Domasian v. Demdam
REITERATIONFacts
1. The Antecedents: Spouses Sergio and Nenita Domasian obtained a loan of P75,000.00 from Manuel T. Demdam on October 30, 1995, with an agreed interest rate of eight percent (8%) per month, due on or before June 30, 1996. The petitioners failed to pay the principal and accrued interest upon maturity, despite demands, leading respondent Demdam to file a complaint for collection of a sum of money before the Regional Trial Court (RTC) of Pasay City on August 1, 2001, seeking P75,000.00 in principal and P414,000.00 in accrued interest. 2. Procedural History: The RTC issued summons, but personal service failed as the petitioners had moved, and the respondent's motion to declare the petitioners in default was granted on January 23, 2002, despite the petitioners' claim of being informed of the case by a relative and attending a hearing on November 16, 2001. The RTC subsequently rendered a default judgment on January 14, 2003, ordering the petitioners to pay the principal, accrued interest, moral damages, exemplary damages, attorney's fees, and costs; however, the petitioners, claiming they never received notice of the default order or the judgment, filed a Petition for Relief from Judgment, which the RTC granted on September 30, 2008, setting aside the January 14, 2003 order and dismissing the respondent's complaint for lack of jurisdiction, citing the principal amount of P75,000.00. The respondent appealed to the Court of Appeals (CA), which reversed the RTC's decision on August 31, 2012, reinstating the January 14, 2003 order and holding that the RTC had jurisdiction because the total claim, including interest, amounted to P489,000.00, and the CA denied the petitioners' motion for reconsideration on April 22, 2014. 3. The Petition: The petitioners filed a Petition for Review on Certiorari with this Court, raising issues including the CA's error in taking cognizance of the respondent's appeal via Notice of Appeal, as the issues presented were questions of law, and the CA's error in including accrued interest in the determination of the jurisdictional amount, arguing that the RTC lacked jurisdiction as the principal loan amount of P75,000.00 fell within the Metropolitan Trial Court's jurisdiction. The Supreme Court denied the petition, affirming the CA's finding of jurisdiction, holding that the monetary interest was a primary component of the cause of action and thus includible in the jurisdictional calculation; however, the Court modified the award by striking down the unconscionable eight percent (8%) monthly interest, substituting it with the legal rate of twelve percent (12%) per annum, and deleted the awards for moral and exemplary damages.
Issue(s)
Whether the Court of Appeals erred in giving due course to the respondent's appeal filed via Notice of Appeal, which raised purely questions of law, and whether the Court of Appeals erred in its finding that accrued interest is included in the determination of the jurisdictional amount for the purpose of determining the jurisdiction of the Regional Trial Court. Whether the stipulated interest rate of eight percent (8%) per month is unconscionable and should be reduced. Whether the award for moral and exemplary damages was proper, and whether the tender of payment was sufficient to suspend the accrual of interest.
Ruling
The Supreme Court denied the Petition for Review on Certiorari, affirming the Court of Appeals' Decision and Resolution, but modified the award of interest and deleted the award for moral and exemplary damages.
Ratio Decidendi
On the propriety of the CA's cognizance of the appeal and the inclusion of accrued interest in the jurisdictional amount: The Court agreed that the issues raised were questions of law, but upheld the CA's findings on jurisdiction. Monetary interest is a primary component of the cause of action and must be included in determining the jurisdictional amount. The total claim, inclusive of monetary interest, fell within the RTC's jurisdiction. On the unconscionability of the stipulated interest rate: The Court found the stipulated eight percent (8%) monthly interest rate to be unconscionable, iniquitous, and exorbitant, and struck it down. The legal rate of interest prevailing at the time of the loan agreement, twelve percent (12%) per annum, should be applied. Compensatory interest on the principal would earn legal interest from the date of judicial demand, and the principal obligation itself would earn legal interest from the finality of the ruling until full payment. On damages and tender of payment: The Court deleted the award for moral and exemplary damages, as the breach of contract was not shown to be due to fraud or bad faith. The petitioners' attempt to tender payment was insufficient to suspend the accrual of interest because it was not accompanied by a valid consignation.
Main Doctrine
Monetary interest, being a primary and inseparable component of a plaintiff's cause of action, is included in the determination of the jurisdictional amount, unlike compensatory interest which is merely incidental. Stipulated interest rates of eight percent (8%) per month are unconscionable and should be struck down, replaced by the legal rate of twelve percent (12%) per annum.