Spouses Tagumpay N. Albos v. Spouses Nestor M. Embisan

Summary

This case involves spouses Albos who borrowed P84,000 from spouses Embisan in 1984 with 5% monthly interest, secured by real estate mortgage. After multiple payment extensions, respondents imposed compound interest starting June 1986 without written agreement. When petitioners defaulted, the property was foreclosed and consolidated to respondents. Petitioners challenged the foreclosure, claiming unconscionable interest rates. The Supreme Court ruled that compound interest must be in writing per Article 1956 of the Civil Code, and declared the 5% monthly rate unconscionable under Article 1306. The Court nullified the foreclosure proceedings, finding debtors were deprived of opportunity to pay the correct debt amount, and remanded the case for recomputation using 12% per annum simple interest. The decision establishes important precedent on written requirements for compound interest and limits on unconscionable lending practices.