SECURITY BANK AND TRUST COMPANY vs. REGIONAL TRIAL COURT OF MAKATI, BRANCH 61, MAGTANGGOL EUSEBIO and LEILA VENTURA, G.R. No. 113926. October 23, 1996.
The sole issue to be settled in the petition was whether or not the 23% rate of interest per annum agreed upon by petitioner bank and respondents is allowable and not against the Usury Law.
The agreed rate of interest as stipulated on the three (3) promissory notes was 23% per annum.
Central Bank Circular No. 905, which took effect on December 22, 1982, particularly Sections 1 and 2 thereof, state:
“Sec. 1. The rate of interest, including commissions, premiums, fees and other charges, on a loan or forbearance of any money, goods or credits, regardless of maturity and whether secured or unsecured, that may be charged or collected by any person, whether natural or judicial, shall not be subject to any ceiling prescribed under or pursuant to the Usury Law, as amended.
Sec. 2. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall continue to be twelve per cent (12%) per annum.”
CB Circular 905 was issued by the Central Bank’s Monetary Board pursuant to P.D. 1684 empowering them to prescribe the maximum rates of interest for loans and certain forbearances.
In the case of Philippine National Bank v. Court of Appeals, 238 SCRA 20, it was held P.D. No. 1684 and C.B. Circular No. 905 allowed the contracting parties to stipulate freely regarding any subsequent adjustment in the interest rate that shall accrue on a loan or forbearance of money, goods or credits. In fine, they can agree to adjust, upward or downward, the interest previously stipulated.
CB Circular No. 905 did not repeal nor in anyway amend the Usury Law but simply suspended the latter’s effectivity.
The rate of interest was agreed upon by the parties freely. Significantly, respondent did not question that rate. It is not for respondent court a quo to change the stipulations in the contract where it is not illegal. Furthermore, Article 1306 of the New Civil Code provides that contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. There was no valid reason for the respondent court a quo to impose a 12% rate of interest on the principal balance owing to petitioner by respondent in the presence of a valid stipulation. In a loan or forbearance of money, the interest due should be that stipulated in writing, and in the absence thereof, the rate shall be 12% per annum. (Eastern Shipping Lines, Inc. v. Court of Appeals, 234 SCRA 78). Hence, only in the absence of a stipulation can the court impose the 12% rate of interest.
The promissory notes were signed by both parties voluntarily. Therefore, stipulations therein were binding between them. The respondent did not question any of the stipulations therein. In fact, he chose not to question the decision and instead expressed his desire to negotiate with the petitioner bank for terms within which to settle his obligation.
The Supreme Court, while agreeing with the Court of Appeals that the Usury Law was legally inexistent with the issuance of CB Circular 905, and that interest could be charged as lender and borrower may agree upon, nevertheless found the stipulated interest iniquitous, unconscionable, and contrary to morals.
The Court found 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 was void. The courts may reduce equitably liquidated damages, whether intended as an indemnity or a penalty if they are iniquitous or unconscionable.
The Court disagreed with the Court of Appeals which upheld the stipulation of the parties. Rather, it agreed with the trial court that, under the circumstances, interest at 12% per annum, and an additional 1% a month penalty charge as liquidated damages would be more reasonable.
DBP v. PEREZ, GR 148541, November 11, 2o004
The CA held that under CB Circular No. 817, if the loan was secured by a registered real estate, the interest of eighteen percent (18%) was usurious. The petitioner bank, however, argued that usury had become legally inexistent with the promulgation of CB Circular No. 905. It contended that the interest rate should be eighteen percent (18%), the interest rate they agreed upon.
The Supreme Court agreed with the ruling of the CA. The laws in force at the time the contract was made generally govern the effectivity of its provision. The Court noted that the new promissory note was executed on May 6, 1982, prior to the effectivity of CB Circular No. 905 on January 1, 1983. At that time, The Usury Law, Act No. 2655, as amended by Presidential Decree No. 116, was still in force and effect.
Under the Usury Law, no person shall receive a rate of interest, including commissions, premiums, fines and penalties, higher than twelve percent (12%) per annum or the maximum rate prescribed by the Monetary Board for a loan secured by a mortgage upon real estate the title to which is duly registered.
In this case, by specific provision in the new promissory note, the restructured loan continued to be secured by the same mortgage contract executed on May 18, 1978. The Court found the eighteen percent (18%) interest rate plus the additional interest and penalty charges of eighteen percent (18%) and eight percent (8%), respectively, to be highly usurious.
In usurious loans, the entire obligation does not become void because of an agreement for usurious interest; the unpaid principal debt still stands and remains valid, but the stipulation as to the usurious interest is void. Consequently, the debt is to be considered without stipulation as to the interest. In the absence of an express stipulation as to the rate of interest, the legal rate at twelve percent (12%) per annum shall be imposed.
The Court also held that Central Bank Circular No. 905 did not repeal nor in any way amend the Usury Law but simply suspended the latter's effectivity. The illegality of usury is wholly the creature of legislation. A Central Bank Circular cannot repeal a law. Only a law can repeal another law. Thus, retroactive application of a Central Bank Circular cannot, and should not, be presumed.
My law blog posted on 2016.5.16 (attylaserna.blogspot.com)
Usurious loans and Duterte’s campaign against Indian lenders. –
Usury is immoral. But, technically speaking, it is not a crime.
Usury Law is legally inexistent with the issuance of CB Circular 905 (c. 1980s).
Under the said CB Circular 905 interest can now be charged as the lender and the borrower may agree upon.
In the 1980s the Monetary Board, under Pres. Ferdinand Marcos, adopted a “floating interest rate” policy.
It continues to be the official policy/law on the matter up to now.
Nonetheless, the Supreme Court (SC), in a long line of cases, has ordered the reduction of unconscionable and iniquitous interest rates in contracts of loans and other forbearance of money even if the victim-debtor had agreed thereto.
The interest rates approved by the SC in the past varied from 1% to 3% per month.
It many cases the SC has rejected a 5% interest rate a month regardless of the consent of the debtor to the contract of loan.
(To read sample cases, search the SC website: http://sc.judiciary.gov.ph).
In 2013 the Monetary Board (MB) issued Resolution No. 796, dated May 16, 2013, stating that “IN THE ABSENCE OF EXPRESS STIPULATION BETWEEN THE PARTIES, the rate of interest in loan or forbearance of any money, goods or credits and the rate allowed in judgments shall be 6% per annum.”
The said MB Resolution was later embodied in Bangko Sentral ng Pilipinas (BSP) Circular No. 799, Series of2013, which took effect on July 1, 2013.
It is of common knowledge that Filipino-owned local financing companies, pawnshops, credit card companies, and lending companies impose an interest rate of 3% to 5% a month.
Foreign and local banks charge their credit card holders 3% to 3.5% a month.
It is not a crime.
As stated earlier, the official policy/law since the 1980s is “floating interest rate”.
A rate of 3% to 5% a month is immoral.
It is exploitative.
It is a heavy burden for debtors, mostly laborers, peasants and fishermen, whose poverty forces them to borrow at unconscionable and iniquitous interest rates from their landlords, traders, buyers, suppliers and “suki”.
The heavy burden is masked and soothed by “many years of friendship” between the lenders and the debtors.
Many have lost their lands and other personal properties via “judicial and extrajudicial foreclosures and auctions sales” for incurring such loans.
Many have been exposed to the risk of “involuntary servitude” and “human trafficking” for incurring such loans.
Unless a special anti-usury law is adopted, lending funds at high “floating interest rate” would not be punishable as a malum prohibitum crime.
Duterte targets the Indian 5-6 lenders.
He says he will talk to the Indian ambassador to advise his compatriots to cease from such business.
All aliens (not only the Indians), who are here on tourist visas or expired tourist visas and who engage in 5-6 lending business, whether registered or not, violate the terms and conditions of their tourist visas and the applicable Philippine immigration laws which prohibit temporary visitors from engaging in business here.
Duterte can have them arrested and deported at any time, if he wants to.
He must follow the proper arrest and deportation procedures, though.
Moreover, he must respect the legal rights of the respondent Indians to procedural and substantive due process of law, to bail, to counsel, to remain silent, and other applicable constitutional rights.
The Bill of Rights applies also to aliens here. Not only to Filipinos.
Duterte must make good his promise to arrest and imprison immigration officers and agents who make illegal aliens as milking cows.
If the aliens (Indians) are here, however, on lawfully issued immigrant/resident visas or special retirees resident visas, or if they have been judicially naturalized here in accordance with our naturalization law, they have the legal right to engage in lawful business here to earn a living to support themselves and their families.
Lending money at an interest rate of 3% to 5% a month on the part of the abovementioned resident or naturalized aliens (Indians) is a lawful business because of our “floating interest rate” policy, unless the said rate is subsequently reduced by the courts in a proper judicial proceeding for being unconscionable (which is civil in nature).
Duterte cannot have the resident aliens arrested and deported on the basis alone of engaging in such a lending business.
At the end of the day, Duterte must be consistent as a leader.
He must include in his anti-5-6 campaign all greedy Filipino lenders who similarly exploit their poor compatriots as the 5-6 Indian lenders do.
He must start with the feudal landlords and warlords in his own turf, Mindanao, where the poorest towns and provinces in the country are located.
Some of them are his friends, leaders and campaign funders in Mindanao.
Monetary Board Resolution No. 796, dated May 16, 2013
Bangko Sentral ng Pilipinas Circular No. 799, Series of 2013, effective July 1, 2013.
In 2013 the Monetary Board (MB) issued Resolution No. 796, dated May 16, 2013, stating that “IN THE ABSENCE OF EXPRESS STIPULATION BETWEEN THE PARTIES, the rate of interest in loan or forbearance of any money, goods or credits and the rate allowed in judgments shall be 6% per annum.”
The said MB Resolution was later embodied in Bangko Sentral ng Pilipinas (BSP) Circular No. 799, Series of 2013, which took effect on July 1, 2013.
BSP MB Circular No. 799, Series 2013 - when there is no stipulated interest in a contract of loan, the legal interest shall be 6%
Forbearance; definition. - A delay in enforcing a legal right. Act by which creditor waits for payment of debt due by a debtor after it becomes due. Within Usury law, the contractual obligation of a lender or creditor to refrain, during a given period of time, from requiring the borrower or debtor to repay the loan or debt then due and payable. (legal-dictionary.thefreedictionary.com/forbearance).
SALVADOR CHUA and VIOLETA CHUA vs. RODRIGO TIMAN, MA. LYNN TIMAN and LYDIA TIMAN, G.R. No. 170452, August 13, 2008
The stipulated interest rates of 7% and 5% per month imposed on respondents’ loans must be equitably reduced to 1% per month or 12% per annum.
The Supreme Court held that it need not unsettle the principle that it had affirmed in a plethora of cases that stipulated interest rates of 3% per month and higher are excessive, iniquitous, unconscionable and exorbitant. Such stipulations are void for being contrary to morals, if not against the law.
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.
As well set forth in Medel, the stipulated rate of interest at 5.5% per month on the P500,000.00 loan is excessive, iniquitous, unconscionable and exorbitant. However, we can not consider the rate "usurious" because the Court has consistently held that Circular No. 905 of the Central Bank, adopted on December 22, 1982, had expressly removed the interest ceilings prescribed by the Usury Law and that the Usury Law is now "legally inexistent."
The Court held that the interest at 5.5% per month, or 66% per annum, stipulated upon by the parties in the promissory note to be iniquitous or unconscionable, and, hence, contrary to morals ("contra bonos mores"), if not against the law. The stipulation is void.
UNIVERSITY OF PANGASINAN, INC., CESAR DUQUE/JUAN LLAMAS AMOR/DOMINADOR REYES vs. FLORENTINO FERNANDEZ and HEIRS OF NILDA FERNANDEZ, G.R. No. 211228 November 12, 2014
The Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution No. 796 dated May 16, 2013, approved the amendment of Section 2 of Circular No. 905, Series of 1982 and, accordingly, issued Circular No. 799, Series of 2013, effective July 1, 2013.
BSP Circular No. 799, Series of 2013, implementing Monetary Board Resolution No. 796, dated 16 May 2013, provides that “the rate of interest for the loan or for bearance of any money, goods or credits and the rate allowed in judgments, in the absence of an express contract as to such rate of interest, shall be six percent (6%) per annum.” The Circular took effect on 1 July 2013.
The new rate shall be applied prospectively and not retroactively. Consequently, the old rate of twelve percent (12%) per annum legal interest shall apply only until June 30, 2013. Effective July 1, 2013 the new rate of six percent (6%) per annum shall be the prevailing rate of interest when applicable. It shall be counted from the date of the Entry of Judgment until the full satisfaction of the judgment.
When a final judgment made no explicit award of legal interest, the imposition of the legal interest is already deemed read into the decision. The legal interest shall be included in the computation of the writ of execution.
SPS. ISAGANI CASTRO and DIOSDADA CASTRO vs. ANGELINA DE LEON TAN, SPS. CONCEPCION T. CLEMENTE and ALEXANDER C. CLEMENTE, SPS. ELIZABETH T. CARPIO and ALVIN CARPIO, SPS. MARIE ROSE T. SOLIMAN and ARVIN SOLIMAN and JULIUS AMIEL TAN, G.R. No. 168940 November 24, 2009.
The Supreme Court agreed with the Court of Appeals that the 5% monthly interest, compounded monthly, was unconscionable and should be equitably reduced to the legal rate of 12% per annum.
While the Court agreed with petitioners that parties to a loan agreement have wide latitude to stipulate on any interest rate in view of the Central Bank Circular No. 905 s. 1982 which suspended the Usury Law ceiling on interest effective January 1, 1983, it stressed that interest rates whenever unconscionable may still be declared illegal. There was certainly nothing in the Circular which granted lenders carte blanche authority to raise interest rates to levels which would either enslave their borrowers or lead to a hemorrhaging of their assets.
In several cases, the Court had ruled that stipulations authorizing iniquitous or unconscionable interests are contrary to morals, if not against the law. In Medel v. Court of Appeals, it annulled a stipulated 5.5% per month or 66% per annum interest on a P500,000.00 loan and a 6% per month or 72% per annum interest on a P60,000.00 loan, respectively, for being excessive, iniquitous, unconscionable and exorbitant. In Ruiz v. Court of Appeals, it declared a 3% monthly interest imposed on four separate loans to be excessive. In both cases, the interest rates were reduced to 12% per annum.
In the case at bench, the 5% monthly interest rate, or 60% per annum, compounded monthly, was even higher than the 3% monthly interest rate imposed in the Ruiz case. Thus, the Court similarly held the 5% monthly interest to be excessive, iniquitous, unconscionable and exorbitant, contrary to morals, and the law. It is therefore void ab initio for being violative of Article 1306 of the Civil Code. With this, and in accord with the Medel and Ruiz cases, it held that the Court of Appeals correctly imposed the legal interest of 12% per annum in place of the excessive interest stipulated in the Kasulatan.
In Abe v. Foster Wheeler Corporation, the Court held that the freedom of contract is not absolute. The same is understood to be subject to reasonable legislative regulation aimed at the promotion of public health, morals, safety and welfare. One such legislative regulation is found in Article 1306 of the Civil Code which allows the contracting parties to "establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy."
The compounded interest rate of 5% per month, being iniquitous and unconscionable, was a void stipulation. It was deemed inexistent from the beginning. The debt was to be considered without the stipulation of the iniquitous and unconscionable interest rate. Accordingly, the legal interest of 12% per annum was imposed by the Court in lieu of the excessive interest stipulated in the agreement, in line with its ruling in Ruiz v. Court of Appeals.
The Court cited its past rulings in the cases of Medel vs. Court of Appeals, Garcia vs. Court of Appeals, Bautista vs. Pilar Development Corporation, and the recent case of Spouses Solangon vs. Salazar.
It invalidated a stipulated 5.5% per month or 66% per annum interest on a P500,000.00 loan in Medel and a 6% per month or 72% per annum interest on a P60,000.00 loan in Solangon for being excessive, iniquitous, unconscionable and exorbitant. In both cases, the Court reduced the interest rate to 12% per annum.
In Bautista Court upheld the validity of a 21% per annum interest on a P142,326.43 loan.
In Garcia vs. Court of Appeals, the Supreme Court sustained the agreement of the parties to a 24% per annum interest on an P8,649,250.00 loan.
On the basis of Bautista and Garcia the Court reduced the 36% per annum interest to 12%. An interest of 12% per annum is deemed fair and reasonable.
MACALINAO VS. BANK OF THE PHILIPPINE ISLANDS, GR 175490, SEPTEMBER 17. 2009.
The Interest Rate and Penalty Charge of 3% Per Month or 36% Per Annum Should Be Reduced to 2% Per Month or 24% Per Annum.
The BPI originally imposed the interest and penalty charges at the rate of 9.25% per month or 111% per annum. This was declared as unconscionable by the lower courts for being clearly excessive, and was thus reduced to 2% per month or 24% per annum. The Court of Appeals modified the rate of interest and penalty charge and increased them to 3% per month or 36% per annum. The Supreme Court held that the interest rate and penalty charge of 3% per month should be equitably reduced to 2% per month or 24% per annum.
The Court held that it was not the first time that it had considered the interest rate of 36% per annum as excessive and unconscionable.
It held in Chua vs. Timan that the stipulated interest rates of 7% and 5% per month imposed on respondents loans must be equitably reduced to 1% per month or 12% per annum.
It had affirmed in a plethora of cases that stipulated interest rates of 3% per month and higher are excessive, iniquitous, unconscionable and exorbitant. Such stipulations are void for being contrary to morals, if not against the law. 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.
Since the stipulation on the interest rate is void, it is as if there was no express contract thereon. Hence, courts may reduce the interest rate as reason and equity demand.
The same is true with respect to the penalty charge of 3% per month.
Pertinently, Article 1229 of the Civil Code states that the judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.
In the case at bench, the Court reduced the interest rate pegged by the CA at 1.5% monthly to 1% monthly and penalty charge fixed by the CA at 1.5% monthly to 1% monthly or a total of 2% per month or 24% per annum in line with the prevailing jurisprudence and in accordance with Art. 1229 of the Civil Code.
As earlier stated above, the Supreme Court has already ruled in cases before its 2009 Macalinao vs. BPI decision that an interest rate of 3% monthly or 36% per annum is excessive, iniquitous, unconscionable and exorbitant. See:
(1) Almeda v. Court of Appeals, G.R. No. 113412, April 17, 1996, 256 SCRA 292, 302
(2) Medel v. Court of Appeals, G.R. No. 131622, November 27, 1998, 299 SCRA 481
(3) Solangon v. Salazar, G.R. No. 125944, June 29, 2001, 360 SCRA 379, 384-385
(4) Ruiz v. Court of Appeals, G.R. No. 146942, April 22, 2003, 401 SCRA 410, 421
(5) Cuaton v. Salud, G.R. No. 158382, January 27, 2004, 421 SCRA 278, 282
(6) Imperial v. Jaucian, G.R. No. 149004, April 14, 2004, 427 SCRA 517, 525-526
(7) Dio v. Japor, G.R. No. 154129, July 8, 2005, 463 SCRA 170, 177
(8) Dino v. Jardines, G.R. No. 145871, January 31, 2006, 481 SCRA 226
(9) Macalalag v. People, G.R. No. 164358, December 20, 2006, 511 SCRA 400
SPOUSES FLORENTINO T. MALLARI and AUREA V. MALLARI vs. PRUDENTIAL BANK (now BANK OF THE PHILIPPINE ISLANDS), G.R. No. 197861 June 5, 2013
The issue for resolution in this case was whether the stipulated 23% p.a. interest rate and the stipulated 12% p.a. penalty charge were excessive or unconscionable.
Parties are free to enter into agreements and stipulate as to the terms and conditions of their contract, but such freedom is not absolute. As Article 1306 of the Civil Code provides that the contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. Hence, if the stipulations in the contract are valid, the parties thereto are bound to comply with them, since such contract is the law between the parties.
In this case, petitioners and respondent bank agreed upon on a 23% p.a. interest rate on the P1.7 million loan. However, petitioners now contend that the interest rate of 23% p.a. imposed by respondent bank is excessive or unconscionable, invoking our ruling in Medel v. Court of Appeals, Toring v. Spouses Ganzon-Olan, and Chua v. Timan.
The Supreme Court disagreed with the contention of the petitioners.
In Medel v. Court of Appeals, the Court found the stipulated interest rate of 66% p.a. or a 5.5% per month on a P500,000.00 loan excessive, unconscionable and exorbitant, hence, contrary to morals if not against the law and declared such stipulation void.
In Toring v. Spouses Ganzon-Olan, the stipulated interest rates involved were 3% and 3.81% per month on a P10 million loan, which we find under the circumstances excessive and reduced the same to 1% per month.
In Chua v. Timan, where the stipulated interest rates were 7% and 5% a month, which are equivalent to 84% and 60% p.a., respectively, the Court reduced the same to 1% per month or 12% p.a.
The Court held that it had affirmed in a plethora of cases that stipulated interest rates of 3% per month and higher are excessive, unconscionable and exorbitant, hence, the stipulation was void for being contrary to morals.
In the case at bench, the interest rate agreed upon by the parties was only 23% p.a., or less than 2% per month, which are much lower than those interest rates agreed upon by the parties in the above-mentioned cases.
The Court did not consider the interest rate of 23% p.a. agreed upon by petitioners and respondent bank to be unconscionable.
In Villanueva v. Court of Appeals, where the issue raised was whether the 24% p.a. stipulated interest rate is unreasonable under the circumstances, the Court answered in the negative.
In Spouses Zacarias Bacolor and Catherine Bacolor v. Banco Filipino Savings and Mortgage Bank, Dagupan City Branch, the Court held that the interest rate of 24% per annum on a loan of P244,000.00, agreed upon by the parties, may not be considered as unconscionable and excessive. As such, the Court ruled that the borrowers cannot renege on their obligation to comply with what is incumbent upon them under the contract of loan as the said contract is the law between the parties and they are bound by its stipulations.
Also, in Garcia v. Court of Appeals, the Court sustained the agreement of the parties to a 24% per annum interest on an P8,649,250.00 loan finding the same to be reasonable and clearly evidenced by the amended credit line agreement entered into by the parties as well as two promissory notes executed by the borrower in favor of the lender.
Based on existing jurisprudence, the Court held that the 24% per annum interest rate, provided for in the subject mortgage contracts for a loan of P225,000.00, may not be considered unconscionable. Moreover, considering that the mortgage agreement was freely entered into by both parties, the same was the law between them and they are bound to comply with the provisions contained therein.
In the case at bench, the Court also did not find the stipulated 12% p.a. penalty charge excessive or unconscionable.
In Ruiz v. CA, it held the 1% surcharge on the principal loan for every month of default is valid. This surcharge or penalty stipulated in a loan agreement in case of default partakes of the nature of liquidated damages under Art. 2227 of the New Civil Code, and is separate and distinct from interest payment. Also referred to as a penalty clause, it is expressly recognized by law.
ROLANDO C. DE LA PAZ vs. L & J DEVELOPMENT COMPANY, G.R. No. 183360 September 8, 2014
Even if the payment of interest has been reduced in writing, a 6% monthly interest rate on a loan is unconscionable, regardless of who between the parties proposed the rate.
Indeed at present, usury has been legally non-existent in view of the suspension of the Usury Law by Central Bank Circular No. 905 s. 1982. Even so, not all interest rates levied upon loans are permitted by the courts as they have the power to equitably reduce unreasonable interest rates.
In Trade & Investment Development Corporation of the Philippines v. Roblett Industrial Construction Corporation, the Supreme Court held while the Court recognizes the right of the parties to enter into contracts and who are expected to comply with their terms and obligations, this rule is not absolute. Stipulated interest rates are illegal if they are unconscionable and the Court is allowed to temper interest rates when necessary. In exercising this vested power to determine what is iniquitous and unconscionable, the Court must consider the circumstances of each case. What may be iniquitous and unconscionable in one case, may be just in another.
Time and again, the Court has ruled in a plethora of cases that stipulated interest rates of 3% per month and higher, are excessive, iniquitous, unconscionable and exorbitant. Such stipulations are void for being contrary to morals, if not against the law.
The Court, however, stressed that these rates shall be invalidated and shall be reduced only in cases where the terms of the loans are open-ended, and where the interest rates are applied for an indefinite period. Hence, the imposition of a specific sum of P40,000.00 a month for six months on a P1,000,000.00 loan is not considered unconscionable.
In the case at bench, there was no specified period as to the payment of the loan. Hence, levying 6% monthly or 72% interest per annum was definitely outrageous and inordinate.
As the Court cited in Asian Cathay Finance and Leasing Corporation v. Gravador, 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. Indeed, voluntariness does not make the stipulation on an unconscionable interest valid.
However, pursuant to Central Bank Circular No. 799 s. 2013 which took effect on July 1, 2013, the interest imposed by the CA must be accordingly modified to 6% per annum from the finality of the decision of the Supreme Court.
Prepared by:
Atty. Manuel J. Laserna Jr.
Partner, Laserna Cueva-Mercader Law Offices - Las Pinas City
Professor of Law, FEU (1985-2006; retired)
Third Placer, 1984 Bar Exams, 90.95%
Cocofed Law Scholar (LL.B.)
FEU Graduate Studies Fellow (LL.M.)
AB Journalism, UP Diliman, 1975
Bachelor of Laws, FEU, cum laude, 1984
Master of Laws, UST (cand.), 2000
Director, Secretary, and Vice President -
IBP Pasay Paranaque Las Pinas Chapter (1995-2007)
Founder, Former Chairman and
Former President, and Board Consultant
- Las Pinas City Bar Association (2001 to the present)
Law blog: attylaserna.blogspot.com (“Philippine Laws and Cases”)
15 June 2017
