Title
Rey vs. Anson
Case
G.R. No. 211206
Decision Date
Nov 7, 2018
Rosemarie Rey borrowed funds secured by mortgages, contested excessive interest rates, and overpaid loans. SC ruled excessive rates unconscionable, ordered return of excess payments, and applied legal interest.

Case Digest (G.R. No. 211206)

Facts:

  • Parties and Background
    • Petitioner: Rosemarie Q. Rey, owner and president of Southern Luzon Technological College Foundation Incorporated, a computer school in Legazpi City.
    • Respondent: Cesar G. Anson, the lender who entered into several loan transactions with the petitioner.
  • Loan Transactions and Security Agreements
    • First Loan
1.1. On August 23, 2002, petitioner borrowed P200,000.00 from respondent. 1.2. The loan was to be paid in one year with an agreed interest rate of 7.5% per month (or P15,000.00 monthly interest) payable bi-monthly by postdated checks. 1.3. This loan was secured by a real estate mortgage on Lot 1271-C-4 (TCT No. 50872) belonging to the Spouses Teodoro and Rosemarie Rey. 1.4. In case of default, a penalty of 10% on the total amount plus 12% attorney’s fees would be imposed. 1.5. The transaction and its terms were embodied in an executed Deed of Real Estate Mortgage dated August 23, 2002.
  • Second Loan
2.1. On August 26, 2002, petitioner borrowed P350,000.00 from respondent. 2.2. The agreed terms stipulated a 7% monthly interest rate and a four-month repayment period. 2.3. The loan was secured by a real estate mortgage over a parcel of land covered by TCT No. 2776, registered in the name of petitioner’s mother, Isabel B. Quinto. 2.4. The agreement details were embodied in a second Deed of Real Estate Mortgage dated August 26, 2002.
  • Third and Fourth Loans
3.1. On February 24, 2004, petitioner obtained a third loan amounting to P100,000.00 with an agreed interest rate of 3% per month; the agreement was not reduced to writing. 3.2. On March 2, 2004, petitioner obtained a fourth loan amounting to P100,000.00 with an oral agreement on 4% monthly interest, also not memorialized in writing.
  • Subsequent Developments and Modifications in the Loan Agreements
    • For the first loan, when petitioner failed to pay the principal upon its due date (August 24, 2003), she requested an extension instead of foreclosure or penalty imposition.
    • Respondent agreed and petitioner executed a promissory note (April 23, 2004) and a new Deed of Real Estate Mortgage (May 3, 2004) which cancelled and updated the original agreement; this restructured the repayment for the principal and interest terms.
    • Petitioner consistently paid the agreed interest during the stipulated periods but subsequently defaulted on principal repayments of the first and later the second loans.
    • For the second loan, after failing to pay both monthly interest and the principal when due (December 26, 2002), the parties executed two further Deeds of Real Estate Mortgage (dated January 19, 2003 and June 19, 2003) to extend and update the terms, which increased the acknowledged indebtedness.
  • Payment, Excess, and Subsequent Legal Actions
    • Petitioner made all requisite payments for interest but defaulted on the principal obligations, triggering a series of recomputations of interest and principal obligations.
    • A Statement of Account was sent by respondent on February 25, 2005 demanding full payment for all four loans totaling P2,214,587.50.
    • Petitioner's counsel, on August 8, 2005, contended that the imposed interest rates were irregular, excessive, and unconscionable—arguing that the rates in the first and second loans should be adjusted to the legal rate and that no interest should attach to the third and fourth loans due to the absence of written agreement.
    • Consequently, on August 16, 2005, the Spouses Rey and Isabel Quinto filed a complaint with the RTC of Legazpi City for the recomputation of loans, recovery of excess payments, cancellation of mortgages, and relief in attorney’s fees and litigation expenses.
    • In its Answer with Counter-claim, respondent sought dismissal, arguing that the parties had freely agreed to the stipulated interest and that petitioner, having benefited from the loans, could not contest the rates now.
  • Decisions Rendered by Lower Courts
    • The Regional Trial Court (RTC) Decision (February 5, 2010)
1.1. Ruled in favor of the petitioners on the third and fourth loans by declaring that, due to the lack of written agreement, no interest was due, and any payments made were in excess. 1.2. Held that the stipulated monthly interest rates of 7.5% (Loan 1) and 7% (Loan 2) were void as exorbitant, and reduced them to the legal rate of 12% per annum. 1.3. Applied the principle of compensation (given the mutual creditor-debtor relationship) and ordered respondent to refund part of the excess interest payments, setting a remaining indebtedness figure. 1.4. Ordered the cancellation of the real estate mortgages securing Loan 1 and Loan 2.
  • The Court of Appeals Decision (September 6, 2013)
2.1. Reversed and set aside the RTC ruling with respect to the recomputation issues on the first and second loans, holding that with the suspension of the Usury Law, parties may stipulate freely. 2.2. Upheld the invalidity of the interest provisions on the third and fourth loans and affirmed that respondent must return the overpayments on these loans (totaling P59,320.00 subject to legal interest at 6% per annum). 2.3. Determined that legal compensation was proper between the parties, arriving at a net remaining indebtedness of P902,847.87 for petitioner after offsetting the overpayments. 2.4. Denied petitioner's appeal for attorney’s fees on the ground that the petitioner had contributed to her predicament by entitling and requesting the loans.
  • Petitioner’s Petition for Review on Certiorari
3.1. Raised issues regarding the unconscionability of the stipulated interest rates in the first and second loans, the recomputation methodology of applying excess payments (charging interest on them), and the non-award of attorney’s fees and litigation expenses.

Issues:

  • Concerning the Interest Rates on the First and Second Loans
    • Whether the agreed stipulated monthly interest rates of 7.5% (Loan 1) and 7% (Loan 2), which translate into 90% and 84% per annum respectively, are unconscionable, iniquitous, and contrary to morals and public policy.
    • Whether, despite the freedom of contract, such rates may be reduced to the legal rate (12% per annum) due to their excessive character as established in prior Supreme Court rulings.
  • Regarding the Re-computation of Loan Payments and Excess Payment Applications
    • Whether the method of recomputation adopted by the RTC—applying payments first to interest and then to principal per Article 1253 of the Civil Code—was correct.
    • Whether the excess payments made by petitioner on Loan 1 and Loan 2 (as well as on the informal third and fourth loans) should be adjusted and returned in full based on the principles of solutio indebiti under Article 2154 of the Civil Code.
    • Whether respondent is further liable to pay interest on these excess payments and, if so, at what rate and from what date such interest should accrue.
  • On the Award of Attorney’s Fees and Litigation Expenses
    • Whether petitioner is entitled to attorney’s fees and litigation expenses under the circumstances presented, given the contention that these costs should have been awarded considering the equitable reduction of her indebtedness.

Ruling:

  • (Subscriber-Only)

Ratio:

  • (Subscriber-Only)
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