Menchavez v. Bermudez (G.R. No. 185368; October 11, 2012)

CASE DIGEST: ARTHUR F. MENCHAVEZ v. MARLYN M. BERMUDEZ. (G.R. No. 185368; October 11, 2012).

FACTS: Petitioner Arthur Menchavez (Menchavez) and Marlyn Bermudez (Bermudez) entered into a loan agreement covering the amount of PhP500,000.00 with interest fixed at 5% per month or 60% per annum as evidenced by a promissory note executed by Bermudez.

Thereafter, Menchavez entered into a verbal compromise agreement with Bermudez regarding the delay in payment and the accumulated interest. Under the agreement, Bermudez would deliver eleven (11) postdated checks as payment. When Menchavez presented the checks for payment, eight (8) of these checks were dishonored for having been drawn against insufficient funds.

Thus, Menchavez filed a case for B.P. 22 before the MeTC. The MeTC acquitted Bermudez. The MeTC ruled that Bermudez had already paid the sum of PhP 925,000, or PhP 425,000 over the PhP 500,000 loan.

Menchavez appealed the civil aspect of the case to the RTC. The RTC partially granted the petition. On appeal, the RTC was reversed by the CA.

Hence, this petition. Menchavez argues that aside from the original loan agreement, Bermudez should also pay the amounts of the checks covered in the compromise agreement. He also avers that Bermudez voluntarily agreed to pay the 5% interest per month; hence, the same is valid.

ISSUES: Is the obligation based on the compromise agreement separate and independent from Bermudez’s original loan obligation?

Is the 5% per month stipulated interest valid?

HELD: FIRST ISSUE: It is beyond cavil that if a party fails or refuses to abide by a compromise agreement, the other party may either enforce the compromise or regard it as rescinded and insist upon his original demand. To allow petitioner to recover under the terms of the compromise agreement and to further seek enforcement of the original loan transaction would constitute unjust enrichment. The compromise agreement was entered into precisely to extinguish the obligation under the loan transaction, not to create two sources of obligation for respondent. There is unjust enrichment under Article 22 of the Civil Code when (1) a person is unjustly benefited; and (2) such benefit is derived at the expense of or with damages to another.SECOND ISSUE: The 60% per annum interest rate cannot be countenanced.Castro v. Tan is instructive. The Court, in said case, tagged the 5% monthly interest rate agreed upon as “excessive, iniquitous, unconscionable and exorbitant, contrary to morals, and the law.”

Parties may be free to contract and stipulates as they see fit, but that is not an absolute freedom. Art. 1306 of the Civil Code provides. "The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy." While petitioner harps on the voluntariness with which the parties agreed upon the 5% per month interest rate, voluntariness does not make the stipulation on interest valid. The 5% per month, or 60% per annum, rate of interest is, indeed, iniquitous, and must be struck down. DENIED.

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