RE

INTEREST RATE

CASE DIGESTS

Macalinao v BPI (G.R. No. 175490 September 17, 2009)

Facts:
Petitioner Ileana Macalinao was an approved cardholder of BPI Mastercard, one of the
credit card facilities of respondent Bank of the Philippine Islands (BPI). [3] Petitioner Macalinao
made some purchases through the use of the said credit card and defaulted in paying for said
purchases. She subsequently received a letter dated January 5, 2004 from respondent BPI,
demanding payment of the amount PhP 141,518.34.
Under the Terms and Conditions Governing the Issuance and Use of the BPI Credit and
BPI Mastercard, the charges or balance thereof remaining unpaid after the payment due date
indicated on the monthly Statement of Accounts shall bear interest at the rate of 3% per month
and an additional penalty fee equivalent to another 3% per month.

Issue:
Whether or not the stipulated interest rate in the contract is lawful.

Held:
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
In its Complaint, respondent 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. On appeal, the CA modified the rate of interest and penalty charge and increased them to
3% per month or 36% per annum based on the Terms and Conditions Governing the Issuance
and Use of the BPI Credit Card, which governs the transaction between petitioner Macalinao and
respondent BPI.

RE

In the instant petition, Macalinao claims that the interest rate and penalty charge of 3%
per month imposed by the CA is iniquitous as the same translates to 36% per annum or thrice the
legal rate of interest.[15] On the other hand, respondent BPI asserts that said interest rate and
penalty charge are reasonable as the same are based on the Terms and Conditions Governing the
Issuance and Use of the BPI Credit Card.[16]
We find for petitioner. We are of the opinion that the interest rate and penalty charge of
3% per month should be equitably reduced to 2% per month or 24% per annum.
Indeed, in the Terms and Conditions Governing the Issuance and Use of the BPI Credit
Card, there was a stipulation on the 3% interest rate. Nevertheless, it should be noted that this is
not the first time that this Court has considered the interest rate of 36% per annum as excessive
and unconscionable. We held in Chua vs. Timan:[17]
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. We need not unsettle the principle we 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. 90582, 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. (Emphasis supplied.)

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.[18]
The same is true with respect to the penalty charge. Notably, under the Terms and
Conditions Governing the Issuance and Use of the BPI Credit Card, it was also stated therein that
respondent BPI shall impose an additional penalty charge of 3% per month. Pertinently, Article
1229 of the Civil Code states:
Art. 1229. The judge shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor. Even if

RE

there has been no performance, the penalty may also be reduced by the courts if it
is iniquitous or unconscionable.
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
may be totally just and equitable in another.[19]
In the instant case, the records would reveal that petitioner Macalinao made partial
payments to respondent BPI, as indicated in her Billing Statements.[20] Further, the stipulated
penalty charge of 3% per month or 36% per annum, in addition to regular interests, is indeed
iniquitous and unconscionable.
Thus, under the circumstances, the Court finds it equitable to reduce 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.1

1 http://sc.judiciary.gov.ph/jurisprudence/2009/september2009/175490.htm

RE

Leeda v BPI (G.R. No. 200868 November 21, 2012)

Facts:
This case arose from a collection suit filed by respondent Bank of the
Philippine Islands (BPI) against Ledda for the latters unpaid credit card
obligation.
As one of BPIs valued clients, Ledda was issued a pre-approved BPI
credit card under Customer Account Number 020100-9-00-3041167. The
BPI Credit Card Package, which included the Terms and Conditions
governing the use of the credit card, was delivered at Leddas residence on 1
July 2005. Thereafter, Ledda used the credit card for various purchases of
goods and services and cash advances.
Ledda defaulted in the payment of her credit card obligation, which
BPI claimed in their complaint amounted to P548,143.73 per Statement of
Account dated 9 September 2007. Consequently, BPI sent letters to Ledda
demanding the payment of such amount, representing the principal
obligation with 3.25% finance charge and 6% late payment charge per
month.
Despite BPIs repeated demands, Ledda failed to pay her credit card
obligation constraining BPI to file an action for collection of sum of money.

Issue:
Whether or not the interest rate stipulated in the terms and conditions is lawful.

Held:
The ruling in Alcaraz v. Court of Appeals applies squarely to the present case. In
Alcaraz, petitioner there, as a prescreened client of Equitable Credit Card Network, Inc., did not
submit or

RE

sign any application form or document before the issuance of the credit card.
There is no evidence that petitioner Alcaraz was shown a copy of the terms
and conditions before or after the issuance of the credit card in his name,
much less that he has given his consent thereto.
In this case, BPI issued a pre-approved credit card to Ledda who, like
Alcaraz, did not sign any credit card application form prior to the issuance of
the credit card. Like the credit card issuer in Alcaraz, BPI, which has the
burden to prove its affirmative allegations, failed to establish Leddas agreement with the Terms
and Conditions governing the use of the credit card. It must be noted that BPI did not present as
evidence the Terms and Conditions which Ledda allegedly received and accepted.
Clearly, BPI failed to prove Leddas conformity and acceptance of the
stipulations contained in the Terms and Conditions. Therefore, as the Court held in
Alcaraz, the Terms and Conditions do not bind petitioner (Ledda in this case)
without a clear showing that x x x petitioner was aware of and consented to the
provisions of [such] document.
On the other hand, Macalinao v. Bank of the Philippine Islands,18
which the Court of Appeals cited, involves a different set of facts. There,
petitioner Macalinao did not challenge the existence of the Terms and
Conditions Governing the Issuance and Use of the BPI Credit Card and her
consent to its provisions, including the imposition of interests and other
charges on her unpaid BPI credit card obligation. Macalinao simply
questioned the legality of the stipulated interest rate and penalty charge,
claiming that such charges are iniquitous. In fact, one of Macalinaos
assigned errors before this Court reads: The reduction of interest rate, from
9.25% to 2%, should be upheld since the stipulated rate of interest was
unconscionable and iniquitous, and thus illegal.19 Therefore, there is
evidence that Macalinao was fully aware of the stipulations contained in the
Terms and Conditions Governing the Issuance and Use of the Credit Card,
unlike in this case where there is no evidence that Ledda was aware of or
consented to the Terms and Conditions for the use of the credit card.
Consistent with Alcaraz, Ledda must also pay interest on the total
unpaid credit card amount at the rate of 12% per annum since her credit card
obligation consists of a loan or forbearance of money.21 In Eastern Shipping
Lines, Inc. v. Court of Appeals,22 the Court explained:
When an obligation is breached, and it consists in the payment of a
sum of money, i.e., a loan or forbearance of money, the interest due should
be that which may have been stipulated in writing. Furthermore, the
interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12%
per annum to be computed from default, i.e., from judicial or extrajudicial
demand under and subject to the provisions of Article 1169 of the Civil

RE

Code.
In accordance with Eastern Shipping Lines, Inc., the 12% legal
interest shall be reckoned from the date BPI extrajudicially demanded from
Ledda the payment of her overdue credit card obligation. Thus, the 12%
legal interest shall be computed from 2 October 2007, when Ledda, through
her niece Sally D. Gancea,25 received BPIs letter26 dated 26 September
2007 demanding the payment of the alleged overdue amount of
P548,143.73.2

2 http://sc.judiciary.gov.ph/jurisprudence/2012/november2012/200868.pdf