Spouses Pascual v Ramos

Facts Issue / Holding

Sps Pascual entered into a sale with right to repurchase with
Ramos. They were not able to redeem the land within the
agreed time frame so Ramos began to transfer title to his
name. Pascual filed a motion in court averring that the
contract was actually a loan and that they had even paid
Ramos.
Trial court found that the contract was indeed a loan and
ordered refund of overpayment of 141.5k based on 7%
annual interest. Ramos filed an MR saying that the stipulated
interest was actually 7% monthly and not just annually. Trial
Court then ruled that Pascual pay Ramos 511k, this time
basing computation on 5% monthly since it found 7%
monthly to be unconscionable.
Pascual elevated the case to the CA and the SC questioning
the interest.
WN the 5% monthly interest is unconscionable-
NO.
Parties are free to stipulate terms and conditions
when contracting. The court shall not change the
terms of a contract. Also, the test of
unconscionable interest rate applied in the case
of Medel will not be employed here because of
variance in factual milieu.
There was no showing that Pascuals did not
voluntarily enter into the contract. Nor was
there showing that the contract was drawn to
hide a usurious contract.

Spouses Pascual executed a deed of sale with right to repurchase over 2 parcels of land in Bambang, Bulacan in
favor of Ramos for consideration of 150k. Sps Pascual did not exercise the right to repurchase within the agreed
period- 1 year so Ramos initiated transfer proceedings.

Sps Pascual aver that what was actually entered into was a loan with a real estate mortgage (REM) and no period
was agreed upon. Also, they had actually overpaid Ramos.

Trial court ruling: the transaction between the parties was actually a loan in the amount of P150,000, the
payment of which was secured by a mortgage of the property covered by TCT No. 305626. It also found that the
PASCUALs had made payments in the total sum of P344,000, and that with interest at 7% per annum, the
PASCUALs had overpaid the loan by P141,500.

Ramos filed an MR- 7% annually was not to be used, the kasunduan stipulated 7% per month. The trial court
deleted the award of 141.5k overpayment and ordered them to pay 511k representing principal plus interest. the
court declared that the 7% per month interest is too burdensome and onerous. Invoking the protective mantle of
Article 24 of the Civil Code, which mandates the courts to be vigilant for the protection of a party at a disadvantage
due to his moral dependence, ignorance, indigence, mental weakness, tender age or other handicap, the trial court
unilaterally reduced the interest rate from 7% per month to 5% per month. Thus, the interest due from 3 June
1987 to 3 April 1995 was P705,000.Deducting therefrom the payments made by the PASCUALs in the amount of
P344,000, the net interest due was P361,000. Adding thereto the loan principal of P150,000, the total amount due
from the PASCUALs was P511,000. (That is principal 150k + interest1 705k ( computed as 150k x 5% x 94 months2)
payments of 344k)

CA affirmed the decision. Sps Pascual filed an MR with the CA this time questioning the interest rate, this was
dismissed by the CA. The case was elevated to the SC.

WN the interest rate of 5% monthly is unconscionable? NO.

a. issue of interest was raised belatedly: (remember the only issue was that the nature of the contract was that of
a Loan with REM instead of a Sale with right to repurchase)

1
Principal x rate x time
2
3 June 1987 to 3 April 1995, so 7 years and 10 months
If an issue is raised only in the motion for reconsideration of the decision of the Court of Appeals, the effect is that
it is as if it was never duly raised in that court at all.

b. on the issue of the unconscionable interest rate:

Our ruling in Medel v. Court of Appeals is not applicable to the present case. In that case, the excessiveness of the
stipulated interest at the rate of 5.5 % per month was put in issue by the defendants in the Answer. Moreover, in
addition to the interest, the debtors were also required, as per stipulation in the promissory note, to pay service
charge of 2% per annum and a penalty charge of 1% per month plus attorneys fee of equivalent to 25% of the
amount due. In the case at bar, there is no other stipulation for the payment of an extra amount except interest on
the principal loan. Thus, taken in conjunction with the stipulated service charge and penalty, the interest rate of
5.5% in the Medel case was found to be excessive, iniquitous, unconscionable, exorbitant and hence, contrary to
morals, thereby making such stipulation null and void.

Considering the variance in circumstances, the court did not apply the doctrine in the Medel case. Stipulations in
contracts are voluntarily entered into. Parties are free to stipulate terms so long as not contrary to laws, morals,
good customs, public order and public policy.

There is nothing in the record that would point to fraud or that the Sps Pascual were at a disadvantage. Men are
presumed to be sane and normal and subject to be moved by substantially same motives.

c. Parties are generally free to stipulate interest rates:

With the suspension of the Usury Law and the removal of interest ceiling, the parties are free to stipulate the
interest to be imposed on loans. Absent any evidence of fraud, undue influence, or any vice of consent exercised
by RAMOS on the PASCUALs, the interest agreed upon is binding upon them. This Court is not in a position to
impose upon parties contractual stipulations different from what they have agreed upon.

d. No hiding of the real transaction

We are not persuaded by the argument of the PASCUALs that since RAMOS tried to hide the real transaction by
imposing upon them the execution of a Deed of Absolute Sale with Right to Repurchase, he should not be allowed
to collect more than 1% per month interest. It is undisputed that simultaneous with the execution of the said deed
was the execution of the Sinumpaang Salaysay, which set forth the true agreement of the parties. The PASCUALs
cannot then claim that they did not know the real transaction