G.R. No. 106018 December 5, 1994
Wilfredo Verdejo, petitioner, vs. Honorable Court of Appeals, Herminia Patinio and John Doe, respondents.

FACTS

Petitioner Wilfredo Verdejo filed a complaint for sum of money against private respondent Herminia Patinio before the Regional Trial Court. He alleged that the respondents executed a Deed of Sale with Right to Repurchase on November 17, 1983, with a consideration of P60,560.00 payable in installments. He claimed that despite repeated demands, the respondents failed to make any payment, prompting him to file the suit to recover the amount.
In their answer, the respondents denied receiving the full P60,560.00. They contended that the deed was merely a consolidation of previous loan transactions from 1982, where the actual total principal received was only P22,000.00. They asserted that the inflated amount in the deed represented the principal plus usurious interest charges of 10% to 12% per month, which were illegal under the then-prevailing Usury Law. They counterclaimed for a refund of alleged overpayments.

ISSUE

Whether the Court of Appeals erred in affirming the trial court’s dismissal of the complaint and in ordering a refund to the respondents, despite the execution of the deed after the effectivity of Central Bank Circular No. 905, which lifted interest rate ceilings.

RULING

The Supreme Court denied the petition and affirmed the decision of the Court of Appeals. The legal logic hinges on the application of the Usury Law to the substance of the transaction and the timing of the original loans. The Court upheld the factual findings of the lower courts that the Deed of Sale with Right to Repurchase was not a genuine sale but a security for a loan. The consolidated obligation originated from loan agreements executed in 1982, prior to the effectivity of Central Bank Circular No. 905 on January 1, 1983. Since the Usury Law was still in force when the original loans were contracted, the stipulation for excessive interest was void. The subsequent execution of the deed in 1983 could not retroactively validate the prior usurious transactions. The contract was therefore valid only as to the principal loan of P22,000.00 but void as to the usurious interest. Consequently, the petitioner was not entitled to recover under the deed, and the respondents were entitled to a refund for their overpayments, which the courts computed based on the legal principal. The Court also emphasized that the petition raised factual issues, and the findings of fact by the trial court and the Court of Appeals, being supported by evidence, are binding and conclusive.