VENUS S. OCUMEN Castro vs Tan et.al GR No.

168940 Promulgated on November 24, 2009 FACTS OF THE CASE

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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 defendants-appellants 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. Was 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. Can a foreclosure of property due to inability to settle debts because of very high interest legal and valid? HELD: 1. 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. 2. 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.