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.
DECISION
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
managers 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 courts 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 latters 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 nonexistent 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 Courts Division.
LEONARDO A. QUISUMBING
Associate Justice
Chairperson

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons
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 Courts 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 Alio-Hormachuelos and Vicente Q. Roxas concurring.
2

Id. at 36-37.

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

Id. at 105-106.

Id. at 212.

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.

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

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

16

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

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.

Chua vs Timan
On November 19, 2010
Interest Rate Usurious Rates 12% Per Annum Interest Rate Central Bank Circular No.
905-82 Legal Rate
In February and March 1999 Chua loaned the Timans 6 loans amounting to P864k. The interest
rate agreed upon was 7%. The Timans paid at that rate until September 1999. In October 1999,
the % rate was reduced to 5%. In March 2000, the Timans offered to pay P764k. Chua did not
accept payment as they wanted the full amount of P864k. The Timans then consigned with the
court the amount of P864k.
The RTC ruled that the 7% and the reduced rate of 5% stipulated rate is excessive, iniquitous,
unconscionable and exorbitant (equivalent to 84% and 60% per annum rate). Chua averred that
by virtue of CB Circular 905, the ceiling on interest rate has been removed hence the 5-7% rate
is valid and in the first place, Timan agreed to it.
ISSUE: Whether or not the rate is valid.
HELD: No. As has been ruled by the Supreme Court in a multitude of cases, interest rates of 3%
and higher are already excessive. The rate should then be reduced to 12% per annum or 1% per
month. The Usury Law has been rendered ineffective by the said CB Circular but it has not
repealed the law, it merely suspended it. Note that only laws can repeal laws, not circulars.
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, 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.