G.R. No. 138210 ; June 6, 2002
SPOUSES SINFRONIO PUERTO and ESPERANZA PUERTO, petitioners, vs. HON. COURT OF APPEALS, HON. BR. 83 OF THE REGIONAL TRIAL COURT OF QUEZON CITY and SPS. INOCENCIO and ELEUTERIA CORTES, respondents.

FACTS

Petitioners Spouses Puerto obtained a loan from respondent Spouses Cortes, secured by a real estate mortgage over their property. The Deed of Mortgage stated a principal loan of P200,000, payable within one year without stipulated interest. Petitioners, however, alleged the true loan was only P150,000, with an added P50,000 representing one year’s advance interest, making the transaction usurious. They claimed a verbal agreement allowed them to redeem the property even after foreclosure by paying P200,000 in lump sum, or to pay a monthly interest of P4,000 thereafter. Upon maturity, petitioners failed to pay. Respondents foreclosed the property, acquired title, and later entered into a lease contract with petitioners, who subsequently defaulted on rental payments. Petitioners filed an action for the declaration of nullity of the mortgage, alleging usury.
The trial court and the Court of Appeals dismissed the complaint. The appellate court, in its amended decision, found no clear evidence of usury, giving credence to the written mortgage contract over the alleged verbal agreements. It held that petitioners failed to prove the essential elements of a usurious transaction by preponderance of evidence.

ISSUE

Whether the contract of loan secured by the real estate mortgage is void for being usurious.

RULING

Yes, the contract is void for usury. The Supreme Court reversed the Court of Appeals and reinstated its earlier decision which had found the transaction usurious. The legal logic centers on the evaluation of evidence. While usury must be proved by clear and satisfactory evidence, the totality of the circumstances presented by petitioners met this standard. The Court found the respondents’ claim of a pure P200,000 loan improbable, as it was not supported by evidence of sufficient income to grant such an amount. In contrast, petitioners’ detailed testimony on the P150,000 principal, the advance interest of P50,000, and the subsequent monthly interest payments of P4,000 (which translates to a 32% annual interest rate on the P150,000 principal) was credible and consistent with documentary receipts they presented. The subsequent lease contract, denominating the P3,000 monthly interest as “rent,” was a further attempt to conceal the usury. Under the law at the time (Act No. 2655), a loan secured by a mortgage on registered real estate with an interest exceeding 12% per annum was usurious. The stipulated 32% interest was excessive and unlawful. Consequently, the usurious mortgage contract is void. The Court ordered the reconveyance of the property to petitioners upon payment of the actual principal loan of P150,000, without the usurious interest.