G.R. No. 258526, January 11, 2023
Manila Credit Corporation, Petitioner, vs. Ramon S. Viroomal and Anita S. Viroomal, Office of the Clerk of Court and Ex-Officio Sheriff of the Regional Trial Court of Parañaque City, as represented by Atty. Jerry R. Toledo and Sheriff Alejandro P. Abrematea, and the Register of Deeds of Parañaque City, Respondents.
FACTS
In September 2009, respondents Ramon and Anita Viroomal obtained a loan from petitioner Manila Credit Corporation (MCC) under Promissory Note (PN) No. 7155 for PHP 467,600.00, payable in 60 months with a 23.36% per annum interest rate, secured by a real estate mortgage. After failing to keep up with payments, they executed a second promissory note, PN No. 8351, for PHP 495,840.00 payable in 84 months at 24.99% interest per annum, covering the unpaid balance, interests, and penalty charges from the first loan. Despite respondents having paid a total of PHP 1,175,638.12, MCC demanded full payment of an outstanding balance of PHP 549,029.69 as of October 15, 2016, and proceeded with the extra-judicial foreclosure of the mortgage when respondents requested a re-computation. Respondents filed a complaint arguing that the effective interest rate (EIR) of 36% per annum, along with other charges (1/10 of 1% per day interest on overdue amounts, 1.5% per month penalty, and a PHP 100 collection fee), was unconscionable and void. The Regional Trial Court (RTC) ruled in favor of respondents, declaring the compounded interests void and reducing them to the legal interest rate, finding the first loan fully paid and the second loan void for lack of consideration, and ordering the reinstatement of respondents’ title to the mortgaged property. The Court of Appeals affirmed the RTC’s decision.
ISSUE
Whether the interest rates, penalty charges, and the 36% per annum effective interest rate imposed by Manila Credit Corporation on the loan are void for being unconscionable and contrary to law, morals, good customs, public order, or public policy.
RULING
Yes. The Supreme Court denied the petition and affirmed the decisions of the lower courts. The Court held that the 3% monthly effective interest rate (EIR) was unilaterally imposed by MCC and not stipulated in the promissory note, violating the mutuality of contracts under Article 1308 of the Civil Code. The total charges imposed by MCC, which amounted to 77.36% per annum when combining the stipulated interest and penalties, were found to be patently exorbitant, iniquitous, and unconscionable, and therefore void. The Court applied the legal interest rate of 12% per annum (as the obligation arose before July 1, 2013) on the principal loan amount. Upon computation, the payments made by respondents totaling PHP 1,175,638.12 had already extinguished the principal obligation plus legal interest. Consequently, the first promissory note (PN No. 7155) was deemed fully paid, and the second promissory note (PN No. 8351), which was based on the void excessive charges from the first loan, was declared void for lack of consideration. The extra-judicial foreclosure and the subsequent transfer of title to MCC were also declared void. The Register of Deeds was ordered to cancel TCT No. 010-2019001298 (in MCC’s name) and reinstate TCT No. 72248 (in Ramon Viroomal’s name). Respondents were entitled to recover their overpayment of PHP 417,859.58 with legal interest.