Case Summary (G.R. No. 29512)
Factual Background
On December 8, 1993, Rogelio S. Pantaleon, the President of PRISMA, secured a loan of P1,000,000.00 from Arthur F. Menchavez, with an interest bearing P40,000.00 per month, culminating in a total obligation of P1,240,000.00 due within six months. Pantaleon issued a promissory note, acknowledging the loan and agreeing to make payments on a set schedule. However, the petitioners failed to fully settle the loan within the stipulated period, making partial payments amounting to P1,108,772.00 by January 4, 1997, which left a substantial balance according to the respondent.
RTC Ruling
The Regional Trial Court (RTC) ruled on October 27, 2000, that the petitioners were liable for a total of P3,526,117.00 to Menchavez, applying a 4% monthly interest based on the agreement. It found that PRISMA's corporate status should be disregarded to ensure accountability as Pantaleon controlled the entity. As such, the RTC ordered the petitioners to pay this amount with compounding interest from February 11, 1999, until fully paid.
CA Ruling
The Court of Appeals (CA) upheld the RTC's findings in its May 5, 2003 decision, affirming the existence of a 4% monthly interest based principally on the board resolution that allowed such a transaction. Nonetheless, it decided to reduce the interest rate from 4% per month to 12% per annum, viewing the original agreement as unreasonable. The CA also maintained that PRISMA was merely an instrumentality of Pantaleon for the purposes of corporate liability.
The Petition
The petitioners contended that the CA misconstrued their agreement by relying on the board resolution, arguing it did not explicitly stipulate a loan's interest rate. They asserted that the interest was inaccurately applied beyond the six-month period and emphasized the absence of an express agreement on the 4% interest rate as mandated by Article 1956 of the Civil Code, which stipulates that interest must be specifically agreed upon in writing.
The Case for the Respondent
Menchavez argued that the CA's conclusions were correct, maintaining that the board resolution was integral to the promotion of the loan agreement and established the petitioners' obligation regarding the interest. He also raised the issue of estoppel, asserting that the petitioners had accepted the conditions set forth in the loan agreement.
The Issue
The central legal issue was whether the parties had mutually agreed to a 4% monthly interest rate on the loan and if such a rate extended beyond the defined six-month payment period.
Our Ruling
The Supreme Court found merit in the petitioners' arguments, clarifying that interest must be explicitly stipulated in writing to be enforceable. Citing relevant legal precedents, the Court concluded that the obligation stated in the promissory note did not include a 4% interest rate but instead outlined a clear monthly payment of P40,000.00 within six months. After this period, the lawful interest should be applied at a rate of 12% per annum consistent with Phil
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Background of the Case
- The petitioners, Prisma Construction & Development Corporation (PRISMA) and Rogelio S. Pantaleon (Pantaleon), sought to reverse the Court of Appeals (CA) Decision dated May 5, 2003, which affirmed the Regional Trial Court (RTC) ruling holding them liable for a debt of P3,526,117.00 to the respondent, Arthur F. Menchavez.
- The CA modified the interest rate applicable to the debt from 4% per month to 12% per annum, effective from the filing of the complaint until full payment.
- The case revolves around a loan agreement made on December 8, 1993, where Pantaleon borrowed P1,000,000.00 with a specified repayment structure.
Factual Background
- The loan of P1,000,000.00 was obtained by Pantaleon, with a monthly interest of P40,000.00, payable over six months, culminating in a total obligation of P1,240,000.00.
- A promissory note was issued by Pantaleon, acknowledging the loan amount and the structured payment schedule.
- The petitioners failed to pay the full amount within the stipulated period and made several payments from September 8, 1994, to January 4, 1997, totaling P1,108,772.00.
- The remaining balance as of January 4, 1997, was claimed to be P1,364,151.00, which was compounded with the 4% monthly interest.
RTC Ruling
- The RTC found the respondent's claims valid, ordering the petitioners to pay the total amount of P3,526,117.00, plus 4% monthly interest from February 11, 1999, until fully paid.
- The court justified the piercing of the corporate veil, asserting that