CREDIT & TRANSACTIONS CASE DIGEST

GUARANTEE 1. BANCO FILIPINO VS NAVARRO FACTS:

Florante del Valle (the BORROWER) obtained a loan secured by a real estate mortgage from petitioner BANCO FILIPINO in the sum of P41,300.00, payable and to be amortized within 15 years at 12% per cent interest annually Stamped on the promissory note evidencing the loan is an Escalation Clause stating that: o Banco Filipino to correspondingly increase the interest rate stipulated the contract without advance notice to borrowe in the event law should be enacted increasing the lawful rates of interest that may be charged on this particular kind of loan o Escalation Clause is based upon Central Bank CIRCULAR No. 494 which provided: maximum rate of interest shall be nineteen percent (19%) per annum loans or renewals thereof shall continue to be governed by the Usury Law Monetary Board is hereby authorized to prescribe the maximum rate or rates of interest for the loan or renewal thereof or the forbearance of any money, goods or credits, and to change such rate or rates whenever warranted by prevailing economic and social conditions: Provided, that such changes shall not be made oftener than once every twelve months On September 24, 1976, Ms. Mercedes C. Paderes of the Central Bank wrote a letter to del valle: o seeking clarification and their official stand on Banco Filipino's recent decision to raise interest rates on lots bought on installment from 12% to 17% per annum. o That Monetary Board, in its Resolution No. 1155 dated June 11, 1976, adopted the following guidelines to govern interest rate adjustments by banks and non-banks performing quasi-banking functions on loans already existing as of January 3, 1976 o increase in the rate of interest can be effective only as of January 2, 1976 or on a later date del Valle contended that CIRCULAR No. 494 is not the law contemplated in the Escalation Clause of the promissory note, thus he filed suit against BANCO FILIPINO for "Declaratory Relief" with respondent Court, praying that the Escalation Clause be declared null and void and that BANCO FILIPINO be ordered to desist from enforcing the increased rate of interest on the BORROWER's real estate loan. On the other hand BANCO FILIPINO maintained that the Escalation Clause signed by the BORROWER authorized it to increase the interest rate once a law was passed increasing the rate of interest and that its authority to increase was provided for by CIRCULAR No. 494 Trial court ruled in favor of del valle, thus it nullified the Escalation Clause and ordered BANCO FILIPINO to desist from enforcing the increased rate of interest on the BORROWER's loan. Trial courts reason: P.D. No. 116 does not expressly grant the Central Bank authority to maximize interest rates with retroactive effect and that BANCO FILIPINO cannot legally impose a higher rate of interest before the expiration of the 15year period in which the loan is to be paid other than the 12% per annum in force at the time of the execution of the loan. Banco Filipino filed petition for review on certiorari (since a question of law is involved) SC impleaded the Central Bank and required it to submit its Comment, and encouraged homeowners similarly situated as the BORROWER to intervene in the proceedings The Court made it explicit that intervention was allowed only for the purpose of "joining in the discussion of the legal issue involved in this proceedings, to wit, the validity of the so-called "escalation clause," or its applicability to existing contracts of loan."

Central Banks comment: the issuance of its Circulars is a valid exercise of its authority to scribe maximum rates of interest and that, based on general principles of contract, the Escalation Clause is a valid provision in the loan agreement provided that " (1) the increased rate imposed or charged by petitioner does not exceed the ceiling fixed by law or the Monetary Board; (2) the increase is made effective not earlier than the effectivity of the law or regulation authorizing such an increase; and (3) the remaining maturities of the loans are more than 730 days as of the effectivity of the law or regulation authorizing such an increase. However, with respect to loan agreements entered into on or after March 17, 1980, such agreement, in order to be valid, must also include a de-escalation clause as required by Presidential Decree No. 1684."

ISSUE:
The substantial question in this case is not really whether the escalation clause is a valid or void stipulation. There should be no question that the clause is valid. WHETHER BANCO FILIPINO CAN INCREASE THE INTEREST RATE ON THE LOAN FROM 12% TO 17% PER ANNUM UNDER THE ESCALATION CLAUSE.

RULING
SC held Banco Filipino may not increase the interest rate It is clear from the stipulation between the parties that the interest rate may be increased "in the event a law should be enacted increasing the lawful rate of interest that may be charged on this particular kind of loan." - The Escalation Clause was dependent on an increase of rate made by "law" alone. CIRCULAR No. 494, although it has the effect of law, is not a law. "Although a circular duly issued is not strictly a statute or a law, it has, however, the force and effect of law." "An administrative regulation adopted pursuant to law has the force and effect of law." "That administrative rules and regulations have the force of law can no longer be questioned The distinction between a law and an administrative regulation is recognized in the Monetary Board guidelines. According to the guidelines, for a loan's interest to be subject to the increases provided in CIRCULAR No. 494, there must be an Escalation Clause allowing the increase "in the event that any law or Central Bank regulation is promulgated increasing the maximum interest rate for loans." The guidelines thus presuppose that a Central Bank regulation is not within the term "any law." It is now clear that from March 17, 1980, escalation clauses to be valid should specifically provide: (1) that there can be an increase in interest if increased by law or by the Monetary Board; and (2) in order for such stipulation to be valid, it must include a provision for reduction of the stipulated interest "in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board." While P.D. No. 1684 is not to be given retroactive effect, the absence of a de-escalation clause in the Escalation Clause in question provides another reason why it should not be given effect because of its one-sidedness in favor of the lender. The Escalation Clause specifically stipulated that the increase in interest rate was to be "on this particular kind of loan, " meaning one secured by registered real estate mortgage COURT RULES THAT WHILE AN ESCALATION CLAUSE LIKE THE ONE IN QUESTION CAN ORDINARILY BE HELD VALID, NEVERTHELESS, PETITIONER BANCO FILIPINO CANNOT RELY THEREON TO RAISE THE INTEREST ON THE BORROWER'S LOAN FROM 12% TO 17% PER ANNUM BECAUSE CIRCULAR NO. 494 OF THE MONETARY BOARD WAS NOT THE "LAW" CONTEMPLATED BY THE PARTIES, NOR SHOULD SAID CIRCULAR BE HELD AS APPLICABLE TO LOANS SECURED BY REGISTERED REAL ESTATE IN THE ABSENCE OF ANY SUCH SPECIFIC INDICATION AND IN CONTRAVENTION OF THE POLICY BEHIND THE USURY LAW Courts Judgment: Banco Filipino to desist from enforcing the increased rate of interest on petitioner's loan.

2. PNB VS CA FACTS:
In 1982, Ambrosio Padilla, herein private respondent, applied for, and was granted by petitioner PNB, a credit line of P321.8 million, secured by a real estate mortgage, for a term of two years, with 18% interest per annum. Padilla executed in favor of the PNB a amount of P900,000.00 each, and a Real Estate Mortgage Contract. The Promissory Notes, uniformly authorized the PNB to increase the stipulated 18% interest per annum "within the limits allowed by law at any time depending on whatever policy it [PNB] may adopt in the future; Provided, that, the interest rate on the note shall be correspondingly decreased in the event that the applicable maximum interest rate is reduced by law or by the Monetary Board." However, two years thereafter, when the P1.8 million credit line has matured on July 4, 1984, PNB within the period of only four months has increased the 18% interest rate on the borrowers loan obligation three times: (a) to 32% in July 1984,; (b) to 41% in October 1984; and (c) to 48% in November 1984. Several letters were sent by Padilla to PNB requesting the latter to increase the interest rate from 18% but to be fixed at 21% or 24% per annum. However, PNB despite the objection of Padilla and without authority from the Monetary Board still effected such increases of interest rates within the aforesaid intervening period. For this reason, Padilla was compelled to file a complaint with the RTC praying to declare that the unilateral increase of interest rates by PNB is illegal and not valid nor binding upon Padilla. It was also prayed that the amount paid representing the excess interest be reimbursed to him. But the complaint was dismissed by the lower court because according to the latter the increase of interests was properly made. Padilla appealed to the CA. The appellate court reversed the decision of the RTC, hence this petition for review.

Issue:
Whether PNB, within the term of the loan which it granted to Padilla, may unilaterally change or increase the interest rate stipulated therein at will and as often as it pleased.

HELD:
The Court held in a negative. Those increases were null and void, for if the Monetary Board itself was not authorized to make such changes oftener once a year, even less so may a bank, which is subordinate to the Board. While the debtor did agree in the Deed of Real Estate Mortgage that the interest rate may be increased during the life of the contract "to such increase within the rate allowed by law, as the Board of Directors of the MORTGAGEE may prescribe" or "within the limits allowed by law," no law was ever passed in July to November 1984 increasing the interest rates on loans or renewals thereof to 32%, 41% and 48% per annum, and no documents were executed and delivered by the debtor to effectuate the increases. To unilaterally and successively increase the agreed rate of interest from 18% to 48% within a span of four months is a clear violation of PD 116 which limits such changes to once every 12 months. The Court further held, the unilateral action of the PNB in increasing the interest rate on the private respondent's loan, violated the mutuality of contracts ordained in Article 1308 of the Civil Code: "ART. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them." A contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties is void. Likewise, the increases imposed by PNB contravene Art. 1956 of the Civil Code which provides that no interest shall be due unless it has been expressly stipulated. Here, the debtor never agreed in writing to pay the interest increases fixed by PNB beyond the 24% per annum; hence, he is not bound to pay a higher rate than that. The petition for review was denied for lack of merit.

3. DBP VS CA

4. GENIZA VS HENRY SY Facts:

On July 8, 1959, Catalina Carreon, with the consent of her husband Zacarias Rivera, mortgaged to the defendant Asia Mercantile Corporation Lot No. 551 of the Piedad estate subdivision for P50,000.00, payable within a period of thirty days with interest at the rate of 12% per annum. Paragraph 4 of the contract provides that upon failure of the mortgagor to pay the indebtedness and the interest when due, the mortgage shall become due and demandable and without necessity of demand the mortgagee may immediately foreclose the mortgage, judicially or extrajudicially. It was further expressly agreed that in case of foreclosure the mortgagor binds himself to pay the mortgagee 30% of the sum owing and unpaid as attorney's fees and liquidated damages, exclusive of costs and expenses of the sale. On the same date another mortgage was executed by plaintiffs Emma R. Geniza, Aurelio Geniza and Lorenzo Rivera over two parcels of registered land for the sum of P50,000.00, and with the same conditions as the mortgage executed by the spouses Catalina Carreon and Zacarias Rivera. The mortgagors in both mortgage contract defaulted in the payment of their respective obligations. Plaintiffs brought this action to obtain a judicial declaration that the stipulation in the deeds of mortgage fixing the amount of 30% as attorney's fees and liquidated damages is excessive, unconscionable and iniquitous and that the same should be reduced to P200.00. Trial court ruled did reduced the 30% attorneys fees and liquidation fees to 5% of the mortgage contract. Plaintiffs further appealed that stating that the court erred in not declaring the 30% attorneys fees and liquidated damages unconscionable and reducing it to P200.

Issue:
Whether or not the trial court erred in reducing the 30% to 5% rather than declaring it as P200.00.

Ruling:
In reducing the 30% attorney's fees and liquidated damages to 5%, the judge below appears to be fully justified. As the loans were for a period of thirty days only, damages amounting to 30% of the loans of P50,000.00 each would appear to be iniquitous and subject to reduction in accordance with the provisions of Articles 1227 and 1229 of the Civil Code of the Philippines. We do not agree with counsel for plaintiffs-appellants that the contract was a usurious contract there being no allegation of fact that the mortgagee's intention was to exact a usurious interest, nor evidence to that effect. Neither is there any allegation or claim that the mortgage is contra bonos mores, so that we may assume that he demanded the insertion of the iniquitous clause or 30% damages to cover a usurious deal. Under these circumstances we cannot sustain the claim of the plaintiffs-appellants that the agreement was a usurious one; so that we hold that the trial court was fully justified in considering the provision only as an iniquitous clause subject to reduction. We also find the reduced liquidated damages and attorney's fees to be fair and we find no reason for disturbing the discretion of the court below in this respect.

5. NICOLAS VS MATIAS FACTS:

Nicolas lend to Matias P 30,000 in Japanese military notes payable within one year after the expiration of five (5) years from June 29, 1944 (date of the instrument) with interest at the rate of 6% per annum. As a security, Matias mortgaged his four parcels of land situated in San Roque, Gapan, Province of Nueva Ecija. On July 15, 1944, Matias offered to pay the debt, with interest for 5 years, but Nicolas rejected the offer. Whereupon, in August 1944, Matias deposited judicially the sum of P 39,000 representing the principal (P30,000), plus interest for five years, and instituted a civil case in the CFI of Nueva Ecija for the purpose of compelling the mortgagees to accept said amount and to discharge the mortgage. CFI ruled in favor of Nicolas declaring the consignation invalid for failure of the mortgagors to give previous notice thereof, and sentencing the mortgagors to pay the mortgagees the sum of P2,000as the equivalent in Philippine currency, pursuant to the Ballantyne schedule, of P30,000 in Japanese military noteswith interest, at the legal rate, from June 29, 1944. On appeal, CA ruled in favor of Matias and held that the consignation is valid and the obligation guaranteed by the mortgage is fully discharged. Hence, this petition.

Issue:
Whether the sum of P30,000, lent by the mortgagees in Japanese war notes, should be paid by the mortgagors in Philippine currency, peso for peso, or in accordance with the Ballantyne schedule.

HELD:
It should be paid in Philippine currency, peso for peso. The contracting parties are free to stipulate on the currency in which their respective obligations shall be settled, and that whenever, pursuant to the terms of an agreement, an obligation assumed during the Japanese occupation is not payable until after liberation of the Philippines, the parties to the agreement are deemed to have intended that the amount stated in the contract be paid in such currency as may be legal tender at the time when the obligation becomes due. The deed of mortgage in question provides that the obligation of the mortgagees shall be paid one year after the expiration of five (5) years from June 29, 1944, which is the date of said instrument. In other words, the obligation is not payable until June 29, 1949. Indeed, in the decision of this Court in case G. R. No. L-1743, we reversed the decision of the Court of Appeals sustaining the theory of the mortgagors, upon the ground that the latter were not entitled to accelerate, without the consent of the mortgagees, the date of the maturity of the obligation; that the mortgagees could not be compelled, and were under no obligation, to accept the tender of payment made on July 15, 1944 (except as to the interest for one [1] year) despite the fact that said tender included the interest for five (5) years from June 29, 1944; and that, consequently, the consignation effected simultaneously with the institution of civil case No. 156 of the Court of First Instance of Nueva Ecija in August, 1944, was null and void, with the exception abovementioned. In other words, said decision of this Court was implicitly held, and the doctrine laid down in the cases above referred to, leave us no choice but to declare, as we do, that the obligation involved in the present case must be satisfied, peso for peso, in Philippine currency.

6. ANG LAM VS PEREGRINA

FACTS:
On December 26, 1944, Eugenia Peregrina borrowed P100,000, Philippine currency prevailing on that date, from Ang Lam, promising to pay it within a period of one year therefrom. Peregrina died on April 1, 1945, and thereupon Ang Lam presented a claim against her estate for the full amount of the indebtedness. Judgment having been rendered thereon for P1,000, the equivalent thereof according to the Ballantyne Conversion Table, Ang Lam has prosecuted this appeal, contending that as the currency in which the indebtedness was to be paid was not agreed upon or stipulated in the contract of loan, this should be in the legal tender on December 25, 1945, or one year from the date of the loan, because both parties had elected to subject their rights to a contingency, i.e., the change in the intrinsic value and purchasing power of the currency.

ISSUE:
WON the legal tender at the time of payment should be applied in the absence of stipulation in which the indebtedness is to be paid.

Ruling:
The cases cited by the appellant in his brief do not support his contention. In the case of Gomez vs. Tabia,* 47 Off. Gaz. (No. 2) 641, the period fixed for the vendor a retro to redeem the land he sold was "within 30 days after the expiration of one year from June 24, 1944," and in that of Roo vs. Gomez,1 et al., 46 Off. Gaz., (Supp. No. 11) 339, the loan was to be paid one year after October 5, 1944, date of the loan. In the first case the land was redeemable only after June 24, 1945, and in the second the loan was payable only on October 5, 1945. The obligations could not be paid before these dates. The obligations were, therefore, held payable in the currency in existence on those dates. In the case at bar, however, the loan was payable within one year from December 26, 1944. It could be paid the following day, or any day before liberation, in Japanese military notes, had the debtor chosen to do so. It is incorrect to assume that the parties intended to subject their rights and obligations under the contract to a contingency, a change in the currency, without evidence of said intent. While perhaps they could be presumed to be bound by the fluctuations in the value of the currency they contracted in, it may not be presumed that they intended to gamble on a change therein, in the absence of an agreement, express or implied, to that effect. If it is unfair and unjust that the loan be decreased or completely wiped out because of a change in the currency; it is also unfair and unjust that the loan be paid in the same amount in which it was contracted and at the restored currency, because then the lender would be unduly enriched at the expense of the debtor. The fair and just rule to apply is, therefore, for the debtor to pay the actual value or worth of the loan at the time it was contracted in the currency in existence at the time of payment. This is the spirit of the ruling of this Court in the leading case of Hilado vs. De la Costa,2 et al., Off. Gaz. (No. 11)5472, which follows the doctrine laid down by the Supreme Court of the United States in the leading case of Thorington vs. Smmith, 19 Law. ed. 361. To the same effect is our ruling in the case of Soriano vs. Abalos,3 et al., 47 Off. Gaz. (No. 1) 168, where an award of P3,200 as yearly damages granted in a judgment rendered in December, 1944, was reduced after liberation to its equivalent of P35.53 yearly. We find that the judgment appealed from is correct, and we therefore, affirm it, with cost against the appellant.

7. FIRST METRO INVESTMENT CORP. VS ESTE DEL SOL FACTS:

FMIC granted respondent Este del Sol a loan of P7,385,500.00 on January 31, 1978 to finance the construction and development of the Este del Sol Mountain Reserve. In accordance with the terms of the Loan Agreement, respondent Este del Sol executed as security for payment: a) a Real Estate Mortgage b) individual Continuing Suretyship agreements by co-respondents and c) an Underwriting Agreement on January 31, 1978 whereby FMIC shall underwrite on a best-efforts basis the public offering of 120,000 common shares of Este del Sols capital stock for a one-time underwriting fee P200,000.00. In addition to the underwriting fee, the Underwriting Agreement provided that for supervising the public offering of the shares, Este del Sol shall pay FMIC annual supervision and consultancy fees of P200,000.00 and of P332,500.00, respectively, per annum for a period of 4 consecutive years. Este del Sol failed to meet the schedule of repayment and in accordance with a revised Schedule of Amortization, it appeared to have now incurred a total obligation of P12,679,630.98. Accordingly, petitioner FMIC caused the extrajudicial foreclosure of the real estate mortgage on June 23, 1980. Failing to secure from the individual respondents, as sureties of the loan of respondent, the payment of the alleged deficiency balance FMIC instituted against the respondents a collection suit to collect the alleged deficiency. Respondents sought the dismissal of the case and set up the defense that the Underwriting and Consultancy Agreements executed simultaneously with and as integral parts of the Loan Agreement and which provided for the payment of Underwriting, Consultancy and Supervision fees were in reality subterfuges resorted to by petitioner FMIC and imposed upon respondent Este del Sol to camouflage the usurious interest being charged by petitioner FMIC. The trial court rendered its decision in favor of FMIC. The appellate court reversed.

ISSUE:
Whether or not the underwriting and consultancy agreements are mere subterfuges to camouflage the usurious interest charged by as claimed by the respondents.

HELD:
Decision affirmed, based on the following: 1. There is no merit to FMICs contention that Central Bank Circular No. 905 which took effect on January 1, 1983 and removed the ceiling on interest rates should be applied retroactively to a contract executed on January 31, 1978, as in the case at bar, that is, while the Usury Law was in full force and effect. It is an elementary rule of contracts that the laws, in force at the time the contract was made and entered into, govern it. More significantly, 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. 2. When a contract between two (2) parties is evidenced by a written instrument, such document is ordinarily the best evidence of the terms of the contract. Exception: The form of the contract is not conclusive for the law will not permit a usurious loan to hide itself behind a legal form. If from a construction of the whole transaction it becomes apparent that there exists a corrupt intention

to violate the Usury Law, the courts should and will permit no scheme, however ingenious, to becloud the crime of usury. In the instant case, several facts and circumstances taken altogether show that the Underwriting and Consultancy Agreements were simply cloaks or devices to cover an illegal scheme employed by petitioner FMIC to conceal and collect excessively usurious interest, such as: a. Underwriting and Consultancy Agreements are both dated January 31, 1978 which is the same date of the Loan Agreement and was set for a period of four (4) years to coincide ultimately with the term of the Loan Agreement b. The loan agreement specifically mentioned that the execution and delivery of an underwriting agreement is a condition precedent for FMIC to extend the loan to respondent. c. FMIC was in fact unable to organize an underwriting/selling syndicate to sell any share of stock of Este del Sol and much less to supervise such a syndicate. Besides, there was really no need for an Underwriting Agreement since respondent Este del Sol had its own licensed marketing arm to sell its shares and all its shares have been sold through its marketing arm. 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 simple loan with stipulation of usurious interest, the prestation of the debtor to pay the principal debt, which is the cause of the contract (Article 1350, Civil Code), is not illegal. The illegality lies only as to the prestation to pay the stipulated interest; hence, being separable, the latter only should be deemed void, since it is the only one that is illegal. Thus, the nullity of the stipulation on the usurious interest does not affect the lenders right to receive back the principal amount of the loan.

8. VERDEJO VS CA FACTS:
Petitioner filed a complaint against the private respondent Herminia Patinio and one John Doe before the Regional Trial Court of Pasay City for collection of a sum of money amounting to P60,500.00, which said Herminia Patinio had allegedly borrowed from him but failed to pay when it became due, notwithstanding demands. Herminia Patinio admitted having obtained loans from the petitioner but claimed that the amount borrowed by her was very much less than the amount demanded in the complaint, which amount she had already paid or settled, and that the petitioner had exacted or charged interest on the loan ranging from 10% to 12% per month, which is exorbitant and in gross violation of the Usury Law. Wherefore she prayed that she be reimbursed the usurious interests charged and paid. She also asked for damages, attorney's fees and costs of suit. RTC dismissed plaintiff's complaint and ordered to refund refund to defendants the amount of P13,890.00. Petitioner filed a petition for certiorari before the Court of Appeals but his petition was dismissed.

RULING:
Petition granted. The case involves an alleged violation of the Usury Law, where the petitioner was found by the trial court to have charged and collected usurious interests from the private respondent on loans which were first obtained on 15 February 1982, later renewed, and finally culminated with the execution by private respondent of the Deed of Sale with Right of Repurchase on 17 November 1983. This Court has ruled in one case that with the promulgation of Central Bank Circular No. 905, series of 1982, usury has become "legally inexistent" as the lender and the borrower can agree on any interest that may be charged on the loan. This Circular was also given retroactive effect. But, whether or not this Circular should also be given retroactive effect and applied in this case is yet to be determined by the appellate court at the proper time. Moreover, it appears that the computation of the amount considered as usurious interest is incorrect. The trial court merely added the amounts paid by the private respondent to the petitioner and, thereafter, deducted therefrom the amounts given as loan to the private respondent and considered the excess amount usurious, without apparently considering the lawful interest that may be collected on said loans. Only usurious interests may be reimbursed. To prevent a miscarriage of justice, the petitioner should be allowed to prosecute his appeal.

9. IMPERIAL VS JAUCIAN FACTS:

Imperial creditor Jaucian debtor The present controversy arose from a case for collection of money, filed by Alex A. Jaucian against Restituta Imperial, on October 26, 1989. The complaint alleges, inter alia, that defendant obtained from plaintiff six (6) separate loans for which the former executed in favor of the latter six (6) separate promissory notes and issued several checks as guarantee for payment. When the said loans became overdue and unpaid, especially when the defendants checks were dishonored, plaintiff made repeated oral and written demands for payment. The promissory notes indicate the interest of 16% per month, date of issue, due date, the corresponding guarantee checks issued by defendant, penalties and attorneys fees. The arrangement between plaintiff and defendant regarding these guarantee checks was that each time a check matures the defendant would exchange it with cash. Defendant contends that there was excess payment of P121,780.00 which is more than the interest that could be legally charged, and in fact the total releases have been fully paid. RTC Decision: The trial court rendered the assailed decision: Judgment is hereby rendered declaring Section I, Central Bank Circular No. 905, series of 1982 to be of no force and legal effect, it having been promulgated by the Monetary Board of the Central Bank of the Philippines with grave abuse of discretion amounting to excess of jurisdiction; declaring that the rate of interest, penalty, and charges for attorneys fees agreed upon between the parties are unconscionable, iniquitous, and in violation of Act No. 2655, otherwise known as the Usury Law, as amended; xxx CA Decision: On appeal, the CA held that without judicial inquiry, it was improper for the RTC to rule on the constitutionality of Section 1, Central Bank Circular No. 905, Series of 1982. Nonetheless, the appellate court affirmed the judgment of the trial court reducing the interest rate from 16 percent to 1.167 percent per month or 14 percent per annum; and the stipulated penalty charge, from 5 percent to 1.167 percent per month or 14 percent per annum. Hence, this Petition.

ISSUE:
Whether or not the rate of interest of 16% per month is properly reduced being unconscionable, iniquitous, and in violation of Act No. 2655, otherwise known as the Usury Law even if its operation is suspended by CB Circular No. 905.

RULING:
Yes, the rate of interest of 16% per month is properly reduced being unconscionable, iniquitous, and in violation of Act No. 2655, otherwise known as the Usury Law even if its operation is suspended by CB Circular No. 905. Petitioner alleges that absent any written stipulation between the parties, the lower courts should have imposed the rate of 12 percent per annum only. The records show that there was a written agreement between the parties for the payment of interest on the subject loans at the rate of 16 percent per month.

As decreed by the lower courts, this rate must be equitably reduced for being iniquitous, unconscionable and exorbitant. While the Usury Law ceiling on interest rates was lifted by C.B. Circular No. 905, nothing in the said circular grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets. In Medel v. CA, the Court found the stipulated interest rate of 5.5 percent per month, or 66 percent per annum, unconscionable. I n the present case, the rate is even more iniquitous and unconscionable, as it amounts to 192 percent per annum. When the agreed rate is iniquitous or unconscionable, it is considered contrary to morals, if not against the law. [Such] stipulation is void. 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. We find no justification to reverse or modify the rate imposed by the two lower courts. Note: As to whether RTCs ruling, that Section 1, Central Bank Circular No. 905, Series of 1982 was unenforceable, was proper, SC did not categorically answer the same. Presumably, because it acknowledged the suspension of the operation of the Usury Law as caused by CB No. 905, it affirmed CAs contention that RTCs declaration of its unconstitutionality was improper.

10. MACALINAO VS BPI FACTS:

Petitioner Ileana Macalinao defaulted on the payment of her BPI credit card dues. There was a stipulation in a contract that the charges and/or balance shall earn 3% per month and additional penalty fee of another 3% per month. The Regional Trial Court reduced the 3% monthly interest to 2%. On appeal of the case, the Court of Appeals reversed the decision of the RTC holding that petitioner Macalinao freely availed herself of the credit card facility offered by respondent Bank of the Philippine Islands to general public; contracts of adhesion are not invalid per se. Petitioner assailed the appellate courts decision alleging that the interest rate and penalty charges are unconscionable and iniquitous at 36% per annum.

ISSUE:
Whether or not the interest rate and penalty charges are unconscionable and iniquitous at 36% per annum.

HELD:
The interest rate and penalty charges are unconscionable and iniquitous at 36% per annum. The Supreme Court held that the interest rate and penalty charge of 3% per month or the 36% per annum should be reduced to 2% per month or 24% per annum. In a long line of cased decided by the Supreme Court, it considered the 36% per annum to be excessive and unconscionable. Citing Article1229, in exercising this power to determine what is iniquitous and unconscionable; courts must consider the circumstances of each case since what may be iniquitous and unconscionable in one maybe totally just and equitable in another. In the instant case, Macalinao made partial payments to BPI .Therefore, 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.