Toring v. Ganzon-Olan
REITERATIONFacts
The Antecedents: Petitioners Spouses Jovenal Toring and Cecilia Escalona-Toring obtained a loan of P6,000,000 from respondents Spouses Rosalie Ganzon-Olan and Gilbert Olan, with a stipulated interest of 3% per month. The loan was secured by a mortgage on a parcel of land. Subsequently, the parties executed a Deed of Absolute Sale conveying the mortgaged property to respondents, and an Option to Buy was given to petitioners to repurchase the land for P10,000,000. The Option to Buy stipulated that if exercised after December 5, 1998, the purchase price would increase by P300,000 or 3% of the purchase price every month until September 5, 1999, and thereafter by P381,000 or 3.81% per month. Procedural History: Petitioners filed a Complaint for reformation of instruments, abuse of rights, and damages, praying that the Deed of Absolute Sale and Option to Buy be treated as an equitable mortgage. At pre-trial, parties stipulated that the principal amount was overdue, no payment was made, and the transactions were an equitable mortgage, not a sale. The issues were limited to the amount of interest due and the time of payment. The Regional Trial Court (RTC) ordered petitioners to pay respondents P20,000,000. The Court of Appeals (CA) affirmed the RTC's Resolution. The Petition: Petitioners seek review of the CA's decision, arguing that the trial court erred in awarding interest, as Article 1602 of the Civil Code subjects any benefit received by the vendee as rent or otherwise to usury laws, and the stipulated monthly rates of 3% and 3.81% are unconscionable. They also contend that the Option to Buy stipulated an escalation of the purchase price, not interest.
Issue(s)
Whether the Court of Appeals committed a reversible error in denying petitioners' appeal and affirming the trial court's decision; and whether the stipulated interest rates of 3% and 3.81% per month are valid and enforceable.
Ruling
The Supreme Court MODIFIED the assailed Decision and Resolution of the Court of Appeals. The stipulated interest rate of 3% or 3.81% per month on the subject equitable mortgage was ordered REDUCED to 1% per month only. No pronouncement as to costs.
Ratio Decidendi
On the validity and enforceability of stipulated interest rates: The Court reiterated that in a loan or forbearance of money, the interest due should be that stipulated in writing, and in the absence thereof, the rate shall be 12% per annum. The parties in this case entered into a loan transaction with an agreed interest rate of 3% per month, and later, through the Deed of Absolute Sale and Option to Buy, which were reformed into an equitable mortgage, the stipulation for monthly increases of P300,000 or 3% and P381,000 or 3.81% were deemed to represent monthly interest. The Court acknowledged that Central Bank Circular No. 905-82 removed the ceiling on interest rates, giving parties wide latitude to agree on any rate. However, the Court emphasized that stipulated interest rates are illegal if they are unconscionable, citing its ruling in Ruiz v. Court of Appeals. The Court found the stipulated rates of 3% and 3.81% per month to be unconscionable, despite the suspension of the Usury Law. Therefore, the Court reduced the stipulated interest rates to 1% per month, which it deemed the appropriate rate in such circumstances, aligning with previous jurisprudence that lenders do not have carte blanche authority to set rates that would enslave borrowers. Petitioners were ordered to pay the principal loan of P10,000,000, plus 1% interest per month from December 6, 1998, until fully paid, as all other claims for damages were waived.
Main Doctrine
While parties are free to stipulate on interest rates, the Court may reduce rates found to be unconscionable, even if the Usury Law has been suspended by Central Bank Circular No. 905-82.