SPOUSES PUERTO v.

COURT OF APPEALS
G.R. No. 138210
June 6, 2002
Quisumbing, J.

SUBJECT MATTER: Introduction to Civil Law

DOCTRINE(S):
· Repeal of Law (Article 7, New Civil Code)
o Laws are repealed only by subsequent ones, and their violation or non-observance shall not be excused by
disuse, or custom or practice to the contrary. When the courts declared a law to be inconsistent with the
Constitution, the former shall be void and the latter shall govern. Administrative or executive acts, orders and
regulations shall be valid only when they are not contrary to the laws or the Constitution. (New Civil Code -
Article 7)
§ Article 1 of the Central Bank Circular No. 905 s. 1982 suspended the ceiling on interest stipulated in
Section 2 of the Usury Law (Act. No. 2655, as amended)
· “The rate of interest, including commissions, premiums, fees and other charges, on a loan or
forbearance of any money, goods, or credits, regardless of maturity and whether secured or
unsecured, that may be charged or collected by any person, whether natural or juridical,
shall not be subject to any ceiling prescribed under or pursuant to the Usury Law, as
amended.” (Article 1 – CB Circular No. 905 s. 1982)
· “No person or corporation shall directly or indirectly take or receive in money or other
property, real or personal, or choses in action, a higher rate of interest or greater sum or
value, including commissions, premiums, fines and penalties, for the loan or renewal thereof
or forbearance of money, goods, or credits, where such loan or renewal or forbearance is
secured in whole or in part by a mortgage upon real estate the title to which is duly
registered, or by any document conveying such real estate or an interest therein, than
twelve per centum per annum…” (Section 2, Act No. 2655, as amended)
o Essentially, CB Circular No. 905 s. 1982 repealed the Usury Law but since when Mrs. Puerto obtained the loan
from Mr. Cortes, the Usury Law was still in effect - and it is elementary that the laws in force at the time a
contract was made generally govern the effectivity of its provision - it still applies to the resolution of this case.

ACTION BEFORE THE SUPREME COURT: PETITION for certiorari on

Petitioner(s): SPOUSES SINFRONIO AND ESPERANZA PUERTO

Parties
Respondent(s): HON. COURT OF APPEALS
HON. BR. 83 OF THE REGIONAL TRIAL COURT OF QUEZON CITY
SPOUSES INOCENCIO and ELEUTERIA CORTES

SUMMARY:
The petitioners obtained from the private respondents a loan in the amount of Php200,000 payable within one year from the date of
execution thereof in 1972. As a form of security, they executed a Deed of Real Estate Mortgage – in favor of the private respondents
- covering a house and lot they bought. The contract did not stipulate any interest but it provided that if petitioners then failed to
pay the principal loan, then the private respondents were authorized to immediately foreclose the mortgaged property. The
petitioners did fail to pay Php200,000 at the date of maturity of the loan so their property was foreclosed, and the title transferred
to the private respondents. The petitioners, however, continued to live in the house - after entering into a “lease contract” with the
private respondents – until 1976. However, the petitioners were not able to pay the “rent” for the succeeding months allegedly
C2023(LUMBA) - LAW 121, PROF. PANGALANGAN
because of the usurious demands of the private respondents. This led them to filing an action against the private respondents to
nullify the Deed before a trial court. Their petition was dismissed so they filed an appeal, which reversed the decision of the trial
court. As a response to this, the private respondents filed a motion for reconsideration, which was granted by the Court of Appeals.
The petitioners, once again, filed for a motion for reconsideration, which was denied by the aforementioned court. The case at hand
is a petition for certiorari regarding the decision of the Court of Appeals to affirm the initial decision of the trial court and deny the
motion for reconsideration filed by the petitioners. The court ruled that the Court of Appeals’ initial decision to declare the Real
Estate Mortgage contract null and the foreclosure invalid is to be reinstated.

ANTECEDENT FACTS:
● Mr. and Mrs. Puerto purchased a house from a certain Mrs. Luna and mortgaged it to the respondents for Php200,000
(Real Estate Mortgage), payable within one year from the date of execution thereof.
○ The contract did not stipulate any interest but it provided that if petitioners then failed to pay the principal
loan, then the private respondents were authorized to immediately foreclose the mortgaged property and
would be the appointed receiver.
● The petitioners failed to pay the lump sum of Php200,000 at the date of maturity (May 8, 1973); hence, their property
was foreclosed and sold at a public auction (October 4, 1973) with the private respondents as the highest bidders.
● The petitioners were allowed to stay on the property until they could find a new residence. However, after repeated
extensions to stay, petitioners did not transfer.
● They then entered into a lease contract where the petitioners would pay Php3000 as (lessees) to the respondents (as
lesser) by way of rentals on January 1976.
● The petitioners could not to pay monthly rentals in the succeeding months, allegedly because of the usurious demands
of the private respondents.
● This led them to filing an action against the private respondents to nullify the Deed before a trial court in August 20,
1976.
● Their petition was dismissed so they filed an appeal, which reversed the decision of the trial court.
● As a response to this, the private respondents filed a motion for reconsideration, which was granted by the Court of
Appeals.
● The petitioners, once again, filed for a motion for reconsideration, which was denied by the aforementioned court.

ISSUE(S) AND HOLDING(S):

1. WON the contract between the parties – a loan secured by a deed of real estate mortgage – violated the Usury Law (Act No.
2655, as amended by P.D. 116) -- YES

RATIO:
1. Under Section 2 of the Usury Law (Act No. 2655, as amended by P.D. 116), the maximum rate of interest on a loan or
forbearance of money secured by a mortgage upon real estate the title to which is duly registered, shall be 12 percent per
annum.
○ The court found that is unlikely that the respondent, a successful pawnshop business-woman, would give a
loan (Php200,000) higher than the value of the property (Php150,000). Indeed, the mortgage contract did not
stipulate for payment of any interest. However, as the court mentioned, “to conceal usury various devices
have been adopted whereby the substance of the true agreement is withheld from what may be viewed on
the written document.” Hence, the petitioners’ claim that the Php50,000 of the Php200,000 loan was the
interest.
○ The Php50,000 interest is clearly in excess of that which the law allows. Thus, the payment of interest is void.

DISPOSITIVE: WHEREFORE, the petition is hereby GRANTED. The amended decision dated February 4, 1999 of the Court of Appeals
and its resolution of April 5, 1999 are REVERSED and its decision dated September 30, 1998 is REINSTATED. No pronouncements as
to costs.

C2023(LUMBA) - LAW 121, PROF. PANGALANGAN