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    Castro v. Tan 605 Scra 231

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    Sarah Jane Usop
    1) Respondent Angelina de Leon Tan and her husband obtained a loan of 30,000 PHP from petitioners Isagani and Diosdada Castro, secured by a mortgage on their property, with interest of 5% per month. 2) When Mrs. Tan failed to repay the loan after her husband passed away, petitioners foreclosed on the property and claimed over 359,000 PHP in interest and principal. 3) The Court of Appeals found the 5% monthly interest unconscionable and reduced it to the legal 12% annual interest rate. The Supreme Court affirmed, finding previous cases had also found interest rates of 3-5% monthly or 60-72% annually to be excessive.

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    Castro v. Tan 605 Scra 231

    Uploaded by

    Sarah Jane Usop
    105 views1 page
    1) Respondent Angelina de Leon Tan and her husband obtained a loan of 30,000 PHP from petitioners Isagani and Diosdada Castro, secured by a mortgage on their property, with interest of 5% per month. 2) When Mrs. Tan failed to repay the loan after her husband passed away, petitioners foreclosed on the property and claimed over 359,000 PHP in interest and principal. 3) The Court of Appeals found the 5% monthly interest unconscionable and reduced it to the legal 12% annual interest rate. The Supreme Court affirmed, finding previous cases had also found interest rates of 3-5% monthly or 60-72% annually to be excessive.

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    CASTRO V. TAN 605 SCRA 231

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    1) Respondent Angelina de Leon Tan and her husband obtained a loan of 30,000 PHP from petitioners Isagani and Diosdada Castro, secured by a mortgage on their property, with interest of 5% per month. 2) When Mrs. Tan failed to repay the loan after her husband passed away, petitioners foreclosed on the property and claimed over 359,000 PHP in interest and principal. 3) The Court of Appeals found the 5% monthly interest unconscionable and reduced it to the legal 12% annual interest rate. The Supreme Court affirmed, finding previous cases had also found interest rates of 3-5% monthly or 60-72% annually to be excessive.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    105 views1 page

    Castro v. Tan 605 Scra 231

    Uploaded by

    Sarah Jane Usop
    1) Respondent Angelina de Leon Tan and her husband obtained a loan of 30,000 PHP from petitioners Isagani and Diosdada Castro, secured by a mortgage on their property, with interest of 5% per month. 2) When Mrs. Tan failed to repay the loan after her husband passed away, petitioners foreclosed on the property and claimed over 359,000 PHP in interest and principal. 3) The Court of Appeals found the 5% monthly interest unconscionable and reduced it to the legal 12% annual interest rate. The Supreme Court affirmed, finding previous cases had also found interest rates of 3-5% monthly or 60-72% annually to be excessive.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 1

    CASTRO V.

    TAN 605 SCRA 231


    1306 – Autonomy of Contracts

    FACTS: Respondent Angelina de Leon Tan, and her husband Ruben Tan were the former registered owners of a 240-square meter
    residential lot, situated at Barrio Canalate, Malolos, Bulacan and covered by Transfer Certificate of Title No. T-8540. On February 17,
    1994, they entered into an agreement with petitioners spouses Isagani and Diosdada Castro denominated as Kasulatan ng Sanglaan ng
    Lupa at Bahay (Kasulatan) to secure a loan of P30,000.00 they obtained from the latter. Under the Kasulatan, the spouses Tan undertook
    to pay the mortgage debt within six
    months or until August 17, 1994, with an interest rate of 5% per month, compounded monthly.

    When her husband died on September 2, 1994, respondent Tan was left with the responsibility of paying the loan. However, she failed to
    pay the same upon maturity. Thereafter, she offered to pay petitioners the principal amount of P30,000.00 plus a portion of the interest
    but petitioners refused and instead demanded payment of the total accumulated sum of P359,000.00.

    On February 5, 1999, petitioners caused the extrajudicial foreclosure of the real estate mortgage and emerged as the only bidder in the
    auction sale that ensued. The period of redemption expired without respondent Tan having redeemed the property; thus title over the
    same was consolidated in favor of petitioners. After a writ of possession was issued, the Sheriff ejected respondents from the property
    and delivered the possession thereof to petitioners.

    ISSUE: WON nullifying the interest rate voluntarily agreed upon by the petitioners and respondents and expressly stipulated in the
    contract of mortgage entered into between them was proper

    RULING: The petition lacks merit. The Court of Appeals correctly found that the 5% monthly interest, compounded monthly, is
    unconscionable and should be equitably reduced to the legal rate of 12% per annum.

    While we agree with petitioners that parties to a loan agreement have wide latitude to stipulate on any interest rate in view of the Central
    Bank Circular No. 905 s. 1982 which suspended the Usury Law ceiling on interest effective January 1, 1983, it is also worth stressing
    that interest rates whenever unconscionable may still be declared illegal. There is certainly nothing in said circular which grants lenders
    carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets.

    In several cases, we have ruled that stipulations authorizing iniquitous or unconscionable interests are contrary to morals, if not against
    the law. In Medel v. Court of Appeals, we annulled a stipulated 5.5% per month or 66% per annum interest on a P500,000.00 loan and a
    6% per month or 72% per annum interest on a P60,000.00 loan, respectively, for being excessive, iniquitous, unconscionable and
    exorbitant. In Ruiz v. Court of Appeals, we declared a 3% monthly interest imposed on four separate loans to be excessive. In both
    cases, the interest rates were reduced to 12% per annum.

    In this case, the 5% monthly interest rate, or 60% per annum, compounded monthly, stipulated in the Kasulatan is even higher than the
    3% monthly interest rate imposed in the Ruiz case. Thus, we similarly hold the 5% monthly interest to be excessive, iniquitous,
    unconscionable and exorbitant, contrary to morals, and the law. It is therefore void ab initio for being violative of Article 1306 of the
    Civil Code. With this, and in accord with the Medel and Ruiz cases, we hold that the Court of Appeals correctly imposed the legal
    interest of 12% per annum in place of the excessive interest stipulated in the Kasulatan.

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