Sps. Isagani Castro v. Angelina de Leon Tan

Summary

This Supreme Court case involves a challenge to an unconscionable 60% per annum interest rate in a mortgage agreement. Spouses Tan mortgaged their property to secure a P30,000 loan from Castro spouses with 5% monthly compounded interest. After the husband's death, the wife couldn't pay the inflated P359,000 demand, leading to foreclosure. The Supreme Court affirmed lower courts' findings that the interest rate was unconscionable and void under Civil Code Article 1306. The Court reduced the interest to the legal rate of 12% per annum and nullified the foreclosure proceedings since the demanded amount was overstated. The decision establishes that despite Central Bank Circular No. 905 removing interest rate ceilings, unconscionable interest rates remain illegal and contrary to morals. The case demonstrates judicial intervention to prevent unjust enrichment and protect borrowers from predatory lending practices, ordering reconveyance of the property upon payment of the corrected debt amount.