loan for being excessive, iniquitous, unconscionable and
exorbitant.

In this case, however, we cannot consider the disputed 6% to 7% monthly interest rate to be
iniquitous or unconscionable vis-à-vis the principle laid down in Medel. Noteworthy is the fact that
in Medel, the defendant-spouses were never able to pay their indebtedness from the very beginning
and when their obligations ballooned into a staggering sum, the creditors filed a collection case
against them. In this case, there was no urgency of the need for money on the part of Jocelyn, the
debtor, which compelled her to enter into said loan transactions. She used the money from the loans
to make advance payments for prospective clients of educational plans offered by her employer. In
this way, her sales production would increase, thereby entitling her to 50% rebate on her sales. This
is the reason why she did not mind the 6% to 7% monthly interest. Notably too, a business
transaction of this nature between Jocelyn and Marilou continued for more than five years. Jocelyn
religiously paid the agreed amount of interest until she ordered for stop payment on some of the
checks issued to Marilou. The checks were in fact sufficiently funded when she ordered the stop
payment and then filed a case questioning the imposition of a 6% to 7% interest rate for being
allegedly iniquitous or unconscionable and, hence, contrary to morals.

It was clearly shown that before Jocelyn availed of said loans, she knew fully well that the same
carried with it an interest rate of 6% to 7% per month, yet she did not complain. In fact, when she
availed of said loans, an advance interest of 6% to 7% was already deducted from the loan amount,
yet she never uttered a word of protest.

After years of benefiting from the proceeds of the loans bearing an interest rate of 6% to 7% per
month and paying for the same, Jocelyn cannot now go to court to have the said interest rate
annulled on the ground that it is excessive, iniquitous, unconscionable, exorbitant, and absolutely
revolting to the conscience of man. "This is so because among the maxims of equity are (1) he who
seeks equity must do equity, and (2) he who comes into equity must come with clean hands. The
latter is a frequently stated maxim which is also expressed in the principle that he who has done
inequity shall not have equity. It signifies that a litigant may be denied relief by a court of equity on
the ground that his conduct has been inequitable, unfair and dishonest, or fraudulent, or deceitful as
to the controversy in issue." 17
We are convinced that Jocelyn did not come to court for equitable relief with equity or with clean
hands. It is patently clear from the above summary of the facts that the conduct of Jocelyn can by no
means be characterized as nobly fair, just, and reasonable. This Court likewise notes certain acts of
Jocelyn before filing the case with the RTC. In September 1998, she requested Marilou not to
deposit her checks as she can cover the checks only the following month. On the next month,
Jocelyn again requested for another extension of one month. It turned out that she was only sweet-
talking Marilou into believing that she had no money at that time. But as testified by Serapio
Romarate,18 an employee of the Bank of Commerce where Jocelyn is one of their clients, there was
an available balance of ₱276,203.03 in the latter’s account and yet she ordered for the stop
payments of the seven checks which can actually be covered by the available funds in said account.
She then caught Marilou by surprise when she surreptitiously filed a case for declaration of nullity of
the document and for damages.

The document "Acknowledgment of Debt" is valid and binding.

Jocelyn seeks for the nullification of the document entitled "Acknowledgment of Debt" and wants this
Court to declare that she is no longer indebted to Marilou in the amount of ₱290,000.00 as she had
already paid a total amount of ₱778,000.00. She claims that said document is an inexistent contract
that is void from the very beginning as clearly provided for by Article 140919 of the New Civil Code.

Jocelyn further claims that she signed the said document and issued the seven postdated checks
because Marilou threatened to sue her for violation of BP Blg. 22.

Jocelyn is misguided. Even if there was indeed such threat made by Marilou, the same is not
considered as threat that would vitiate consent. Article 1335 of the New Civil Code is very specific on
this matter. It provides:

Art. 1335. There is violence when in order to wrest consent, serious or irresistible force is employed.

xxxx

A threat to enforce one’s claim through competent authority, if the claim is just or legal, does
not vitiate consent. (Emphasis supplied.)

Clearly, we cannot grant Jocelyn the relief she seeks.

As can be seen from the records of the case, Jocelyn has failed to prove her claim that she was
made to sign the document "Acknowledgment of Debt" and draw the seven Bank of Commerce
checks through force, threat and intimidation. As earlier stressed, said document was signed in the
office of Jocelyn, a high ranking executive of CAP, and it was Jocelyn herself who went to the table
of her two subordinates to procure their signatures as witnesses to the execution of said document.
If indeed, she was forced to sign said document, then Jocelyn should have immediately taken the
proper legal remedy. But she did not. Furthermore, it must be noted that after the execution of said
document, Jocelyn honored the first three checks before filing the complaint with the RTC. If indeed
she was forced she would never have made good on the first three checks.

It is provided, as one of the conclusive presumptions under Rule 131, Section 2(a), of the Rules of
Court that, "Whenever a party has, by his own declaration, act or omission, intentionally and
deliberately led another to believe a particular thing to be true, and to act upon such belief, he
cannot, in any litigation arising out of such declaration, act or omission, be permitted to falsify it."
This is known as the principle of estoppel.
"The essential elements of estoppel are: (1) conduct amounting to false representation or
concealment of material facts or at least calculated to convey the impression that the facts are
otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (2)
intent, or at least expectation, that this conduct shall be acted upon by, or at least influence, the
other party; and, (3) knowledge, actual or constructive, of the real facts."20

Here, it is uncontested that Jocelyn had in fact signed the "Acknowledgment of Debt" in April 1998
and two of her subordinates served as witnesses to its execution, knowing fully well the nature of the
contract she was entering into. Next, Jocelyn issued five checks in favor of Marilou representing
renewal payment of her loans amounting to ₱290,000.00. In June 1998, she asked to recall Check
No. 0010761 in the amount of ₱30,000.00 and replaced the same with six checks, in staggered
amounts. All these are indicia that Jocelyn treated the "Acknowledgment of Debt" as a valid and
binding contract.1avvphi1

More significantly, Jocelyn already availed herself of the benefits of the "Acknowledgment of Debt,"
the validity of which she now impugns. As aptly found by the RTC and the CA, Jocelyn was making
a business out of the loaned amounts. She was actually using the money to make advance
payments for her prospective clients so that her sales production would increase. Accordingly, she
did not mind the 6% to 7% interest per month as she was getting a 50% rebate on her sales.

Clearly, by her own acts, Jocelyn is estopped from impugning the validity of the "Acknowledgment of
Debt." "[A] party to a contract cannot deny the validity thereof after enjoying its benefits without
outrage to one’s sense of justice and fairness."21 "It is a long established doctrine that the law does
not relieve a party from the effects of an unwise, foolish or disastrous contract, entered into with all
the required formalities and with full awareness of what she was doing. Courts have no power to
relieve parties from obligations voluntarily assumed, simply because their contracts turned out to be
disastrous or unwise investments."22

WHEREFORE, the instant petition for review on certiorari is DENIED. The Decision of the Court of
Appeals in CA-G.R. CV No. 79805 dated August 24, 2005 affirming the Decision dated March 10,
2003 of the Regional Trial Court, Branch 22, Cebu City, in Civil Case No. CEB-22867 is AFFIRMED.

SO ORDERED.

MARIANO C. DEL CASTILLO

Associate Justice

WE CONCUR:

RENATO C. CORONA
Chief Justice
Chairperson

TERESITA J. LEONARDO-DE CASTRO ROBERTO A. ABAD*

Associate Justice Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in
the above Decision had been reached in consultation before the case was assigned to the writer of
the opinion of the Court’s Division.

RENATO C. CORONA
Chief Justice

Footnotes

* In lieu of Associate Justice Presbitero J. Velasco, Jr., per Special Order No. 917 dated
November 24, 2010.

1 Rollo, pp. 3-26.

2CA rollo, pp. 65-75; penned by Associate Justice Mercedes Gozo-Dadole and concurred in
by Associate Justices Isaias P. Dicdican and Ramon M. Bato, Jr.

3 Records, pp. 341-349; penned by Judge Pampio A. Abarintos.

4 Id. at 342.

5 Id. at 8.

6 Id. at 1-9.

7 Id. at 12-24.

8 Id. at 349.

9 Id. at 350-354.

10 Id. at 364-365.

11 CA rollo, p.75.

12 Id. at 76-90.

13 Id. at 113-114.

14 Ruiz v. Court of Appeals, 449 Phil. 419, 434 (2003).

15 Spouses Almeda v. Court of Appeals, 326 Phil. 309, 319 (1996).

16 359 Phil. 820 (1998).

17 University of the Philippines v. Catungal, Jr., 338 Phil. 728, 743-744 (1997).
18 TSN, January 15, 2002, p. 8.

19 Art. 1409. The following contracts are inexistent and void from the beginning:

(1) Those whose cause, object or purpose is contrary to law, morals, good customs,
public order or public policy;

xxxx

20 Philippine National Bank v. Court of Appeals, 367 Phil. 508, 516 (1999).

21 Lim v. Queensland Tokyo Commodities, Inc., 424 Phil. 35, 45 (2002).

22 Esguerra v. Court of Appeals, 335 Phil. 58, 69 (1997).