The Supreme Court, while agreeing with the Court of Appeals that the Usury Law is legally inexistent with the issuance of CB Circular 905, and that interest can now be charged as lender and borrower may agree upon, nevertheless found the stipulated interest iniquitous, unconscionable, and contrary to morals:
“Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated upon by the parties in the promissory note iniquitous or unconscionable, and, hence, contrary to morals (“contra bonos mores”), if not against the law. The stipulation is void. The courts shall reduce equitably liquidated damages, whether intended as an indemnity or a penalty if they are iniquitous or unconscionable.
Consequently, the Court of Appeals erred in upholding the stipulation of the parties. Rather, we agree with the trial court that, under the circumstances, interest at 12% per annum, and an additional 1% a month penalty charge as liquidated damages may be more reasonable.”