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In February and March 1999 Salvador Chua and Violeta Chua loaned Rodrigo, Ma. Lynn, and Lydia (all surnamed Timan) 6 loans amounting to P864k. The interest rate agreed upon was 7% per month. The Timans paid at that rate until September 1999. In October 1999, the monthly interest rate was reduced to 5%. In March 2000, the Timans offered to pay P764k. Chua did not accept payment as they wanted the full amount of P864k. The Timans then consigned with the court the amount of P864k.
The RTC ruled that the 7% and the reduced rate of 5% stipulated rate is excessive, iniquitous, unconscionable and exorbitant (equivalent to 84% and 60% per annum rate). Chua averred that by virtue of CB Circular 905, the ceiling on interest rate has been removed hence the 5-7% rate is valid and in the first place, the Timans agreed to it.
ISSUE: Whether or not the rate is valid.
HELD: No. As has been ruled by the Supreme Court in a multitude of cases, interest rates of 3% and higher are already excessive. The rate should then be reduced to 12% per annum or 1% per month (then the prevailing legal rate). The Usury Law has been rendered ineffective by the said CB Circular but it has not repealed the law, it merely suspended it. Note that only laws can repeal laws, not circulars.
While C.B. Circular No. 905-82, which took effect on January 1, 1983, effectively removed the ceiling on interest rates for both secured and unsecured loans, regardless of maturity, nothing in the said circular could possibly be read as granting carte blanche authority to lenders to raise interest rates to levels which would either enslave their borrowers or lead to a hemorrhaging of their assets.