In September 2009, the Supreme Court promulgated its decision in Ileana Dr. Macalino vs. Bank of the Philippines Islands, G.R. No. 175490, September 17, 2009, and held that the interest rate of 1.5% per month on credit card payments should be reduced to 1% per month.
In Sps. Isagani & Diosdada Castro vs. Angelina de Leon Tan, G.R. No. 168940. November 24, 2009, the Supreme Court again faced the issue of whether the interest rate imposed (this time under a loan agreement) is excessive. Here, the loan agreement (denominated as Kasulatan ng Sanglaan ng Lupa at Bahay) provided for an interest rate of 5% per month, compounded monthly. The principal amount of the loan was PhP30,000.
The borrowers (spouses Tan) failed to pay the loan and the lenders (spouses Castro) instituted an extra-judicial foreclosure of mortgage. The lenders emerged as the only bidder and the redemption period expired without the property being redeemed.
A Complaint for Nullification of Mortgage and Foreclosure and/or Partial Rescission of Documents and Damages was subsequently filed before the Regional Trial Court of Malolos, Bulacan. The complainants alleged, inter alia, that the interest rate imposed on the principal amount of P30,000.00 is unconscionable.
The Regional Trial Court reduced the interest rate to 12% per annum and the Court of Appeals affirmed.
In proceedings before the Supreme Court, the petitioners contend that with the removal by the Bangko Sentral of the ceiling on the rate of interest that may be stipulated in a contract of loan, the lender and the borrower could validly agree on any interest rate on loans. Thus, they argue that the Court of Appeals gravely erred when it declared the stipulated interest in the Kasulatan as null as if there was no express stipulation on the compounded interest.
On the other hand, respondents assert that the appellate court correctly struck down the said stipulated interest for being excessive and contrary to morals, if not against the law. They also point out that a contract has the force of law between the parties, but only when the terms, clauses and conditions thereof are not contrary to law, morals, public order or public policy.