SECOND DIVISION
[ G.R. No. 128990, September 21, 2000 ]INVESTORS FINANCE CORPORATION v. AUTOWORLD SALES CORPORATION +
INVESTORS FINANCE CORPORATION, PETITIONER, VS. AUTOWORLD SALES CORPORATION, AND PIO BARRETTO REALTY DEVELOPMENT CORPORATION, RESPONDENTS.
D E C I S I O N
INVESTORS FINANCE CORPORATION v. AUTOWORLD SALES CORPORATION +
INVESTORS FINANCE CORPORATION, PETITIONER, VS. AUTOWORLD SALES CORPORATION, AND PIO BARRETTO REALTY DEVELOPMENT CORPORATION, RESPONDENTS.
D E C I S I O N
BELLOSILLO, J.:
INVESTORS FINANCE CORPORATION seeks a review of the Decision of the Court of Appeals which ruled that the financing firm had entered into a usurious loan transaction with Autoworld Sales Corporation, thus entitling the latter to reimbursement of excess
interest payments amounting to P2,586,035.44.[1]
Petitioner Investors Finance Corporation, then known also as FNCB Finance (now doing business under the name of Citytrust Finance Corporation), is a financing company doing business with private respondent Autoworld Sales Corporation
(AUTOWORLD) since 1975. Anthony Que, president of AUTOWORLD, also held the same position at its affiliate corporation, private respondent Pio Barretto Realty Corporation (BARRETTO).
Sometime in August 1980 Anthony Que, in behalf of AUTOWORLD, applied for a direct loan with FNCB. However, since the Usury Law imposed an interest rate ceiling at that time, FNCB informed Anthony Que that it was not engaged in direct lending; consequently, AUTOWORLD's request for loan was denied.
But sometime thereafter, FNCB's Assistant Vice President, Mr. Leoncio Araullo, informed Anthony Que that although it could not grant direct loans it could extend funds to AUTOWORLD by purchasing any of its outstanding receivables at a discount. After a series of negotiations the parties agreed to execute an Installment Paper Purchase ("IPP") transaction to enable AUTOWORLD to acquire the additional capital it needed. The mechanics of the proposed "IPP" transaction was -
On 9 February 1981 the parties signed three (3) contracts to implement the "IPP" transaction:
On 18 June 1982 AUTOWORLD transacted with FNCB for the second time obtaining a loan of P3,000,000.00 with an effective interest rate of 28% per annum.[6] AUTOWORLD and BARRETTO, as co-makers, then signed a promissory note in favor of FNCB worth P5,604,480.00 payable in sixty (60) consecutive monthly installments of P93,408.00.[7] To secure the promissory note, AUTOWORLD mortgaged a parcel of land located in Sampaloc, Manila, to FNCB.[8] Thereafter, AUTOWORLD began paying the installments.
In December 1982, after paying nineteen (19) monthly installments of P216,666.66 on the first transaction ("IPP" worth P6,980,000.00) and three (3) monthly installments of P93,408.00 on the second transaction (loan worth P3,000,000.00), AUTOWORLD advised FNCB that it intended to preterminate the two (2) transactions by paying their outstanding balances in full. It then requested FNCB to provide a computation of the remaining balances. FNCB sent AUTOWORLD its computation requiring it to pay a total amount of P10,026,736.78, where P6,784,551.24 was the amount to settle the first transaction while P3,242,165.54 was the amount to settle the second transaction.[9]
On 20 December 1982 AUTOWORLD wrote FNCB that it disagreed with the latter's computation of its outstanding balances.[10] On 27 December 1982 FNCB replied that it would only be willing to reconcile its accounting records with AUTOWORLD upon payment of the amounts demanded.[11] Thus, despite its objections, AUTOWORLD reluctantly paid FNCB P10,026,736.78 through its UCPB account.[12]
On 5 January 1983 AUTOWORLD asked FNCB for a refund of its overpayments in the total amount of P3,082,021.84.[13] According to AUTOWORLD, it overpaid P2,586,035.44 to settle the first transaction and P418,262.00 to settle the second transaction.[14]
The parties attempted to reconcile their accounting figures but the subsequent negotiations broke down prompting AUTOWORLD to file an action before the Regional Trial Court of Makati to annul the Contract to Sell, the Deed of Assignment and the Real Estate Mortgage all dated 9 February 1981. It likewise prayed for the nullification of the Promissory Note dated 18 June 1982 and the Real Estate Mortgage dated 24 June 1982.
In its complaint, AUTOWORLD alleged that the aforementioned contracts were only perfected to facilitate a usurious loan and therefore should be annulled. FNCB should refund the amounts of P2,586,035.44 as excess payment for the first transaction and P418,262.00 as excess payment for the second transaction. AUTOWORLD also asked for P500,000.00 as exemplary damages and P100,000.00 as attorney's fees.
FNCB argued that the contracts dated 9 February 1981 were not executed to hide a usurious loan. Instead, the parties entered into a legitimate Installment Paper Purchase ("IPP") transaction, or purchase of receivables at a discount, which FNCB could legally engage in as a financing company. With regard to the second transaction, the existence of a usurious interest rate had no bearing on the P3,000,000.00 loan since at the time it was perfected on 18 January 1982 Central Bank Circular No. 871 dated 21 July 1981 had effectively lifted the ceiling rates for loans having a period of more than three hundred sixty-five (365) days. FNCB also prayed for P2,000,000.00 as moral damages and P500,000.00 as attorney's fees.
On 18 January 1985 FNCB filed a Third-Party Complaint against BARRETTO based on the Deed of Assignment, which expressly provided that FNCB as assignee had a right of recourse against BARRETTO as assignor in case AUTOWORLD defaulted in its payments.[15]
BARRETTO countered that it could not be held liable for AUTOWORLD's alleged default in its payments since the Deed of Assignment, together with the Contract to Sell and the Real Estate Mortgage, was simulated and perfected only to facilitate a usurious loan. It prayed for P1,600,000.00 as damages and P100,000.00 as attorney's fees.[16]
On 11 July 1988 the Regional Trial Court of Makati ruled in favor of FNCB declaring that the parties voluntarily and knowingly executed a legitimate "IPP" transaction or the discounting of receivables. AUTOWORLD was not entitled to any reimbursement since it was unable to prove the existence of a usurious loan. On the other hand, it was ordered to pay FNCB P50,000.00 for attorney's fees.[17]
The Court of Appeals modified the decision of the trial court and concluded that the "IPP" transaction, comprising of the three (3) contracts perfected on 9 February 1981, was merely a scheme employed by the parties to disguise a usurious loan. It ordered the annulment of the contracts and required FNCB to reimburse AUTOWORLD P2,586,035.44 as excess interest payments over the 12% ceiling rate. However, with regard to the second transaction, the appellate court ruled that at the time it was executed the ceiling rates imposed by the Usury Law had already been lifted thus allowing the parties to stipulate any rate of interest.[18] The appellate court deleted the award of P50,000.00 as attorney's fees in favor of FNCB explaining that the filing of the complaint against FNCB was exercised in good faith. Hence, this petition of FNCB.
We stress at the outset that this petition concerns itself only with the first transaction involving the alleged "IPP" worth P6,980,000.00, which was implemented through the three (3) contracts of 9 February 1981. As to the second transaction, which involves the P3,000,000.00 loan, we agree with the appellate court that it was executed when the ceiling rates of interest had already been removed, hence the parties were free to fix any interest rate.
The pivotal issue therefore is whether the three (3) contracts all dated 9 February 1981 were executed to implement a legitimate Installment Paper Purchase ("IPP") transaction or merely to conceal a usurious loan. Generally, the courts only need to rely on the face of written contracts to determine the intention of the parties. "However, the law will not permit a usurious loan to hide itself behind a legal form. Parol evidence is admissible to show that a written document though legal in form was in fact a device to cover usury. If from a construction of the whole transaction it becomes apparent that there exists a corrupt intention to violate the Usury Law, the courts should and will permit no scheme, however ingenious, to becloud the crime of usury."[19] The following circumstances show that such scheme was indeed employed:
First, petitioner claims that it was never a party to the Contract to Sell between AUTOWORLD and BARRETTO.[20] As far as it was concerned, it merely purchased receivables at a discount from BARRETTO as evidenced by the Deed of Assignment dated 9 February 1981. Whether the Contract to Sell was fictitious or not would have no effect on its right to claim the receivables of BARRETTO from AUTOWORLD since the two contracts were entirely separate and distinct from each other.
Curiously however, petitioner admitted that its lawyers were the ones who drafted all the three (3) contracts involved[21]which were executed on the same day.[22] Also, petitioner was the one who procured the services of the Asian Appraisal Company to determine the fair market value of the land to be sold way back in September of 1980 or six (6) months prior to the sale.[23] If it were true that petitioner was never privy to the Contract to Sell, then why was it interested in appraising the lot six (6) months prior to the sale? And why did petitioner's own lawyers prepare the Contract to Sell? Obviously, petitioner actively participated in the sale to ensure that the appraised lot would serve as adequate collateral for the usurious loan it gave to AUTOWORLD.
Second, petitioner insists that the 9 February 1981 transaction was a legitimate "IPP" transaction where it only bought the receivables of BARRETTO from AUTOWORLD amounting to P12,999,999.60 at a discounted price of P6,980,000.00. However, per instruction of petitioner in its letter to BARRETTO dated 17 November 1980 the whole purchase price of the receivables was to be "flowed back" to AUTOWORLD.[24] And in its subsequent letter of 24 February 1981 petitioner also gave instructions on how BARRETTO should apply the proceeds worth P6,980,000.00, thus -
It can be seen that out of the nine (9) items of appropriation stated above, Item Nos. 2 - 8 had to be returned to petitioner. Thus, in compliance with the aforesaid letter, BARRETTO had to yield P4,058,468.47 of the P6,980,000.00 to petitioner to settle some of AUTOWORLD's previous debts to it.[26] Any remaining amount after the application of the proceeds would then be surrendered to AUTOWORLD in compliance with the letter of 17 November 1980; none went to BARRETTO.
The foregoing circumstances confirm that the P6,980,000.00 was really an indirect loan extended to AUTOWORLD so that it could settle its previous debts to petitioner. Had petitioner entered into a legitimate purchase of receivables, then BARRETTO, as seller, would have received the whole purchase price, and free to dispose of such proceeds in any manner it wanted. It would not have been obliged to follow the "Application of Proceeds" stated in petitioner's letter.
Third, in its 17 November 1980 letter to BARRETTO, petitioner itself designated the proceeds of the "IPP" transaction as a "loan."[27] In that letter, petitioner stated that the "loan proceeds" amounting to P6,980,000.00 would be released to BARRETTO only upon submission of the documents it required. And as previously mentioned, one of the required documents was a letter agreement between BARRETTO and AUTOWORLD stipulating that the P6,980,000.00 should be "flowed back" to AUTOWORLD. If it were a genuine "IPP" transaction then petitioner would not have designated the money to be released as "loan proceeds" and BARRETTO would have been the end recipient of such proceeds with no obligation to turn them over to AUTOWORLD.
Fourth, after the interest rate ceilings were lifted on 21 July 1981 petitioner extended on 18 June 1982 a direct loan of P3,000,000.00 to AUTOWORLD. This time however, with no more ceiling rates to hinder it, petitioner imposed a 28% effective interest rate on the loan.[28] And no longer having a need to cloak the exorbitant interest rate, the promissory note evidencing the second transaction glaringly bore the 28% interest rate on its face.[29] We are therefore of the impression that had there been no interest rate ceilings in 1981, petitioner would not have resorted to the fictitious "IPP" transaction; instead, it would have directly loaned the money to AUTOWORLD with an interest rate higher than 12%. Gregorio Anonas, Senior Vice President of petitioner, effectively admitted that it only employed discounting of receivables due to the ceiling rates imposed by the Usury Law. Thus he testified -
Petitioner anchors its defense on Sec. 7 of the Usury Law which states -
According to plaintiff-appellant, defendant-appellee was able to collect P3,921,217.78[31] in interests from appellant. This is not denied by the appellee. Computed at 12% the effective interest should have been P1,545,400.00.[32] Hence, appellant may recover P2,586,035.44,[33] representing overpayment arising from usurious interest rate charged by appellee.[34]
While we do not dispute the appellate court's finding that the first transaction was a usurious loan, we do not agree with the amount of reimbursement awarded to AUTOWORLD. Indeed, it erred in awarding only the interest paid in excess of the 12% ceiling. In usurious loans, the creditor can always recover the principal debt.[35] However, the stipulation on the interest is considered void thus allowing the debtor to claim the whole interest paid. In a loan of P1,000.00 with interest at 20% per annum or P200.00 per year, if the borrower pays P200.00, the whole P200.00 would be considered usurious interest, not just the portion thereof in excess of the interest allowed by law. [36]
In the instant case, AUTOWORLD obtained a loan of P6,980,000.00. Thereafter, it paid nineteen (19) consecutive installments of P216,666.66 amounting to a total of P4,116,666.54, and further paid a balance of P6,784,551.24 to settle it. All in all, it paid the aggregate amount of P10,901,217.78 for a debt of P6,980,000.00. For the 23-month period of the existence of the loan covering the period February 1981 to January 1982, AUTOWORLD paid a total of P3,921,217.78 in interests.[37] Applying the 12% interest ceiling rate mandated by the Usury Law, AUTOWORLD should have only paid a total of P1,605,400.00 in interests.[38] Hence, AUTOWORLD is entitled to recover the whole usurious interest amounting to P3, 921,217.78.
We are not unaware of Sanchez v. Buenviaje[39] where the Court allowed the usurer to recover legal interest on the principal amount loaned. But such interest arose from the debtor's delay in paying the principal from the time of the creditor's demand. That is the reason why legal interest was counted only from the time the creditor filed his complaint for the recovery of a debt. In this case however, the debtor was never in delay. As a matter of fact, AUTOWORLD paid the principal of P6,980,000.00 and the whole usurious interest of P3,921,217.88 upon petitioner's insistent demand. Thus, the case of Sanchez v. Buenviaje herein cited will not apply to petitioner and it will not be entitled to legal interest on the amount of the principal loan.
Under Sec. 6 of the Usury Law, AUTOWORLD is also entitled to reasonable attorney's fees and costs -
WHEREFORE, the assailed Decision of the Court of Appeals dated 24 May 1996 declaring the 9 February 1981 transaction as a usurious loan is AFFIRMED, subject to the MODIFICATION that petitioner Investors Finance Corporation is ordered to pay private respondent Autoworld Sales Corporation the amount of P3,921,217.78 representing the entire usurious interest it paid on the 9 February 1981 loan, as well as P50,000.00 as attorney's fees and the costs.
SO ORDERED.
Mendoza, Quisumbing, Buena, and De Leon, Jr., JJ., concur.
[1] Decision of the Court of Appeals penned by Associate Justice Ruben T. Reyes, and concurred in by Associate Justices Consuelo Ynares-Santiago and Romeo A. Brawner; Rollo, p. 100.
[2] The Deed of Assignment was "with recourse" against Barretto in case Autoworld failed to pay; Records, p. 633.
[3] Rollo, p. 67.
[4] Records, p. 1256.
[5] Rollo, p. 69.
[6] Records, pp. 646, 958 and 1286.
[7] Id., p. 27.
[8] Covered by TCT No. 14377; Records, p. 25.
[9] There seems to be a discrepancy between the amount of the "outstanding balance" (for purposes of pre-termination of the two (2) transactions) stated in petitioner's Statement of Account sent to Autoworld (Records, p. 358) and the amount actually paid by Autoworld as stated in petitioner's Memorandum filed before the lower court (Records, p. 1245).
In its Statement of Account, petitioner claimed that for Autoworld to pre-terminate the two (2) transactions it still had to pay a total of P10,026,736.78 where P6,784,551.24 was the balance due to settle the first transaction and P3,242,165.54 was the balance due to settle the second transaction. However, in its Memorandum before the RTC, petitioner alleged that Autoworld paid a total of P10,009,863.55, where P6,768,806.91 was the actual amount paid to settle the first transaction while P3,241,056.64 was the actual amount paid to settle the second transaction.
Even the RTC made conflicting factual findings. On page 9 of its decision (Rollo, pp. 77-78) the RTC found that Autoworld paid a total of P10,026, 739.78 thus showing that it paid P6,784,551.24 for the first loan and P3,242,185.54 for the second loan. However, on page 18 of the same decision (Rollo, p. 86) the RTC found that Autoworld paid a total of P10,009,863.55 thus showing that P6,768,806.91 was paid to settle the first loan while P3,241,056.64 was the amount paid to settle the second loan.
A perusal of the Petition (Rollo, p. 15) and the Comment (Rollo, p. 128) however shows that both parties used and cited the amount of P10,026,736.78 as the value actually paid by Autoworld (which means that P6,784,551.24 was the amount paid to settle the first loan and P3,242,165.54 was the amount due to settle the second loan) hence, this Decision will use P10,026,736.78 as the amount actually paid by Autoworld.
[10] Autoworld pointed out that in computing the rebate on interests upon pre-termination of the contracts petitioner should have used the "diminishing balance method" instead of the "78th method;" Records, p. 637.
[11] Id., p. 638.
[12] Rollo, pp. 77-78.
[13] Id., p. 93.
[14] Apparently, adding the alleged overpayments (P2,586,035.44 + P418,262.00) would only yield a total of P3,004,297.44 not P3,082,021.84. But since the Court of Appeals and private respondents designated P3,082,021.84 (see Rollo, pp. 93 and 128) as the total amount of overpayments, then such value shall be considered the total excess payments.
However, it cannot be denied that the Court of Appeals, petitioner and private respondents all made use of the values P2,586,035.44 (as the amount paid to settle the first transaction) and P418,262.00 (amount to settle the settle the second loan), hence these values should also be cited in the Decision. These two values were obtained from the computations of Autoworld where it said that under the "diminishing balance method" with an interest rate of 14% per annum it should have only paid petitioner P4,182,771.47 (Records, p. 642) instead of P6,768,806.91 to settle the first transaction, thus it overpaid P2,586,035.44. It further claimed that under the same method of computing interests it should have paid petitioner only P2,822,794.64 (Records, p. 643) instead of P3,241,056.64 to settle the second transaction thus, it overpaid P418,262.00.
[15] Records, p. 228.
[16] Id., p. 314.
[17] Decision penned by Judge Lucia Violago Isnani, RTC-Br. 59, Makati City; Rollo, p. 89.
[18] CA decision; Rollo, p. 100.
[19] US v. Tan Quinco Chua, 39 Phil 552 (1919).
[20] Rollo, p. 12.
[21] Records, p. 1256.
[22] Id., pp. 629-635.
[23] The real estate valuation report pegged the market value of the property at C. Palanca St., San Miguel, Manila, at P11,833,000.00; Records, p. 1079.
[24] Records, p. 1087.
[25] Id., p. 1090.
[26] CA Rollo, Plaintiff-Appellant's Brief, pp. 12-16.
[27] Records, p. 1087.
[28] Id., p. 1286.
[29] Id., p. 646.
[30] TSN, 22 July 1986, pp. 18-19.
[31] According to Autoworld it paid 19 installments at P216,666.66 on the P6,980,000.00 loan totalling P4,116,666.54. It also paid P6,784,551.24 to settle the loan. Thus, Autoworld paid a total of P10,901,217.78 for a P6,980,000.00 loan. It therefore overpaid P3,921,217.78 (obtained from 10,901,217.78 - P6,980,000.00 = P3,921,217.78); (CA Rollo, Plaintiff-Appellant's Brief, p. 24).
[32] According to Autoworld the interest for P6,980,000.00 for twenty-three (23) months at 12% per annum is P1,545,000.00. (CA Records, Plaintiff-Appellant's Brief, p. 24).
There seems to be an error in the computation of Autoworld. The interest for P6,980,000.00 for 23 months at 12% per annum is P1,605,400.00 (using the equation [(P6,980,000 x 12) ÷ 12 or number of months in year] x 23 months = 1,605,400.00).
[33] Autoworld and the CA concluded that there was an overpayment as Autoworld paid a total of P3,921,217.88 in interests when it should have only paid P1,545,400.00. Thus, Autoworld is entitled to a reimbursement of P2,586,035.44.
Again there seems to be an error in computation. The difference between P3,921,217.78 and P1,545,400.00 is P2,375,817.78, not P2,586,035.44. The figure P2,586,035.44 came from the equation P6,768,806.91 - P4,182,771.47 = P2,586,035.44, where P6,768,806.91 is the amount actually paid by Autoworld to petitioner to settle the P6,980,000.00 transaction (as claimed in petitioner's memorandum before the RTC, Records, p. 1245) while P4,182,771.47 is the amount which Autoworld claims it only only needed to pay petitioner to settle such transaction. That is why Autoworld was claiming the excess payment of P2,586,035.44.
[34] CA Decision; Rollo, p. 99.
[35] Lopez Javelona v. El Hogar Filipino, 47 Phil 249 (1925); Sanchez v. Buenviaje, G.R. No. 57314, 29 November 1983, 126 SCRA 209.
[36] Angel Jose Warehousing Co., Inc. v. Chelda Enterprise, No. L-25704, 24 April 1968, 23 SCRA 119.
[37] P10,901,217.78- P6,980,000.00 = P3,921,217.78.
[38] [(P6,980,000.00 x .12) ÷ 12] x 23 months = P1,605,400.00.
[39] G.R. No. 57314, 29 November 1983, 126 SCRA 208.
[40] 44 Phil 739 (1923).
[41] 45 Phil 256 (1923).
Petitioner Investors Finance Corporation, then known also as FNCB Finance (now doing business under the name of Citytrust Finance Corporation), is a financing company doing business with private respondent Autoworld Sales Corporation
(AUTOWORLD) since 1975. Anthony Que, president of AUTOWORLD, also held the same position at its affiliate corporation, private respondent Pio Barretto Realty Corporation (BARRETTO).
Sometime in August 1980 Anthony Que, in behalf of AUTOWORLD, applied for a direct loan with FNCB. However, since the Usury Law imposed an interest rate ceiling at that time, FNCB informed Anthony Que that it was not engaged in direct lending; consequently, AUTOWORLD's request for loan was denied.
But sometime thereafter, FNCB's Assistant Vice President, Mr. Leoncio Araullo, informed Anthony Que that although it could not grant direct loans it could extend funds to AUTOWORLD by purchasing any of its outstanding receivables at a discount. After a series of negotiations the parties agreed to execute an Installment Paper Purchase ("IPP") transaction to enable AUTOWORLD to acquire the additional capital it needed. The mechanics of the proposed "IPP" transaction was -
(1) First, Pio Barretto (BARRETTO) would execute a Contract to Sell a parcel of land in favor of AUTOWORLD for P12,999,999.60 payable in sixty (60) equal monthly installments of P216,666.66. Consequently, BARRETTO would acquire P12,999,999.60 worth of receivables from AUTOWORLD;On 17 November 1980 FNCB informed AUTOWORLD that its Executive Committee approved the proposed "IPP" transaction.[3] The lawyers of FNCB then drafted the contracts needed and furnished Anthony Que with copies thereof.[4]
(2) FNCB would then purchase the receivables worth P12,999,999.60 from BARRETTO at a discounted value of P6,980,000.00 subject to the condition that such amount would be "flowed back" to AUTOWORLD;
(3) BARRETTO, would in turn, execute a Deed of Assignment (in favor of FNCB) obliging AUTOWORLD to pay the installments of the P12,999,999.60 purchase price directly to FNCB;[2] and
(4) Lastly, to secure the payment of the receivables under the Deed of Assignment, BARRETTO would mortgage the property subject of the sale to FNCB.
On 9 February 1981 the parties signed three (3) contracts to implement the "IPP" transaction:
(1) Contract to Sell whereby BARRETTO sold a parcel of land to AUTOWORLD, situated in San Miguel, Manila, together with the improvements thereon, covered by TCT No. 129763 for the price of P12,999,999.60 payable in sixty (60) consecutive and equal monthly installments of P216,666.66.After the three (3) contracts were concluded AUTOWORLD started paying the monthly installments to FNCB.
(2) Deed of Assignment whereby BARRETTO assigned and sold in favor of FNCB all its rights, title and interest to all the money and other receivables due from AUTOWORLD under the Contract to Sell, subject to the condition that the assignee (FNCB) has the right of recourse against the assignor (BARRETTO) in the event that the payor (AUTOWORLD) defaulted in the payment of its obligations.
(3) Real Estate Mortgage whereby BARRETTO, as assignor, mortgaged the property subject of the Contract to Sell to FNCB as security for payment of its obligation under the Deed of Assignment.[5]
On 18 June 1982 AUTOWORLD transacted with FNCB for the second time obtaining a loan of P3,000,000.00 with an effective interest rate of 28% per annum.[6] AUTOWORLD and BARRETTO, as co-makers, then signed a promissory note in favor of FNCB worth P5,604,480.00 payable in sixty (60) consecutive monthly installments of P93,408.00.[7] To secure the promissory note, AUTOWORLD mortgaged a parcel of land located in Sampaloc, Manila, to FNCB.[8] Thereafter, AUTOWORLD began paying the installments.
In December 1982, after paying nineteen (19) monthly installments of P216,666.66 on the first transaction ("IPP" worth P6,980,000.00) and three (3) monthly installments of P93,408.00 on the second transaction (loan worth P3,000,000.00), AUTOWORLD advised FNCB that it intended to preterminate the two (2) transactions by paying their outstanding balances in full. It then requested FNCB to provide a computation of the remaining balances. FNCB sent AUTOWORLD its computation requiring it to pay a total amount of P10,026,736.78, where P6,784,551.24 was the amount to settle the first transaction while P3,242,165.54 was the amount to settle the second transaction.[9]
On 20 December 1982 AUTOWORLD wrote FNCB that it disagreed with the latter's computation of its outstanding balances.[10] On 27 December 1982 FNCB replied that it would only be willing to reconcile its accounting records with AUTOWORLD upon payment of the amounts demanded.[11] Thus, despite its objections, AUTOWORLD reluctantly paid FNCB P10,026,736.78 through its UCPB account.[12]
On 5 January 1983 AUTOWORLD asked FNCB for a refund of its overpayments in the total amount of P3,082,021.84.[13] According to AUTOWORLD, it overpaid P2,586,035.44 to settle the first transaction and P418,262.00 to settle the second transaction.[14]
The parties attempted to reconcile their accounting figures but the subsequent negotiations broke down prompting AUTOWORLD to file an action before the Regional Trial Court of Makati to annul the Contract to Sell, the Deed of Assignment and the Real Estate Mortgage all dated 9 February 1981. It likewise prayed for the nullification of the Promissory Note dated 18 June 1982 and the Real Estate Mortgage dated 24 June 1982.
In its complaint, AUTOWORLD alleged that the aforementioned contracts were only perfected to facilitate a usurious loan and therefore should be annulled. FNCB should refund the amounts of P2,586,035.44 as excess payment for the first transaction and P418,262.00 as excess payment for the second transaction. AUTOWORLD also asked for P500,000.00 as exemplary damages and P100,000.00 as attorney's fees.
FNCB argued that the contracts dated 9 February 1981 were not executed to hide a usurious loan. Instead, the parties entered into a legitimate Installment Paper Purchase ("IPP") transaction, or purchase of receivables at a discount, which FNCB could legally engage in as a financing company. With regard to the second transaction, the existence of a usurious interest rate had no bearing on the P3,000,000.00 loan since at the time it was perfected on 18 January 1982 Central Bank Circular No. 871 dated 21 July 1981 had effectively lifted the ceiling rates for loans having a period of more than three hundred sixty-five (365) days. FNCB also prayed for P2,000,000.00 as moral damages and P500,000.00 as attorney's fees.
On 18 January 1985 FNCB filed a Third-Party Complaint against BARRETTO based on the Deed of Assignment, which expressly provided that FNCB as assignee had a right of recourse against BARRETTO as assignor in case AUTOWORLD defaulted in its payments.[15]
BARRETTO countered that it could not be held liable for AUTOWORLD's alleged default in its payments since the Deed of Assignment, together with the Contract to Sell and the Real Estate Mortgage, was simulated and perfected only to facilitate a usurious loan. It prayed for P1,600,000.00 as damages and P100,000.00 as attorney's fees.[16]
On 11 July 1988 the Regional Trial Court of Makati ruled in favor of FNCB declaring that the parties voluntarily and knowingly executed a legitimate "IPP" transaction or the discounting of receivables. AUTOWORLD was not entitled to any reimbursement since it was unable to prove the existence of a usurious loan. On the other hand, it was ordered to pay FNCB P50,000.00 for attorney's fees.[17]
The Court of Appeals modified the decision of the trial court and concluded that the "IPP" transaction, comprising of the three (3) contracts perfected on 9 February 1981, was merely a scheme employed by the parties to disguise a usurious loan. It ordered the annulment of the contracts and required FNCB to reimburse AUTOWORLD P2,586,035.44 as excess interest payments over the 12% ceiling rate. However, with regard to the second transaction, the appellate court ruled that at the time it was executed the ceiling rates imposed by the Usury Law had already been lifted thus allowing the parties to stipulate any rate of interest.[18] The appellate court deleted the award of P50,000.00 as attorney's fees in favor of FNCB explaining that the filing of the complaint against FNCB was exercised in good faith. Hence, this petition of FNCB.
We stress at the outset that this petition concerns itself only with the first transaction involving the alleged "IPP" worth P6,980,000.00, which was implemented through the three (3) contracts of 9 February 1981. As to the second transaction, which involves the P3,000,000.00 loan, we agree with the appellate court that it was executed when the ceiling rates of interest had already been removed, hence the parties were free to fix any interest rate.
The pivotal issue therefore is whether the three (3) contracts all dated 9 February 1981 were executed to implement a legitimate Installment Paper Purchase ("IPP") transaction or merely to conceal a usurious loan. Generally, the courts only need to rely on the face of written contracts to determine the intention of the parties. "However, the law will not permit a usurious loan to hide itself behind a legal form. Parol evidence is admissible to show that a written document though legal in form was in fact a device to cover usury. If from a construction of the whole transaction it becomes apparent that there exists a corrupt intention to violate the Usury Law, the courts should and will permit no scheme, however ingenious, to becloud the crime of usury."[19] The following circumstances show that such scheme was indeed employed:
First, petitioner claims that it was never a party to the Contract to Sell between AUTOWORLD and BARRETTO.[20] As far as it was concerned, it merely purchased receivables at a discount from BARRETTO as evidenced by the Deed of Assignment dated 9 February 1981. Whether the Contract to Sell was fictitious or not would have no effect on its right to claim the receivables of BARRETTO from AUTOWORLD since the two contracts were entirely separate and distinct from each other.
Curiously however, petitioner admitted that its lawyers were the ones who drafted all the three (3) contracts involved[21]which were executed on the same day.[22] Also, petitioner was the one who procured the services of the Asian Appraisal Company to determine the fair market value of the land to be sold way back in September of 1980 or six (6) months prior to the sale.[23] If it were true that petitioner was never privy to the Contract to Sell, then why was it interested in appraising the lot six (6) months prior to the sale? And why did petitioner's own lawyers prepare the Contract to Sell? Obviously, petitioner actively participated in the sale to ensure that the appraised lot would serve as adequate collateral for the usurious loan it gave to AUTOWORLD.
Second, petitioner insists that the 9 February 1981 transaction was a legitimate "IPP" transaction where it only bought the receivables of BARRETTO from AUTOWORLD amounting to P12,999,999.60 at a discounted price of P6,980,000.00. However, per instruction of petitioner in its letter to BARRETTO dated 17 November 1980 the whole purchase price of the receivables was to be "flowed back" to AUTOWORLD.[24] And in its subsequent letter of 24 February 1981 petitioner also gave instructions on how BARRETTO should apply the proceeds worth P6,980,000.00, thus -
Gentlemen:
This serves to inform you of the various application of the proceeds (P6,980,000.00) of your real estate transaction per your authorization/letter dated 2.10.81:
1. P1,937,884.20 - Paid to Paramount Finance Corp. on Feb 16, 1981, inclusive of P2.00 SC for Manager's Check.
2. P111,818.87 - Paid to Agcaoili and Associates of Feb. 16, 1981 inclusive of P2.00 SC for Manager's Check for the preparation of documents, legal review , registration and transfer of ownership.
3. P3,179,700.00 - Paid to FNCB Finance on Feb. 20, 1981 for full payment of DB transaction (Account No. 06156)
4 P3,108.40 - Payment for the appraisal fee conducted by the Asian Appraisal Company. Inc.
5. P100.00 - Payment for the title search fee conducted by Agcaoili and Associates.
6. P2,500.00 - Payment for legal and professional fee (Agcaoili and Associates)
7. P638,601.60 - Payment to FNCB Finance for the partial payment of DB transaction (Account No. 40150 - sold units)
8. P122,640.00 - Payment to FNCB Finance for the partial payment of DB transaction (Account No. 406149 - sold units)
9. P983,646.93 - Balance after application, Payable to Pio Barreto Dev. Inc.
P6,980,000.00 - Total
Should you need any clarification on the matter, please do not hesitate to call on the undersigned.
Very truly yours,
L.V. Araullo, Asst Vice-President[25]
It can be seen that out of the nine (9) items of appropriation stated above, Item Nos. 2 - 8 had to be returned to petitioner. Thus, in compliance with the aforesaid letter, BARRETTO had to yield P4,058,468.47 of the P6,980,000.00 to petitioner to settle some of AUTOWORLD's previous debts to it.[26] Any remaining amount after the application of the proceeds would then be surrendered to AUTOWORLD in compliance with the letter of 17 November 1980; none went to BARRETTO.
The foregoing circumstances confirm that the P6,980,000.00 was really an indirect loan extended to AUTOWORLD so that it could settle its previous debts to petitioner. Had petitioner entered into a legitimate purchase of receivables, then BARRETTO, as seller, would have received the whole purchase price, and free to dispose of such proceeds in any manner it wanted. It would not have been obliged to follow the "Application of Proceeds" stated in petitioner's letter.
Third, in its 17 November 1980 letter to BARRETTO, petitioner itself designated the proceeds of the "IPP" transaction as a "loan."[27] In that letter, petitioner stated that the "loan proceeds" amounting to P6,980,000.00 would be released to BARRETTO only upon submission of the documents it required. And as previously mentioned, one of the required documents was a letter agreement between BARRETTO and AUTOWORLD stipulating that the P6,980,000.00 should be "flowed back" to AUTOWORLD. If it were a genuine "IPP" transaction then petitioner would not have designated the money to be released as "loan proceeds" and BARRETTO would have been the end recipient of such proceeds with no obligation to turn them over to AUTOWORLD.
Fourth, after the interest rate ceilings were lifted on 21 July 1981 petitioner extended on 18 June 1982 a direct loan of P3,000,000.00 to AUTOWORLD. This time however, with no more ceiling rates to hinder it, petitioner imposed a 28% effective interest rate on the loan.[28] And no longer having a need to cloak the exorbitant interest rate, the promissory note evidencing the second transaction glaringly bore the 28% interest rate on its face.[29] We are therefore of the impression that had there been no interest rate ceilings in 1981, petitioner would not have resorted to the fictitious "IPP" transaction; instead, it would have directly loaned the money to AUTOWORLD with an interest rate higher than 12%. Gregorio Anonas, Senior Vice President of petitioner, effectively admitted that it only employed discounting of receivables due to the ceiling rates imposed by the Usury Law. Thus he testified -
Thus, although the three (3) contracts seemingly show at face value that petitioner only entered into a legitimate discounting of receivables, the circumstances cited prove that the P6,980,000.00 was really a usurious loan extended to AUTOWORLD.
Q: A: Q: A: Q: A: Q: A: Q: A:
Petitioner anchors its defense on Sec. 7 of the Usury Law which states -
Provided, finally, That nothing herein contained shall be construed to prevent the purchase by an innocent purchaser of a negotiable mercantile paper, usurious or otherwise, for valuable consideration before maturity, when there has been no intention on the part of said purchaser to evade the provisions of the Act and said purchase was not a part of the original usurious transaction. In any case however, the maker of said note shall have the right to recover from said original holder the whole interest paid by him thereon and, in any case of litigation, also the costs and such attorney's fees as may be allowed by the court.Indeed, the Usury Law recognizes the legitimate purchase of negotiable mercantile paper by innocent purchasers. But even the law has anticipated the potential abuse of such transactions to conceal usurious loans. Thus, the law itself made a qualification. It would recognize legitimate purchase of negotiable mercantile paper, whether usurious or otherwise, only if the purchaser had no intention of evading the provisions of the Usury Law and that the purchase was not a part of the original usurious transaction. Otherwise, the law would not hesitate to annul such contracts. Thus, Art. 1957 of the Civil Code provides -
Contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws on usury shall be void. The borrower may recover in accordance with the laws on usury.In the case at bar, the attending factors surrounding the execution of the three (3) contracts on 9 February 1981 clearly establish that the parties intended to transact a usurious loan. These contracts should therefore be declared void. Having declared the transaction between the parties as void, we are now tasked to determine how much reimbursement AUTOWORLD is entitled to. The Court of Appeals, adopting the computation of AUTOWORLD in its plaintiff-appellant's brief, ruled -
According to plaintiff-appellant, defendant-appellee was able to collect P3,921,217.78[31] in interests from appellant. This is not denied by the appellee. Computed at 12% the effective interest should have been P1,545,400.00.[32] Hence, appellant may recover P2,586,035.44,[33] representing overpayment arising from usurious interest rate charged by appellee.[34]
While we do not dispute the appellate court's finding that the first transaction was a usurious loan, we do not agree with the amount of reimbursement awarded to AUTOWORLD. Indeed, it erred in awarding only the interest paid in excess of the 12% ceiling. In usurious loans, the creditor can always recover the principal debt.[35] However, the stipulation on the interest is considered void thus allowing the debtor to claim the whole interest paid. In a loan of P1,000.00 with interest at 20% per annum or P200.00 per year, if the borrower pays P200.00, the whole P200.00 would be considered usurious interest, not just the portion thereof in excess of the interest allowed by law. [36]
In the instant case, AUTOWORLD obtained a loan of P6,980,000.00. Thereafter, it paid nineteen (19) consecutive installments of P216,666.66 amounting to a total of P4,116,666.54, and further paid a balance of P6,784,551.24 to settle it. All in all, it paid the aggregate amount of P10,901,217.78 for a debt of P6,980,000.00. For the 23-month period of the existence of the loan covering the period February 1981 to January 1982, AUTOWORLD paid a total of P3,921,217.78 in interests.[37] Applying the 12% interest ceiling rate mandated by the Usury Law, AUTOWORLD should have only paid a total of P1,605,400.00 in interests.[38] Hence, AUTOWORLD is entitled to recover the whole usurious interest amounting to P3, 921,217.78.
We are not unaware of Sanchez v. Buenviaje[39] where the Court allowed the usurer to recover legal interest on the principal amount loaned. But such interest arose from the debtor's delay in paying the principal from the time of the creditor's demand. That is the reason why legal interest was counted only from the time the creditor filed his complaint for the recovery of a debt. In this case however, the debtor was never in delay. As a matter of fact, AUTOWORLD paid the principal of P6,980,000.00 and the whole usurious interest of P3,921,217.88 upon petitioner's insistent demand. Thus, the case of Sanchez v. Buenviaje herein cited will not apply to petitioner and it will not be entitled to legal interest on the amount of the principal loan.
Under Sec. 6 of the Usury Law, AUTOWORLD is also entitled to reasonable attorney's fees and costs -
SEC. 6. Any person or corporation who, for any such loan or renewal thereof or forbearance, shall have paid or delivered a higher rate or greater sum or value than is hereinbefore allowed, to be taken or received, may recover the whole interest, commission, premiums, penalties and surcharges paid or delivered with costs and attorney's fees in such sum as may be allowed by the court in an action against a person or corporation who took or received them if such action is brought within two years after such payment or delivery (emphasis ours).Although the Court has discretion to fix the amount of attorney's fees, it has no discretion to deny it altogether. Thus, in Delgado v. Valgona,[40] we held -
When the right of action to recover interest paid upon a usurious contract is established, a reasonable attorney's fee should be allowed as a matter of course, the same as costs are awarded. The purpose of the law is to encourage persons who have suffered from contracts of this character to come into court and vindicate their rights, and the imposition upon the usurer of the obligation to pay attorney's fee will serve at once as an encouragement to the oppressed and as a wholesome deterrent to the taking of usurious interests.Quite obviously, Anthony Que, the President of AUTOWORLD, actively and knowingly participated in the execution of the usurious loan transaction. As a seasoned businessman he must have been aware of the consequences of his business dealings. But, although we find his actions extremely reprehensible, we must abide by the principle laid down in Go Chioco v. Martinez[41] where we held that the pari delicto rule does not apply to usury cases which entitle the borrower to recover the whole interest paid; otherwise, the avowed policy of discouraging usurious transactions would not be served, for the mere invocation of the pari delicto rule would allow the usurer to reap the benefits of his unlawful act.
WHEREFORE, the assailed Decision of the Court of Appeals dated 24 May 1996 declaring the 9 February 1981 transaction as a usurious loan is AFFIRMED, subject to the MODIFICATION that petitioner Investors Finance Corporation is ordered to pay private respondent Autoworld Sales Corporation the amount of P3,921,217.78 representing the entire usurious interest it paid on the 9 February 1981 loan, as well as P50,000.00 as attorney's fees and the costs.
SO ORDERED.
Mendoza, Quisumbing, Buena, and De Leon, Jr., JJ., concur.
[1] Decision of the Court of Appeals penned by Associate Justice Ruben T. Reyes, and concurred in by Associate Justices Consuelo Ynares-Santiago and Romeo A. Brawner; Rollo, p. 100.
[2] The Deed of Assignment was "with recourse" against Barretto in case Autoworld failed to pay; Records, p. 633.
[3] Rollo, p. 67.
[4] Records, p. 1256.
[5] Rollo, p. 69.
[6] Records, pp. 646, 958 and 1286.
[7] Id., p. 27.
[8] Covered by TCT No. 14377; Records, p. 25.
[9] There seems to be a discrepancy between the amount of the "outstanding balance" (for purposes of pre-termination of the two (2) transactions) stated in petitioner's Statement of Account sent to Autoworld (Records, p. 358) and the amount actually paid by Autoworld as stated in petitioner's Memorandum filed before the lower court (Records, p. 1245).
In its Statement of Account, petitioner claimed that for Autoworld to pre-terminate the two (2) transactions it still had to pay a total of P10,026,736.78 where P6,784,551.24 was the balance due to settle the first transaction and P3,242,165.54 was the balance due to settle the second transaction. However, in its Memorandum before the RTC, petitioner alleged that Autoworld paid a total of P10,009,863.55, where P6,768,806.91 was the actual amount paid to settle the first transaction while P3,241,056.64 was the actual amount paid to settle the second transaction.
Even the RTC made conflicting factual findings. On page 9 of its decision (Rollo, pp. 77-78) the RTC found that Autoworld paid a total of P10,026, 739.78 thus showing that it paid P6,784,551.24 for the first loan and P3,242,185.54 for the second loan. However, on page 18 of the same decision (Rollo, p. 86) the RTC found that Autoworld paid a total of P10,009,863.55 thus showing that P6,768,806.91 was paid to settle the first loan while P3,241,056.64 was the amount paid to settle the second loan.
A perusal of the Petition (Rollo, p. 15) and the Comment (Rollo, p. 128) however shows that both parties used and cited the amount of P10,026,736.78 as the value actually paid by Autoworld (which means that P6,784,551.24 was the amount paid to settle the first loan and P3,242,165.54 was the amount due to settle the second loan) hence, this Decision will use P10,026,736.78 as the amount actually paid by Autoworld.
[10] Autoworld pointed out that in computing the rebate on interests upon pre-termination of the contracts petitioner should have used the "diminishing balance method" instead of the "78th method;" Records, p. 637.
[11] Id., p. 638.
[12] Rollo, pp. 77-78.
[13] Id., p. 93.
[14] Apparently, adding the alleged overpayments (P2,586,035.44 + P418,262.00) would only yield a total of P3,004,297.44 not P3,082,021.84. But since the Court of Appeals and private respondents designated P3,082,021.84 (see Rollo, pp. 93 and 128) as the total amount of overpayments, then such value shall be considered the total excess payments.
However, it cannot be denied that the Court of Appeals, petitioner and private respondents all made use of the values P2,586,035.44 (as the amount paid to settle the first transaction) and P418,262.00 (amount to settle the settle the second loan), hence these values should also be cited in the Decision. These two values were obtained from the computations of Autoworld where it said that under the "diminishing balance method" with an interest rate of 14% per annum it should have only paid petitioner P4,182,771.47 (Records, p. 642) instead of P6,768,806.91 to settle the first transaction, thus it overpaid P2,586,035.44. It further claimed that under the same method of computing interests it should have paid petitioner only P2,822,794.64 (Records, p. 643) instead of P3,241,056.64 to settle the second transaction thus, it overpaid P418,262.00.
[15] Records, p. 228.
[16] Id., p. 314.
[17] Decision penned by Judge Lucia Violago Isnani, RTC-Br. 59, Makati City; Rollo, p. 89.
[18] CA decision; Rollo, p. 100.
[19] US v. Tan Quinco Chua, 39 Phil 552 (1919).
[20] Rollo, p. 12.
[21] Records, p. 1256.
[22] Id., pp. 629-635.
[23] The real estate valuation report pegged the market value of the property at C. Palanca St., San Miguel, Manila, at P11,833,000.00; Records, p. 1079.
[24] Records, p. 1087.
[25] Id., p. 1090.
[26] CA Rollo, Plaintiff-Appellant's Brief, pp. 12-16.
[27] Records, p. 1087.
[28] Id., p. 1286.
[29] Id., p. 646.
[30] TSN, 22 July 1986, pp. 18-19.
[31] According to Autoworld it paid 19 installments at P216,666.66 on the P6,980,000.00 loan totalling P4,116,666.54. It also paid P6,784,551.24 to settle the loan. Thus, Autoworld paid a total of P10,901,217.78 for a P6,980,000.00 loan. It therefore overpaid P3,921,217.78 (obtained from 10,901,217.78 - P6,980,000.00 = P3,921,217.78); (CA Rollo, Plaintiff-Appellant's Brief, p. 24).
[32] According to Autoworld the interest for P6,980,000.00 for twenty-three (23) months at 12% per annum is P1,545,000.00. (CA Records, Plaintiff-Appellant's Brief, p. 24).
There seems to be an error in the computation of Autoworld. The interest for P6,980,000.00 for 23 months at 12% per annum is P1,605,400.00 (using the equation [(P6,980,000 x 12) ÷ 12 or number of months in year] x 23 months = 1,605,400.00).
[33] Autoworld and the CA concluded that there was an overpayment as Autoworld paid a total of P3,921,217.88 in interests when it should have only paid P1,545,400.00. Thus, Autoworld is entitled to a reimbursement of P2,586,035.44.
Again there seems to be an error in computation. The difference between P3,921,217.78 and P1,545,400.00 is P2,375,817.78, not P2,586,035.44. The figure P2,586,035.44 came from the equation P6,768,806.91 - P4,182,771.47 = P2,586,035.44, where P6,768,806.91 is the amount actually paid by Autoworld to petitioner to settle the P6,980,000.00 transaction (as claimed in petitioner's memorandum before the RTC, Records, p. 1245) while P4,182,771.47 is the amount which Autoworld claims it only only needed to pay petitioner to settle such transaction. That is why Autoworld was claiming the excess payment of P2,586,035.44.
[34] CA Decision; Rollo, p. 99.
[35] Lopez Javelona v. El Hogar Filipino, 47 Phil 249 (1925); Sanchez v. Buenviaje, G.R. No. 57314, 29 November 1983, 126 SCRA 209.
[36] Angel Jose Warehousing Co., Inc. v. Chelda Enterprise, No. L-25704, 24 April 1968, 23 SCRA 119.
[37] P10,901,217.78- P6,980,000.00 = P3,921,217.78.
[38] [(P6,980,000.00 x .12) ÷ 12] x 23 months = P1,605,400.00.
[39] G.R. No. 57314, 29 November 1983, 126 SCRA 208.
[40] 44 Phil 739 (1923).
[41] 45 Phil 256 (1923).