It is settled
that nothing in CB Circular No. 905 grants lenders a carte blanche authority to
raise interest rates to levels which will either enslave their borrowers or
lead to a hemorrhaging of their assets. As held in Castro v. Tan:
The imposition
of an unconscionable rate of interest on a money debt, even if knowingly and
voluntarily assumed, is immoral and unjust. It is tantamount to a repugnant
spoliation and an iniquitous deprivation of property, repulsive to the common
sense of man. It has no support in law, in principles of justice, or in the
human conscience nor is there any reason whatsoever which may justify such
imposition as righteous and as one that may be sustained within the sphere of
public or private morals.
Stipulations authorizing
iniquitous or unconscionable interests have been invariably struck down for
being contrary to morals, if not against the law. Indeed, under Article 1409 of
the Civil Code, these contracts are deemed inexistent and void ab initio, and
therefore cannot be ratified, nor may the right to set up their illegality as a
defense be waived.
Nonetheless, the
nullity of the stipulation of usurious interest does not affect the lender’s
right to recover the principal of a loan, nor affect the other terms thereof.
Thus, in a usurious loan with mortgage, the right to foreclose the mortgage
subsists, and this right can be exercised by the creditor upon failure by the
debtor to pay the debt due.
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