CIVIL LAW II | Q.No. 11 | BAR 2022
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| CIVIL LAW II | Q.NO.11 | BAR 2022 |
In the consolidated cases of Rivera v. Sps. Chua and Sps. Chua v. Rivera, the Court affirmed the finding of the CA that 5% per month or 60% per annum interest rate is highly iniquitous and unreasonable; and since the interest rate agreed upon is void, the rate of interest should be 12% [now 6%] per annum (12% - the then prevailing interest rate prescribed by the Central Bank of the Philippines for loans or forbearances of money) from the date of judicial or extrajudicial demand.
RE: No Default |
In a situation wherein null and void interest rates are imposed under a contract of loan, the non-payment of the principal loan obligation [does not] place the debtor in a stat of default, considering that under Article 1252 of the Civil Code, "if a debt produces interest, payment of the [principal] shall [not] be deemed to have been made [until] the [interests] have been covered." (Emphasis supplied).
Necessarily, since the obligation of making interest payments in the instant case is illegal and thus non-demandable, the payment of the principal loan obligation was likewise not yet demandable on the part of PNB (creditor). With Vasquez (debtor) not being in a state of default, the foreclosure of the subject properties should [not] have proceeded.(1) (Emphasis supplied).
Similarly, in Sps. Albos v. Sps. Embisan, the extra-judicial foreclosure sale of a mortgaged property, which was foreclosed due to the non-payment of a loan, was invalidated because the interest rates imposed on the loan were found to be null and void due to their unconscionability.
In Sps. Castro v. Tan, on the basis of the nullity of the imposed interest rates due to their iniquity, the Court nullified the foreclosure proceedings "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. x x x"
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