Sps. Abella vs. Sps.
Abella (2015)
SPOUSES SALVADOR ABELLA AND ALMA ABELLA, Petitioners, -versus- SPOUSES
ROMEO ABELLA AND ANNIE ABELLA, Respondents.
G.R. No. 195166 • July 08, 2015
Article 1956 of the Civil Code spells out the basic rule that “[n]o interest shall be due
unless it has been expressly stipulated in writing.” On the matter of interest, the text of
the acknowledgment receipt is simple, plain, and unequivocal. It attests to the
contracting parties’ intent to subject to interest the loan extended by petitioners to
respondents. The controversy, however, stems from the acknowledgment receipt’s
failure to state the exact rate of interest. It remains that where interest was stipulated
in writing by the debtor and creditor in a simple loan or mutuum, but no exact interest
rate was mentioned, the legal rate of interest shall apply. At present, this is 6% per
annum, subject to Nacar’s qualification on prospective application. Applying this, the
loan obtained by respondents from petitioners is deemed subjected to conventional
interest at the rate of 12% per annum, the legal rate of interest at the time the parties
executed their agreement. Moreover, should conventional interest still be due as of July
1, 2013, the rate of 12% per annum shall persist as the rate of conventional interest.
This is so because interest in this respect is used as a surrogate for the parties’ intent,
as expressed as of the time of the execution of their contract. In this sense, the legal
rate of interest is an affirmation of the contracting parties’ intent; that is, by their
contract’s silence on a specific rate, the then prevailing legal rate of interest shall be the
cost of borrowing money. This rate, which by their contract the parties have settled on,
is deemed to persist regardless of shifts in the legal rate of interest. Stated otherwise,
the legal rate of interest, when applied as conventional interest, shall always be the
legal rate at the time the agreement was executed and shall not be susceptible to shifts
in rate.
FACTS:
The Regional Trial Court’s December 28, 2005 Decision ordered respondents to pay
petitioners the supposedly unpaid loan balance of P300,000.00 plus the allegedly
stipulated interest rate of 30% per annum, as well as litigation expenses and attorney’s
fees.
On July 31, 2002, petitioners Spouses Salvador and Alma Abella filed a Complaint for
sum of money and damages with prayer for preliminary attachment against
respondents Spouses Romeo and Annie Abella before the Regional Trial Court, Branch
8, Kalibo, Aklan. The case was docketed as Civil Case No. 6627.
In their Complaint, petitioners alleged that respondents obtained a loan from
them in the amount of P500,000.00. The loan was evidenced by an
acknowledgment receipt dated March 22, 1999 and was payable within one
(1) year. Petitioners added that respondents were able to pay a total of
P200,000.00—P100,000.00 paid on two separate occasions—leaving an
unpaid balance of P300,000.00.
In their Answer (with counterclaim and motion to dismiss), respondents
alleged that the amount involved did not pertain to a loan they obtained from
petitioners but was part of the capital for a joint venture involving the
lending of money.
Specifically, respondents claimed that they were approached by petitioners, who
proposed that if respondents were to “undertake the management of whatever money
[petitioners] would give them, [petitioners] would get 2.5% a month with a 2.5%
service fee to [respondents].”The 2.5% that each party would be receiving represented
their sharing of the 5% interest that the joint venture was supposedly going to charge
against its debtors. Respondents further alleged that the one year averred by
petitioners was not a deadline for payment but the term within which they were to
return the money placed by petitioners should the joint venture prove to be not
lucrative. Moreover, they claimed that the entire amount of P500,000.00 was disposed
of in accordance with their agreed terms and conditions and that petitioners terminated
the joint venture, prompting them to collect from the joint venture’s borrowers. They
were, however, able to collect only to the extent of P200,000.00; hence, the
P300,000.00 balance remained unpaid.
In the Decision dated December 28, 2005, the Regional Trial Court ruled in
favor of petitioners. It noted that the terms of the acknowledgment receipt
executed by respondents clearly showed that: (a) respondents were indebted
to the extent of P500,000.00; (b) this indebtedness was to be paid within
one (1) year; and (c) the indebtedness was subject to interest. Thus, the trial
court concluded that respondents obtained a simple loan, although they later
invested its proceeds in a lending enterprise. The Regional Trial Court adjudged
respondents solidarity liable to petitioners. In the Order dated March 13, 2006,the
Regional Trial Court denied respondents’ Motion for Reconsideration.
On respondents’ appeal, the Court of Appeals ruled that while respondents had indeed
entered into a simple loan with petitioners, respondents were no longer liable to pay
the outstanding amount of P300,000.00.
The Court of Appeals reasoned that the loan could not have earned interest, whether as
contractually stipulated interest or as interest in the concept of actual or compensatory
damages. As to the loan’s not having earned stipulated interest, the Court of Appeals
anchored its ruling on Article 1956 of the Civil Code, which requires interest to be
stipulated in writing for it to be due. The Court of Appeals noted that while the
acknowledgement receipt showed that interest was to be charged, no particular interest
rate was specified. Thus, at the time respondents were making
interest payments of 2.5% per month, these interest payments were invalid for not
being properly stipulated by the parties.
In the Resolution dated January 4, 2011, the Court of Appeals denied petitioners’
Motion for Reconsideration.
ISSUE:
Whether or not the Court of Appeals erred in completely striking off interest
despite the parties’ written agreement stipulating it, as well as in ordering
them to reimburse and pay interest to respondents.
RULING:
Yes. As noted by the Court of Appeals and the Regional Trial Court, respondents
entered into a simple loan or mutuum, rather than a joint venture, with
petitioners.
Respondents’ claims, as articulated in their testimonies before the trial court, cannot
prevail over the clear terms of the document attesting to the relation of the parties. “If
the terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall control.”
Articles 1933 and 1953 of the Civil Code provide the guideposts that determine if a
contractual relation is one of simple loan or mutuum:
Art. 1933. By the contract of loan, one of the parties delivers to another,
either something not consumable so that the latter may use the same for a
certain time and return it, in which case the contract is called a
commodatum; or money or other consumable thing, upon the condition that
the same amount of the same kind and quality shall be paid, in which case
the contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous. Simple loan may be gratuitous or
with a stipulation to pay interest. In commodatum the bailor retains the
ownership of the thing loaned, while in simple loan, ownership passes to the
borrower.
….
Art. 1953. A person who receives a loan of money or any other fungible thing
acquires the ownership thereof, and is bound to pay to the creditor an equal
amount of the same kind and quality. (Emphasis supplied)
The text of the acknowledgment receipt is uncomplicated and straightforward. It attests
to: first, respondents’ receipt of the sum of P500,000.00 from petitioner Alma Abella;
second, respondents’ duty to pay tack this amount within one (1) year from March 22,
1999; and third, respondents’ duty to pay interest. Consistent with what typifies a
simple loan, petitioners delivered to respondents with the corresponding condition that
respondents shall pay the same amount to petitioners within one (1) year.
Although we have settled the nature of the contractual relation between petitioners and
respondents, controversy persists over respondents’ duty to pay conventional interest,
i.e., interest as the cost of borrowing money.
Article 1956 of the Civil Code spells out the basic rule that “[n]o interest shall be due
unless it has been expressly stipulated in writing.”
On the matter of interest, the text of the acknowledgment receipt is simple, plain, and
unequivocal. It attests to the contracting parties’ intent to subject to interest the loan
extended by petitioners to respondents. The controversy, however, stems from the
acknowledgment receipt’s failure to state the exact rate of interest.
Jurisprudence is clear about the applicable interest rate if a written instrument fails to
specify a rate. In Spouses Toring v. Spouses Olan, this court clarified the effect of
Article 1956 of the Civil Code and noted that the legal rate of interest (then at 12%) is
to apply: “In a loan or forbearance of money, according to the Civil Code, the interest
due should be that stipulated in writing, and in the absence thereof, the rate shall be
12% per annum.”
Spouses Toring cites and restates (practically verbatim) what this court settled in
Security Bank and Trust Company v. Regional Trial Court of Makati, Branch 61: “In a
loan or forbearance of money, the interest due should be that stipulated in writing, and
in the absence thereof the rate shall be 12% per annum.”
Security Bank also refers to Eastern Shipping Lines, Inc. v. Court of Appeals, which, in
turn, stated:
1. When the obligation is breached, and it consists in the payment of a sum of money,
i.e., a loan or forbearance of money, the interest due should be that which may have
been stipulated in writing. Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded. In the absence of stipulation, the rate of
interest shall be 12% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code. (Emphasis supplied)
The rule is not only definite; it is cast in mandatory language. From Eastern Shipping to
Security Bank to Spouses Toring, jurisprudence has repeatedly used the word “shall,” a
term that has long been settled to denote something imperative or operating to impose
a duty. Thus, the rule leaves no room for alternatives or otherwise does not allow for
discretion. It requires the application of the legal rate of interest.
Our intervening Decision in Nacar v. Gallery Frames recognized that the legal rate of
interest has been reduced to 6% per annum:
Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its
Resolution No. 796 dated May 16, 2013, approved the amendment of Section 2 of
Circular No. 905, Series of 1982 and, accordingly, issued Circular No. 799, Series of
2013, effective July 1, 2013, the pertinent portion of which reads:
The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the
following revisions governing the rate of interest in the absence of stipulation in loan
contracts, thereby amending Section 2 of Circular No. 905, Series of 1982:
Section 1. The rate of interest for the loan or forbearance of any money, goods or
credits and the rate allowed in judgments, in the absence of an express contract as to
such rate of interest, shall be six percent (6%) per annum.
Section 2. In view of the above, Subsection X305.1 of the Manual of Regulations for
Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for
Non-Bank Financial Institutions are hereby amended accordingly.
This Circular shall take effect on 1 July 2013.
Thus, from the foregoing, in the absence of an express stipulation as to the rate of
interest that would govern the parties, the rate of legal interest for loans or forbearance
of any money, goods or credits and the rate allowed in judgments shall no longer be
twelve percent (12%) per annum — as reflected in the case of Eastern Shipping Lines
and Subsection X305.1 of the Manual of Regulations for Banks and Sections 4305Q.1,
4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions,
before its amendment by BSP-MB Circular No. 799 — but will now be six percent (6%)
per annum effective July 1, 2013. It should be noted, nonetheless, that the new rate
could only be applied prospectively and not retroactively. Consequently, the twelve
percent (12%) per annum legal interest shall apply only until June 30, 2013. Come July
1, 2013 the new rate of six percent (6%) per annum shall be the prevailing rate of
interest when applicable. (Emphasis supplied, citations omitted)
Nevertheless, both Bangko Sentral ng Pilipinas Circular No. 799, Series of 2013 and
Nacar retain the definite and mandatory framing of the rule articulated in Eastern
Shipping, Security Bank, and Spouses Toring. Nacar even restates Eastern Shipping:
To recapitulate and for future guidance, the guidelines laid down in the case of Eastern
Shipping Lines are accordingly modified to embody BSP-MB Circular No. 799, as follows:
….
1. When the obligation is breached, and it consists in the payment of a sum of money,
i.e., a Joan or forbearance of money, the interest due should be that which may have
been stipulated in writing. Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded. In the absence of stipulation, the rate of
interest shall be 6% per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169 of the Civil
Code. (Emphasis supplied, citations omitted)
Thus, it remains that where interest was stipulated in writing by the debtor and creditor
in a simple loan or mutuum, but no exact interest rate was mentioned, the legal rate of
interest shall apply. At present, this is 6% per annum, subject to Nacar‘s qualification
on prospective application.
Applying this, the loan obtained by respondents from petitioners is deemed subjected to
conventional interest at the rate of 12% per annum, the legal rate of interest at the
time the parties executed their agreement. Moreover, should conventional interest still
be due as of July 1, 2013, the rate of 12% per annum shall persist as the rate of
conventional interest.
This is so because interest in this respect is used as a surrogate for the parties’ intent,
as expressed as of the time of the execution of their contract. In this sense, the legal
rate of interest is an affirmation of the contracting parties’ intent; that is, by their
contract’s silence on a specific rate, the then prevailing legal rate of interest shall be the
cost of borrowing money. This rate, which by their contract the parties have settled on,
is deemed to persist regardless of shifts in the legal rate of interest. Stated otherwise,
the legal rate of interest, when applied as conventional interest, shall always be the
legal rate at the time the agreement was executed and shall not be susceptible to shifts
in rate.
Petitioners, however, insist on conventional interest at the rate of 2.5% per month or
30% per annum. They argue that the acknowledgment receipt fails to show the
complete and accurate intention of the contracting parties. They rely on Article 1371 of
the Civil Code, which provides that the contemporaneous and subsequent acts of the
contracting parties shall be considered should there be a need to ascertain their intent.
In addition, they claim that this case falls under the exceptions to the Parol Evidence
Rule, as spelled out in Rule 130, Section 9 of the Revised Rules on Evidence.
It is a basic precept in legal interpretation and construction that a rule or provision that
treats a subject with specificity prevails over a rule or provision that treats a subject in
general terms. The rule spelled out in Security Bank and Spouses Toring is anchored on
Article 1956 of the Civil Code and specifically governs simple loans or mutuum. Mutuum
is a type of nominate contract that is specifically recognized by the Civil Code and for
which the Civil Code provides a specific set of governing rules: Articles 1953 to 1961. In
contrast, Article 11371 is among the Civil Code provisions generally dealing with
contracts. As this case particularly involves a simple loan, the specific rule spelled out in
Security Bank and Spouses Toring finds preferential application as against Article 1371.
Contrary to petitioners’ assertions, there is no room for entertaining extraneous (or
parol) evidence. Even if it can be shown that the parties have agreed to monthly
interest at the rate of 2.5%, this is unconscionable. As emphasized in Castro v. Tan,the
willingness of the parties to enter into a relation involving an unconscionable interest
rate is inconsequential to the validity of the stipulated rate. 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.
Apart from respondents’ liability for conventional interest at the rate of 12% per annum,
outstanding conventional interest—if any is due from respondents—shall itself earn
legal interest from the time judicial demand was made by petitioners, i.e., on July 31,
2002, when they filed their Complaint. This is consistent with Article 2212 of the Civil
Code, which provides: Art. 2212. Interest due shall earn legal interest from the time it is
judicially demanded, although the obligation may be silent upon this point.
So, too, Nacar states that “the interest due shall itself earn legal interest from the time
it is judicially demanded.” Consistent with Nacar, as well as with our ruling in Rivera v.
Spouses Chua,the interest due on conventional interest shall be at the rate of 12% per
annum from July 31, 2002 to June 30, 2013. Thereafter, or starting July 1, 2013, this
shall be at the rate of 6% per annum. Proceeding from these premises, we find that
respondents made an overpayment in the amount of P3,379.17. As respondents made
an overpayment, the principle of solutio indebiti as provided by Article 2154 of the Civil
Codeapplies. Article 2154 reads:
Article 2154. If something is received when there is no right to demand it, and it was
unduly delivered through mistake, the obligation to return it arises.
