B-05

Investors v. Autoworld (2000)

Installment Paper Purchase as a cloak to hide a usurious loan transaction

Autoworld asked Investors Finance Corp for a direct loan but was denied bcoz they do not provide such direct loans But IFCs Asst VP told A that they can enter into an Installment Paper Purchase (IPP) or buying receivables in a discounted rate with A thru its other company, Barretto Realty, i.e., they will buy in installment P12.9M worth of receivables at a discounted price of P6.9M. This happened before the suspension of the Usury Law. After the suspension of the Usury Law, A asked again for a loan this time of P3M IFC granted a DIRECT LOAN explicitly stating in the agreement a 24% PA interest rate After paying a number of installments, A wanted to settle the whole loan. They asked for a computation of the balance, but IFC didnt want to negotiate before A first pay the amount of P10M plus They negotiated but reached a deadlock. A went to the courts to annul the documents it issued in favor of IFC

WON the IPP is a cloak or device to hide a usurious loan

YES Petitioner claims that it was never a party to the Contract to Sell between AUTOWORLD and Barretto but their lawyers drafted the documents; and they commissioned appraisers to find out the FMV of the parcels of land months before the sale Petitioner insists that the 9 February 1981 transaction was a legitimate "IPP" transaction but in a letter addressed to Barretto Realty, they gave a breakdown of how the payment or flow of the money should proceed, if it were a legit IPP, Barretto would be free to dispose the Application proceeds as it deems wise. In another letter it referred to the IPP proceeds as loan proceeds AUTOWORLD is entitled to recover the whole usurious interest amounting to P3,921,217.78, NOT JUST THE DIFFERENCE BETWEEN THE USURIOUS INTEREST AND LEGAL INTEREST. We are not unaware of Sanchez v. Buenviaje where the Court allowed the usurer to recover legal interest on the principal amount loaned. But such interest arose from the debtor's delay in paying the principal from the time of the creditor's demand. That is the reason why legal interest was counted only from the time the creditor filed his complaint for the recovery of a debt. In this case however, the debtor was never in delay. As a matter of fact, AUTOWORLD paid the principal of P6,980,000.00 and the whole usurious interest of P3,921,217.88 upon petitioner's insistent demand. Thus, the case of Sanchez v. Buenviaje herein cited will not apply to petitioner and it will not be entitled to legal interest on the amount

alleging that the IPP is a circumvention of the Usury Law.

of the principal loan.