Abella v Abella

Leonen, 2015

 2002, petitioners Sps Salvador and Alma Abella filed a Complaint for sum of money and
damages with prayer for preliminary attachment against respondent Sps Romeo and Annie
Abella before the RTC, Kalibo, Aklan.
o Petitioners alleged that respondents obtained a 500k loan from them evidenced by an
acknowledgment receipt dated March 22, 1999 and payable within one (1) year.
Petitioners added that respondents were able to pay a total of P200,000.
 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.
o 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]."
o 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.
o 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.
 RTC ruled in favor of petitioners, noting that the acknowledgment receipt 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.
 2006, the RTC denied respondents' Motion for Reconsideration.
 CA ruled that while respondents had indeed entered into a simple loan with petitioners,
respondents were no longer liable to pay the outstanding amount of P300k, reasoning that the
loan could not have earned interest.
o Art 1956 requires interest to be stipulated in writing for it to be due. 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.
o As to the loans not having earned interest in the concept of actual or compensatory
damages, the CA, citing Eusebio-Calderon v. People, noted that interest in the concept of
actual or compensatory damages accrues only from the time that demand (whether
judicial or extrajudicial) is made. Since respondents received petitioners' demand letter
only on July 12, 2002, any interest in the concept of actual or compensatory damages
due should be reckoned only from then. Thus, the payments for the 2.5% monthly
 interest made after the perfection of the loan in 1999 but before the demand was made
in 2002 were invalid.
 Since petitioners' charging of interest was invalid, the Court of Appeals reasoned that all
payments respondents made by way of interest should be deemed payments for the principal
amount of P500,000.00.
 The Court of Appeals further noted that respondents made a total payment of P648,500.00,
which, as against the principal amount of P500,000.00, entailed an overpayment of
P148,500.00. Applying the principle of solutio indebiti, the CA concluded that petitioners were
liable to reimburse respondents for the overpaid amount of P148,500.00.
 Petitioners filed the present appeal, claiming that the CA 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.
o Petitioners cite Art 1371 which calls for the consideration of the contracting parties'
contemporaneous and subsequent acts in determining their true intention. Petitioners
insist that respondents' consistent payment of interest in the year following the
perfection of the loan showed that interest at 2.5% per month was properly agreed
upon despite its not having been expressly stated in the acknowledgment receipt. They
add that during the proceedings before the RTC, respondents admitted that interest was
due on the loan.

Whether interest accrued on respondents' loan from petitioners, if so, at what rate? – Interest accrued
at 12% per annum.

 Respondents entered into a simple loan or mutuum, rather than a joint venture, with
petitioners.
o Respondents' claims, as articulated in their testimonies before the trial court, cannot
prevail over the clear terms of the document. "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."
o On March 22, 1999, respondents executed an acknowledgment receipt to petitioners,
which states: This is to acknowledge receipt of the Amount of Five Hundred Thousand
(P500,000.00) Pesos from Mrs. Alma R. Abella, payable within one (1) year from date
hereof with interest.
 The text 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.
 The text of the acknowledgment receipt is simple, plain, and unequivocal. It attests to the
contracting parties' intent to subject to interest the loan. However, the acknowledgment receipt
fails to state the exact rate of interest.
 o Sps Toring v. Spouses Olan & Art 1956: "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."
o Nacar v. Gallery Frames recognized that the legal rate of interest has been reduced to
6% per annum by virtue of the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB)
Resolution No. 796 dated May 16, 2013, subject to prospective application.
o However, 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.
o Even if it can be shown that the parties have agreed to monthly interest at the rate of
2.5%, this is unconscionable. The willingness of the parties to enter into a relation
involving an unconscionable interest rate is inconsequential. The imposition of an
unconscionable interest rate is void ab initio for being "contrary to morals, and the law."
 Apart from respondents' liability for the conventional interest at the rate of 12% per annum,
outstanding conventional interest shall itself earn legal interest from the time judicial demand
was made by petitioners, consistent with Art 2212. 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.

Second, whether petitioners are liable to reimburse respondents for the Litter's supposed excess
payments and for interest. – Yes, petitioners must reimburse, but no need to pay interest.

 Respondents made an overpayment in the amount of P3,379.17. The principle of solutio indebiti
as provided by Art 2154 applies
 The excess payment made by respondents were borne out of a mere mistake that it was due.
The Court finds it in the better interest of equity to no longer hold petitioners liable for the
interest arising from their quasi-contractual obligation.
 However, interest at the rate of 6% per annum may be properly imposed on the total judgment
award.