Case Summary (G.R. No. 225433)
Petitioner
Lara’s Gifts & Decors, Inc., purchaser of industrial and construction materials.
Respondent
Midtown Industrial Sales, Inc., seller and creditor.
Key Dates
• Purchases: January–December 2007 (P 1,263,104.22 on 60-day credit)
• Demand letter: January 21, 2008
• Complaint filed (Judicial demand): February 5, 2008
• RTC Decision: January 27, 2014
• CA Decision: April 21, 2016
• SC Decision: August 28, 2019 (denying petition, adding legal interest)
• Motion for Reconsideration filed thereafter
• SC Resolution: September 20, 2022
Applicable Law
• 1987 Constitution (SC appellate jurisdiction)
• Civil Code (Arts. 1169, 1306, 1308, 1956, 1959, 2209, 2212)
• Usury Law (Act 2655, as amended by P.D. 116)
• Bangko Sentral ng Pilipinas Circular 799 (6% p.a. legal rate post-July 1, 2013)
Factual Background
Lara’s Gifts purchased on 60-day credit various materials from Midtown, agreeing to 24% p.a. interest on overdue accounts. Payment by post-dated checks failed. Midtown demanded payment and sued for sum of money with prayer for attachment.
Procedural History
• RTC: Held invoices genuine, materials conformed; granted Midtown P1,263,104.22 + 24% p.a. from Feb 5, 2008 + P50,000 attorney’s fees + costs.
• CA: Affirmed RTC decision.
• SC (2019): Denied petition; affirmed CA but added legal interest (12% until June 30, 2013; 6% thereafter) on the 24% conventional interest.
• Petitioner’s Motion for Reconsideration challenges the general denial rule, demand requirement, substandard-materials claim, validity of 24% interest, and the added legal interest.
Issues
- Whether petitioner’s general denial admitted invoices.
- Whether petitioner proved materials substandard.
- Whether 24% stipulated interest is void for unconscionability.
- Whether legal interest on conventional interest may be imposed.
Supreme Court Resolution
• On issues 1–3: Reiterated that (a) general denial equates to admission of invoices; (b) substandard-materials allegation unproven; (c) 24% p.a. interest valid and binding.
• On issue 4: Deleted the additional award of legal interest on the 24% conventional interest as ultra vires—Midtown did not appeal the RTC decision which did not award such interest; the added award was not put at issue below.
Doctrinal Clarification (Civil Code under 1987 Constitution)
• Conventional (stipulated) vs. compensatory (legal) interest must be distinguished.
• Civil Code Art. 2209 provides 6% p.a. legal indemnity for delay in payment of any sum of money in absence of valid stipulation.
• Civil Code Art. 2212 (“interest on interest”) applies when there is a valid stipulation of interest and judicial demand, but its application must respect final and executory awards.
• Loans/forbearances fall under Usury
Case Syllabus (G.R. No. 225433)
Facts
- From January to December 2007, Lara’s Gifts purchased construction and industrial materials totaling ₱1,263,104.22 on 60-day credit from Midtown.
- Lara’s Gifts issued post-dated checks which were later dishonored for “insufficiency of funds” or “account closed.”
- Midtown sent a demand letter on January 21, 2008; payment remained unsettled.
- Midtown filed a Complaint for Sum of Money with Prayer for Attachment on February 5, 2008.
- Lara’s Gifts admitted the purchases but claimed materials were substandard, affected U.S. buyers, orders canceled by recession, and its factory was destroyed by a fire on February 19, 2008.
Regional Trial Court Decision (January 27, 2014)
- Found no evidence the materials were substandard or poor quality.
- Held sales invoices and dishonored checks proved the debt.
- Declared the stipulated 24% per annum interest non-unconscionable.
- Awarded Midtown:
• ₱1,263,104.22 plus 24% interest per annum from February 5, 2008 until full payment
• ₱50,000 attorney’s fees
• Costs of suit
Court of Appeals Decision (April 21, 2016)
- Affirmed the RTC decision (in CA-G.R. CV No. 102465) with modification as to damages.
- Prompted Lara’s Gifts to file a Petition for Review on Certiorari with the Supreme Court.
Supreme Court Decision (August 28, 2019)
- Denied the Petition, affirming the CA Decision with modification:
• General denial in the Answer admitted genuineness and execution of invoices
• Materials claim unproved
• Stipulated 24% per annum interest valid; reckoned from January 22, 2008 until full payment
• Legal interest on the 24% interest at 12% per annum from February 5, 2008–June 30, 2013, and 6% per annum thereafter
• ₱50,000 attorney’s fees plus 6% interest from finality until payment
• Costs of suit