SPOUSES ANDAL vs PNB

FACTS:
- Sept. 7, 1995, petitioners obtained a loan from respondent bank (P21.8M) for which 12 promissory notes were executed,
undertaking to pay with varying interest rates (17.5-27%). It was agreed that the rate of interest may be increased or
decreased with prior notice to the petitioners in the event of changes in interest rates prescribed by law or the Monetary
Board.
- Petitioners also executed a real estate mortgage in favor of the respondent bank over 5 parcels of lands, including all
improvements thereon, covered by Transfer of Certificate Titles of the Registry of Deeds.
- Respondent bank advised petitioners to pay their loan, otherwise they would declare it due and demandable. Petitioners
paid P14.8M to avoid foreclosure. Respondent bank executed a release of real estate mortgage over two of the parcels of
land. Despite payment, respondent foreclosed the remaining real estate mortgage over the remaining three parcels of land.
- A public auction sale resulted in respondent bank as the winning bidder. A Certificate of sale of the properties was issued.
- Petitioners filed a complaint for annulment of mortgage, sheriffs certificate of sale, declaration of nullity of the increased
interest rates and penalty charges plus damages.
- CONTENTION OF THE PETITIONERS:
1. They tried to pay their loan obligation but the exorbitant rate of interest unilaterally determined and imposed by
the respondent bank.
2. They signed the promissory notes in blank, relying on the representation that they were bank requirements
3. The exobrbitant and unilateral interest rates are a form of unjust enrichment, giving respondent
4. bank no right to foreclose the mortgages
- RTC Ruling: In favor of petitioners, ordering that the rate of interest be reduced to 6% in accordance with Art. 2209, NCC
and declaring the foreclosure sales as void.
- CA Ruling: Affirmed the RTC decision with the modification that the interest be 12% per annum instead of 6%. Stipulations
in a contract have the force of law between the parties so long as they are not contrary to law, morals, etc. Since parties
expressly stipulated in the promissory notes that a rate of interest would be applied, the petitioners are bound thereby. Th
CA finds it more credible that the petitioners had signed blank promissory notes which respondent bank had filled with high
interest rates. This violates the principle of mutuality of contracts. Since the interest rates in the promissory notes are void,
the rate of interest should be 12% (since what is involved is a loan or forebearance of money).
- Petitioner spouses appealed, inssiting that no interest should be imposed.

ISSUES:
1. W/N interest should be imposed on the loan.
2. In the event interest is applicable, whether is it the 12% rate or 6% that applies.

RULING:
- Petition is DENIED and the CA decision is AFFIRMED with the MODIFICATION that the 12% interest per annum shall be
applied from the date of default until June 30, 2013, after which date and until fully paid, the obligation shall earn interest
at 6% per annum.
1. YES. The petitioners had agreed to payment of interest on their loan obligation. The subsequent declaration that the rate of
interest was illegal does not entitle them to stop payment of interest. Only the rate was declared void, but the stipulation
requiring them to pay interest remains valid and binding. They are liable to pay interest from the time they defaulted until
the obligation is fully paid.
2. The 12% per annum interest rate shall apply from the time the parties were in default until June 30, 2013. Starting from July
1, 2013 (the date of effectivity of Circular No. 799 which changed the legal rate of interest back to 6%) until the obligation is
fully complied with, the rate shall be 6% per annum.

PNB vs CA

FACTS:
The private respondents, in this case, obtained a loan from Cottage Industry Guaranty Loan Fund (CIGLF) from PNB in the amount of
P50,000 under a credit agreement. The loan was amortized over a period of 3 years at 12% interest per annum. They also executed
a REM over an unregistered land in Toledo City and a chattel mortgage over a thermo-plastic forming machine, both appraised by
the Bank.

The Agreement provided that the Bank reserves the right to increase the interest rate within the limits allowed by law provided such
rate shall be decreased in the event that the maximum interest is reduced by law or the Monetary Board. The Promissory Note
authorized PNB to raise the interest rate at any time without notice beyond the 12% stipulated rate but only within the limits
allowed by law. The REM also provided that the rate of interest on the obligation secured by the mortgage may be subject to an
increase within the rate allowed by law.

Respondents was again granted another loan by PNB in the amount of P50,000 which contained the same terms and stipulations of
the previous loan. The parties also executed a new Agreement which changed the loan from P50,000 to P100,000 with the same
stipulations of the original agreement. They executed another REM over two parcels of registered land.

In 1984, PNB sent a letter to the respondents informing them that the rate was increased to 25% with a penalty of 6% on past dues.
It was later on increased up to 42%. And as of December 1985, they had an unpaid principal obligation of P62, 830.32. The
respondents then requested from PNB to readopt the 12% interest rate, but to no avail.

The private respondents filed a suit for specific performance against PNB and NACIDA at the RTC of Cebu.

Prayer:
1. Release of mortgage
2. Pay consequential damages
3. Moral and exemplary damages
4. Other equitable relief

RTC RULING: RTC ruled against the private respondents.

CA RULING: Dismissed RTC ruling and disallowed the increase of interest rates.

ISSUES:
Whether or not a creditor may validly increase the interest rate based on a clause provided in their contract without the consent of
the debtor.

RULING:
No. The bank relied on the escalation clause as provided for in their Agreement authorized by the Usury Law and C.B. Circular 905.
Said laws allow the contracting parties to freely stipulate on their interest rates and they can later on agree to adjust it upward or
downward. However, such do not allow unilateral increases on rates without the others consent. It is basic that there can be no
contract in the true sense in the absence of the element of agreement, or of mutual assent of the parties. If this assent is wanting on
the part of the one who contracts, his act has no more efficacy than if it had been done under duress or by a person of unsound
mind. Thus, any change must be mutually agreed upon; otherwise, it is bereft of any merit. The escalation clause relied upon by the
Bank gives it unbridled right to unilaterally adjust the interest rate on respondents loan. A contract containing a condition which
makes its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties is void.

Private respondents are not stopped to assail the unilateral increases in interest rate made by the bank. And their silence on such
cannot be construed as acceptance.

SECURITY BANK AND TRUST COMPANY vs RTC MAKATI

TOPIC:
Central Bank Circular No. 905 Interest Rate 12% Annum Interest Rate Legal Rate

SYLLABUS:
1. CIVIL LAW; LOANS; INTEREST; USURIOUS, NOT A CASE OF; APPLICABILITY OF CENTRAL BANK CIRCULAR 905 IN CASE AT BENCH.
From the examination of the records, it appears that indeed the agreed rate of interest as stipulated on the three (3)
promissory notes is 23% per annum. The applicable provision of law is Central Bank Circular No. 905 which took effect on
December 22, 1982, particularly Sections 1 and 2. . . . 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. . . . All the
promissory notes were signed in 1983 and, therefore, were already covered by CB Circular No. 905. Contrary to the claim of
respondent court, this circular did not repeal nor in anyway amend the Usury Law but simply suspended the latter's effectivity.

2. STATUTORY CONSTRUCTION; RULE APPLICABLE WHEN THE LAW IS CLEAR AND UNAMBIGUOUS. Basic is the rule of statutory
construction that when the law is clear and unambiguous, the court is left with no alternative but to apply the same according
to its clear language.
3. CIVIL LAW; LOANS; INTEREST RATE WHEN VALIDLY STIPULATED MAY NOT BE CHANGED; CASE AT BENCH. 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. We find 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.

4. ID.; ID.; ID.; 12% INTEREST RATE IS IMPOSED WHEN THERE IS NO STIPULATED INTEREST DUE. 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.
Hence, only in the absence of a stipulation can the court impose the 12% rate of interest.

FACTS:
In 1983, Eusebio acquired 3 separate loans from Security Bank amounting to P265k. The agreed interest rate was 23% per annum.
The promissory note was freely and voluntarily signed by both parties. Leia Ventura was the co-maker. Eusebio defaulted from
paying. Security Bank sued for collection.

DECISION OF LOWER COURTS:

* RTC: Judge Gorospe of the Makati RTC ordered Eusebio to pay but he lowered the interest rate to 12% per annum.
* directly to SC in petition for certiorari.

ISSUES:
1. Should the rate of interest on a loan or forbearance of money, goods or credits, as stipulated in a contract, far in excess of
the ceiling prescribed under or pursuant to the Usury Law, prevail over Section 2 of Central Bank Circular No. 905 which
prescribes that the rate of interest thereof shall continue to be 12% per annum? or 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?
2. Do the Courts have the discretion to arbitrarily override stipulated interest rates of promissory notes and stipulated interest
rates of promissory notes and thereby impose a 12% interest on the loans, in the absence of evidence justifying the
imposition of a higher rate?

RULING:
1. Yes, the rate per contract prevails.

From the examination of the records, it appears that indeed the agreed rate of interest as stipulated on the three (3)
promissory notes is 23% per annum. The applicable provision of law is the Central Bank Circular No. 905 which took effect
on December 22, 1982:

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.

Only in the absence of stipulations will the 12% rate be applied or if the stipulated rate is grossly excessive.

Further, Eusebio never questioned the rate. He merely expressed to negotiate the terms and conditions. The promissory
notes were signed by both parties voluntarily. Therefore, stipulations therein are binding between them.

2. NO. 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. We find 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. Hence, only in the absence of a
stipulation can the court impose the 12% rate of interest.
APPLICABLE PROVISIONS OF LAW:
Central Bank Circular No. 905 which took effect on December 22, 1982, particularly Sections 1 and 2 which 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.

All the promissory notes were signed in 1983 and, therefore, were already covered by CB Circular No. 905. Contrary to the claim of
respondent court, this circular did not repeal nor in anyway amend the Usury Law but simply suspended the latter's effectivity.

FIRST METRO INVESTMENT CORPORATION vs ESTE DEL SOL MOUNTAIN RESERVE

Credit Transactions; Usury Law:. All the foregoing established facts and circumstances clearly belie the contention of petitioner FMIC
that the Loan, Underwriting and Consultancy Agreements are separate and independent transactions. The Underwriting and
Consultancy Agreements which were executed and delivered contemporaneously with the Loan Agreement on January 31, 1978 were
exacted by petitioner FMIC as essential conditions for the grant of the loan. An apparently lawful loan is usurious when it is intended
that additional compensation for the loan be disguised by an ostensibly unrelated contract providing for payment by the borrower for
the lenders services which are of little value or which are not in fact to be rendered, such as in the instant case

FACTS:
Petitioner FMIC granted respondent Este del Sol a loan of P7,385,500.00 to finance the construction and development of the Este
del Sol Mountain Reserve, a sports/resort complex project located at Barrio Puray, Montalban, Rizal.

In their loan agreement, the proceeds of the loan were to be released on staggered basis with interest of 16% per annum based on
the diminishing balance. The loan will be payable in 36 equal and consecutive monthly amortizations.

In case of default, an accelaration clause was provided and the amount due was made subject to a 20% percent one-time penalty on
the amount due with interest at the highest rate permitted by law plus liquidated damages at 2% per month compounded quarterly
on the unpaid balance and accrued interests together with all the penalties, fees, expenses or charges thereon, plus attorneys fees
of 25% of the sum to be recovered, which shall be not less than (P20,000.00) if the services of a lawyer were hired.

Este del Sol executed guarantees to secure payment (aggregate sum of 7,500,000): (a) a Real Estate Mortgage over two (2) parcels of
land utilized as the site of its project inclusive of all improvements, machineries, equipment, furnishings and furnitures existing
thereon, (b) individual Continuing Suretyship agreements by co-respondents Daez, Jr., Salientes, De Vega, Asuncion, Ladores, De
Vera, and Sese.

Este del Sol also executed an Underwriting Agreement that FMIC shall: (a) underwrite the public offering of 120, 000 common
shares of respondent Este del Sols capital stock for a fee of P200,000.00; (b) Este del Sol shall pay petitioner FMIC an annual
supervision fee of P200,000.00 per annum for 4 years;(c) payment by respondent to petitioner of a consultancy fee of P332,500.00
per annum for 4 years. A Consultancy Agreement was also executed whereby respondent Este del Sol engaged the services of
petitioner FMIC for general consultancy services.

Petitioner billed respondent Este del Sol for the amounts of [a] P200,000.00 as the underwriting fee; [b] P1,330,000.00 as
consultancy fee for a period of four (4) years; and [c] P200,000.00)as supervision fee. The said amounts of fees were deemed paid
by respondent Este del Sol to petitioner FMIC which deducted the same from the first release of the loan.
Since respondent Este del Sol failed to meet the schedule of repayment in accordance with a revised Schedule of Amortization, it
incurred a total obligation of P12,679,630.98.

Accordingly, petitioner FMIC caused the extrajudicial foreclosure of the real estate mortgage. At the public auction, petitioner FMIC
was the highest bidder of the mortgaged properties 9M with deduction for the necessary fees for the proceeding.

Despite individual demands, petitioner failed to secure the payment of the alleged deficiency balance. So it instituted the instant
collection suit against the respondents to collect the alleged deficiency balance P6,863,297.73 plus interest thereon at 21% per
annum until fully paid, and 25% thereof as and for attorneys fees and costs.
Respondents: sought the dismissal of the case 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

RTC: in favor of FMIC ordering defendants jointly and severally to pay to plaintiff the amount of P6,863,297.73 plus 21% interest per
annum, from June 24, 1980, until the entire amount is fully paid, plus the amount equivalent to 25% of the total amount due, as
attorneys fees, plus costs of suit.

CA: reversed the decision of RTC and declared that the fees provided for in the Underwriting and Consultancy Agreements were
mere subterfuges to camouflage the excessively usurious interest charged by the petitioner FMIC on the loan and the stipulated
penalties were excessive, iniquitous, unconscionable and revolting to the mind. FMIC was ordered to reimburse defendant.

ISSUES:
1. Whether or not Central Bank circular 905 can be made to retroact to apply to the case.
2. Whether or not the underwriting and consultancy agreements are mere subterfuges to camouflage the usurious interest
charged by the petitioner and thus, excessive, iniquitous and unconscionable and revolting to the conscience.
RULING:
1. No. There is no merit to petitioner FMICs contention that Central Bank Circular No. 905 which took effect on January 1,
1983 and removed the ceiling on interest rates for secured and unsecured loans, regardless of maturity, 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, Central Bank Circular No. 905 did not repeal nor in any way amend the Usury Law but simply
suspended the latters 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.

2. Yes. Although there was a written instrument evidencing the contact between the parties, 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.

Art. 1957. Contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws against usury
shall be void. An apparently lawful loan is usurious when it is intended that additional compensation for the loan be
disguised by an ostensibly unrelated contract providing for payment by the borrower for the lenders services which are of
little value or which are not in fact to be rendered, such as in the instant case, where:
a. The Underwriting and Consultancy Agreements which were executed simultaneously were set to mature or shall
remain effective during the same period of time.
b. the Underwriting Agreement, a condition precedent to extend the loan, is part and parcel of the Loan Agreement.
c. Respondent Este del Sol was billed by petitioner on February 28, 1978 P1,330,000.00 as consultancy fee despite the
provision in the Consultancy Agreement which onlt provides for P332,500.00 per annum.
d. The Underwriting, Supervision and Consultancy fees were billed by petitioner to respondent Este del Sol on the same
occasion of the first partial release of the loan. It is from this first partial release of the loan that the said
corresponding bills for Underwriting, Supervision and Consultancy fees were deducted and apparently paid, thus,
reverting back to petitioner FMIC the total amount of P1,730,000.00 as part of the amount loaned to respondent
Este del Sol.

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. The reason for this rule was adequately explained in the case of Angel Jose Warehousing Co.,
Inc. v. Child Enterprises where this Court held:

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. With respect to the debtor, the amount paid as interest under a usurious agreement is recoverable by him, since the
payment is deemed to have been made under restraint, rather than voluntarily.

This Court agrees with the factual findings and conclusion of the appellate court.

MEDEL vs CA

FACTS:
On November 7, 1985, Servando Franco and Leticia Medel (hereafter Servando and Leticia) obtained a loan from Veronica R.
Gonzales (hereafter Veronica), who was engaged in the money lending business under the name "Gonzales Credit Enterprises". in
the amount of P50,000.00, payable in two months. Veronica gave only the amount of P47,000.00, to the borrowers, as she retained
P3,000.00, as advance interest for one month at 6% per month. Servado and Leticia executed a promissory note for P50,000.00, to
evidence the loan, payable on January 7, 1986.

On November 19, 1985, Servando and Leticia obtained from Veronica another loan in the amount of P90,000.00, payable in two
months, at 6% interest per month. They executed a promissory note to evidence the loan, maturing on January 19, 1986. They
received only P84,000.00, out of the proceeds of the loan.

On maturity of the two promissory notes, the borrowers failed to pay the indebtedness.

On June 11, 1986, Servando and Leticia secured from Veronica still another loan in the amount of P300,000.00, maturing in one
month, secured by a real estate mortgage over a property belonging to Leticia Makalintal Yaptinchay, who issued a special power of
attorney in favor of Leticia Medel, authorizing her to execute the mortgage. Servando and Leticia executed a promissory note in
favor of Veronica to pay the sum of P300,000.00, after a month, or on July 11, 1986. However, only the sum of P275,000.00, was
given to them out of the proceeds of the loan.

Like the previous loans, Servando and Medel failed to pay the third loan on maturity.

On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael Medel, consolidated all their previous unpaid loans
totaling P440,000.00, and sought from Veronica another loan in the amount of P60,000.00, bringing their indebtedness to a total of
P500,000.00, payable on August 23, 1986.

They executed another promissory note for the total amount, stipulating (1) an interest thereon at the rate of 5.5 PER CENT per
month plus 2% service charge per annum from date hereof until fully paid according to the amortization schedule contained herein,
(2) that upon failure to pay an amortization or portion thereon (3) an additional amount equivalent to one per cent (1%) per month
of the amount due and demandable as penalty charges in the form of liquidated damages and (5) a further sum of 25% as attorneys
fees whether actually incurred or not.

On maturity, the borrowers failed to pay their indebtedness. Gonzales and her husband filed a complaint with the RTC for the
collection of the full amount of the loan.

Plaintiffs contention: the promissory note, which consolidated all the unpaid loans of the defendants, is the law that governs the
parties. They further argued that Circular No. 416 of the Central Bank prescribing the rate of interest for loans or forbearance of
money, goods or credit at 12% per annum, applies only in the absence of a stipulation on interest rate, but not when the parties
agreed thereon.

Lower Court Decisions:

RTC: Ordered the defendants to pay plaintiffs the amount of P 47,000, P 84,000, P 285,000 with interest at 12% per annum and 1%
per month as penalty until the entire amount is paid in full and attorneys fees of P 50,000.

CA: It ruled that "the Usury Law having become 'legally inexistent' with the promulgation by the Central Bank in 1982 of Circular No.
905, the lender and borrower could agree on any interest that may be charged on the loan. defendants are hereby ordered to pay
the plaintiffs the sum of P500,000.00, plus 5.5% per month interest and 2% service charge per annum effective July 23, 1986, plus
1% per month of the total amount due and demandable as penalty charges effective August 24, 1986. The attorneys fees is also
affirmed.
ISSUE:
1. Whether or not the interest rate of 5.5% per month on the loan in the sum of P500,000.00, that plaintiffs extended to the
defendants is usurious.
2. Is the Usury Law still effective, or has it been repealed by Central Bank Circular No. 905?

RULING:
The stipulated rate of interest at 5.5% per month on the P500,000.00 loan is excessive, iniquitous, unconscionable and exorbitant.
However, we cannot consider the rate "usurious" because this Court has consistently held that Circular No. 905 of the Central Bank,
adopted on December 22, 1982, has expressly removed the interest ceilings prescribed by the Usury Law and that the Usury Law is
now "legally inexistent".

In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61 the Court held that CB Circular No. 905 "did not
repeal nor in anyway amend the Usury Law but simply suspended the latter's effectivity." Indeed, we have held that "a Central Bank
Circular cannot repeal a law. Only a law can repeal another law.

Usury has been legally non-existent in our jurisdiction. Interest can now be charged as lender and borrower may agree upon.
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 decision of the RTC is revived and affirmed.

ADVOCATES FOR TRUTH IN LENDING, INC vs BANGKO SENTRAL MONETARY BOARD

FACTS:
Advocates for Truth in Lending, Inc., (AFTIL) is a non-profit, non-stock corporation organized to engage in pro bono concerns and
activities relating to money lending issues.

DATE OF STATUTE/CIRCULAR PURPOSE EFFECT ON INTEREST RATE

ENACTMENT
June 15, 1948 RA 265 Created Central Bank Empowered CB to set maximum interest rates which
banks may charge for all types of loans/creit transactions
Sec. 109. Interest Rates, Commissions and Charges.
The Monetary Board may fix the maximum rates of
interest which banks may pay on deposits and on other
obligations.

The Monetary Board may, within the limits prescribed in

the Usury Law fix the maximum rates of interest which
banks may charge for different types of loans and for any
other credit operations, or may fix the maximum
differences which may exist between the interest or
rediscount rates of the Central Bank and the rates which
the banks may charge their customers if the respective
credit documents are not to lose their eligibility for
rediscount or advances in the Central Bank.

Any modifications in the maximum interest rates

permitted for the borrowing or lending operations of the
banks shall apply only to future operations and not to
those made prior to the date on which the modification
becomes effective.

In order to avoid possible evasion of maximum interest

rates set by the Monetary Board, the Board may also fix
the maximum rates that banks may pay to or collect
from their customers in the form of commissions,
discounts, charges, fees or payments of any sort.
March 17, 1980 P.D. 1684 Amended Usury Law Giving the CB-MB authority to prescribe different
maximum rates of interest which may be imposed for a
loan or renewal thereof or the forbearance of any
money, goods or credits, provided that the changes are
effected gradually and announced in advance

Sec. 1-a. The 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 changes in such rate or
rates may be effected gradually on scheduled dates
announced in advance.

In the exercise of the authority herein granted the

Monetary Board may prescribe higher maximum rates
for loans of low priority, such as consumer loans or
renewals thereof as well as such loans made by
pawnshops, finance companies and other similar credit
institutions although the rates prescribed for these
institutions need not necessarily be uniform. The
Monetary Board is also authorized to prescribe different
maximum rate or rates for different types of borrowings,
including deposits and deposit substitutes, or loans of
financial intermediaries
January 1, 1983 CB Circular No. 905 Suspended Usury Removed the ceilings on interest rates on loans or
Law (Act No. 2655) forbearance of any money, goods or credits

June 14, 1993 R.A. No. 7653 created the Bangko The repealing clause thereof, Section 135, reads:
Sentral ng Pilipinas Sec. 135. Repealing Clause. Except as may be provided
(BSP) to replace CB for in Sections 46 and 132 of this Act, Republic Act No.
265, as amended, the provisions of any other law, special
charters, rule or regulation issued pursuant to said
Republic Act No. 265, as amended, or parts thereof,
which may be inconsistent with the provisions of this Act
are hereby repealed. Presidential Decree No. 1792 is
likewise repealed.

Contentions of Petitioner:
1. Petitioners contend that under Section 1-a of Act No. 2655, as amended by P.D. No. 1684, the CB-MB was authorized only
to prescribe or set the maximum rates of interest for a loan or renewal thereof or for the forbearance of any money, goods
or credits, and to change such rates whenever warranted by prevailing economic and social conditions, the changes to be
effected gradually and on scheduled dates; that nothing in P.D. No. 1684 authorized the CB-MB to lift or suspend the limits
of interest on all credit transactions, when it issued CB Circular No. 905. They further insist that under Section 109 of R.A.
No. 265, the authority of the CB-MB was clearly only to fix the banks maximum rates of interest, but always within the
limits prescribed by the Usury Law.

Thus, according to petitioners, CB Circular No. 905, which was promulgated without the benefit of any prior public hearing,
is void because it violated Article 5 of the New Civil Code, which provides that "Acts executed against the provisions of
mandatory or prohibitory laws shall be void, except when the law itself authorizes their validity."
 2. Finally, petitioners point out that R.A. No. 7653 did not re-enact a provision similar to Section 109 of R.A. No. 265, and
therefore, in view of the repealing clause in Section 135 of R.A. No. 7653, the BSP-MB has been stripped of the power either
to prescribe the maximum rates of interest which banks may charge for different kinds of loans and credit transactions, or
to suspend Act No. 2655 and continue enforcing CB Circular No. 905.

ISSUES:
1. Whether under R.A. No. 265 and/or P.D. No. 1684, the CB-MB had the statutory or constitutional authority to prescribe the
maximum rates of interest for all kinds of credit transactions and forbearance of money, goods or credit beyond the limits
prescribed in the Usury Law;
2. If so, whether the CB-MB exceeded its authority when it issued CB Circular No. 905, which removed all interest ceilings and
thus suspended Act No. 2655 as regards usurious interest rates;
3. Whether under R.A. No. 7653, the new BSP-MB may continue to enforce CB Circular No. 905.

RULING:
1. CB-MB has the statutory or constitutional authority to prescribe the maximum rates of interest for all kinds of credit
transactions and forbearance of money, goods or credit beyond the limits prescribed in the Usury Law both under RA 265 and
PD 1684
Under RA 265
Sec. 109. Interest Rates, Commissions and Charges. The Monetary Board may fix the maximum rates of interest which
banks may pay on deposits and on other obligations.

The Monetary Board may, within the limits prescribed in the Usury Law fix the maximum rates of interest which banks may
charge for different types of loans and for any other credit operations, or may fix the maximum differences which may exist
between the interest or rediscount rates of the Central Bank and the rates which the banks may charge their customers if
the respective credit documents are not to lose their eligibility for rediscount or advances in the Central Bank.

Any modifications in the maximum interest rates permitted for the borrowing or lending operations of the banks shall apply
only to future operations and not to those made prior to the date on which the modification becomes effective.

In order to avoid possible evasion of maximum interest rates set by the Monetary Board, the Board may also fix the
maximum rates that banks may pay to or collect from their customers in the form of commissions, discounts, charges, fees
or payments of any sort.

Under PD 1684
Sec. 1-a. The 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 changes in such rate or rates may be effected gradually on
scheduled dates announced in advance.

In the exercise of the authority herein granted the Monetary Board may prescribe higher maximum rates for loans of low
priority, such as consumer loans or renewals thereof as well as such loans made by pawnshops, finance companies and
other similar credit institutions although the rates prescribed for these institutions need not necessarily be uniform. The
Monetary Board is also authorized to prescribe different maximum rate or rates for different types of borrowings, including
deposits and deposit substitutes, or loans of financial intermediaries.

2. The CB-MB merely suspended the effectivity of the Usury Law when it issued CB Circular No. 905.
The power of the CB to effectively suspend the Usury Law pursuant to P.D. No. 1684 has long been recognized and upheld
in many cases. As the Court explained in the landmark case of Medel v. CA, citing several cases, CB Circular No. 905 "did not
repeal nor in anyway amend the Usury Law but simply suspended the latters effectivity;" that "a CB Circular cannot repeal
a law, [for] only a law can repeal another law;" that "by virtue of CB Circular No. 905, the Usury Law has been rendered
ineffective;" and "Usury has been legally non-existent in our jurisdiction. Interest can now be charged as lender and
borrower may agree upon."

Thus, according to the Court, by lifting the interest ceiling, CB Circular No. 905 merely upheld the parties freedom of
contract to agree freely on the rate of interest. It cited Article 1306 of the New Civil Code, under which 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.
3. The BSP-MB has authority to enforce CB Circular No. 905.
Section 1 of CB Circular No. 905 provides that "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 juridical, shall not be subject to any ceiling
prescribed under or pursuant to the Usury Law, as amended." It does not purport to suspend the Usury Law only as it
applies to banks, but to all lenders.

Usury law or Act No. 2655, an earlier law, is much broader in scope, whereas R.A. No. 265, now R.A. No. 7653, merely
supplemented it as it concerns loans by banks and other financial institutions. Had R.A. No. 7653 been intended to repeal
Section 1-a of Act No. 2655, it would have so stated in unequivocal terms.

Moreover, the rule is settled that repeals by implication are not favored, because laws are presumed to be passed with
deliberation and full knowledge of all laws existing pertaining to the subject. An implied repeal is predicated upon the
condition that a substantial conflict or repugnancy is found between the new and prior laws. Thus, in the absence of an
express repeal, a subsequent law cannot be construed as repealing a prior law unless an irreconcilable inconsistency and
repugnancy exists in the terms of the new and old laws. We find no such conflict between the provisions of Act 2655 and
R.A. No. 7653.

The lifting of the ceilings for interest rates does not authorize stipulations charging excessive, unconscionable, and iniquitous
interest.

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.

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.

With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as
the accrual thereof, is imposed, as follows: (Following the ruling in the landmark case of Eastern Shipping Lines v. CA)

The 12% per annum rate under CB Circular No. 416 shall apply only to loans or forbearance of money, goods, or credits, as well as to
judgments involving such loan or forbearance of money, goods, or credit, while the 6% per annum under Art. 2209 of the Civil Code
applies "when the transaction involves the payment of indemnities in the concept of damage arising from the breach or a delay in
the performance of obligations in general," with the application of both rates reckoned "from the time the complaint was filed until
the [adjudged] amount is fully paid." In either instance, the reckoning period for the commencement of the running of the legal
interest shall be subject to the condition "that the courts are vested with discretion, depending on the equities of each case, on the
award of interest."

DISPOSITIVE PORTION:
Petition for certiorari is DISMISSED.

IMPERIAL vs JAUCIAN

FACTS:
This is a case for collection of money, filed by Alex A. Jaucian against Restituta Imperial on October 26, 1989. The complaint alleges
that defendant obtained from plaintiff six (6) separate loans in the sum of P320,000.00 for which the former executed in favor of the
latter six (6) separate promissory notes and issued several checks as guarantee for payment. The face value of each promissory
notes is bigger than the amount released to defendant because said face value already included the interest from the date of note to
its date of maturity. The promissory notes indicate interest of 16% per month. When the loans became overdue and unpaid,
especially when the defendants checks were dishonored, plaintiff made repeated oral and written demands for payment.

Both RTC and CA ruled in favor of the respondent holding that the latters clear and detailed computation of petitioners outstanding
obligation to respondent was convincing and satisfactory.
ISSUES:
1. WON petitioner has fully paid her obligations even before filing of this case.
2. WON the charging of interest at twenty-eight (28%) per centum per annum without any writing is illegal.

RULING:
1. The issue involves a question of fact. The court finds no compelling reason to overturn the factual findings of the RTC -- that
the total amount of the loans extended to petitioner was P320,000, and that she paid a total of only P116,540 on twenty-
nine dates. These findings are supported by a preponderance of evidence. Moreover, the amount of the outstanding
obligation has been meticulously computed by the trial court and affirmed by the CA. Petitioner has not given us sufficient
reason why her cause falls under any of the exceptions to this rule on the finality of factual findings.

2. 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."

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.

MACALINAO vs BPI

FACTS:
Petitioner Ileana Macalinao, an approved cardholder of BPI Mastercard, 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 of P 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.

For failure of petitioner Macalinao to settle her obligations, respondent BPI filed with the Metropolitan Trial Court (MeTC) of Makati
City a complaint for a sum of money against her and her husband. In said complaint, respondent BPI prayed for the payment of the
amount of P154,608.78 plus 3.25% finance charges and late payment charges equivalent to 6% of the amount due from February 29,
2004 and an amount equivalent to 25% of the total amount due as attorneys fees, and of the cost of suit. The spouses failed to file
their answer.

RULING OF MeTC: In favor of BPI and ordered Macalinao to pay P141,518.34 plus interest and penalty charges of 2% per month.
RULING OF RTC: Affirmed the decision of MeTC.
RULING OF CA: Affirmed but modified with respect to the total amount due and interest rate (3%).

ISSUE/S:
Whether or not reduction rate of interest rate from 9.25% to 2% should be upheld since the stipulated rate of interest was
unconscionable and iniquitous, and thus illegal.
Whether or not the CA arbitrarily modified the reduced rate of interest from 2% to 3%.

RULING:
The interest rate and penalty charge should of 3% per month or 36% per annum should be 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 the Court has considered the interest rate of 36%
per annum as excessive and unconscionable. The Court held in Chua v. Timan,

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. 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. 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 there has been no performance, the penalty may also be reduced by the courts if it is iniquitous
or unconscionable.

In the instant case, the records would reveal that petitioner Macalinao made partial payments to respondent BPI, as indicated in her
Billing Statements. 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.

LEDDA vs BPI

FACTS:
As one of Bank of the Philippine Islands (BPI) valued clients, Ledda was issued a pre-approved BPI credit card. 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.
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 with the Regional Trial Court. Trial court ruled in favor of BPI.

On appeal to the CA, one of Leddas arguments is that since there was no written agreement to pay a higher interest, the interest
rate to be imposed is only 6% pursuant to Article 2209 of the Civil Code. The CA rejected Leddas arguments.

ISSUE:
Whether or not the imposable interest rate is 6%?

RULING:
Since there is no dispute that Ledda received, accepted and used the BPI credit card issued to her and that she defaulted in the
payment of the total amount arising from the use of such credit card, Ledda is liable to pay BPI P322,138.58 representing the
principal amount of her unpaid credit card obligation. 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. We reject Leddas contention
that, since there was no written agreement to pay a higher interest rate, the interest rate should only be 6%. Ledda erroneously
invokes Article 2209 of the Civil Code. Article 2209 refers to indemnity for damages and not interest on loan or forbearance of
money, which is the case here.
SPOUSES CARPO vs CHUA and DY NG

FACTS:
Herein petitioner spouses David Carpo and Rechilda Carpo contracted a loan from Eleanor Chua and Elma Dy Ng for a certain sum of
money payable within six (6) months with an interest rate of six percent (6%) per month secured by a mortgaged of the spouses
Carpo of their residential house and lot. Petitioners failed to pay the loan upon demand. Consequently, the real estate mortgage was
extrajudicially foreclosed, mortgaged property sold at a public auction, and the house and lot was awarded to respondents, who
were the only bidders. Unable to exercise their right of redemption by petitioners, a certificate of sale was issued in the name of
respondents. However, petitioners continued to occupy the said house and lot, thus respondents file a petition for writ of
possession which was granted by the Trial Court. Petitioners filed a complaint for annulment of real estate mortgage and the
consequent foreclosure proceedings claiming that the rate of interest stipulated in the principal loan agreement is clearly null and
void for being excessive, iniquitous, unconscionable and exorbitant. Consequently, they also argue that the nullity of the agreed
interest rate affects the validity of the real estate mortgage.

ISSUE:
Whether or not the agreed rate of interest of 6% per month or 72% per annum is so excessive, iniquitous, unconscionable and
exorbitant that it should have been declared null and void.

HELD:
In a long line of cases, the Supreme Court has invalidated similar stipulations on interest rates for being excessive, iniquitous,
unconscionable and exorbitant. Pursuant to the freedom of contract principle embodied in Article 1306 of the Civil Code, 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. In the ordinary course, the codal provision may be invoked to annul the
excessive stipulated interest. In the case at bar, the stipulated interest rate is 6% per month, or 72% per annum. By the standards set
by jurisprudence, this stipulation is similarly invalid.

TOLEDO vs HYDEN

FACTS:
Petitioner Jocelyn Toledo (Jocelyn) who was then the VP of CAP Philippines, obtained several loans from respondent Marilou
Hyden (Marilou), totaling an amount of 290k
From Aug 15, 1993 up to Dec. 31, 1997, Jocelyn had been religiously paying the interests of said loan thru checks and bank
deposits, however, the principal amount of 290k was left unpaid
Marilyn thus went to Jocelyns office in CAP Cebu to have the latter, sign Acknowledgment of Debt, to which Jocelyn signed with
two of her workmates as witness.
Also on said occasion, Jocelyn gave Marilou five PDCs amounting to 290k (Checks no. 0010761, -62, -63, -64, -65)
Jocelyn then asked for check no. 0010761 back and returned to Marilou five checks staggering the original amount (checks no.
0010494, -95, -96, -97, -98, -99)
After honoring the first 3 checks, Joeclyn ordered stoppage of payment and filed with RTC Cebu a complaint against Marilou for
Declaration of Nullity and payment, Annulment, Sumo of Money, Injunction and Damages
Plaintiffs contention: Marilou threatened her into signing the Acknowledgment. That the former would sue the latter for BP22.
Further, Jocelyn avers that the interest applied to the loan is unjust and oppressive because there was no written agreement as
to interest
Defendants contention Jocelyn voluntarily obtained the loans knowing full well that the interest rate was at 6-7% per month
RTC: Jocelyn
CA: Jocelyn

ISSUE:
W/N the imposition of interest at the rate of 6-7% is contrary to law, morals, good customs, public order or public policy

RULING:
NO. In view of Central Bank Circular 905, which suspended the Usury Law ceiling on interest, parties to a loan agreement have wide
latitude to stipulate interest rates. Nevertheless, such rates may be declared illegal if the same are unconscionable.

In this case, we cannot consider the disputed rates to be iniquitous or unconscionable. There was no urgency of the need for money
on the part of Jocelyn, the debtor, which compelled her to enter into said loan transactions. She used the money from the loans to
make advance payments for prospective clients of educational plans offered by her employer. She used the money from the loans to
make advance payments for prospective clients, increasing her sales production, and thereby entitling her to 50% rebate. This is why
she did not mind the 6-7% interest rate.

After years of benefiting from the proceeds of the loans bearing and interest rate of 6-7% and paying for the same, Jocelyn cannot
now go to court to have the said interest rate annulled on the ground that it is excessive. This is so because among the maxims of
equity are:
1. He who seeks equity must do equity
2. He who comes into equity must come with clean hands

DE LA PAZ vs L&J DEVELOPMENT COMPANY

Petition for Certiorari on CA decision (and the Motion for Reconsideration) which reversed and set aside the RTC decision affirming
the MTC decision ordering the respondent to pay the petitioner its principal obligation of P350,000.00, plus 12% interest per annum
reckoned from the filing of the Complaint until full payment of the obligation.

FACTS:
On December 27, 2000, Rolando lent P350,000.00 without any security to L&J, a property developer with Atty. Esteban Salonga
(Atty. Salonga) as its President and General Manager. Loan had no maturity date but with a 6% monthly interest, i.e., P21,000.00.
and from December 2000 to August 2003, L&J paid Rolando a total of P576,000.00 including the interest charges.

L&J failed to pay despite repeated demands from Rolando.

- Rolando filed a Complaint for Collection of Sum of Money with Damages against L&J and Atty. Salonga in his personal
capacity before the MeTC, alleging that as of January 2005, the debt stood at P772,000.00; that the 6% monthly interest
was upon Atty. Salongas suggestion; and Salonga tricked Rolando into the loan transaction without being written.

L&J and Atty. Salongas Answer: Denied allegations and claimed that the difficulty to pay was due to a fortuitous event because of
the economic crisis. They also claimed that Rolando cannot enforce the 6% interest because it is unconscionable and shocking to the
morals. Hence, the payments already made should be applied to the P350,000.00 principal loan.

During trial, Roalndo testified that he knew Salonga because of a friend and was developing a subdivision. When they were not able
to finish the project, he agreed to lend them money. He said that during the borrowing, it was Arlene, the secretary who negotiated
the terms and conditions thereof. Rolando said that Salongas camp was the one who suggested the payment of interest.

Ruling of the Metropolitan Trial Court: The MeTC upheld the 6% monthly interest. Since it paid the interest from 2000 to 2003, it is
already estopped from impugning the same. For reasons of equity, the said court reduced the interest rate to 12% per annum on the
remaining principal obligation of P350,000.00. MeTC denied the award of damages since there was no malice on L&J or on Salonga.

Ruling of the Regional Trial Court: L&J appealed to the RTC saying that the monthly interest it paid from December 2000 to March
2003 amounts to P576,000.00 an amount which is even more than the principal obligation of P350,000.00, and insisting further
that the 6% monthly interest rate is unconscionable and immoral. Hence, the 12% per annum legal interest should have been
applied from the time of the constitution of the obligation.

At 12% per annum interest rate = P105,000.00. If compensation is to be applied, the principal loan of P350,000.00 should be set-off
against the P471,000.00, resulting in the complete payment of the principal loan. However, RTC affirmed the MeTC ruling.

Ruling of the Court of Appeals: L&J went to the CA and echoed its arguments and proposed computation as proffered before the
RTC. The CA reversed and set aside the RTC Decision.

The CA decision: Parties failed to stipulate in writing the imposition of interest on the loan. Hence, no interest shall be due thereon
pursuant to Article 1956 of the Civil Code. And even if payment of interest has been stipulated in writing, the 6% monthly interest is
still outrightly illegal and unconscionable because it is contrary to morals, if not against the law. Being void, this cannot be ratified
and may be set up by the debtor as defense. For these reasons, Rolando cannot collect any interest even if L&J offered to pay
interest. Consequently, he has to return all the interest payments of P576,000.00 to L&J.

Considering further that Rolando and L&J thereby became creditor and debtor of each other, the CA applied the principle of legal
compensation under Article 1279 of the Civil Code. Accordingly, it set off the principal loan of P350,000.00 against the P576,000.00
total interest payments made, leaving an excess of P226,000.00, which the CA ordered Rolando to pay L&J plus interest.
Rolando filed a Motion for Reconsideration but the same was denied by the CA. Hence the present petition.

The Parties Arguments

Rolando: Atty. Salonga took advantage of his legal knowledge and led him (Rolando) in believing that no document was necessary to
reflect the interest rate. Moreover, debtor was the one who imposed the interest.

L&J: Interest rate should be agreed upon by the parties, one just one party. Furthermore, jurisprudence has nullified interest rates
on loans of 3% per month and higher as these rates are contrary to morals and public interest.

ISSUE:
WON the agreement on the interest is valid under the law and is it unconscioinable.

RULING:
The Petition is devoid of merit.

The lack of a written stipulation to pay interest on the loaned amount disallows a creditor from charging monetary interest.

Under Article 1956 of the Civil Code, no interest shall be due unless it has been expressly stipulated in writing. Jurisprudence on the
matter also holds that for interest to be due and payable, two conditions must concur: a) express stipulation for the payment of
interest; and b) the agreement to pay interest is reduced in writing.

Here, it is undisputed that the parties did not put down in writing their agreement. Thus, no interest is due. The collection of interest
without any stipulation in writing is prohibited by law.

1. As to the interest: Despite the lack of a document stipulating the payment of interest, L&J nevertheless devotedly paid interests
on the loan. It only stopped when it suffered from financial difficulties that prevented it from continuously paying the 6%
monthly rate.

2. Education and profession: For another, regardless of Atty. Salongas profession, Rolando who is an architect and an educated
man himself could have been a more reasonably prudent person under the circumstances.

3. Estoppel: It may be raised that L&J is estopped from questioning the interest rate considering that it has been paying Rolando
interest at such rate for more than two and a half years. In fact, in its pleadings before the MeTC and the RTC, L&J merely
prayed for the reduction of interest from 6% monthly to 1% monthly or 12% per annum.

However, in Ching v. Nicdao, the daily payments of the debtor to the lender were considered as payment of the principal
amount of the loan because Article 1956 was not complied with. This was notwithstanding the debtors admission that the
payments made were for the interests due. The Court categorically stated therein that [e]stoppel cannot give validity to an act
that is prohibited by law or one that is against public policy.

4. 6% Interest rate is unconscionable

With the Usury Law suspended 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 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. The levying 6% monthly or 72% interest per annum is
definitely outrageous and inordinate.

Voluntariness in payment of the interest does not make an unconscionable interest valid. No monetary interest is due Rolando
because of non-compliance with Article1956, hence the payments are to be applied to the principal amount. The excess amount
of P226,000.00 should be returned to L&J following the principle of solutio indebiti.

Pursuant to Central Bank Circular No. 799 s. 2013, an interest of 6% per annum from the finality of this Decision.

SC decision: Affirmed CA decision ordering petitioner Rolando C. De La Paz to pay respondent L&J Development Company the
amount of P226,000.00, plus interest of 6% per annum from the finality of this Decision until fully paid.