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SPS. SALVADOR ABELLA v. SPS. ROMEO ABELLA

FACTS:

The dispute in this case involves a loan transaction between the petitioners and respondents. The petitioners claimed that the respondents borrowed P500,000.00 from them, with a one-year repayment period. They alleged that the respondents only paid P200,000.00, leaving a balance of P300,000.00. However, the respondents denied that the amount was a loan and instead argued that it was part of a joint venture agreement. They claimed that the one-year period mentioned by the petitioners was not a deadline for payment, but the term within which they were to return the money if the joint venture did not make a profit.

The trial court ruled in favor of the petitioners, finding that the acknowledgment receipt signed by the respondents clearly indicated a loan transaction. The court ordered the respondents to pay the outstanding balance with an interest rate of 30% per annum. However, on appeal, the Court of Appeals reversed the decision. It held that although a loan agreement was entered into, the respondents were no longer liable to pay the remaining balance because the interest rate was not properly stipulated in writing as required by the law. The Court of Appeals further stated that interest accrues from the time demand is made, which in this case was in 2002.

In a subsequent appeal, the court found that the acknowledgment receipt did not specify the exact interest rate but stated the intent to subject the loan to interest. Citing previous cases, the court applied the legal rate of interest, which was then 12% per annum. However, it noted that the Bangko Sentral ng Pilipinas has amended the rate to 6% per annum, effective July 1, 2013. The court clarified that the new rate can only be applied prospectively and not retroactively. Therefore, the applicable rate of interest shall be 6% per annum from July 1, 2013, in case of a breach of obligation.

ISSUES:

  1. Whether interest accrued on respondents' loan from petitioners. If so, at what rate?

  2. Whether petitioners are liable to reimburse respondents for the latter's supposed excess payments and for interest.

RULING:

  1. Interest accrued on respondents' loan at the legal rate, which was 12% per annum at the time the parties executed their agreement. This rate is deemed reasonable and stands as the stipulated interest since the actual rate was not stated in the written acknowledgement receipt.

  2. Petitioners are liable to reimburse respondents for the latter's excess payments amounting to P3,379.17, which respondents had overpaid. Furthermore, a legal interest of 6% per annum shall be imposed on the judgment award from the finality of this Decision until full satisfaction.

PRINCIPLES:

  1. Stipulated Interest Rate: Article 1956 of the Civil Code requires that no interest shall be due unless expressly stipulated in writing.

  2. Legal Rate of Interest: When no exact rate is stipulated, the legal rate of interest applies. The legal rate at the time the agreement was executed was 12% per annum, later reduced to 6% per annum effective from July 1, 2013.

  3. Application of Payments: Article 1253 of the Civil Code states that if the debt produces interest, payment of the principal shall not be deemed to have been made until the interests have been covered.

  4. Solutio Indebiti: Article 2154 of the Civil Code provides for the return of payments made by mistake when there is no obligation to pay.

  5. Unconscionable Interest Rates: Interest rates significantly higher than the prevailing legal rate are deemed unconscionable and may be considered void for being contrary to morals and law.

  6. Equity in Refunds: Quasi-contractual obligations under Article 2159 require bad faith for additional interests or damages, but equitable principles can mitigate harsh applications.

  7. Interest on Judgment Awards: Under the guidelines modified by the Nacar ruling, legal interest of 6% per annum is imposed on judgment awards from finality until satisfaction.