Chua v. Timan
REITERATIONFacts
The Antecedents: Petitioners Salvador and Violeta Chua granted respondents Rodrigo, Ma. Lynn, and Lydia Timan several loans in February and March 1999, evidenced by promissory notes with stipulated interest rates of 7% per month, later reduced to 5% per month. Respondents issued postdated checks to secure these loans. Respondents paid the loans at the stipulated interest rates until December 1999. In March 2000, respondents offered to pay the principal amount of P764,000, but petitioners refused, claiming the principal was P864,000. Respondents then deposited P864,000 with the RTC Clerk of Court and filed a case for consignation and damages. Procedural History: The RTC denied petitioners' motion to dismiss. Subsequently, the RTC ordered the release of P864,000 to petitioners. The RTC ruled that the stipulated interest rates of 7% and 5% per month were excessive and ordered petitioners to refund excess interest payments. On appeal, the Court of Appeals affirmed the RTC decision, reducing the interest rates to 1% per month or 12% per annum and ordering the refund of excess interest. The Court of Appeals denied petitioners' motion for reconsideration. The Petition: Petitioners seek review of the Court of Appeals' decision, arguing that the stipulated interest rates were not usurious due to Central Bank (C.B.) Circular No. 905-82 and that respondents were in pari delicto. Respondents counter that the rates were unconscionable and that the in pari delicto defense was raised for the first time on appeal.
Issue(s)
Whether the Court of Appeals erred in affirming the RTC's order for petitioners to refund excess interest payments due to unconscionable interest rates. Whether the stipulated interest rates of 7% and 5% per month are unconscionable, iniquitous, and exorbitant. Whether the defense of in pari delicto can be raised for the first time on appeal. Whether the defense of good faith can be raised in a petition for review under Rule 45.
Ruling
The petition is denied for lack of merit. The assailed Decision and Resolution of the Court of Appeals are affirmed.
Ratio Decidendi
On the refund of excess interest: Since the stipulated interest rates were found to be unconscionable and void, the ruling of the Court of Appeals ordering petitioners to refund all interest payments in excess of the legal rate of 1% per month or 12% per annum is correct. The respondents are entitled to recover the amounts paid beyond what is legally and equitably permissible. On the unconscionability of interest rates and the applicability of C.B. Circular No. 905-82: The stipulated interest rates of 7% and 5% per month, equivalent to 84% and 60% per annum, are indeed excessive, iniquitous, unconscionable, and exorbitant. The Court has consistently held that such rates are void for being contrary to morals, if not against the law. While Central Bank (C.B.) Circular No. 905-82 removed interest ceilings, it did not grant lenders carte blanche authority to impose rates that would enslave borrowers. Therefore, these stipulated rates must be equitably reduced to the legal rate of 1% per month or 12% per annum. While C.B. Circular No. 905-82 effectively removed the ceiling on interest rates, it did not grant lenders the authority to impose unconscionable rates. The Court has reiterated that such stipulations, even if not usurious under the Usury Law (which has been rendered ineffective by the circular), are void for being contrary to morals (contra bonos mores). The circular did not repeal the Usury Law but merely suspended its effectivity, and the principle of contra bonos mores remains applicable to prevent iniquitous stipulations. On the defense of in pari delicto: The defense of in pari delicto was not raised in the Regional Trial Court (RTC). Issues not raised in the lower court cannot be raised for the first time on appeal. Appeals are confined only within the issues framed by the parties in the proceedings before the lower court. Thus, petitioners cannot invoke this defense at this stage. On the defense of good faith: The issue of good faith is a question of fact. A petition for review under Rule 45 of the Rules of Civil Procedure allows only questions of law. Therefore, the defense of good faith, being a factual issue, cannot be properly raised in this petition.
Main Doctrine
Stipulated interest rates of 7% and 5% per month are excessive, iniquitous, unconscionable, and exorbitant, and must be equitably reduced to the legal rate of 1% per month or 12% per annum. Central Bank Circular No. 905-82 did not grant carte blanche authority to lenders to impose unconscionable interest rates.