FIRST DIVISION
[ G.R. No. 158382, January 27, 2004 ]MANSUETO CUATON v. REBECCA SALUD +
MANSUETO CUATON, PETITIONER, VS. REBECCA SALUD AND COURT OF APPEALS (SPECIAL FOURTEENTH DIVISION), RESPONDENTS.
DECISION
MANSUETO CUATON v. REBECCA SALUD +
MANSUETO CUATON, PETITIONER, VS. REBECCA SALUD AND COURT OF APPEALS (SPECIAL FOURTEENTH DIVISION), RESPONDENTS.
DECISION
YNARES-SATIAGO, J.:
Before the Court is a petition for review on certiorari assailing the August 31, 2001 Decision[1] of the Court of Appeals in CA-G.R. CV No. 54715 insofar as it affirmed the Judgment[2] of the Regional Trial Court
of General Santos City, Branch 35, in SPL. Civil Case No. 359, imposing interest at the rate of 8% to 10% per month on the one-million-peso loan of petitioner.
On January 5, 1993, respondent Rebecca Salud, joined by her husband Rolando Salud, instituted a suit for foreclosure of real estate mortgage with damages against petitioner Mansueto Cuaton and his mother, Conchita Cuaton, with the Regional Trial Court of General Santos City, Branch 35, docketed as SPL. Civil Case No. 359.[3] The trial court rendered a decision declaring the mortgage constituted on October 31, 1991 as void, because it was executed by Mansueto Cuaton in favor of Rebecca Salud without expressly stating that he was merely acting as a representative of Conchita Cuaton, in whose name the mortgaged lot was titled. The court ordered petitioner to pay Rebecca Salud, inter alia, the loan secured by the mortgage in the amount of One Million Pesos plus a total P610,000.00 representing interests of 10% and 8% per month for the period February 1992 to August 1992, thus
On August 31, 2001, the Court of Appeals rendered the assailed decision affirming the judgment of the trial court. Petitioner filed a motion for partial reconsideration of the trial court's decision with respect to the award of interest in the amount of P610,000.00, arguing that the same was iniquitous and exorbitant.[7] This was denied by the Court of Appeals on May 7, 2003.[8]
Hence, the instant petition on the sole issue of whether the 8% and 10% monthly interest rates imposed on the one-million-peso loan obligation of petitioner to respondent Rebecca Salud are valid.
We find merit in the petition.
In Ruiz v. Court of Appeals,[9] we declared that the Usury Law was suspended by Central Bank Circular No. 905, s. 1982, effective on January 1, 1983, and that parties to a loan agreement have been given wide latitude to agree on any interest rate. However, nothing in the said Circular grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets. The stipulated interest rates are illegal if they are unconscionable.
Thus, in Medel v. Court of Appeals,[10] and Spouses Solangon v. Salazar,[11] the Court annulled a stipulated 5.5% per month or 66% per annum interest on a P500,000.00 loan and a 6% per month or 72% per annum interest on a P60,000.00 loan, respectively, for being excessive, iniquitous, unconscionable and exorbitant. In both cases, the interest rates were reduced to 12% per annum.
In the present case, the 10% and 8% interest rates per month on the one-million-peso loan of petitioner are even higher than those previously invalidated by the Court in the above cases. Accordingly, the reduction of said rates to 12% per annum is fair and reasonable.
Stipulations authorizing iniquitous or unconscionable interests are contrary to morals ('contra bonos mores'), if not against the law.[12] Under Article 1409 of the Civil Code, these contracts are inexistent and void from the beginning. They cannot be ratified nor the right to set up their illegality as a defense be waived.[13]
Moreover, the contention regarding the excessive interest rates cannot be considered as an issue presented for the first time on appeal. The records show that petitioner raised the validity of the 10% monthly interest in his answer filed with the trial court.[14] To deprive him of his right to assail the imposition of excessive interests would be to sacrifice justice to technicality. Furthermore, an appellate court is clothed with ample authority to review rulings even if they are not assigned as errors. This is especially so if the court finds that their consideration is necessary in arriving at a just decision of the case before it. We have consistently held that an unassigned error closely related to an error properly assigned, or upon which a determination of the question raised by the error properly assigned is dependent, will be considered by the appellate court notwithstanding the failure to assign it as an error.[15] Since respondents pointed out the matter of interest in their Appellants' Brief[16] before the Court of Appeals, the fairness of the imposition thereof was opened to further evaluation. The Court therefore is empowered to review the same.
The case of Eastern Shipping Lines, Inc. v. Court of Appeals,[17] laid down the following guidelines on the imposition of interest, to wit:
WHEREFORE, in view of all the foregoing, the instant petition is GRANTED. The August 31, 2001 Decision of the Court of Appeals in CA-G.R. CV No. 54715, which affirmed the Decision of the Regional Trial Court of General Santos City, Branch 35, in SPL. Civil Case No. 359, is MODIFIED. The interest rates of 10% and 8% per month imposed by the trial court is reduced to 12% per annum, computed from the date of the execution of the loan on October 31, 1991 until finality of this decision. After the judgment becomes final and executory until the obligation is satisfied, the amount due shall further earn interest at 12% per year.
SO ORDERED.
Davide, Jr., C.J., Panganiban, and Carpio, JJ., concur.
Azcuna, J., on official leave.
[1] Rollo, p. 16; penned by Associate Justice Andres B. Reyes, Jr., and concurred in by Associate Justices B.A. Adefuin-De La Cruz and Mercedes Gozo-Dadole.
[2] Dated February 12, 1996; penned by Judge Antonio S. Alano; Rollo, p. 28.
[3] Complaint, Rollo, p. 36.
[4] RTC Decision, Rollo, p. 34. The records show that petitioner has already paid private respondents interests in the total amount of P350,000.00, i.e., P300,000.00 as 10% interest per month for the months of November 1991 to January 1992, and the initial payment of P50,000.00 for the month of February (Rollo, p. 46).
[5] Id., p. 35.
[6] Brief for Defendants-Appellants, Rollo, p. 59; Brief for Plaintiff-Appellants, Rollo, p. 72.
[7] Motion for Partial Reconsideration, Rollo, p. 92.
[8] Rollo, p. 27.
[9] G.R. No. 146942, 22 April 2003; citing Spouses Solangon v. Salazar, 412 Phil. 816 (2001); Almeda v. Court of Appeals, 326 Phil. 309 (1996).
[10] 359 Phil. 820 (1998).
[11] Supra, note 8.
[12] Medel v. Court of Appeals, supra, p. 830; citing Ibarra v. Aveyro, 37 Phil. 274 (1917); Almeda v. Court of Appeals, supra.
[13] ART. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the transaction;
(4) Those whose object is outside the commerce of man;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained;
(7) Those expressly prohibited or declared by law.
These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.
[14] Rollo, p. 53.
[15] Servicewide Specialist, Inc. v. Court of Appeals, 327 Phil. 431, 442 (1996); citing Espina v. Court of Appeals, G.R. No. 102128, 6 November 1992, 215 SCRA 484; Hydro Resources Contractors Corporation v. Court of Appeals, G.R. No. 85714, 29 November 1991, 204 SCRA 309; Ortigas, Jr. v. Lufthansa German Airlines, G.R. No. L-28773, 30 June 1975, 64 SCRA 610; Revised Rules of Court, Rule 51, Sec. 7.
[16] Rollo, p. 84.
[17] G.R. No. 97412, 12 July 1994, 234 SCRA 78, 96. Reiterated in the cases of Sulit v. Court of Appeals, 335 Phil. 914 (1997); Crismina Garments v. Court of Appeals, 363 Phil. 701 (1999); Eastern Assurance and Surety Corporation v. Court of Appeals, 22 Catungal v. Hao, 379 Phil. 84 (2000) and Ong Yong, et al. v. Tiu, et al., G.R. Nos. 144476 & 144629, 1 February 2002, 375 SCRA 614; Vivente v. Planters Development Bank, G.R. No. 136112, 28 January 2003.
On January 5, 1993, respondent Rebecca Salud, joined by her husband Rolando Salud, instituted a suit for foreclosure of real estate mortgage with damages against petitioner Mansueto Cuaton and his mother, Conchita Cuaton, with the Regional Trial Court of General Santos City, Branch 35, docketed as SPL. Civil Case No. 359.[3] The trial court rendered a decision declaring the mortgage constituted on October 31, 1991 as void, because it was executed by Mansueto Cuaton in favor of Rebecca Salud without expressly stating that he was merely acting as a representative of Conchita Cuaton, in whose name the mortgaged lot was titled. The court ordered petitioner to pay Rebecca Salud, inter alia, the loan secured by the mortgage in the amount of One Million Pesos plus a total P610,000.00 representing interests of 10% and 8% per month for the period February 1992 to August 1992, thus
The dispositive portion of the trial court's decision, reads:
Original loan --------------------------------------------------------- Total amount as of August 1992 --------------------------------------
WHEREFORE, premises considered, judgment is hereby rendered:Both parties filed their respective notices of appeal.[6]
a) Declaring the mortgage executed by Mansueto Cuaton over the property owned by Conchita Cuaton, covered by TCT NO. T-34460, dated October 31, 1991, in favor of Rebecca Salud as unauthorized, void and unenforceable against defendant, Conchita Cuaton hence, the TRO issued against the foreclosure thereof is hereby made permanent. The annotation of the mortgage over said property is likewise cancelled;
b) Ordering defendant Mansueto Cuaton to pay plaintiff, Rebecca Salud, the sum of One Million Six Hundred Ten Thousand (P1,610,000.00) Pesos, with legal interest thereon, from January 5, 1993 until fully paid;
c) Ordering defendant, Mansueto Cuaton, to pay Attorney's fees of P25,000.00 in favor of the plaintiff, Rebecca Salud and to pay the cost of this suit.
Defendants' counterclaims, being merely a result of the filing of plaintiff's complaint are hereby DISMISSED.
SO ORDERED.[5]
On August 31, 2001, the Court of Appeals rendered the assailed decision affirming the judgment of the trial court. Petitioner filed a motion for partial reconsideration of the trial court's decision with respect to the award of interest in the amount of P610,000.00, arguing that the same was iniquitous and exorbitant.[7] This was denied by the Court of Appeals on May 7, 2003.[8]
Hence, the instant petition on the sole issue of whether the 8% and 10% monthly interest rates imposed on the one-million-peso loan obligation of petitioner to respondent Rebecca Salud are valid.
We find merit in the petition.
In Ruiz v. Court of Appeals,[9] we declared that the Usury Law was suspended by Central Bank Circular No. 905, s. 1982, effective on January 1, 1983, and that parties to a loan agreement have been given wide latitude to agree on any interest rate. However, nothing in the said Circular grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets. The stipulated interest rates are illegal if they are unconscionable.
Thus, in Medel v. Court of Appeals,[10] and Spouses Solangon v. Salazar,[11] the Court annulled a stipulated 5.5% per month or 66% per annum interest on a P500,000.00 loan and a 6% per month or 72% per annum interest on a P60,000.00 loan, respectively, for being excessive, iniquitous, unconscionable and exorbitant. In both cases, the interest rates were reduced to 12% per annum.
In the present case, the 10% and 8% interest rates per month on the one-million-peso loan of petitioner are even higher than those previously invalidated by the Court in the above cases. Accordingly, the reduction of said rates to 12% per annum is fair and reasonable.
Stipulations authorizing iniquitous or unconscionable interests are contrary to morals ('contra bonos mores'), if not against the law.[12] Under Article 1409 of the Civil Code, these contracts are inexistent and void from the beginning. They cannot be ratified nor the right to set up their illegality as a defense be waived.[13]
Moreover, the contention regarding the excessive interest rates cannot be considered as an issue presented for the first time on appeal. The records show that petitioner raised the validity of the 10% monthly interest in his answer filed with the trial court.[14] To deprive him of his right to assail the imposition of excessive interests would be to sacrifice justice to technicality. Furthermore, an appellate court is clothed with ample authority to review rulings even if they are not assigned as errors. This is especially so if the court finds that their consideration is necessary in arriving at a just decision of the case before it. We have consistently held that an unassigned error closely related to an error properly assigned, or upon which a determination of the question raised by the error properly assigned is dependent, will be considered by the appellate court notwithstanding the failure to assign it as an error.[15] Since respondents pointed out the matter of interest in their Appellants' Brief[16] before the Court of Appeals, the fairness of the imposition thereof was opened to further evaluation. The Court therefore is empowered to review the same.
The case of Eastern Shipping Lines, Inc. v. Court of Appeals,[17] laid down the following guidelines on the imposition of interest, to wit:
Applying the foregoing rules, the interest of 12% per annum imposed by the Court (in lieu of the invalidated 10% and 8% per month interest rates) on the one-million-peso loan should be computed from the date of the execution of the loan on October 31, 1991 until finality of this decision. After the judgment becomes final and executory until the obligation is satisfied, the amount due shall further earn interest at 12% per year.
- When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 23 of the Civil Code.
x x x x x x x x x
- When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.
WHEREFORE, in view of all the foregoing, the instant petition is GRANTED. The August 31, 2001 Decision of the Court of Appeals in CA-G.R. CV No. 54715, which affirmed the Decision of the Regional Trial Court of General Santos City, Branch 35, in SPL. Civil Case No. 359, is MODIFIED. The interest rates of 10% and 8% per month imposed by the trial court is reduced to 12% per annum, computed from the date of the execution of the loan on October 31, 1991 until finality of this decision. After the judgment becomes final and executory until the obligation is satisfied, the amount due shall further earn interest at 12% per year.
SO ORDERED.
Davide, Jr., C.J., Panganiban, and Carpio, JJ., concur.
Azcuna, J., on official leave.
[1] Rollo, p. 16; penned by Associate Justice Andres B. Reyes, Jr., and concurred in by Associate Justices B.A. Adefuin-De La Cruz and Mercedes Gozo-Dadole.
[2] Dated February 12, 1996; penned by Judge Antonio S. Alano; Rollo, p. 28.
[3] Complaint, Rollo, p. 36.
[4] RTC Decision, Rollo, p. 34. The records show that petitioner has already paid private respondents interests in the total amount of P350,000.00, i.e., P300,000.00 as 10% interest per month for the months of November 1991 to January 1992, and the initial payment of P50,000.00 for the month of February (Rollo, p. 46).
[5] Id., p. 35.
[6] Brief for Defendants-Appellants, Rollo, p. 59; Brief for Plaintiff-Appellants, Rollo, p. 72.
[7] Motion for Partial Reconsideration, Rollo, p. 92.
[8] Rollo, p. 27.
[9] G.R. No. 146942, 22 April 2003; citing Spouses Solangon v. Salazar, 412 Phil. 816 (2001); Almeda v. Court of Appeals, 326 Phil. 309 (1996).
[10] 359 Phil. 820 (1998).
[11] Supra, note 8.
[12] Medel v. Court of Appeals, supra, p. 830; citing Ibarra v. Aveyro, 37 Phil. 274 (1917); Almeda v. Court of Appeals, supra.
[13] ART. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the transaction;
(4) Those whose object is outside the commerce of man;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained;
(7) Those expressly prohibited or declared by law.
These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.
[14] Rollo, p. 53.
[15] Servicewide Specialist, Inc. v. Court of Appeals, 327 Phil. 431, 442 (1996); citing Espina v. Court of Appeals, G.R. No. 102128, 6 November 1992, 215 SCRA 484; Hydro Resources Contractors Corporation v. Court of Appeals, G.R. No. 85714, 29 November 1991, 204 SCRA 309; Ortigas, Jr. v. Lufthansa German Airlines, G.R. No. L-28773, 30 June 1975, 64 SCRA 610; Revised Rules of Court, Rule 51, Sec. 7.
[16] Rollo, p. 84.
[17] G.R. No. 97412, 12 July 1994, 234 SCRA 78, 96. Reiterated in the cases of Sulit v. Court of Appeals, 335 Phil. 914 (1997); Crismina Garments v. Court of Appeals, 363 Phil. 701 (1999); Eastern Assurance and Surety Corporation v. Court of Appeals, 22 Catungal v. Hao, 379 Phil. 84 (2000) and Ong Yong, et al. v. Tiu, et al., G.R. Nos. 144476 & 144629, 1 February 2002, 375 SCRA 614; Vivente v. Planters Development Bank, G.R. No. 136112, 28 January 2003.