PNB vs CA, G.R. No.

88880

Doctrine: Since Cesar Anson received a total overpayment of P269,700.68 from petitioner, he is obliged to
return the amount in accordance with the principle of solutio indebiti under Article 2154 of the Civil Code, to
wit:
Article 2154. If something is received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises.

Further, Article 2159 ofthe Civil Code provides:

In this case, the excess payments made by petitioner were also borne out of a mistake that they were due;
hence, following the ruling in Sps. Abella v. Sps. Abella, the Court deems it in the better interest of equity not to
hold Cesar Anson liable for interest on the excess payments.

Nevertheless, an interest at the rate of 6% per annum is imposable on the total judgment award pursuant to
Nacar v. Gallery Frames, et al., which held that "[w]hen the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest x xx shall be 6% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit."

Facts: Rosemarie Rey is the President and one of the owners of Southern Luzon Technological College
Foundation Incorporated, a computer school in Legazpi City. Sometime in August 2002, she needed a quick
infusion of cash for the said school.

Rosamarie Rey borrowed from Cesar Anson the amount of Php200,000 payable in one year, and subject to
7.5% interest per month of Php15,000 monthly interest, which would be paid bi-monthly by way of postdated
checks. The loan was secured by a real estate mortgage on Spouses Teodoro and Rosemarie Rey's property,
Lot 1271-C-4, covered by Transfer Certificate of Title (TCT) No. 50872. In the event of default, the Spouses
Rey would pay a penalty charge of 10% of the total amount, plus 12% attorney's fees. The terms and
conditions of the loan were embodied in a Deed of Real Estate Mortgage dated August 23, 2002. Rosemarie
Rey thereafter issued 24 postdated checks for Php7,500.00 each, as well as another postdated check for the
principal amount of Php200,000.00.

Three days later, or on August 26, 2002, Rosemarie Rey again borrowed from Cesar Anson P350,000.00,
subject to 7% interest per month, and payable in four months. The second loan was secured by a real estate
mortgage over a parcel of land covered by TCT No. 2776, registered in the name of Rosemarie Rey's mother,
Isabel B. Quinto. The parties executed a second Deed of Real Estate Mortgage dated August 26, 2002.

Rosemarie Rey faithfully paid the interest on the first loan for twelve (12) months. She was, however, unable
to pay the principal amount of P200,000.00 when it became due on August 24, 2003. She appealed to not to
foreclose the mortgage or to impose the stipulated penalty charges, but instead to extend the terms thereof.
Cesar Anson agreed and Rosemarie Rey later signed a promissory note dated April 23, 2004 and executed a
Deed of Real Estate Mortgage dated May 3, 2004, stating that the Spouses Rey's principal obligation of
P200,000.00 shall be payable in four (4) months from the execution of the Deed of Real Estate Mortgage, and
it shall be subject to interest of 7.5% per month. These two documents cancelled, updated and replaced the
original agreement on the first loan. Rosemarie Rey once again issued postdated checks to cover the interest
payments on the amended first loan, the latest of which was dated August 23, 2004, and another postdated
check for P200,000.00 for the principal amount. Rosemarie Rey was able to make good on her interest
payments, but thereafter failed to pay the principal amount ofP200,000.00.
Anent the second loan of P350,000.00, Rosemarie Rey failed to faithfully pay monthly interest thereon and
she was unable to pay the principal amount thereof when it became due on December 26, 2002. Rosemarie
Rey appealed to Cesar Anson not to foreclose the mortgage securing the same or to impose the penalty
charges, but instead to extend the terms thereof. Cesar Anson agreed, and the parties executed anew a Deed
of Real Estate Mortgage dated January 19, 2003 wherein Rosemarie Rey acknowledged her indebtedness to
Cesar Anson in the amount of Php6ll ,340.00, payable within four months from the execution of the Deed of
Real Estate Mortgage, and subject to 7% interest per month.

On February 24, 2004, Rosemarie Rey obtained a third loan from Cesar Anson in the amount of Pl 00,000.00.
The third loan was not put in writing, but the parties verbally agreed that the same would be subject to 3%
monthly interest.

A week later or on March 2, 2004, Rosemarie Rey obtained a fourth loan from Cesar Anson for Pl00,000.00. It
was also not put in writing, but there was an oral agreement of 4% monthly interest.

On February 25, 2005, Cesar Anson sent Rosemarie Rey a Statement of Account seeking full payment of all
four loans amounting to P2,2l4,587 .50.

Instead of paying her loan obligations, Rosemarie Rey, through counsel, sent Cesar Anson a letter dated
August 8, 2005, stating that the interest rates imposed on the four loans were irregular, if not contrary to law.
The 7.5% and 7% monthly interest rates imposed on the first and second loans, respectively, were excessive
and unconscionable and should be adjusted to the legal rate. Moreover, no interest should have been imposed
on the third and fourth loans in the absence of any written agreement imposing interest. Per Rosemarie Rey's
computation using the legal rate of interest, all four loans were already fully paid, as well as the interests
thereon. Rey contended that she had overpaid the amount of P283,434. l 9. She demanded from Cesar Anson
the return of the excess payment; otherwise, she would be compelled to seek redress in court.

Spouses Quinto filed a complaint for recomputation of loans and recovery of excess payments and
cancellation of real estate mortgages and checks against Cesar Anson with the RTC. Cesar Anson sought the
dismissal of the complaint for lack of cause of action. He contended that with the suspension of the Usury
Law, parties can freely stipulate on the imposable rates of interest that shall accrue on a loan. Cesar Anson
alleged that the Spouses Rey freely agreed with him and even proposed the rate of interest to be imposed on
Loan 1 and Loan

RTC granted the complaint for recomputation of the loans. Loan 3 and 4 were not in writing, thus, could not
legally earn interest. The appropriate interest for Loan 1 and 2 should be at the legal rate of 12% per annum.
The 90% per annum and 84% per annum respectively were void.

Both parties appealed before the CA. CA reversed and set aside the decision. It found the appeal of Cesar
Anson meritorious.

Court find that defendant-appellant Cesar Anson is obliged to return to plaintiff-appellant Rosemarie Rey the
latter's overpayment in the third and fourth loans amounting to P59,320.00, subject to legal interest of 6%
per annum reckoned from the date of extrajudicial demand on August 11, 2005. As of August 31, 2013, the
tota1 obligation amounted to P87,988.62. For her part, plaintiff-appellant Rosemarie Rey is indebted to
defendant-appellant Cesar Anson the amount of P200,000.00 and P320,862.00 for the first and second loans.
Both amounts are subject to legal interest of 12% per annum computed from extrajudicial demand on
February 25, 2005. As of August 3L 2013, her obligations amounted to P380,460.27 for the first loan, and
P610,376.22 for the second loan, or the total sum of P990,836.49.

CA denied the appeal of Rosemarie and as well as her motion for reconsideration. Hence, the current petition.
Issue: Whether or not CA erred in sustaining the imposition of the 7.5% and 7% monthly interest rates on
Loan 1 and Loan 2 respectively.

Ruling: Yes, CA erred in sustaining the imposition of the said interest rates, while the RTC correctly imposed
the legal interest of 12% per annum in the place of the said interest rates. The Court holds that the interest
rates of 7.5% and 7% are excessive, unconscionable, iniquitous, and contrary to law and morals; and,
therefore, void ab initio.

The freedom of contract is not absolute. Article 1306 of the Civil Code provides that "[t]he contracting parties
may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they
are not contrary to law, morals, good customs, public order, or public policy."

In the case before us, even if Rosemarie Rey initially suggested the interest rate on the first loan,
voluntariness does not make the stipulation on an interest, which is iniquitous, valid.

Anent the third and fourth loans both in the amount of Pl 00,000.00, the Court of Appeals correctly held that
as the agreement of 3% monthly interest on the third loan and 4% monthly interest on the fourth loan was
merely verbal and not put in writing - no interest was due on the third and fourth loans.

Petitioner contends that she has made excess payments for the four loans in the total sum of P269,700.68,
which ought to be returned by Cesar Anson in accordance with the principle of solutio indebiti under Article
2154 of the Civil Code.

Since Cesar Anson received a total overpayment of P269,700.68 from petitioner, he is obliged to return the
amount in accordance with the principle of solutio indebiti under Article 2154 of the Civil Code, to wit:
Article 2154. If something is received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises.

Further, Article 2159 ofthe Civil Code provides:

In this case, the excess payments made by petitioner were also borne out of a mistake that they were due;
hence, following the ruling in Sps. Abella v. Sps. Abella, the Court deems it in the better interest of equity not to
hold Cesar Anson liable for interest on the excess payments.

Nevertheless, an interest at the rate of 6% per annum is imposable on the total judgment award pursuant to
Nacar v. Gallery Frames, et al., which held that "[w]hen the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest x xx shall be 6% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit."

Assailed decision is reversed and set aside. The decision or RTC reinstated with modification. Cesar Anson is
ordered to pay petitioner the amount of Php269,700.68, with legal interest at the rate of 6% per annum
reckoned from the finality of this decision until full payment.