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BPI 600 SCRA 67 September 17, 2009 FACTS: Petitioner Ileana Macalinao defaulted on the payment of her BPI credit card dues. There was a stipulation in a contract that the charges and/or balance shall earn 3% per month and additional penalty fee of another 3% per month. The Regional Trial Court reduced the 3% monthly interest to 2%. On appeal of the case, the Court of Appeals reversed the decision of the RTC holding that petitioner Macalinao freely availed herself of the credit card facility offered by respondent Bank of the Philippine Islands to general public; contracts of adhesion are not invalid per se. Petitioner assailed the appellate courts decision alleging that the interest rate and penalty charges are unconscionable and iniquitous at 36% per annum. ISSUE: WON the interest rate and penalty charges are unconscionable and iniquitous at 36% per annum. HELD/RATIO: YES. The interest rate and penalty charges are unconscionable and iniquitous at 36% per annum. The Supreme Court held that the interest rate and penalty charge of 3% per month or the 36% per annum should be reduced to 2% per month or 24% per annum. In a long line of cases decided by the Supreme Court, it considered the 36% per annum to be excessive and unconscionable. Citing Article1229, in exercising this power to determine what is iniquitous and unconscionable; courts must consider the circumstances of each case since what may be iniquitous and unconscionable in one maybe totally just and equitable in another. In the instant case, Macalinao made partial payments to BPI. Therefore, the interest rate and penalty charge of 3% per month or 36% per annum should be reduced to 2% per month or 24% per annum. DISPOSITIVE PORTION: WHEREFORE, the petition is PARTLY GRANTED. The CA Decision dated June 30, 2006 in CA-G.R. SP No. 92031 is hereby MODIFIEDwith respect to the total amount due, interest rate, and penalty charge. Accordingly, petitioner Macalinao is ordered to pay respondent BPI the following: (1) The amount of one hundred twelve thousand three hundred nine pesos and fiftytwo centavos (PhP 112,309.52) plus interest and penalty charges of 2% per month from January 5, 2004 until fully paid; (2) PhP 10,000 as and by way of attorneys fees; and (3) Cost of suit. CASTRO v. TAN GR No. 168940 November 24, 2009

FACTS: Spouses Ruben and Angelina Tan entered into an agreement denominated as Kasulatan ng Sanglaan ng Lupa at Bahay (Kasulatan) to secure a loan of P30,000.00 they obtained from Isagani at Diosdada Castro. Under the agreement, spouses Tan undertook to pay the mortgage debt within six months with an interest rate of 5 percent per month, compounded monthly. Ruben Tan died on September 1994 and his wife took the responsibility of paying the loan. She failed to pay the loan upon maturity and instead, Angelina offered spouses Castro the principal amount of P30,000.00 plus a portion of the interest. Spouses Castro refused and instead demanded payment of the total accumulated sum of P359,000.00. Spouses Castro caused the extrajudicial foreclosure of the real estate mortgage and the period of the redemption expired without Angelina Tan having redeemed the property, thus the title of the property was consolidated in favour of spouses Castro. Angelina Tan filed a Complaint for Nullification of Mortgage and Foreclosure before Malolos RTC. Tan alleged that the interest rate imposed on the principal amount of P30,000.00 is unconscionable. The RTC ruled in favour of Tan. When the case was elevated to the Court of Appeals, the appellate court affirmed the RTC decision with modification by ruling that plaintiff-appellee Tan may redeem the mortgage property by paying the defendantsappellants spouses Castro the amount of P30,000.00 with interest at 12 percent per annum. Spouses Castro filed a petition to the Supreme Court asking the reversal of the CA ruling arguing that the CA gravely erred when it declared the stipulated interest in the Kasulatan as null as if there was no express stipulation on the compounded interest. ISSUES: 1. WON the imposition of a very high interest rate on a money debt legal, moral and just even though the two parties agreed to it? 2. WON a foreclosure of property due to inability to settle debts because of very high interest legal and valid? HELD/RATIO: 1. YES. The imposition of an unconscionable rate of interest on a money debt, even if knowingly and voluntarily assumed, is immoral and unjust. It is tantamount to a repugnant spoliation and an iniquitous deprivation of property, repulsive to the common sense of man. It has no support in law, in principles of justice, or in the human conscience nor is there any reason whatsoever which may justify such imposition as righteous and as one that may be sustained within the sphere of public or private morals. 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[20] of the Civil Code. With this, and in accord with the Medel and Ruizcases, 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. 2. NO. One cannot legally claim the foreclosure of a property due to inability to settle debt because of a very high interest rate since the amount demanded as the outstanding loan was overstated. Consequently, it has not been shown that the respondents have failed to pay the correct amount of their outstanding

obligation. Accordingly, we declare the registration of the foreclosure sale invalid and cannot vest title over the mortgaged property. DISPOSITIVE PORTION: WHEREFORE, the instant petition is DENIED. The assailed Decision of the Court of Appeals dated October 29, 2004 as well as the Resolution dated July 18, 2005 are AFFIRMED with the MODIFICATION that the award of 1% liquidated damages per month be DELETED and that petitioners are ORDERED to reconvey the subject property to respondents conditioned upon the payment of the loan together with the rate of interest fixed herein.

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