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Prisma Vs Menchavez

1) Prisma Construction & Development Corporation and Rogelio Pantaleon obtained a 1 million peso loan from Arthur Menchavez in 1993, with monthly interest of 40,000 pesos to be paid over 6 months. 2) When Prisma and Pantaleon failed to fully repay the loan, Menchavez charged 4% monthly interest on the outstanding balance. Prisma and Pantaleon argued this interest rate was not agreed upon. 3) The Supreme Court ruled the promissory note specified interest of 40,000 pesos per month for 6 months, but did not mention a 4% rate. Interest after 6 months would be 12% annually as

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67 views

Prisma Vs Menchavez

1) Prisma Construction & Development Corporation and Rogelio Pantaleon obtained a 1 million peso loan from Arthur Menchavez in 1993, with monthly interest of 40,000 pesos to be paid over 6 months. 2) When Prisma and Pantaleon failed to fully repay the loan, Menchavez charged 4% monthly interest on the outstanding balance. Prisma and Pantaleon argued this interest rate was not agreed upon. 3) The Supreme Court ruled the promissory note specified interest of 40,000 pesos per month for 6 months, but did not mention a 4% rate. Interest after 6 months would be 12% annually as

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lord wally
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PRISMA VS.

MENCHAVEZ
MARCH 28, 2013 ~ VBDIAZ

PRISMA CONSTRUCTION & DEVELOPMENT CORPORATION and


ROGELIO S. PANTALEON vs ARTHUR F. MENCHAVEZ
G.R. No. 160545; March 9, 2010
FACTS:
December 8, 1993, Pantaleon, President and Chairman of the Board of PRISMA,
obtained a P1M loan from the respondent, with monthly interest of P40,000.00
payable for 6 months, or a total obligation of P1,240,000.00 payable within 6 mos. To
secure the payment of the loan, Pantaleon issued a promissory. Pantaleon signed the
promissory note in his personal capacity and as duly authorized by the Board of
Directors of PRISMA. The petitioners failed to completely pay the loan within the 6-
month period.
As of January 4, 1997, respondent found that the petitioners still had an outstanding
balance of P1,364,151.00, to which respondent applied a 4% monthly interest.

On August 28, 1997, respondent filed a complaint for sum of money to enforce the
unpaid balance, plus 4% monthly interest. In their Answer, the petitioners admitted
the loan of P1,240,000.00, but denied the stipulation on the 4% monthly interest,
arguing that the interest was not provided in the promissory note. Pantaleon also
denied that he made himself personally liable and that he made representations that
the loan would be repaid within six (6) months.

RTC found that the respondent issued a check for P1M in favor of the petitioners for a
loan that would earn an interest of 4% or P40,000.00 per month, or a total of
P240,000.00 for a 6-month period. RTC ordered the petitioners to jointly and
severally pay the respondent the amount of P3,526,117.00 plus 4% per month interest
from February 11, 1999 until fully paid.
Petitioners appealed to CA insisting that there was no express stipulation on the 4%
monthly interest. CA favored respondent but noted that the interest of 4% per month,
or 48% per annum, was unreasonable and should be reduced to 12% per annum. MR
denied hence this petition.

ISSUE:
Whether the parties agreed to the 4% monthly interest on the loan. If so, does the rate
of interest apply to the 6-month payment period only or until full payment of the loan?
RULING:
Petition is meritorious. Interest due should be stipulated in writing; otherwise, 12%
per annum
Obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith. When the terms of a contract are
clear and leave no doubt as to the intention of the contracting parties, the literal
meaning of its stipulations governs. Courts have no authority to alter the contract by
construction or to make a new contract for the parties; a court’s duty is confined to the
interpretation of the contract the parties made for themselves without regard to its
wisdom or folly, as the court cannot supply material stipulations or read into the
contract words the contract does not contain. It is only when the contract is vague and
ambiguous that courts are permitted to resort to the interpretation of its terms to
determine the parties’ intent.

In the present case, the respondent issued a check for P1M. In turn, Pantaleon, in his
personal capacity and as authorized by the Board, executed the promissory note. Thus,
the P1M loan shall be payable within 6 months. The loan shall earn an interest of
P40,000.00 per month, for a total obligation of P1,240,000.00 for the six-month
period. We note that this agreed sum can be computed at 4% interest per month, but
no such rate of interest was stipulated in the promissory note; rather a fixed sum
equivalent to this rate was agreed upon.
Article 1956 of the Civil Code specifically mandates that “no interest shall be due
unless it has been expressly stipulated in writing.” The payment of interest in loans or
forbearance of money is allowed only if: (1) there was an express stipulation for the
payment of interest; and (2) the agreement for the payment of interest was reduced in
writing. The concurrence of the two conditions is required for the payment of interest
at a stipulated rate. The collection of interest without any stipulation in writing is
prohibited by law.

The interest of P40,000.00 per month corresponds only to the six-month period of the
loan, or from January 8, 1994 to June 8, 1994, as agreed upon by the parties in the
promissory note. Thereafter, the interest on the loan should be at the legal interest rate
of 12% per annum.

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.

The facts show that the parties agreed to the payment of a specific sum of money of
P40,000.00 per month for six months, not to a 4% rate of interest payable within a 6-
month period.

No issue on the excessiveness of the stipulated amount of P40,000.00 per month was
ever put in issue by the petitioners; they only assailed the application of a 4% interest
rate, since it was not agreed upon.

It is a familiar doctrine in obligations and contracts that the parties are bound by the
stipulations, clauses, terms and conditions they have agreed to, which is the law
between them, the only limitation being that these stipulations, clauses, terms and
conditions are not contrary to law, morals, public order or public policy. The payment
of the specific sum of money of P40,000.00 per month was voluntarily agreed upon
by the petitioners and the respondent. There is nothing from the records and, in fact,
there is no allegation showing that petitioners were victims of fraud when they entered
into the agreement with the respondent.

Therefore, as agreed by the parties, the loan of P1M shall earn P40,000.00 per month
for a period of 6 months, for a total principal and interest amount of P1,240,000.00.
Thereafter, interest at the rate of 12% per annum shall apply. The amounts already
paid by the petitioners during the pendency of the suit, amounting toP1,228,772.00 as
of February 12, 1999, should be deducted from the total amount due, computed as
indicated above. We remand the case to the trial court for the actual computation of
the total amount due.

WHEREFORE, in light of all the foregoing, we hereby REVERSE and SET ASIDE
the Decision CA

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