THIRD DIVISION
G.R. No. 243891, May 07, 2021
MEGALOPOLIS PROPERTIES, INC. (NOW, KAIZEN BUILDERS, INC.), GERALDINE FAJARDO AND SPOUSES HILARIO AND CECILLE APOSTOL, Petitioners, v. D'NHEW LENDING CORPORATION, JONATHAN DEL PRADO AND PRADEEP "PAUL" LALWANI, Respondents.
D E C I S I O N
DELOS SANTOS, J.:
This resolves a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court on the Decision2 dated January 12, 2018 and the Resolution3 dated November 12, 2018 of the Court of Appeals (CA) in CA-G.R. CV No. 105760. The assailed Decision of the CA affirmed the Decision4 dated May 18, 2015 of the Regional Trial Court (RTC) of Baguio City, Branch 5 in Civil Case No. 6963-R and upheld the validity of the interest rate of 3% per month imposed on the principal amount of petitioners' loan, with modification that the amount of P1,263,651.26 representing the excess or surplus proceeds from the extrajudicial foreclosure sale of the mortgaged property be set aside.
FOR VALUE RECEIVED, I/We, jointly and severally, promise to pay, without need of demand, D'NHEW LENDING CORPORATION or order, hereinafter referred to as the 'CREDITOR,' the principal sum of PESOS: THREE MILLION TWO HUNDRED NINETEEN THOUSAND PESOS (P3,219,000.00), Philippine currency, inclusive of an add-on interest thereon at the rate of three percent (3%) per month from [the] date hereof and until fully paid.Per the Agreement between Fajardo and D'Nhew Lending, represented by its Vice-President Jonathan Del Prado (Del Prado), the restructured loan shall be secured by the same Real Estate Mortgage13 dated May 15, 2008. Accordingly, petitioners delivered 24 checks to respondents to cover the monthly payments according to the restructured loan agreement.
The principal of this loan and its interest and other charges shall be paid by me/us in accordance hereunder, to wit:
For Amortized Loan:
Date Due Interest Amortization Due Total Payment October 16, 2008 96,570.00 96,750.00 November 16, 2008 96,570.00 96,750.00 December 16, 2008 96,570.00 96,750.00 January 16, 2009 96,570.00 96,750.00 February 16, 2009 96,570.00 96,750.00 March 16, 2009 96,570.00 96,750.00 April 16, 2009 96,570.00 178,833.33 275,403.33 May 16, 2009 96,570.00 178,833.33 275,403.33 June 16, 2009 96,570.00 178,833.33 275,403.33 July 16, 2009 96,570.00 178,833.33 275,403.33 August 16, 2009 96,570.00 178,833.33 275,403.33 September 16, 2009 96,570.00 178,833.33 275,403.33 October 16, 2009 96,570.00 178,833.33 275,403.33 November 16, 2009 96,570.00 178,833.33 275,403.33 December 16, 2009 96,570.00 178,833.33 275,403.33 January 16, 2010 96,570.00 178,833.33 275,403.33 February 16, 2010 96,570.00 178,833.33 275,403.33 March 16, 2010 96,570.00 178,833.33 275,403.33 April 16, 2010 96,570.00 178,833.33 275,403.33 May 16, 2010 96,570.00 178,833.33 275,403.33 June 16,2010 96,570.00 178,833.33 275,403.33 July 16, 2010 96,570.00 178,833.33 275,403.33 August 16, 2010 96,570.00 178,833.33 275,403.3312
During the pendency of the case, the mortgaged property was extrajudicially foreclosed for the amount of P5,345,202.00, with D'Nhew Lending as the highest bidder.18
- To declare as void the 3% monthly interest for being excessive and to fix a legal interest of 12% per annum, computed on the basis of the P4,000,000.00 principal from June to September 2008 and on the basis of the P3,000,000.00 principal balance from October 2008 to September 2010;
- To declare Megalopolis' balance to be in the amount of P2,568,597.71;
- To declare null and void the eighteen (18) checks issued by Megalopolis to D'Nhew [Lending];
- To declare the loan contract executed on May 15, 2008 extinguished by novation; to declare the Agreement executed on February 25, 2009, the real estate mortgage null and void, and the annotation of the said real estate mortgage on TCT No. T-7972 null and void;
- To order [respondents] to return to Fajardo her owner's duplicate copy of TCT No. T-7972; and
- To order [respondents] to pay Megalopolis actual damages, attorney's fees, litigation expenses, exemplary damages, and costs of suit.17
As of the time the property was foreclosed on July 21, 2010, plaintiffs' indebtedness to the defendant was P2,814,862.60 on the principal and P1,266,688.14 representing the unpaid interest from May 16, 2009 to July 16, 2010 or a total of P4,081,550.74. The mortgaged property was sold for P5,345,202.00 thus, it would seem that there was an excess payment of P1,263,651.26. This amount should be returned by defendant D'Nhew Lending Corporation, to the plaintiffs after deducting the reasonable expenses it incurred in the foreclosure proceedings.19Accordingly, the RTC dismissed the complaint, but ordered D'Nhew Lending to return to petitioners the amount of P1,263,651.26 representing excess payments the former had garnered from the foreclosure sale, to wit:chanroblesvirtualawlibrary
WHEREFORE, premises considered, the complaint is DISMISSED. However, considering the finding that plaintiffs made overpayments to the defendant D'Nhew Lending Corporation, the latter is directed to return the amount corresponding to the balance after deducting the amount of its reasonable expenses in the foreclosure sale from the amount of P1,263,651.26. The amount to be returned shall be subject to interest at the rate of 6% per annum from the finality of this Decision.Respondents sought partial reconsideration of the RTC Decision, but the same was denied. Thereafter, both parties filed their respective partial appeals to the CA.
SO ORDERED.20
WHEREFORE, the May 18, 2015 Decision of the Regional Trial Court (RTC), Branch 5, Baguio City in Civil Case No. 6963-R dismissing the complaint is AFFIRMED with MODIFICATION in that the portion thereof ordering defendants-appellants to return to plaintiffs-appellants the amount of P1,263,651.26 representing the excess or surplus proceeds of the extrajudicial foreclosure sale is SET ASIDE.In a Resolution26 dated November 12, 2018, the CA denied petitioners' Motion for Reconsideration as it found no cogent reason to warrant an alteration or reversal of its Decision.
SO ORDERED.25
The 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. It has no support in law, in principles of justice, or in the human conscience nor is there any reason whatsoever which may justify such imposition as righteous and as one that may be sustained within the sphere of public or private morals.In Spouses Abella v. Spouses Abella,37 the Court expounded on the criteria in determining whether an interest rate is unconscionable — and consequently void ab initio — as follows:chanroblesvirtualawlibrary
The imposition of an unconscionable interest rate is void ab initio for being "contrary to morals, and the law."The Court had consistently held that while an interest rate of 12% per annum is deemed fair and reasonable in most instances, there had been numerous cases where an interest rate of up to 24% per annum was declared valid. As we specified in Ruiz v. Court of Appeals:39chanrobleslawlibrary
In determining whether the rate of interest is unconscionable, the mechanical application of pre-established floors would be wanting. The lowest rates that have previously been considered unconscionable need not be an impenetrable minimum. What is more crucial is a consideration of the parties' contexts. Moreover, interest rates must be appreciated in light of the fundamental nature of interest as compensation to the creditor for money lent to another, which he or she could otherwise have used for his or her own purposes at the time it was lent. It is not the default vehicle for predatory gain. As such, interest need only be reasonable. It ought not be a supine mechanism for the creditor's unjust enrichment at the expense of another.
Petitioners here insist upon the imposition of 2.5% monthly or 30% annual interest. Compounded at this rate, respondents' obligation would have more than doubled — increased to 219.7% of the principal — by the end of the third year after which the loan was contracted if the entire principal remained unpaid. By the end of the ninth year, it would have multiplied more than tenfold (or increased to 1,060.45%). In 2015, this would have multiplied by more than 66 times (or increased to 6,654.17%). Thus, from an initial loan of only P500,000.00, respondents would be obliged to pay more than P33 million. This is grossly unfair, especially since up to the fourth year from when the loan was obtained, respondents had been assiduously delivering payment. This reduces their best efforts to satisfy their obligation into a protracted servicing of a rapacious loan.
The legal rate of interest is the presumptive reasonable compensation for borrowed money. While parties are free to deviate from this, any deviation must be reasonable and fair. Any deviation that is far-removed is suspect. Thus, in cases where stipulated interest is more than twice the prevailing legal rate of interest, it is for the creditor to prove that this rate is required by prevailing market conditions. Here, petitioners have articulated no such justification.
In sum, Article 1956 of the Civil Code, read in light of established jurisprudence, prevents the application of any interest rate other than that specifically provided for by the parties in their loan document or, in lieu of it, the legal rate. Here, as the contracting parties failed to make a specific stipulation, the legal rate must apply. Moreover, the rate that petitioners adverted to is unconscionable. The conventional interest due on the principal amount loaned by respondents from petitioners is held to be 12% per annum.38 (Citation omitted, emphases and underscoring supplied)
The foregoing rates of interests and surcharges are in accord with Medel vs. Court of Appeals, Garcia vs. Court of Appeals, Bautista vs. Pilar Development Corporation, and the recent case of Spouses Solangon vs. Salazar. This Court invalidated a stipulated 5.5% per month or 66% per annum interest on a P500,000.00 loan in Medel and a 6% per month or 72% per annum interest on a P60,000.00 loan in Solangon for being excessive, iniquitous, unconscionable and exorbitant. In both cases, we reduced the interest rate to 12% per annum. We held that while the Usury Law has been suspended by Central Bank Circular No. 905, s. 1982, effective on January 1, 1983, and parties to a loan agreement have been given wide latitude to agree on any interest rate, still stipulated interest rates are illegal if they are unconscionable. 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. On the other hand, in Bautista vs. Pilar Development Corp., this Court upheld the validity of a 21% per annum interest on a P142,326.43 loan, and in Garcia vs. Court of Appeals, sustained the agreement of the parties to a 24% per annum interest on an P8,649,250.00 loan. It is on the basis of these cases that we reduce the 36%) per annum interest to 12%. An interest of 12% per annum is deemed fair and reasonable. While it is true that this Court invalidated a much higher interest rate of 66% per annum in Medel and 72% in Solangon it has sustained the validity of a much lower interest rate of 21% in Bautista and 24% in Garcia. We still find the 36% per annum interest rate in the case at bar to be substantially greater than those upheld by this Court in the two (2) aforecited cases. (Citations omitted, emphasis supplied)From the above-cited discussions in jurisprudence, it can be clearly said that there is no general or universal numerical limit on conscionability as regards a validly binding rate of interest. Nevertheless, we find the rate of 36% per annum, which is three times more than the prevailing legal rate of interest at the time the loan was contracted, far greater than those previously upheld by the Court. Thus, we find the same excessive and unconscionable. This is more apparent upon considering that petitioners' loan obligation, with a principal amount of P3,219,000.00, had increased by P2,317,680.00 (or 72%) immediately upon assumption thereof.
Endnotes:
* Designated as additional member in lieu of Associate Justice Henri Jean Paul B. Inting per Raffle dated February 17, 2021.
1Rollo, pp. 3-20.
2 Id. at 21-37; penned by Associate Justice Henri Jean Paul B. Inting (now a Member of the Court), with Associate Justices Sesinando E. Villon and Danton Q. Bueser, concurring.
3 Id. at 38-39.
4 Not attached to the rollo.
5Rollo, pp. 22 and 54.
6 Id. at 40-42.
7 Id. at 43-45.
8 Id. at 55.
9 Id. at 55-56.
10 Id. at 56.
11 Id. at 46-47.
12 Id. at 46.
13 Id. at 22 and 57.
14 Id. at 58.
15 Id. at 23.
16 Id. at 109-128.
17 Id. at 23.
18 Id. at 24 and 60.
19 Id. at 24.
20 Id. at 25.
21 Supra note 2.
22Rollo, pp. 26 and 29.
23 Id. at 30-32.
24 Id. at 33-34.
25 Id. at 36.
26 Supra note 3.
27Rollo, pp. 8-9.
28 Id. at 62.
29 Id. at 4.
30 Id. at 129-130.
31Reyes v. Manalo, G.R. No. 237201, September 22, 2020.
32 Id., citing Polanco v. Cruz, 598 Phil. 952, 960 (2009).
33Rollo, p. 11.
34 628 Phil. 495 (2010).
35 742 Phil. 420 (2014).
36 620 Phil. 239, 242-243 (2009).
37 763 Phil. 372 (2015).
38 Id. at 388-390.
39 449 Phil. 419, 434-435 (2003).
40Spouses Abella v. Spouses Abella, supra note 37.
41 716 Phil. 267 (2013).
42 304 Phil. 236 (1994).
43Spouses Abella v. Spouses Abella, supra note 37, at 389.cralawredlibrary