GR 158382; (January, 2004) (Digest)
G.R. No. 158382; January 27, 2004
MANSUETO CUATON, petitioner, vs. REBECCA SALUD and COURT OF APPEALS (Special Fourteenth Division), respondents.
FACTS
Respondent Rebecca Salud filed a suit for foreclosure of a real estate mortgage against petitioner Mansueto Cuaton and his mother. The Regional Trial Court declared the mortgage void but ordered petitioner to pay Salud the principal loan of One Million Pesos (P1,000,000.00) plus interests totaling P610,000.00. This sum represented stipulated interest at rates of 10% per month for several months and 8% per month for others, calculated on the principal. Both parties appealed. The Court of Appeals affirmed the trial court’s judgment. Petitioner then filed a motion for partial reconsideration, specifically challenging the imposed monthly interest rates as iniquitous, which the appellate court denied.
ISSUE
Whether the stipulated interest rates of 8% and 10% per month on the loan obligation are valid.
RULING
The Supreme Court ruled that the interest rates are void for being unconscionable. The Court acknowledged that Central Bank Circular No. 905 suspended the Usury Law, granting parties latitude to agree on interest rates. However, this freedom is not absolute; it does not permit rates that are excessive, iniquitous, or unconscionable. Citing precedents like Medel v. Court of Appeals and Spouses Solangon v. Salazar, where rates of 5.5% and 6% per month were annulled for being exorbitant, the Court found the 8% to 10% monthly rates in this case even more excessive. Such stipulations are contrary to morals and, under Article 1409 of the Civil Code, are inexistent and void from the beginning; they cannot be ratified.
The Court further held that the issue was properly raised, as petitioner challenged the interest rate in his answer before the trial court. Appellate courts also have the authority to review unassigned errors closely related to properly assigned ones to achieve a just decision. Applying the guidelines from Eastern Shipping Lines, Inc. v. Court of Appeals, the Court reduced the interest rate to twelve percent (12%) per annum, computed from the execution of the loan on October 31, 1991, until the finality of the decision. Thereafter, the total amount shall earn interest at 12% per annum until fully satisfied. The petition was granted.