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Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 170452             August 13, 2008

SALVADOR CHUA and VIOLETA CHUA, petitioners,
vs.
RODRIGO TIMAN, MA. LYNN TIMAN and LYDIA TIMAN, respondents.

D E C I S I O N

QUISUMBING, J.:

Before us is a petition for review on certiorari assailing the Decision¹ and Resolution² dated March 9, 2005 and November 24, 2005, respectively, of the Court of Appeals in CA-G.R. CV No. 82865, which had affirmed the Decision³ dated May 14, 2004 of the Regional Trial Court (RTC) of Quezon City, Branch 86, in Civil Case No. Q-00-41276. The Court of Appeals reduced the stipulated original interest rates of 7% and 5% per month to only 1% per month or 12% per annum and ordered petitioners to refund the excess interest payments by respondents.

The pertinent facts are as follows:

In February and March 1999, petitioners Salvador and Violeta Chua granted respondents Rodrigo, Ma. Lynn and Lydia Timan the following loans: a) P100,000; b) P200,000; c) P150,000; d) P107,000; e) P200,000; and f) P107,000. These loans were evidenced by promissory notes with interest of 7% per month, which was later reduced to 5% per month. Rodrigo and Ma. Lynn issued five (5) postdated checks to secure the loans, except for the P150,000 loan which was secured by a postdated check issued by Lydia.

Respondents paid the loans initially at 7% interest rate per month until September 1999 and then at 5% interest rate per month from October to December 1999. Sometime in March 2000, respondents offered to pay the principal amount of the loans through a Philippine National Bank manager’s check worth P764,000, but petitioners refused to accept the same insisting that the principal amount of the loans totalled P864,000.

On May 3, 2000, respondents deposited P864,000 with the Clerk of Court of the RTC of Quezon City. Later, they filed a case for consignation and damages. Petitioners moved to dismiss the case, but the RTC denied the motion, as well as the subsequent motion for reconsideration.

By virtue of an order of Partial Judgment⁴ dated October 16, 2002, the Clerk of Court of the RTC of Quezon City released the amount of P864,000 to petitioners.

Trial on the validity of the stipulated interests on the subject loans, as well as on the issue of damages, then proceeded.

On May 14, 2004, the RTC rendered a decision in favor of respondents. It ruled that the original stipulated interest rates of 7% and 5% per month were excessive. It further ordered petitioners to refund to respondents all interest payments in excess of the legal rate of 1% per month or 12% per annum. However, the RTC denied petitioners’ claim for damages.

On appeal, the Court of Appeals affirmed the trial court’s decision. The Court of Appeals declared illegal the stipulated interest rates of 7% and 5% per month for being excessive, iniquitous, unconscionable and exorbitant. Accordingly, the Court of Appeals reduced the stipulated interest rates of 7% and 5% per month (equivalent to 84% and 60% per annum, respectively) to a fair and reasonable rate of 1% per month or 12% per annum. The Court of Appeals also ordered petitioners to refund to respondents all interest payments in excess of 12% per annum. Petitioners sought reconsideration, but it was denied.

Hence, this petition raising the lone issue of:

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR – OR ACTED NOT IN ACCORD WITH THE LAW AND JURISPRUDENCE – WHEN IT AFFIRMED THE JUDGMENT OF THE REGIONAL TRIAL COURT ORDERING THE RETURN OF THE EXCESS INTEREST TO RESPONDENTS.⁵

Essentially, the main issue is: (1) Did the Court of Appeals err in ruling that the original stipulated interest rates of 7% and 5%, equivalent to 84% and 60% per annum, are unconscionable, and in ordering petitioners to refund to respondents all payments of interest in excess of 12% per annum?

Petitioners aver that the stipulated interest of 5% monthly and higher cannot be considered unconscionable because these rates are not usurious by virtue of Central Bank (C.B.) Circular No. 905-82⁶ which had expressly removed the interest ceilings prescribed by the Usury Law. Petitioners add that respondents were in pari delicto since they agreed on the stipulated interest rates of 7% and 5% per month. They further aver they honestly believed that the interest rates they imposed on respondents’ loans were not usurious.

Respondents, invoking Medel v. Court of Appeals,⁷ counter that the stipulated interest rates of 7% and 5% per month are iniquitous, unconscionable and exorbitant, thus, they are entitled to the return of the excessive interest paid. They also contend that petitioners cannot raise the defense of in pari delicto for the first time on appeal. They further contend that the defense of good faith is a factual issue which cannot be raised by petitioners in a petition for review under Rule 45 of the Rules of Civil Procedure.

The petition is patently devoid of merit.

The stipulated interest rates of 7% and 5% per month imposed on respondents’ loans must be equitably reduced to 1% per month or 12% per annum.⁸ We need not unsettle the principle we had affirmed in a plethora of cases that stipulated interest rates of 3%⁹ per month and higher¹⁰ are excessive, iniquitous, unconscionable and exorbitant. Such stipulations are void for being contrary to morals, if not against the law.¹¹ While C.B. Circular No. 905-82, which took effect on January 1, 1983, effectively removed the ceiling on interest rates for both secured and unsecured loans, regardless of maturity,¹² nothing in the said circular could possibly be read as granting carte blanche authority to lenders to raise interest rates to levels which would either enslave their borrowers or lead to a hemorrhaging of their assets.¹³

Petitioners cannot also raise the defenses of in pari delicto and good faith. The defense of in pari delicto was not raised in the RTC, hence, such an issue cannot be raised for the first time on appeal. Petitioners must have seasonably raised it in the proceedings before the lower court, because questions raised on appeal are confined only within the issues framed by the parties.¹⁴ The defense of good faith must also fail because such an issue is a question of fact¹⁵ which may not be properly raised in a petition for review under Rule 45 of the Rules of Civil Procedure which allows only questions of law.¹⁶

As well set forth in Medel:¹⁷

We agree … that the stipulated rate of interest at 5.5% per month on the P500,000.00 loan is excessive, iniquitous, unconscionable and exorbitant. However, we can not consider the rate "usurious" because this Court has consistently held that Circular No. 905 of the Central Bank, adopted on December 22, 1982, has expressly removed the interest ceilings prescribed by the Usury Law and that the Usury Law is now "legally inexistent."

In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61, the Court held that CB Circular No. 905 "did not repeal nor in any way amend the Usury Law but simply suspended the latter’s effectivity." Indeed, we have held that "a Central Bank Circular can not repeal a law. Only a law can repeal another law." In the recent case of Florendo vs. Court of Appeals, the Court reiterated the ruling that "by virtue of CB Circular 905, the Usury Law has been rendered ineffective." "Usury has been legally non-existent in our jurisdiction. Interest can now be charged as lender and borrower may agree upon."

Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated upon by the parties in the promissory note iniquitous or unconscionable, and, hence, contrary to morals ("contra bonos mores"), if not against the law. The stipulation is void.

WHEREFORE, the petition is DENIED for lack of merit. The assailed Decision and Resolution dated March 9, 2005 and November 24, 2005, respectively, of the Court of Appeals in CA-G.R. CV No. 82865 are hereby AFFIRMED. Costs against petitioners.

SO ORDERED.

LEONARDO A. QUISUMBING
Associate Justice

WE CONCUR:

*RENATO C. CORONA Associate Justice
CONCHITA CARPIO MORALES Associate Justice	PRESBITERO J. VELASCO, JR. Associate Justice
ARTURO D. BRION Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNO
Chief Justice

Footnotes

* Designated as additional member in view of the official leave of absence of Associate Justice Dante O. Tinga.

¹ Rollo, pp. 28-34. Penned by Associate Justice Juan Q. Enriquez, Jr. with Associate Justices Portia Aliño-Hormachuelos and Vicente Q. Roxas concurring.

² Id. at 36-37.

³ Id. at 111-115. Penned by Judge Teodoro A. Bay.

⁴ Id. at 105-106.

⁵ Id. at 212.

⁶ SECTION 1. The rate of interest, including commissions, premiums, fees and other charges, on a loan or forbearance of any money, goods or credits, regardless of maturity and whether secured or unsecured, that may be charged or collected by any person, whether natural or juridical, shall not be subject to any ceiling prescribed under or pursuant to the Usury Law, as amended.

⁷ G.R. No. 131622, November 27, 1998, 299 SCRA 481.

⁸ Ruiz v. Court of Appeals, G.R. No. 146942, April 22, 2003, 401 SCRA 410, 421.

⁹ Id.

¹⁰ Solangon v. Salazar, G.R. No. 125944, June 29, 2001, 360 SCRA 379, 384-385; Imperial v. Jaucian, G.R. No. 149004, April 14, 2004, 427 SCRA 517, 525-526; Cuaton v. Salud, G.R. No. 158382, January 27, 2004, 421 SCRA 278, 282.

¹¹ Medel v. Court of Appeals, supra note 7 at 489.

¹² Dio v. Japor, G.R. No. 154129, July 8, 2005, 463 SCRA 170, 177.

¹³ Almeda v. Court of Appeals, G.R. No. 113412, April 17, 1996, 256 SCRA 292, 302.

¹⁴ Lim v. Queensland Tokyo Commodities, Inc., G.R. No. 136031, January 4, 2002, 373 SCRA 31, 41.

¹⁵ Abad v. Guimba, G.R. No. 157002, July 29, 2005, 465 SCRA 356, 366.

¹⁶ Kay Products, Inc. v. Court of Appeals, G.R. No. 162472, July 28, 2005, 464 SCRA 544, 553.

¹⁷ Medel v. Court of Appeals, supra note 7 at 489.

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