G.R. No. 99433; June 19, 2001
PROJECT BUILDERS, INC., GALICANO A. CALAPATIA, JR., and LEANDRO ENRIQUEZ, petitioners, vs. THE COURT OF APPEALS and INDUSTRIAL FINANCE CORPORATION, respondents.

FACTS

Petitioner Project Builders, Inc. (PBI) entered into an agreement with respondent Industrial Finance Corporation (IFC) on August 21, 1975, whereby IFC would provide a maximum credit line of P2,000,000.00. PBI would discount and assign its accounts receivable from condominium unit buyers to IFC on a “with recourse non-collection basis.” On June 15, 1976, the credit line was increased to P5,000,000.00. PBI assigned twenty accounts receivable totaling P7,986,815.38, from which IFC released P4,549,132.72 to PBI, the difference of P3,437,682.66 representing the discounting or finance fee. To secure the agreement, petitioners executed a Real Estate Mortgage in favor of IFC. Upon alleged default, IFC foreclosed the mortgage, with IFC as the highest bidder at P3,500,000.00. The property was later redeemed, but after applying the redemption payment, IFC claimed a deficiency of P1,323,053.08 and filed a collection suit. The trial court dismissed IFC’s complaint and ordered IFC to pay petitioners various amounts. The Court of Appeals reversed the trial court’s decision and ordered petitioners to pay the deficiency.

ISSUE

The core issue is whether the agreement between the parties is a simple loan or a financing transaction governed by Republic Act No. 5980 (the Financing Company Act). Related issues include whether RA 5980 is for public protection or the benefit of financing companies, whether it applies if the transaction is a subterfuge to evade the Truth in Lending Act, whether it governs a bilateral (not trilateral) transaction, and whether petitioners are liable for a deficiency after the mortgage foreclosure.

RULING

The Supreme Court denied the petition and affirmed the decision of the Court of Appeals. The agreement is a financing transaction governed by RA 5980, not a simple loan. The transaction involved the discounting of accounts receivable, which is a permissible activity under RA 5980. The discounting fee (the difference between the face value of the receivables and the amount released) is not interest but a fee akin to a “time price differential” for the credit extended, and thus does not violate the Usury Law. The assignment of credits was valid and perfected upon agreement. As the transaction was with recourse, petitioners remained liable as guarantors for any deficiency after the foreclosure of the mortgage. Therefore, petitioners are jointly and severally liable for the claimed deficiency.