G.R. No. 170452 - Chua vs. Timan

Petitioners Salvador Chua and Violeta Chua extended a series of loans to respondents Rodrigo Timan, Ma. Lynn Timan, and Lydia Timan in February and March 1999.
The loans, amounting to P100,000; P200,000; P150,000; P107,000; P200,000; and P107,000 respectively, were evidenced by promissory notes.
The promissory notes initially stipulated interest at 7% per month which was later reduced to 5% per month.
Security for the loans was provided through the issuance of five postdated checks by Rodrigo and Ma. Lynn Timan, with the exception of the P150,000 loan which was secured by a postdated check issued by Lydia Timan.

Respondents paid interest on the loans at a rate of 7% per month until September 1999 and subsequently at 5% per month from October to December 1999.
In March 2000, respondents offered to settle the principal amount with a Philippine National Bank manager’s check valued at P764,000, which petitioners refused, insisting that the principal totaled P864,000.

On May 3, 2000, respondents deposited P864,000 with the Clerk of Court of the RTC of Quezon City, prompting them to file a case for consignation and damages.
Petitioners moved to dismiss the case, but the RTC denied both the initial motion and the subsequent motion for reconsideration.
By an Order of Partial Judgment dated October 16, 2002, the RTC Clerk of Court released the amount of P864,000 to petitioners.

On May 14, 2004, the RTC rendered a decision in favor of the respondents, ruling that the originally stipulated interest rates of 7% and 5% per month were excessive.
The RTC ordered the petitioners to refund respondents all excess interest payments – specifically, the amounts paid above the legal rate of 1% per month or 12% per annum.
The petitioners’ claim for damages was denied by the RTC.

The Court of Appeals affirmed the RTC decision, declaring the stipulated interest rates—84% and 60% per annum (derived from 7% and 5% per month)—as illegal because they were excessive, iniquitous, unconscionable, and exorbitant.
The CA reduced these rates to a fair and reasonable rate of 1% per month or 12% per annum and ordered the refund of all interest payments in excess of that reduced rate.
Petitioners sought reconsideration, which was denied by the CA.

Petitioners raised a singular issue on appeal, questioning whether the Court of Appeals committed reversible error by affirming the RTC’s order for refund of excessive interest.
Among the defenses raised by petitioners were the assertions that:

The stipulated rates were not usurious by virtue of Central Bank Circular No. 905-82, which removed statutory ceilings under the Usury Law.
Respondents were in pari delicto for agreeing to such interest rates, and that the petitioners had acted in good faith.

Whether the Court of Appeals erred in affirming the RTC’s decision that the contractual stipulated interest rates of 7% and 5% per month are excessive, iniquitous, unconscionable, and exorbitant.

Specifically, whether reducing the rates to 1% per month (or 12% per annum) was proper and in accordance with law and jurisprudence.

Whether petitioners were entitled to invoke certain defenses on appeal, namely:

The defense of in pari delicto, considering that the respondents had voluntarily agreed to the stipulated interest rates.
The defense of good faith, and if such factual issues could be raised for the first time in the petition for review under Rule 45 of the Rules of Civil Procedure.

Whether the application of Central Bank Circular No. 905-82, which removed the interest ceilings under the Usury Law, provides carte blanche to lenders to impose any rate of interest, notwithstanding the principles of fairness and morals.