SPOUSES SERGIO D. DOMASIAN AND NENITA F. DOMASIAN vs. MANUEL T. DEMDAM

The governing principle is that agreed monetary interest constitutes a primary and inseparable component of a loan obligation and must be included in computing the jurisdictional amount under Batas Pambansa Blg. 129, whereas compensatory interest, damages, attorney’s fees, and litigation costs are merely incidental and excluded. Consequently, the Court ruled that the RTC retained jurisdiction over the collection suit, but tempered the unconscionable stipulated interest rate to the prevailing legal rate and removed ancillary damage awards unsupported by proof of fraud or bad faith.

On October 30, 1995, petitioners borrowed P75,000.00 from respondent under an agreement stipulating an eight percent (8%) monthly interest rate and a maturity date of June 30, 1996. Petitioners defaulted despite repeated demands. On August 1, 2001, respondent filed a complaint for collection of sum of money with the Regional Trial Court of Pasay City, seeking P75,000.00 in principal and P414,000.00 in accrued interest, for a total claim of P489,000.00. Personal service of summons failed after petitioners relocated to Naga City. The trial court subsequently declared petitioners in default and rendered a judgment by default on January 14, 2003. Petitioners, having received neither the default order nor the judgment, filed a Petition for Relief from Judgment on June 6, 2006, later supplementing it with a Motion to Dismiss alleging that the RTC lacked jurisdiction because the principal claim fell under the exclusive original jurisdiction of the Metropolitan Trial Court.

• Petitioners obtained a loan of P75,000.00 from respondent on October 30, 1995, agreeing to an eight percent (8%) monthly interest rate and a maturity date of June 30, 1996.
• Petitioners defaulted on the obligation despite repeated demands.
• On August 1, 2001, respondent filed an Amended Complaint for collection of sum of money with the RTC of Pasay City, claiming P75,000.00 in principal and P414,000.00 in accrued interest, for a total of P489,000.00.
• Summons could not be personally served because petitioners had relocated to Naga City. Petitioners failed to file an answer.
• The RTC declared petitioners in default on January 23, 2002, and proceeded ex parte. The court rendered a judgment on January 14, 2003, ordering petitioners to pay the principal, accrued interest, moral damages, exemplary damages, attorney’s fees, and costs.
• Petitioners did not receive the default order or the judgment. On June 6, 2006, they filed a Petition for Relief from Judgment, alleging defective service of summons.
• On June 6, 2008, petitioners filed a Motion to Dismiss, contending the RTC lacked jurisdiction because the principal amount of P75,000.00 fell within the exclusive original jurisdiction of the Metropolitan Trial Court.
• The RTC granted the petition, set aside the January 14, 2003 judgment, and dismissed the complaint for lack of jurisdiction.
• Respondent appealed to the CA via a Notice of Appeal, arguing that the RTC had jurisdiction because the total claim of P489,000.00 included accrued interest as a primary component of the cause of action.
• The CA reversed the RTC, holding that the RTC possessed jurisdiction, and reinstated the default judgment.
• Petitioners elevated the case to the Supreme Court via a Petition for Review on Certiorari, challenging the CA’s assumption of jurisdiction and the inclusion of interest in the jurisdictional computation.

• Petitioner maintained that the CA committed reversible error by entertaining an appeal via Notice of Appeal when the assigned errors raised purely questions of law, which under Rule 50, Section 2 of the Rules of Court, should have been dismissed outright.
• Petitioner argued that the RTC correctly dismissed the complaint for lack of jurisdiction because the jurisdictional amount must be determined solely by the principal loan of P75,000.00, exclusive of the accrued interest of P414,000.00, pursuant to the "exclusive of interest" clause in Section 19(8) of Batas Pambansa Blg. 129.
• Petitioner asserted that the RTC, acting within its authority over the Petition for Relief from Judgment, properly exercised its discretion to set aside the default judgment.

• Respondent countered that the CA correctly exercised jurisdiction because the accrued interest formed a primary and determinable component of the cause of action at the time of filing, rendering the total claim of P489,000.00 well within the RTC’s jurisdictional threshold.
• Respondent argued that jurisprudence consistently holds that agreed monetary interest must be included in computing the jurisdictional amount, and that the petitioners’ reliance on the "exclusive of interest" provision mischaracterized the nature of contractual interest as merely incidental.
• Respondent emphasized that the petitioners’ debt remained unpaid for nearly nineteen years, and that the petitioners’ alleged tender of payment in 2010 was insufficient to extinguish the obligation or suspend interest accrual absent valid consignation.

• Procedural Issues:
  • Whether the Court of Appeals correctly took cognizance of the respondent’s appeal via Notice of Appeal when the assigned errors pertained exclusively to questions of law.
• Substantive Issues:
  • Whether accrued monetary interest should be included in determining the jurisdictional amount under Section 19(8) of Batas Pambansa Blg. 129, as amended.
  • Whether the stipulated eight percent (8%) monthly interest rate is unconscionable.
  • Whether the petitioners are liable for moral and exemplary damages in a breach of contract action.
  • Whether a mere tender of payment without consignation suspends the accrual of interest.

• Procedural: The Court found that the CA erred in entertaining the appeal because the respondent’s Notice of Appeal raised purely questions of law. The test for distinguishing questions of law from fact rests on whether the appellate court can resolve the issue without evaluating the evidence. Because the appeal required only the application of jurisdictional statutes to established facts, it constituted a question of law reviewable exclusively by the Supreme Court via petition for review on certiorari. The Court noted that Rule 50, Section 2 mandates the dismissal of such improper appeals, but proceeded to resolve the substantive jurisdictional issue to settle the controversy.
• Substantive: The Court ruled that the RTC validly exercised jurisdiction over the complaint. The Court distinguished monetary interest from compensatory interest, damages, attorney’s fees, and costs of suit. Applying the principle of ejusdem generis, the Court held that the "exclusive of interest" phrase in BP 129 refers only to compensatory interest, which is incidental and ancillary to a breach. Monetary interest, representing the agreed compensation for the use or forbearance of money, is a primary and inseparable component of the loan obligation and must be included in the jurisdictional computation. Consequently, the total claim of P489,000.00 fell within RTC jurisdiction. The Court further ruled that the eight percent (8%) monthly interest rate was unconscionable and void ab initio, substituting it with the legal rate of twelve percent (12%) per annum from the date of extrajudicial demand. Compensatory interest on the unpaid conventional interest was imposed at twelve percent (12%) per annum from judicial demand until June 30, 2013, and six percent (6%) per annum thereafter. The Court deleted the awards for moral and exemplary damages because breach of contract alone does not warrant such damages absent proof of fraud or bad faith. Finally, the Court held that the petitioners’ tender of payment without subsequent consignation did not suspend interest accrual.

• Ejusdem Generis — This rule of statutory construction dictates that general terms following an enumeration of specific items are construed to refer only to things of the same class or kind. The Court applied this principle to Section 19(8) of BP 129, holding that the term "interest" listed alongside damages, attorney’s fees, and litigation costs refers exclusively to compensatory interest, which shares their incidental and ancillary character to a primary cause of action.
• Monetary vs. Compensatory Interest — Monetary interest is the compensation agreed upon by the parties for the use or forbearance of money and forms an integral part of the principal obligation. Compensatory interest is imposed by law or courts as a penalty or indemnity for delay in payment. The Court relied on this distinction to rule that only monetary interest must be included in computing jurisdictional amounts, as it constitutes a primary component of the cause of action.
• Unconscionable Interest Rates — Stipulated interest rates that are excessive, iniquitous, or exorbitant are void for being contrary to morals and public policy. Where a rate exceeds twice the prevailing legal rate without market justification, courts possess the equitable power to reduce it to the legal rate. The Court applied this doctrine to strike down the eight percent monthly interest rate and substitute it with twelve percent per annum.
• Tender of Payment and Consignation — A mere tender of payment does not extinguish an obligation or suspend interest accrual unless accompanied by a valid consignation with a judicial authority. Because the petitioners failed to deposit the payment in court, the Court ruled that interest continued to accrue unabated.

• "Since the interest on the loan is a primary and inseparable component of the cause of action, not merely incidental thereto, and already determinable at the time of filing of the Complaint, it must be included in the determination of which court has the jurisdiction over petitioner's case." — The Court applied this standard from Gomez v. Montalban to establish that contractual monetary interest elevates the jurisdictional amount beyond the principal alone.
• "The imposition of an unconscionable rate of interest on a money debt, even if knowingly and voluntarily assumed, is immoral and unjust. It is tantamount to a repugnant spoliation and an iniquitous deprivation of property, repulsive to the common sense of man." — The Court invoked this passage to justify the judicial tempering of the eight percent monthly interest rate, emphasizing that freedom of contract yields to public policy against usurious stipulations.

• Mandaue Realty & Resources Corporation v. Court of Appeals — Cited to delineate the test between questions of law and questions of fact, establishing that the mode of appeal depends on whether the appellate court can resolve the issue without calibrating evidence.
• Gomez v. Montalban — Followed as direct precedent holding that accrued contractual interest is a primary and inseparable component of the cause of action and must be included in determining the court’s jurisdictional amount.
• Spouses Abella v. Spouses Abella — Relied upon to establish that unconscionable interest rates are void ab initio and must be reduced to the prevailing legal rate, and to set the framework for imposing compensatory interest on unpaid conventional interest.
• Spouses Bonrostro v. Spouses Luna — Cited to explain that tender of payment alone does not suspend interest accrual or extinguish the obligation without a subsequent valid consignation.
• Arco Pulp and Paper Co., Inc. v. Lim — Invoked to rule that moral damages in breach of contract are recoverable only upon clear proof of fraud or bad faith.
• Timado v. Rural Bank of San Jose, Inc. — Cited to establish the requisites for exemplary damages, particularly the necessity of a prior award for compensatory damages and the presence of bad faith or oppressive conduct.

• Section 19(8), Batas Pambansa Blg. 129 — The jurisdictional provision for Regional Trial Courts in civil cases, which the Court construed to exclude compensatory interest but include monetary interest in computing the jurisdictional amount.
• Section 5, Republic Act No. 7691 — The amendatory statute that adjusted jurisdictional thresholds to P200,000.00, which the Court applied to confirm the RTC’s jurisdiction over the P489,000.00 claim.
• Section 2, Rule 41 & Section 2, Rule 50, Rules of Court — Governing provisions on modes of appeal and the mandatory dismissal of appeals raising purely questions of law to the Court of Appeals.
• Article 1956, Civil Code — The provision requiring express stipulation for interest, which the Court read in conjunction with jurisprudence to mandate the application of the legal rate when contractual interest is voided for unconscionability.
• Article 2212, Civil Code — Cited to establish that interest due earns legal interest from the time of judicial demand, supporting the imposition of compensatory interest on unpaid conventional interest.
• Article 2220, Civil Code — The statutory basis for awarding moral damages in breach of contract, which the Court applied to deny such damages due to the absence of fraud or bad faith.