The Supreme Court’s decision in Spouses Carlos and Teresita Rustia v. Emerita Rivera underscores a critical principle in contract law: for interest to be legally enforceable on a loan, it must be expressly stipulated in writing. This case clarifies that verbal agreements or implied understandings regarding interest rates are insufficient, safeguarding borrowers from potential exploitation and promoting transparency in lending practices.

Written in Stone: When Loan Interest Requires Express Agreement

Emerita Rivera filed a complaint against Spouses Rustia and Rosemarie Rocha, seeking to recover a loan of P130,000.00 she extended to the spouses. Rivera claimed the loan was payable within thirty days, and as security, the spouses executed a promissory note with Rocha as a co-maker. The loan allegedly carried a monthly interest of five percent (5%). While the Rustias admitted to receiving the loan, they denied agreeing to the stipulated interest. The core legal question was whether the Rustias were legally bound to pay the 5% monthly interest in the absence of a clear, written agreement explicitly stating this condition.

The Metropolitan Trial Court (MeTC) ruled in favor of Rivera, ordering the Rustias to pay the principal amount plus the accrued interest. The Regional Trial Court (RTC) affirmed the MeTC’s decision. The Court of Appeals, however, upheld the RTC’s ruling, but addressed the procedural issue regarding the Rustias’ motion for reconsideration, which lacked a notice of hearing. Dissatisfied, the Rustias elevated the matter to the Supreme Court, raising two key issues.

The first issue revolved around the procedural lapse of the motion for reconsideration filed with the RTC, which the Court of Appeals deemed a mere scrap of paper due to the absence of a notice of hearing. Sections 4 and 5 of Rule 15 of the 1997 Rules of Civil Procedure mandates that motions requiring a hearing must include a notice specifying the time and date of the hearing, ensuring that all parties concerned are duly informed and given the opportunity to be heard. Failure to comply with this requirement renders the motion defective and without legal effect.

Specifically, Section 4 provides that “every written motion shall be set for hearing by the applicant.” Furthermore, both Sections 4 and 5 require a “notice of hearing” addressed to all parties concerned, specifying the hearing’s time and date. This notice is crucial for ensuring that all parties are aware of the motion and have the opportunity to respond. A motion for reconsideration is not among those motions that can be acted upon without prejudicing the rights of the adverse party, making the notice requirement mandatory.

The Supreme Court referenced numerous precedents emphasizing the mandatory nature of this notice, particularly for motions for new trial or reconsideration. The High Court reaffirmed the importance of adhering to procedural rules to ensure fairness and due process, especially for motions impacting substantial rights.

On the substantive issue of interest, the petitioners argued that Article 1956 of the Civil Code mandates that no interest shall be due unless it has been expressly stipulated in writing. This provision serves to prevent usurious practices and protect borrowers from hidden or unconscionable interest rates. In this case, the Supreme Court relied on the trial court’s finding that Teresita Rustia sent a letter to Rivera acknowledging and appealing for understanding regarding the difficulty in paying the 5% monthly interest on the loan.

The Court found that this letter served as sufficient evidence of the petitioners’ agreement to pay the stipulated interest rate. Furthermore, the Court noted that factual findings by the trial court, when affirmed by the Court of Appeals, are generally binding and conclusive upon the Supreme Court. This principle is rooted in the recognition that lower courts are in a better position to assess the credibility of witnesses and evaluate evidence.

FAQs

What was the key issue in this case?	The primary issue was whether Spouses Rustia were obligated to pay a 5% monthly interest on a loan, given their claim that there was no express written agreement for such interest.
What does Article 1956 of the Civil Code state?	Article 1956 stipulates that no interest shall be due unless it has been expressly stipulated in writing, emphasizing the necessity of written agreements for interest on loans.
Why was the motion for reconsideration denied?	The motion was denied because it lacked a notice of hearing, a mandatory requirement under Sections 4 and 5 of Rule 15 of the 1997 Rules of Civil Procedure.
What evidence did the Court rely on to prove the agreement on interest?	The Court relied on a letter from Teresita Rustia to Emerita Rivera, where she acknowledged and requested understanding for their difficulty in paying the 5% monthly interest.
What is the significance of a notice of hearing in a motion?	A notice of hearing ensures that all parties concerned are informed about the motion’s schedule and have the opportunity to participate and present their arguments.
What is the role of the trial court’s factual findings in appeals?	Factual findings of the trial court, when affirmed by the Court of Appeals, are generally binding on the Supreme Court due to the trial court’s advantage in assessing witness credibility.
Can verbal agreements for loan interest be legally enforced?	No, verbal agreements for loan interest are generally not legally enforceable under Article 1956 of the Civil Code; there must be a written stipulation.
What is the practical implication of this ruling for borrowers?	Borrowers are protected from hidden or unconscionable interest rates by ensuring that all loan terms, including interest, are explicitly written and agreed upon.

This ruling emphasizes the critical need for lenders to ensure that all loan agreements, especially those involving interest, are documented in writing. This provides clarity, protects both parties, and avoids potential disputes. By adhering to this requirement, lenders can secure their right to collect interest, and borrowers are shielded from unfair or unexpected financial burdens.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Spouses Carlos and Teresita Rustia v. Emerita Rivera, G.R. No. 156903, November 24, 2006