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ACT NO. 2655 AN ACT FIXING RATES OF INTEREST UPON LOANS AND
DECLARING THE EFFECT OF RECEIVING OR TAKING USURIOUS RATES AND
FOR OTHER PURPOSES
Section 1. 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 be six per centum per annum or such
rate as may be prescribed by the Monetary Board of the Central Bank of the Philippines for that purpose in
accordance with the authority hereby granted.
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.
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.
Sec. 2. No person or corporation shall directly or indirectly take or receive in money or other property, real or
personal, or choses in action, a higher rate of interest or greater sum or value, including commissions, premiums,
fines and penalties, for the loan or renewal thereof or forbearance of money, goods, or credits, where such loan or
renewal or forbearance is secured in whole or in part by a mortgage upon real estate the title to which is duly
registered, or by any document conveying such real estate or an interest therein, than twelve per centum per annum
or the maximum rate prescribed by the Monetary Board and in force at the time the loan or renewal thereof or
forbearance is granted: Provided, That the rate of interest under this section or the maximum rate of interest that may
be prescribed by the Monetary Board under this section may likewise apply to loans secured by other types of
security as may be specified by the Monetary Board.
Sec. 3. No person or corporation shall directly or indirectly demand, take, receive or agree to charge in money or
other property, real or personal, a higher rate or greater sum or value for the loan or forbearance of money, goods, or
credits where such loan or forbearance is not secured as provided in Section two hereof, than fourteen per centum
per annum or the maximum rate or rates prescribed by the Monetary Board and in force at the time the loan or
forbearance is granted.
Sec. 4. No pawnbroker or pawnbrokers agent shall directly or indirectly stipulate, charge, demand, take or receive
any higher rate or greater sum or value for any loan or forbearance than two and one-half per centum per month
when the sum lent is less than one hundred pesos; two per centum per month when the sum lent is one hundred
pesos or more, but not exceeding five hundred pesos; and fourteen per centum per annum when it is more than the
amount last mentioned; or the maximum rate or rates prescribed by the Monetary Board and in force at the time the
loan or forbearance is granted. A pawnbroker or pawnbrokers agent shall be considered such, for the benefits of this
Act, only if he be duly licensed and has an establishment open to the public.
It shall be unlawful for a pawnbroker or pawnbrokers agent to divide the pawn offered by a person into two or more
fractions in order to collect greater interest than the permitted by this section.
It shall also be unlawful for a pawnbroker or pawnbrokers agent to require the pawner to pay an additional charge as
insurance premium for the safekeeping and conservation of the article pawned.
Sec. 4-a. The Monetary Board may eliminate, exempt from, or suspend the effectivity of, interest rate ceilings on
certain types of loans or renewals thereof or forbearances of money, goods, or credit, whenever warranted by
prevailing economic and social conditions.
Sec. 4-b. In the exercise of its authority to fix the maximum rate or rates of interest under this Act, the Monetary
Board shall be guided by the following:
1. The existing economic conditions in the country and the general requirements of the national economy;
Sec. 5. In computing the interest on any obligation, promissory note or other instrument or contract, compound
interest shall not be reckoned, except by agreement: Provided, That whenever compound interest is agreed upon, the
effective rate of interest charged by the creditor shall not exceed the equivalent of the maximum rate prescribed by
the Monetary Board, or, in default thereof, whenever the debt is judicially claimed, in which last case it shall draw six
per centum per annum interest or such rate as may be prescribed by the Monetary Board. No person or corporation
shall require interest to be paid in advance for a period of more than one year: Provided, however, That whenever
interest is paid in advance, the effective rate of interest charged by the creditor shall not exceed the equivalent of the
maximum rate prescribed by the Monetary Board.
Sec. 6. Any person or corporation who, for any such loan or renewal thereof or forbearance, shall have paid or
delivered a higher rate or greater sum or value than is hereinbefore allowed to be taken or received, may recover the
whole interest, commissions, premiums penalties and surcharges paid or delivered with costs and attorneys fees in
such sum as may be allowed by the court in an action against the person or corporation who took or received them if
such action is brought within two years after such payment or delivery: Provided, however, That the creditor shall not
be obliged to return the interest, commissions and premiums for a period of not more than one year collected by him
in advance when the debtor shall have paid the obligation before it is due, provided such interest, and commissions
and premiums do not exceed the rates fixed in this Act.
Sec. 7. All covenants and stipulations contained in conveyances, mortgages, bonds, bills, notes, and other contracts
or evidences of debts, and all deposits of goods or other things, whereupon or whereby there shall be stipulated,
charged, demanded, reserved, secured, taken, or received, directly or indirectly, a higher rate or greater sum or value
for the loan or renewal or forbearance of money, goods, or credits than is hereinbefore allowed, shall be void:
Provided, however, That no merely clerical error in the computation of interest, made without intent to evade any of
the provisions of this Act, shall render a contract void: Provided, further, That parties to a loan agreement, the
proceeds of which may be availed of partially or fully at some future time, may stipulate that the rate of interest
agreed upon at the time the loan agreement is entered into, which rate shall not exceed the maximum allowed by law,
shall prevail notwithstanding subsequent changes in the maximum rates that may be made by the Monetary Board:
And Provided, finally, That nothing herein contained shall be construed to prevent the purchase by an innocent
purchaser of a negotiable mercantile paper, usurious or otherwise, for valuable consideration before maturity, when
there has been no intention on the part of said purchaser to evade the provisions of this Act and said purchase was
not a part of the original usurious transaction. In any case, however, the maker of said note shall have the right to
recover from said original holder the whole interest paid by him thereon and, in case of litigation, also the costs and
such attorneys fees as may be allowed by the court.
Sec. 8. All loans under which payment is to be made in agricultural products or seed or in any other kind of
commodities shall also be null and void unless they provide that such products or seed or other commodities shall 6e
appraised at the time when the obligation falls due at the current local market price: Provided, That unless otherwise
stated in a document written in a language or dialect intelligible to the debtor and subscribed in the presence of not
less than two witnesses, any contract advancing money to be repaid later in agricultural products or seed or any other
kind of commodities shall be understood to be a loan, and any person or corporation having paid otherwise shall be
entitled in case action is brought within two years after such payment or delivery to recover all the products or seed
delivered as interest, or the value thereof, together with the costs and attorneys fees in such sum as may be allowed
by the court. Nothing contained in this section shall be construed to prevent the lender from taking interest for the
money lent, provided such interest be not in excess of the rates herein fixed.
Sec. 9. The person or corporation sued shall file its answer in writing under oath to any complaint brought or filed
against said person or corporation before a competent court to recover the money or other personal or real property,
seeds or agricultural products, charged or received in violation of the provisions of this Act. The lack of taking an oath
to an answer to a complaint will mean the admission of the facts contained in the latter.
Sec. 9-a. The Monetary Board shall promulgate such rules and regulations as may be necessary to implement
effectively the provisions of this Act.
Sec. 10. Without prejudice to the proper civil action violation of this Act and the implementing rules and regulations
promulgated by the Monetary Board shall be subject to criminal prosecution and the guilty person shall, upon
conviction, be sentenced to a fine of not less than fifty pesos nor more than five hundred pesos, or to imprisonment
for not less than thirty days nor more than one year, or both, in the discretion of the court, and to return the entire sum
received as interest from the party aggrieved, and in the case of non-payment, to suffer subsidiary imprisonment at
the rate of one day for every two pesos: Provided, That in case of corporations, associations, societies, or companies
the manager, administrator or gerent or the person who has charge of the management or administration of the
business shall be criminally responsible for any violation of this Act.
Sec. 11. All Acts and parts of Acts inconsistent with the provisions of this Act are hereby repealed.
Sec. 12. This Act shall take effect on the first day of May, nineteen hundred and sixteen.
WHEREAS, the interest rate, together with other monetary and credit policy instruments, performs a
vital role in mobilizing domestic savings and attracting capital resources into preferred areas of
investment;
WHEREAS, the monetary authorities have recognized the need to amend the present Usury Law to
allow for more flexible interest rate ceilings that would be more responsive to the requirements of
changing economic conditions;
WHEREAS, the availability of adequate capital resources is, among other factors, a decisive
element in the achievement of the declared objective of accelerating the growth of the national
economy;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue of the
powers in me vested by the Constitution as Commander-in-Chief of the Armed Forces of the
Philippines, and pursuant to Proclamation No. 1081, dated September 21, 1972, and General Order
No. 1, dated September 22, 1972, as amended, and in order to effect the desired changes and
reforms in the social, economic, and political structure of our society, do hereby order and decree
the amendment of Act No. 2655, as amended, as follows:
Section 1. Section one of Act Numbered Two thousand six hundred fifty-five is hereby amended to
read as follows:
"Sec. 1. 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 be fix per
centum per annum or such rate as may be prescribed by the Monetary Board of the Central Bank of
the Philippines for that purpose in accordance with the authority hereby granted."
Section 2. The same Act is hereby amended by adding the following section immediately after the
section one thereof, which reads as follows:
"Sec. 1-a. The Monetary Board is hereby authorized to prescribe the maximum rate or rate of
interest for the loan or renewal thereof or the forbearance of any money, goods or credits, and to
chance 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.
"In the exercise of the authority herein granted, the Monetary Board may prescribe higher maximum
rates for 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."
Section 3. Section two of the same Act is hereby amended to read as follows:
"Sec. 2. No person or corporation shall directly or indirectly take or receive in money or other
property, real or personal, or choses in action, a higher rate of interest or greater sum or value,
including commissions, premiums, fines and penalties, for the loan or renewal thereof or forbearance
of money, goods, or credits, where such loan or renewal or forbearance is secured in whole or in
part by a mortgage upon real estate the title to which is duly registered, or by any document
conveying such real estate or an interest therein, than twelve per centum per annum on the
maximum rate prescribed by the Monetary Board and in force at the time the loan or renewal thereof
or forbearance is granted: Provided, That the rate of interest under this section or the maximum rate
of interest that may be prescribed by the Monetary Board under this section may likewise apply to
loans secured by other types of security as may be specified by the Monetary Board."
Section 4. Section three of the same Act is hereby amended to read as follows:
"Sec. 3. No person or corporation shall directly or indirectly demand, take, receive, or agree to
charge in money or other property, real or personal, a higher rate or greater sum or value for the
loan or forbearance is not secured as provided in Section two hereof, than fourteen per centum per
annum or the maximum rate or rates prescribed by the Monetary Board and in force at the time the
loan or forbearance is granted."
Section 5. Section four of the same Act is hereby amended to read as follows:
"Sec. 4. No pawnbroker or pawnbroker's agent shall directly or indirectly stipulate, charge, demand,
take or receive any higher rate or greater sum or value for any loan or forbearance than two and
one-half per centum per month when the sum lent is less than one hundred pesos; two per centum
per month when the sum lent is one hundred pesos or more, but not exceeding five hundred pesos;
and fourteen per centum per annum when it is more than the amount last mentioned; or the
maximum rate or rates prescribed by the Monetary Board and in force at the time the loan or
forbearance is granted. A pawnbroker or pawnbroker's agent shall be considered such, for the
benefits of this Act, only if he be duly licensed and has an establishment open to the public.
"It shall be unlawful for a pawnbroker or pawnbroker's agent to divide the pawn offered by a person
into two or more fractions in order to collect greater interest than that permitted by this section."
"It shall also be unlawful for a pawnbroker or pawnbroker's agent to require the pawner to pay an
additional charge as insurance premium for the safekeeping and conservation of the article pawned."
Section 6. The same Act is hereby amended by adding the following section immediately after
Section four thereof, which reads as follows:
"Sec. 4-a. In the exercise of its authority to fix the maximum rate or rates of interest under this Act,
the Monetary Board shall be guided by the following:
"1. The existing economic conditions in the country and the general requirements of the
national economy;
"4. Such other relevant criteria as the Monetary Board may adopt."
Section 7. Section five of the same Act is hereby amended to read as follows:
"Sec. 5. In computing the interest on any obligation, promissory note or other instrument or contract,
compound interest shall not be reckoned, except by agreement: Provided, That whenever compound
interest is agreed upon, the effective rate of interest charged by the creditor shall not exceed the
equivalent of the maximum rate prescribed by the Monetary Board, or, in default thereof, whenever
the debt is judicially claimed, in which last case it shall draw six per centum per annum interest or
such rate as may be prescribed by the Monetary Board. No person or corporation shall require
interest to be paid in advance for a period of not more than one year: Provided, however, That
whenever interest is paid in advance, the effective rate of interest charged by the creditor shall not
exceed the equivalent of the maximum rate prescribed by the Monetary Board."
Section 8. Section seven of the same Act is hereby amended to read as follows:
"Sec. 7. All covenants and stipulations contained in conveyances, mortgages, bonds, bills, notes and
other contracts or evidences of debts, and all deposits of goods or other things, whereupon or
whereby there shall be stipulated, charged, demanded, reserved, secured, taken, or received,
directly or indirectly, a higher rate or greater sum or value for the loan or renewal or forbearance of
money, goods, or credits than is hereinabove allowed, shall be void: Provided, however, That no
merely clerical error in the computation of interest, made without intent to evade any of the
provisions of this Act, shall render a contract void: Provided, further, That parties to a loan
agreement, the proceeds of which may be availed of partially or fully at some future time, may
stipulate that the rate of interest agreed upon at the time the loan agreement is entered into, which
rate shall not exceed the maximum allowed by law, shall prevail notwithstanding subsequent
changes in the maximum rates that may be made by the Monetary Board: And Provided, finally, That
nothing herein contained shall be construed to prevent the purchase by an innocent purchaser of a
negotiable mercantile paper, usurious or otherwise, for valuable consideration before maturity, when
there has been no intention on the part of said purchaser to evade the provisions of this Act and said
purchase was not a part of the original usurious transaction. In any case, however, the maker of said
note shall have the right to recover from said original holder the whole interest paid by him thereon
and, in case of litigation, also the costs and such attorney's fees as may be allowed by the court."
Section 9. The same Act is hereby amended by adding the following section immediately after
Section nine thereof, which reads as follows:
"Sec. 9-a. The Monetary Board shall promulgate such rules and regulations as may be necessary to
implement effectively the provisions of this Act."
Section 10. Section ten of the same Act is hereby amended to read as follows:
"Sec. 10. Without prejudice to the proper civil action, violation of this Act and the implementing rules
and regulations promulgated by the Monetary Board shall be subject to criminal prosecution and the
guilty person shall, upon conviction, be sentenced to a fine of not less than fifty pesos nor more than
five hundred pesos, or to imprisonment for not less than thirty days nor more than one year, or both,
in the discretion of the court, and to return the entire sum received as interest from the party
aggrieved, and in case of non-payment, to suffer subsidiary imprisonment at the rate of one day for
every two pesos: Provided, That in case of corporations, associations, societies, or companies the
manager, administrator or gerente or the person who has charge of the management or
administration of the business shall be criminally responsible for any violation of this Act."
Section 11. All Acts and parts of Acts inconsistent with the provisions of this Decree are hereby
repealed.
Done in the City of Manila, this 29th day of January, in the year of Our Lord, nineteen hundred and
seventy-three.
July 29, 1974 By virtue of the authority granted to it under Section 1 of Act No. 2655, as amended,
otherwise known as the Usury Law, the Monetary Board, in its Resolution No. 1622 dated July 29,
1974,has prescribed that the rate of interest for the loan or forbearance of any money, goods or
creditsand the rate allowed in judgments, in the absence of express contract as to such rate of interest,
shall be twelve per cent (12%) per annum. This circular shall take effect immediately. SGD. G. S. Licaros
The Monetary Board, in its Resolution No. 2224 dated December 3, 1982, approved the following
regulations governing interest rates on loans or forbearance of money, goods or credit and the
amendment of Books I to IV of the Manual of Regulations for Banks and Other Financial Intermediaries:
General Provisions
SECTION 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 juridical, shall not be
subject to any ceiling prescribed under or pursuant to the Usury Law, as amended.
SECTION 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.
BOOK I
Commercial Banks
SECTION 5. Section 1303 of the Manual of Regulations is hereby amended to read as follows:
SECTION 1303. Interest and Other Charges. The rate of interest, including commissions, premiums,
fees and other charges, on any loan, or forbearance of any money, goods or credits, regardless of maturity
and whether secured or unsecured, shall not be subject to any ceiling prescribed under or pursuant to the
Usury Law, as amended.
SECTION 7. The first paragraph of Subsection 1303.4 of the Manual of Regulations is hereby
amended to read as follows:
The rate of interest on a floating rate loan during each interest period shall be stated on the basis of a
reference rate plus a margin as may be agreed upon by the parties.
SECTION 8. Subsection 1303.6 of the Manual of Regulations is hereby amended to read as follows:
Subsection 1303.6. Short-term rate. Expanded commercial banks, commercial banks and specialized
government banks shall post their respective short-term prime rates in a conspicuous place in their
principal offices, branches and other banking offices. Expanded commercial banks and the Land Bank of
the Philippines shall publish every other Monday their respective prevailing short-term prime rates in at
least one daily newspaper of general circulation throughout the Philippines and on the effective date of
any change of at least one-half per cent (%) per annum from the last published rate, in at least one daily
newspaper of general circulation throughout the Philippines. For purposes of this subsection, the short-
term prime rate shall be the lowest effective rate which a bank will charge on availments of P500,000.00
and above with a maturity of 90 days, more of less , against credit lines of the banks more established
clients, provided that such availments are not eligible for rediscounting with the Central Bank at
preferential rates and that the borrowers are not directors, officers and stockholders, including their
related interest, of the lending bank.
Likewise, for purposes of this subsection, more established clients is defined as client who has been
availing himself of the facilities of the bank for number of years, by maintaining substantial deposit
balances, utilizing foreign exchange facilities such as exports, imports and remittances on a regular basis,
or availing himself of other fee-based services.
For statistical and monitoring purposes, banks shall report these rates monthly to the Department of
Economic Research, Domestic, Central Bank of the Philippines. Changes in these rates shall also be
reported to said Department on the day the changes are to be effective.
Banks shall report monthly to the Department of Economic Research-Domestic the volume and interest of
availments of P500,000.00 and above with a maturity of 90 days, more or less, against credit lines of their
clients.
SECTION 9. Item d of Section 1349 of the Manual of Regulations is hereby amended to read as
follows:
d. Terms, interest and charges. The maximum term of loans money shops may grant shall in no case
exceed 180 days and the rate of interest on such loans, inclusive of commissions, premiums, fees and
other charges, shall not be subject to any ceilings prescribed under or pursuant to the Usury Laws, as
amended.
SECTION 10. Subsection 1388.1 of the Manual of Regulations is hereby amended to read as follows:
The rate of yield, including commissions, premiums, fees, and other charges, from the purchase of
receivables and other obligations, regardless of maturity, that may be charged or received by banks
authorized to engage in quasi-banking functions or by non-bank financial intermediaries authorized to
engage in quasi-banking functions, shall not be subject to any regulatory ceiling.
Data on the volume and interest rates of domestic loans and discounts with original maturities of more
than 365 days shall be reported by expanded commercial banks and commercial banks to the Department
of Economic Research, Domestic, Central Bank of the Philippines, not later than the 15th banking day after
end of reference month.
BOOK II
Thrift Banks
SECTION 12. Section 2303 of the Manual of Regulations is hereby amended to read as follows:
SECTION 2303. Interest and other Charges. 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, shall not be subject to any ceiling prescribed under or pursuant to the
Usury Law, as amended.
SECTION 13. Subsection 2303.3 of the Manual of Regulations is hereby deleted.
SECTION 14. The first paragraph of Subsection 2303.4 of the Manual of Regulations is hereby
amended to read as follows:
The rate of interest on a floating rate loan during each interest period shall be stated on the basis of a
reference rate plus a margin as may be agreed upon by the parties.:
SECTION 15. The last paragraph of Subsection 2303.4 of the Manual of Regulations is hereby
amended to read as follows:
Where the loan agreement provides for a floating interest rate, the interest period, which shall be such
period of time for which the rate of interest is fixed, shall be such period as may be agreed upon by the
parties.
SECTION 16. The first paragraph of Subsection 2303.6 of the Manual of Regulations is hereby deleted.
SECTION 17. Item c of Section 2349 of the Manual of Regulations is hereby amended to read as
follows:
C. Terms, interest and charges. The maximum term of loans money shops may grant shall in no
case exceed 180 days and the rate of interest on such loans, inclusive of commission, premiums, fees and
other charges, shall not be subject to any ceiling prescribed under or pursuant to the Usury Law, as
amended.
SECTION 18. Subsection 2388.1 of the Manual of Regulations is hereby ended to read as follows:
BOOK III
Rural Banks
SECTION 19. Item c of Subsection 3152.3 of the Manual of Regulations is hereby amended to read as
follows:
c. Terms, interest and charges. The maximum term of loans money shops may grant shall in no case
exceed 180 days and the rate of interest on such loans, inclusive of commissions, premiums, fees and
other charges, shall not be subject to any ceiling prescribed under or pursuant to the Usury Law, as
amended.
a. Interest rate. 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, shall not be subject to any ceiling prescribed under or pursuant to the Usury Law, as
amended.
SECTION 22. Item b of Subsection 3303.1 of the Manual of Regulations is hereby deleted and items
c, d, f and g of the same Subsection are hereby relettered as items b, c, d and e, respectively.
SECTION 23. The first paragraph of Subsection 3303.2 of the Manual of Regulations is hereby deleted.
SECTION 24. Subsection 3303.5 of the Manual of Regulations is hereby amended to read as follows:
Subsection 3303.5. Floating rates of interest. The rate of interest on a floating rate loan during each
interest period shall be stated on the basis of a reference rate plus a margin as may be agreed upon by the
parties.
Reference rates for various interest periods shall be determined and announced by the Central Bank every
week and shall be based on the weighted average of the interest rates paid during the immediately
preceding week by the ten (10) commercial banks with the highest levels of outstanding deposit
substitutes on promissory notes issued by such banks, with maturities corresponding to the interest
periods for which such reference rates are being determined. The commercial banks to be included for
purposes of computing the reference rates shall be reviewed and determined at the beginning of every
calendar semester on the basis of the levels of their outstanding deposit substitutes as of May 31 or
November 30, as the case may be.
The rate of interest on floating rate loans, existing and outstanding as of April 2, 1982 shall continue to
be determined on the basis of the reference rate obtained from the weighted average of the interest rates
paid by the five banks with the largest volume of business transacted during the immediately preceding
thirty (30) days, on time deposits with maturities of more than seven hundred thirty (730) days, which
shall be announced by the Central Bank every month for as long as such loans are existing and
outstanding: Provided, however, That the parties to such existing floating rate loans agreements are not
precluded from amending or modifying their loan agreements by adopting a floating rate of interest
determined on the basis of the reference rate mentioned in the preceding paragraph.
Where the loan agreement provides for a floating interest rate, the interest period, which shall be such
period of time for which the rate of interest is fixed, shall be such period as may be agreed upon by the
parties.
BOOK IV
SECTION 25. The last paragraph of Subsection 4283Q.1 of the Manual of Regulations is hereby
amended to read as follows:
Procedures for demand deposits of NBQBs with the Central Bank as provided in Appendix 14 shall be
followed.
SECTION 26. Subsection 4303Q.1 to 4303Q.9 of the Manual of Regulations are hereby amended to
read as follows:
Subsection 4303Q.1. Purchase of Receivables. The rate of yield, including commissions, premiums,
fees and other charges, from the purchase of receivables and other obligations, regardless of maturity,
that may be charged or received by NBQBs shall not be subject to any regulatory ceiling.
Receivables and other obligations shall include claims collectible in money of any amount and maturity
from domestic and foreign sources. The Monetary Board shall determine in doubtful cases whether a
particular claim is included within said phrase.
Subsection 4303Q.2. Loans. The rate of interest, including commissions, premiums, fees and other
charges, on loan transactions, regardless of maturity and whether secured or unsecured, shall not be
subject to any ceiling prescribed under or pursuant to the Usury Law, as amended.
Subsection 4303Q.3. Floating rate of interest. The rate of interest on a floating rate loan during each
interest period shall be stated on the basis of a reference rate plus a margin as may be agreed upon by the
parties.
Reference rates for various interest periods shall be determined and announced by the Central Bank every
week and shall be based on the weighted average of the interest rates paid during the immediately
preceding week by the ten (10) commercial banks with the highest levels of outstanding deposit
substitutes on promissory notes issued by such banks, with maturities corresponding to the interest
periods for which such references rates are being determined. The commercial banks to be included for
purposes of computing the reference rates shall be reviewed and determined at the beginning of every
calendar semester on the basis of the levels of their outstanding deposit substitutes as of May 31 or
November 30, as the case may be.
The rate of interest on floating rate loans, existing and outstanding as of April 2, 1982 shall continue to
be determined on the basis of the reference rate obtained from the weighted average of the interest rates
paid by the five banks with the largest volume of business transacted during the immediately preceding
thirty (30) days, on time deposits with maturities of more than seven hundred thirty (730) days, which
shall be announced by the Central Bank every month for as long as such loans are existing and
outstanding: Provided, however, That the parties to such existing floating rate loan agreements are not
precluded from amending or modifying their loan agreements by adopting a floating rate of interest
determined on the basis of the reference rate mentioned in the next preceding paragraph.
Where the loan agreement provides for a floating interest rate, the interest period, which shall be such
period of time for which the rate of interest is fixed, shall be such period as may be agreed upon by the
parties.
Subsection 4303Q.4. Effect of prepayment. If there is no agreement on the rebate of interest in the
event of prepayment of the loan, the creditor is not under any legal obligation to return the interest
corresponding to the period from date of prepayment to the stipulated maturity date of the loan. Any
prepayment made by the debtor should not, therefore, affect the computation of the effective rate
stipulated in the loan contract.
SECTION 27. Subsections 4303Q.10 and 4303Q.11 of the Manual of Regulations are hereby
renumbered as Subsections 4303Q.5. and 4303Q.6, respectively.
SECTION 28. Subsection 4303N.1 of the Manual of Regulations is hereby amended to read as follows:
Subsection 4303N.1. Interest Rates. The rate of interest including commissions, premiums, fees and
other charges on loans and forbearance of money, regardless of maturity and whether secured or
unsecured, shall not be subject to any ceilings prescribed under or pursuant to the Usury Law, as
amended.
SECTION 29. Subsections 4303N.2, 4303N.4 and 4303N.5 of the Manual of Regulations are hereby
deleted, and Subsections 4303N.3, 4303N.6, and 4303N.7 thereof are hereby renumbered as Subsections
4303N.2, 4303N.3 and 4303N.4, respectively.
SECTION 30. Section 4303P of the Manual of Regulations is hereby amended to read as follows:
SECTION 4303P. Interest, Fees and Other Charges. The rate of interest including commissions,
premiums, fees and other charges on any loan or forbearance of money extended by a pawnshop,
pawnbroker or pawnbrokers agent, regardless of maturity, shall not be subject to any ceiling prescribed
under or pursuant to the Usury Law, as amended.
No pawnshop shall collect interest on loans in advance for a period of more than a year.
SECTION 32. Whenever any person or entity violated any of the provisions of this Circular, the person
or entity responsible for such violation shall be subject to the penalties prescribed in the first paragraph of
Section 34 of Republic Act No. 265, as amended, and/or the penalties prescribed in Section 10 of Act No.
2655, without prejudice to the imposition of administrative sanctions under Sections 34-A and 34-B of
Republic Act No. 265, as amended.
SYLLABUS
Questions of law which are the first impression are sought to be resolved
in this case: 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? 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 impositions of a
higher rate?
This is a petition for review on certiorari for the purpose of assailing the
decision of Honorable Judge Fernando V. Gorospe of the Regional Trial Court
of Makati, Branch 61, dated March 30, 1993, which found private respondent
Eusebio liable to petitioner for a sum of money. Interest was lowered by the
court a quo from 23% per annum as agreed upon by the parties to 12% per
annum.
The undisputed facts are as follows:
On April 27, 1983, private respondent Magtanggol Eusebio executed
Promissory Note No. TL/74/178/83 in favor of petitioner Security Bank and
Trust Co. (SBTC) in the total amount of One Hundred Thousand Pesos
(P100,000.00) payable in six monthly installments with a stipulated interest of
23% per annum up to the fifth installments.[1]
On July 28, 1983, respondent Eusebio again executed Promissory note
No TL/74/1296/83 in favor of petitioner SBTC. Respondent bound himself to
pay the sum of One Hundred Thousand Pesos (P100.000.00) in six (6)
monthly installments plus 23% interest per annum.[2]
Finally, another Promissory Note No. TL74/1491/83 was executed
on August 31, 1983 in the amount of Sixty Five Thousand Pesos
(P65,000.00). Respondent agreed to pay this note in six (6) monthly
installments plus interest at the rate of 23% per annum.[3]
On all the abovementioned notes, private respondents Leila Ventura had
signed as co-maker.[4]
Upon maturity which fell on the different dates below, the principal balance
remaining on the notes stood at:
Upon the failure and refusal of respondent Eusebio to pay the aforestated
balance payable, a collectible case was filed in court by petitioner
SBTC.[5] On March 30, 1993, the court a quo rendered a judgment in favor of
petitioner SBTC, the dispositive portion which reads:
1. Pay the sum of P16,665.00, plus interest of 12% per annum starting 27 September
1983, until fully paid;
2. Pay the sum of P83,333.00, plus interest of 12% per annum starting 28 August
1983, until fully paid;
3. Pay the sum of P65,000.00, plus interest of 12% per annum starting 31 August
1983, until fully paid;
4. Pay the sum equivalent to 20% of the total amount due and payable to plaintiff as
and by way of attorneys fees; and to
SO ORDERED.[6]
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.
SECTION 1. Section 1-a of Act No. 2655, as amended, is hereby amended to read as
follows:
SEC. 1-a The Monetary Board is hereby authorized to prescribed 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 rates or rates may be
effected gradually on scheduled dates announced in advance.
In the exercise of the authority herein granted, the Monetary Board may prescribed 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 prescribed different maximum rate or rates for different types of
borrowings, including deposits and deposit substitutes, or loans of financial intermediaries.[10]
This court has ruled in the case of Philippine National Bank v. Court of
Appeals[11] that:
P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting parties to
stipulate freely regarding any subsequent adjustment in the interest rate that shall
accrue on a loan or forbearance of money, goods or credits. In fine, they can agree to
adjust, upward or downward, the interest previously stipulated.
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 latters effectivity.
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. As we have held in the case of Quijano v.
Development Bank of the Philippines:[12]
xxx We cannot see any room for interpretation or construction in the clear and
unambiguous language of the above-quoted provision of law. This Court had
steadfastly adhered to the doctrine that its first and fundamental duty is the application
of the law according to its express terms, interpretation being called for only when
such literal application is impossible. No process of interpretation or construction
need be resorted to where a provision of law peremptorily calls for application. Where
a requirement or condition is made in explicit and unambiguous terms, no discretion is
left to the judiciary. It must see to it that its mandate is obeyed.
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.[13] Hence, only
in the absence of a stipulation can the court impose the 12% rate of interest.
The promissory notes were signed by both parties voluntarily. Therefore,
stipulations therein are binding between them. Respondent Eusebio, likewise,
did not question any of the stipulations therein. In fact, in the Comment file by
respondent Eusebio to this court, he chose not to question the decision and
instead expressed his desire to negotiate with the petitioner bank for terms
within which to settle his obligation.[14]
IN VIEW OF THE FOREGOING, the decision of the respondent court a
quo, is hereby AFFIRMED with the MODIFICATION that the rate of interest
that should be imposed be 23% per annum.
SO ORDERED.
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.
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. 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?
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.
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.
x-------------------------------------------------------------------x
DECISION
TINGA, J.:
Before this Court are two consolidated petitions for review. The
first, docketed as G.R. No. 150773, assails the Decision[1] of the
Regional Trial Court (RTC), Branch 26 of Naga City dated 26
October 2001 in Civil Case No. 99-4376. RTC Judge Filemon B.
Montenegro dismissed the complaint[2] for annulment of real estate
mortgage and consequent foreclosure proceedings filed by the
spouses David B. Carpo and Rechilda S. Carpo (petitioners).
The second, docketed as G.R. No. 153599, seeks to annul the Court
of Appeals Decision[3] dated 30 April 2002 in CA-G.R. SP No. 57297.
The Court of Appeals Third Division annulled and set aside the
orders of Judge Corazon A. Tordilla to suspend the sheriffs
enforcement of the writ of possession.
The second petition for review was filed with the Court after
the Court of Appeals on 30 April 2002 annulled and set aside the
RTC orders in SP No. 98-1665 on the ground that it was the
ministerial duty of the lower court to issue the writ of possession
when title over the mortgaged property had been consolidated in the
mortgagee.
On the other hand, petitioners argue in G.R. No. 153599 that the
RTC did not commit any grave abuse of discretion when it issued
the orders dated 3 August 1999 and 6 January 2000, and that
these orders could not have been the proper subjects of a petition
for certiorari and mandamus. More accurately, the justiciable
issues before us are whether the Court of Appeals could properly
entertain the petition for certiorari from the timeliness aspect, and
whether the appellate court correctly concluded that the writ of
possession could no longer be stayed.
We first resolve the petition in G.R. No. 150773.
Notably in Medel, the Court did not invalidate the entire loan
obligation despite the inequitability of the stipulated interest, but
instead reduced the rate of interest to the more reasonable rate of
12% per annum. The same remedial approach to the wrongful
interest rates involved was employed or affirmed by the Court
in Solangon, Imperial, Ruiz, Cuaton, and Arrofo.
In Gui Jong & Co. vs. Rivera, et al., 45 Phil. 778, this
Court likewise declared that, in any event, the debtor in a
usurious contract of loan should pay the creditor the amount
which he justly owes him, citing in support of this ruling its
previous decisions in Go Chioco, Supra, Aguilar vs. Rubiato, et
al., 40 Phil. 570, and Delgado vs. Duque Valgona, 44 Phil.
739.
....
....
....
It should be noted that had the Court declared the loan and
mortgage agreements void for being contrary to public policy, no
prescriptive period could have run.[20] Such benefit is obviously not
available to petitioners.
Yet the RTC pronounced that the complaint was barred by the
four-year prescriptive period provided in Article 1391 of the Civil
Code, which governs voidable contracts. This conclusion was
derived from the allegation in the complaint that the consent of
petitioners was vitiated through undue influence. While the RTC
correctly acknowledged the rule of prescription for voidable
contracts, it erred in applying the rule in this case. We are hard put
to conclude in this case that there was any undue influence in the
first place.
On the other hand, the Order dated 6 January 2000 is in the nature
of a writ of injunction whose period of efficacy is indefinite. It may
be properly assailed by way of the special civil action for certiorari,
as it is interlocutory in nature.
As a rule, the special civil action for certiorari under Rule 65 must
be filed not later than sixty (60) days from notice of the judgment or
order.[23] Petitioners argue that the 3 August 1999 Order could no
longer be assailed by respondents in a special civil action for
certiorari before the Court of Appeals, as the petition was filed
beyond sixty (60) days following respondents receipt of the Order.
Considering that the 3 August 1999 Order had become functus
officio in the first place, this argument deserves scant consideration.
Petitioners further claim that the 6 January 2000 Order could not
have likewise been the subject of a special civil action for certiorari,
as it is according to them a final order, as opposed to an
interlocutory order. That the 6 January 2000 Order is interlocutory
in nature should be beyond doubt. An order is interlocutory if its
effects would only be provisional in character and would still leave
substantial proceedings to be further had by the issuing court in
order to put the controversy to rest.[24] The injunctive relief granted
by the order is definitely final, but merely provisional, its effectivity
hinging on the ultimate outcome of the then pending action for
annulment of real estate mortgage. Indeed, an interlocutory order
hardly puts to a close, or disposes of, a case or a disputed issue
leaving nothing else to be done by the court in respect thereto, as is
characteristic of a final order.
Since the 6 January 2000 Order is not a final order, but rather
interlocutory in nature, we cannot agree with petitioners who insist
that it may be assailed only through an appeal perfected within
fifteen (15) days from receipt thereof by respondents. It is axiomatic
that an interlocutory order cannot be challenged by an appeal,
SO ORDERED.
Section 2. Declaration of Policy. It is hereby declared to be the policy of the State to protect its
citizens from a lack of awareness of the true cost of credit to the user by assuring a full disclosure of
such cost with a view of preventing the uninformed use of credit to the detriment of the national
economy.
(2) "Credit" means any loan, mortgage, deed of trust, advance, or discount; any conditional
sales contract; any contract to sell, or sale or contract of sale of property or services, either
for present or future delivery, under which part or all of the price is payable subsequent to the
making of such sale or contract; any rental-purchase contract; any contract or arrangement
for the hire, bailment, or leasing of property; any option, demand, lien, pledge, or other claim
against, or for the delivery of, property or money; any purchase, or other acquisition of, or
any credit upon the security of, any obligation of claim arising out of any of the foregoing; and
any transaction or series of transactions having a similar purpose or effect.
(3) "Finance charge" includes interest, fees, service charges, discounts, and such other
charges incident to the extension of credit as the Board may be regulation prescribe.
(4) "Creditor" means any person engaged in the business of extending credit (including any
person who as a regular business practice make loans or sells or rents property or services
on a time, credit, or installment basis, either as principal or as agent) who requires as an
incident to the extension of credit, the payment of a finance charge.
(5) "Person" means any individual, corporation, partnership, association, or other organized
group of persons, or the legal successor or representative of the foregoing, and includes the
Philippine Government or any agency thereof, or any other government, or of any of its
political subdivisions, or any agency of the foregoing.
Section 4. Any creditor shall furnish to each person to whom credit is extended, prior to the
consummation of the transaction, a clear statement in writing setting forth, to the extent applicable
and in accordance with rules and regulations prescribed by the Board, the following information:
(1) the cash price or delivered price of the property or service to be acquired;
(3) the difference between the amounts set forth under clauses (1) and (2);
(4) the charges, individually itemized, which are paid or to be paid by such person in
connection with the transaction but which are not incident to the extension of credit;
(6) the finance charge expressed in terms of pesos and centavos; and
(7) the percentage that the finance bears to the total amount to be financed expressed as a
simple annual rate on the outstanding unpaid balance of the obligation.
Section 5. The Board shall prescribe such rules and regulations as may be necessary or proper in
carrying out the provisions of this Act. Any rule or regulation prescribed hereunder may contain such
classifications and differentiations as in the judgment of the Board are necessary or proper to
effectuate the purposes of this Act or to prevent circumvention or evasion, or to facilitate the
enforcement of this Act, or any rule or regulation issued thereunder.
Section 6. (a) Any creditor who in connection with any credit transaction fails to disclose to any
person any information in violation of this Act or any regulation issued thereunder shall be liable to
such person in the amount of P100 or in an amount equal to twice the finance charged required by
such creditor in connection with such transaction, whichever is the greater, except that such liability
shall not exceed P2,000 on any credit transaction. Action to recover such penalty may be brought by
such person within one year from the date of the occurrence of the violation, in any court of
competent jurisdiction. In any action under this subsection in which any person is entitled to a
recovery, the creditor shall be liable for reasonable attorney's fees and court costs as determined by
the court.
(b) Except as specified in subsection (a) of this section, nothing contained in this Act or any
regulation contained in this Act or any regulation thereunder shall affect the validity or
enforceability of any contract or transactions.
(c) Any person who willfully violates any provision of this Act or any regulation issued
thereunder shall be fined by not less than P1,00 or more than P5,000 or imprisonment for not
less than 6 months, nor more than one year or both.
(d) No punishment or penalty provided by this Act shall apply to the Philippine Government
or any agency or any political subdivision thereof.
(e) A final judgment hereafter rendered in any criminal proceeding under this Act to the effect
that a defendant has willfully violated this Act shall be prima facie evidence against such
defendant in an action or proceeding brought by any other party against such defendant
under this Act as to all matters respecting which said judgment would be an estoppel as
between the parties thereto.
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
- versus - CHICO-NAZARIO,
NACHURA, and
REYES, JJ.
CHICO-NAZARIO, J.:
The spouses Beluso availed themselves of the credit line under the following
Promissory Notes:
However, the spouses Beluso alleged that the amounts covered by these last two
promissory notes were never released or credited to their account and, thus,
claimed that the principal indebtedness was only P2 Million.
In any case, UCPB applied interest rates on the different promissory notes
ranging from 18% to 34%. From 1996 to February 1998 the spouses Beluso were
able to pay the total sum of P763,692.03.
The spouses Beluso, however, failed to make any payment of the foregoing
amounts.
On 2 September 1998, UCPB demanded that the spouses Beluso pay their
total obligation of P2,932,543.00 plus 25% attorneys fees, but the spouses Beluso
failed to comply therewith. On 28 December 1998, UCPB foreclosed the properties
mortgaged by the spouses Beluso to secure their credit line, which, by that time,
already ballooned to P3,784,603.00.
On 23 March 2000, the RTC ruled in favor of the spouses Beluso, disposing
of the case as follows:
II
WHETHER OR NOT THE HONORABLE COURT OF APPEALS
COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN IT AFFIRMED
THE COMPUTATION BY THE TRIAL COURT OF RESPONDENTS
INDEBTEDNESS AND ORDERED RESPONDENTS TO PAY PETITIONER
THE AMOUNT OF ONLY ONE MILLION FIVE HUNDRED SIXTY
THOUSAND THREE HUNDRED EIGHT PESOS (P1,560,308.00)
III
IV
The Court of Appeals held that the imposition of interest in the following
provision found in the promissory notes of the spouses Beluso is void, as the
interest rates and the bases therefor were determined solely by petitioner UCPB:
In this regard, UCPB avers that these are valid reference rates akin to a
prevailing rate or prime rate allowed by this Court inPolotan v. Court of
Appeals.[11] Furthermore, UCPB argues that even if the proviso as determined by
the branch head is considered void, such a declaration would not ipso facto render
the connecting clause indicative of DBD retail rate void in view of the separability
clause of the Credit Agreement, which reads:
According to UCPB, the imposition of the questioned interest rates did not
infringe on the principle of mutuality of contracts, because the spouses Beluso had
the liberty to choose whether or not to renew their credit line at the new interest
rates pegged by petitioner.[13] UCPB also claims that assuming there was any
defect in the mutuality of the contract at the time of its inception, such defect was
cured by the subsequent conduct of the spouses Beluso in availing themselves of
the credit line from April 1996 to February 1998 without airing any protest with
respect to the interest rates imposed by UCPB. According to UCPB, therefore, the
spouses Beluso are in estoppel.[14]
We agree with the Court of Appeals, and find no merit in the contentions of
UCPB.
In order that obligations arising from contracts may have the force of law
between the parties, there must be mutuality between the parties based on their
essential equality. A contract containing a condition which makes its fulfillment
dependent exclusively upon the uncontrolled will of one of the contracting parties,
is void (Garcia vs. Rita Legarda, Inc., 21 SCRA 555). Hence, even assuming that
the P1.8 million loan agreement between the PNB and the private respondent gave
the PNB a license (although in fact there was none) to increase the interest rate at
will during the term of the loan, that license would have been null and void for
being violative of the principle of mutuality essential in contracts. It would have
invested the loan agreement with the character of a contract of adhesion, where the
parties do not bargain on equal footing, the weaker party's (the debtor)
participation being reduced to the alternative "to take it or leave it" (Qua vs. Law
Union & Rock Insurance Co., 95 Phil. 85). Such a contract is a veritable trap for
the weaker party whom the courts of justice must protect against abuse and
imposition.
The provision stating that the interest shall be at the rate indicative of DBD
retail rate or as determined by the Branch Head is indeed dependent solely on the
will of petitioner UCPB. Under such provision, petitioner UCPB has two choices
on what the interest rate shall be: (1) a rate indicative of the DBD retail rate; or (2)
a rate as determined by the Branch Head. As UCPB is given this choice, the rate
should be categorically determinable in both choices. If either of these two choices
presents an opportunity for UCPB to fix the rate at will, the bank can easily choose
such an option, thus making the entire interest rate provision violative of the
principle of mutuality of contracts.
Not just one, but rather both, of these choices are dependent solely on the
will of UCPB. Clearly, a rate as determined by the Branch Head gives the latter
unfettered discretion on what the rate may be. The Branch Head may choose any
rate he or she desires.As regards the rate indicative of the DBD retail rate, the same
cannot be considered as valid for being akin to a prevailing rate or prime rate
allowed by this Court in Polotan. The interest rate in Polotan reads:
The Cardholder agrees to pay interest per annum at 3% plus the prime rate of
Security Bank and Trust Company. x x x.[16]
In this provision in Polotan, there is a fixed margin over the reference rate:
3%. Thus, the parties can easily determine the interest rate by applying simple
arithmetic. On the other hand, the provision in the case at bar does not specify any
margin above or below the DBD retail rate. UCPB can peg the interest at any
percentage above or below the DBD retail rate, again giving it unfettered discretion
in determining the interest rate.
The stipulation in the promissory notes subjecting the interest rate to review does
not render the imposition by UCPB of interest rates on the obligations of the
spouses Beluso valid. According to said stipulation:
It should be pointed out that the authority to review the interest rate was given
UCPB alone as the lender. Moreover, UCPB may apply the considerations
enumerated in this provision as it wishes. As worded in the above provision, UCPB
may give as much weight as it desires to each of the following considerations: (1)
the prevailing financial and monetary condition; (2) the rate of interest and charges
which other banks or financial institutions charge or offer to charge for similar
accommodations; and/or (3) the resulting profitability to the LENDER (UCPB)
after due consideration of all dealings with the BORROWER (the spouses
Beluso).Again, as in the case of the interest rate provision, there is no fixed margin
above or below these considerations.
In view of the foregoing, the Separability Clause cannot save either of the
two options of UCPB as to the interest to be imposed, as both options violate the
principle of mutuality of contracts.
Moreover, while the spouses Beluso indeed agreed to renew the credit line,
the offending provisions are found in the promissory notes themselves, not in the
credit line. In fixing the interest rates in the promissory notes to cover the renewed
credit line, UCPB still reserved to itself the same two options (1) a rate indicative
of the DBD retail rate; or (2) a rate as determined by the Branch Head.
Error in Computation
UCPB asserts that while both the RTC and the Court of Appeals voided the
interest rates imposed by UCPB, both failed to include in their computation of the
outstanding obligation of the spouses Beluso the legal rate of interest of 12% per
annum.Furthermore, the penalty charges were also deleted in the decisions of the
RTC and the Court of Appeals. Section 2.04, Article II on Interest and other Bank
Charges of the subject Credit Agreement, provides:
If the BANK shall require the services of counsel for the enforcement of its
rights under this AGREEMENT, the Note(s), the collaterals and other related
documents, the BANK shall be entitled to recover attorneys fees equivalent to not
less than twenty-five percent (25%) of the total amounts due and outstanding
exclusive of costs and other expenses.[22]
Section 2.02 Compounding Interest. Interest not paid when due shall form part of
the principal and shall be subject to the same interest rate as herein stipulated.[23]
Interest not paid when due shall be added to, and become part of the principal and
shall likewise bear interest at the same rate.[24]
UCPB lastly avers that the application of the spouses Belusos payments in
the disputed computation does not reflect the parties agreement. The RTC
deducted the payment made by the spouses Beluso amounting to P763,693.00 from
the principal ofP2,350,000.00. This was allegedly inconsistent with the Credit
Agreement, as well as with the agreement of the parties as to the facts of the
case. In paragraph 7 of the spouses Belusos Manifestation and Motion on Proposed
Stipulation of Facts and Issues vis--vis UCPBs Manifestation, the parties agreed
that the amount of P763,693.00 was applied to the interest and not to the principal,
in accord with Section 3.03, Article II of the Credit Agreement on Order of the
Application of Payments, which provides:
The spouses Belusos defense as to all these issues is that the demand made
by UCPB is for a considerably bigger amount and, therefore, the demand should be
considered void. There being no valid demand, according to the spouses Beluso,
there would be no default, and therefore the interests and penalties would not
commence to run. As it was likewise improper to foreclose the mortgaged
properties or file a case against the spouses Beluso, attorneys fees were not
warranted.
There being a valid demand on the part of UCPB, albeit excessive, the
spouses Beluso are considered in default with respect to the proper amount and,
therefore, the interests and the penalties began to run at that point.
As regards the award of 12% legal interest in favor of petitioner, the RTC
actually recognized that said legal interest should be imposed, thus: There being no
valid stipulation as to interest, the legal rate of interest shall be charged.[27] It seems
that the RTC inadvertently overlooked its non-inclusion in its computation.
The spouses Beluso had even originally asked for the RTC to impose this
legal rate of interest in both the body and the prayer of its petition with the RTC:
12. Since the provision on the fixing of the rate of interest by the sole will
of the respondent Bank is null and void, only the legal rate of interest which is
12% per annum can be legally charged and imposed by the bank, which would
amount to only about P599,000.00 since 1996 up to August 31, 1998.
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2. By way of example for the public good against the Banks taking unfair
advantage of the weaker party to their contract, declaring the legal rate of 12% per
annum, as the imposable rate of interest up to February 28, 1999 on the loan of
2.350 million.[28]
All these show that the spouses Beluso had acknowledged before the RTC their
obligation to pay a 12% legal interest on their loans.When the RTC failed to
include the 12% legal interest in its computation, however, the spouses Beluso
merely defended in the appellate courts this non-inclusion, as the same was
beneficial to them. We see, however, sufficient basis to impose a 12% legal
interest in favor of petitioner in the case at bar, as what we have voided is merely
the stipulated rate of interest and not the stipulation that the loan shall earn interest.
As regards the attorneys fees, the spouses Beluso can actually be liable
therefor even if there had been no demand. Filing a case in court is the judicial
demand referred to in Article 1169[32] of the Civil Code, which would put the
obligor in delay.
The RTC, however, also held UCPB liable for attorneys fees in this case, as
the spouses Beluso were forced to litigate the issue on the illegality of the interest
rate provision of the promissory notes. The award of attorneys fees, it must be
recalled, falls under the sound discretion of the court.[33] Since both parties were
forced to litigate to protect their respective rights, and both are entitled to the
award of attorneys fees from the other, practical reasons dictate that we set off or
compensate both parties liabilities for attorneys fees. Therefore, instead of
awarding attorneys fees in favor of petitioner, we shall merely affirm the deletion
of the award of attorneys fees to the spouses Beluso.
In sum, we hold that spouses Beluso should still be held liable for a
compounded legal interest of 12% per annum and a penalty charge of 12% per
annum. We also hold that, instead of awarding attorneys fees in favor of petitioner,
we shall merely affirm the deletion of the award of attorneys fees to the spouses
Beluso.
The spouses Beluso retort that since they had the right to refuse payment of
an excessive demand on their account, they cannot be said to be in default for
refusing to pay the same. Consequently, according to the spouses Beluso, the
enforcement of such illegal and overcharged demand through foreclosure of
mortgage should be voided.
UCPB challenges this imposition, on the argument that Section 6(a) of the
Truth in Lending Act which mandates the filing of an action to recover such
penalty must be made under the following circumstances:
Section 6. (a) Any creditor who in connection with any credit transaction
fails to disclose to any person any information in violation of this Act or any
regulation issued thereunder shall be liable to such person in the amount of P100
or in an amount equal to twice the finance charge required by such creditor in
connection with such transaction, whichever is greater, except that such liability
shall not exceed P2,000 on any credit transaction. Action to recover such
penalty may be brought by such person within one year from the date of the
occurrence of the violation, in any court of competent jurisdiction. x x
x (Emphasis ours.)
According to UCPB, the Court of Appeals even stated that [a]dmittedly the
original complaint did not explicitly allege a violation of the Truth in Lending Act
and no action to formally admit the amended petition [which expressly alleges
violation of the Truth in Lending Act] was made either by [respondents] spouses
Beluso and the lower court. x x x.[35]
UCPB further claims that the action to recover the penalty for the violation
of the Truth in Lending Act had been barred by the one-year prescriptive period
provided for in the Act. UCPB asserts that per the records of the case, the latest of
the subject promissory notes had been executed on 2 January 1998, but the original
petition of the spouses Beluso was filed before the RTC on9 February 1999, which
was after the expiration of the period to file the same on 2 January 1999.
On the matter of allegation of the violation of the Truth in Lending Act, the
Court of Appeals ruled:
Admittedly the original complaint did not explicitly allege a violation of the Truth
in Lending Act and no action to formally admit the amended petition was made
either by [respondents] spouses Beluso and the lower court. In such transactions,
the debtor and the lending institutions do not deal on an equal footing and this law
was intended to protect the public from hidden or undisclosed charges on their
loan obligations, requiring a full disclosure thereof by the lender. We find that its
infringement may be inferred or implied from allegations that when [respondents]
spouses Beluso executed the promissory notes, the interest rate chargeable
thereon were left blank. Thus, [petitioner] UCPB failed to discharge its duty to
disclose in full to [respondents] Spouses Beluso the charges applicable on their
loans.[36]
We agree with the Court of Appeals. The allegations in the complaint, much
more than the title thereof, are controlling. Other than that stated by the Court of
Appeals, we find that the allegation of violation of the Truth in Lending Act can
also be inferred from the same allegation in the complaint we discussed earlier:
The allegation that the promissory notes grant UCPB the power to
unilaterally fix the interest rates certainly also means that the promissory notes do
not contain a clear statement in writing of (6) the finance charge expressed in terms
of pesos and centavos; and (7) the percentage that the finance charge bears to the
amount to be financed expressed as a simple annual rate on the outstanding unpaid
balance of the obligation.[38] Furthermore, the spouses Belusos prayer for such
other reliefs just and equitable in the premises should be deemed to include the
civil penalty provided for in Section 6(a) of the Truth in Lending Act.
UCPBs contention that this action to recover the penalty for the violation of
the Truth in Lending Act has already prescribed is likewise without merit. The
penalty for the violation of the act is P100 or an amount equal to twice the finance
charge required by such creditor in connection with such transaction, whichever is
greater, except that such liability shall not exceed P2,000.00 on any credit
transaction.[39] As this penalty depends on the finance charge required of the
borrower, the borrowers cause of action would only accrue when such finance
charge is required. In the case at bar, the date of the demand for payment of the
finance charge is 2 September 1998, while the foreclosure was made on 28
December 1998. The filing of the case on 9 February 1999 is therefore within the
one-year prescriptive period.
UCPB argues that a violation of the Truth in Lending Act, being a criminal
offense, cannot be inferred nor implied from the allegations made in the
complaint.[40] Pertinent provisions of the Act read:
Sec. 6. (a) Any creditor who in connection with any credit transaction
fails to disclose to any person any information in violation of this Act or any
regulation issued thereunder shall be liable to such person in the amount of P100
or in an amount equal to twice the finance charge required by such creditor in
connection with such transaction, whichever is the greater, except that such
liability shall not exceedP2,000 on any credit transaction. Action to recover such
penalty may be brought by such person within one year from the date of the
occurrence of the violation, in any court of competent jurisdiction. In any action
under this subsection in which any person is entitled to a recovery, the creditor
shall be liable for reasonable attorneys fees and court costs as determined by the
court.
xxxx
(c) Any person who willfully violates any provision of this Act or any
regulation issued thereunder shall be fined by not less than P1,000 or more
than P5,000 or imprisonment for not less than 6 months, nor more than one year or
both.
As can be gleaned from Section 6(a) and (c) of the Truth in Lending Act, the
violation of the said Act gives rise to both criminal and civil liabilities. Section 6(c)
considers a criminal offense the willful violation of the Act, imposing the penalty
therefor of fine, imprisonment or both. Section 6(a), on the other hand, clearly
provides for a civil cause of action for failure to disclose any information of the
required information to any person in violation of the Act. The penalty therefor is
an amount of P100 or in an amount equal to twice the finance charge required by
the creditor in connection with such transaction, whichever is greater, except that
the liability shall not exceed P2,000.00 on any credit transaction. The action to
recover such penalty may be instituted by the aggrieved private person separately
and independently from the criminal case for the same offense.
In the case at bar, therefore, the civil action to recover the penalty under
Section 6(a) of the Truth in Lending Act had been jointly instituted with (1) the
action to declare the interests in the promissory notes void, and (2) the action to
declare the foreclosure void. This joinder is allowed under Rule 2, Section 5 of the
Rules of Court, which provides:
Moreover, since from the start, respondent bank violated the Truth in Lending Act
in not informing the borrower in writing before the execution of the Promissory
Notes of the interest rate expressed as a percentage of the total loan, the
respondent bank instead is liable to pay petitioners double the amount the bank is
charging petitioners by way of sanction for its violation.[41]
In the same pre-trial brief, the spouses Beluso also expressly raised the
following issue:
b.) Does the expression indicative rate of DBD retail (sic) comply with the
Truth in Lending Act provision to express the interest rate as a simple annual
percentage of the loan?[42]
These assertions are so clear and unequivocal that any attempt of UCPB to
feign ignorance of the assertion of this issue in this case as to prevent it from
putting up a defense thereto is plainly hogwash.
Petitioner further posits that it is the Metropolitan Trial Court which has
jurisdiction to try and adjudicate the alleged violation of the Truth in Lending Act,
considering that the present action allegedly involved a single credit transaction as
there was only one Promissory Note Line.
We disagree. We have already ruled that the action to recover the penalty
under Section 6(a) of the Truth in Lending Act had been jointly instituted with (1)
the action to declare the interests in the promissory notes void, and (2) the action to
declare the foreclosure void. There had been no question that the above actions
belong to the jurisdiction of the RTC. Subsection (c) of the above-quoted Section 5
of the Rules of Court on Joinder of Causes of Action provides:
(c) Where the causes of action are between the same parties but pertain to
different venues or jurisdictions, the joinder may be allowed in the Regional Trial
Court provided one of the causes of action falls within the jurisdiction of said
court and the venue lies therein.
UCPB further argues that since the spouses Beluso were duly given copies
of the subject promissory notes after their execution, then they were duly notified
of the terms thereof, in substantial compliance with the Truth in Lending Act.
(3) the difference between the amounts set forth under clauses (1) and (2)
(6) the finance charge expressed in terms of pesos and centavos; and
(7) the percentage that the finance bears to the total amount to be financed
expressed as a simple annual rate on the outstanding unpaid balance of
the obligation.
In addition, the promissory notes, the copies of which were presented to the
spouses Beluso after execution, are not sufficient notification from UCPB. As
earlier discussed, the interest rate provision therein does not sufficiently indicate
with particularity the interest rate to be applied to the loan covered by said
promissory notes.
Forum Shopping
UCPB had earlier moved to dismiss the petition (originally Case No. 99-314
in RTC, Makati City) on the ground that the spouses Beluso instituted another case
(Civil Case No. V-7227) before the RTC of Roxas City, involving the same parties
and issues. UCPB claims that while Civil Case No. V-7227 initially appears to be a
different action, as it prayed for the issuance of a temporary restraining order
and/or injunction to stop foreclosure of spouses Belusos properties, it poses issues
which are similar to those of the present case.[43] To prove its point, UCPB cited
the spouses Belusos Amended Petition in Civil Case No. V-7227, which contains
similar allegations as those in the present case. The RTC of Makati denied UCPBs
Motion to Dismiss Case No. 99-314 for lack of merit. Petitioner UCPB raised the
same issue with the Court of Appeals, and is raising the same issue with us now.
The spouses Beluso claim that the issue in Civil Case No. V-7227 before the
RTC of Roxas City, a Petition for Injunction Against Foreclosure, is the propriety
of the foreclosure before the true account of spouses Beluso is determined. On the
other hand, the issue in Case No. 99-314 before the RTC of Makati City is the
validity of the interest rate provision. The spouses Beluso claim that Civil Case No.
V-7227 has become moot because, before the RTC of Roxas City could act on the
restraining order, UCPB proceeded with the foreclosure and auction sale. As the
act sought to be restrained by Civil Case No. V-7227 has already been
accomplished, the spouses Beluso had to file a different action, that of Annulment
of the Foreclosure Sale, Case No. 99-314 with the RTC, Makati City.
Even if we assume for the sake of argument, however, that only one cause of
action is involved in the two civil actions, namely, the violation of the right of the
spouses Beluso not to have their property foreclosed for an amount they do not
owe, the Rules of Court nevertheless allows the filing of the second action. Civil
Case No. V-7227 was dismissed by the RTC of Roxas City before the filing of
Case No. 99-314 with the RTC of Makati City, since the venue of litigation as
provided for in the Credit Agreement is in Makati City.
Rule 16, Section 5 bars the refiling of an action previously dismissed only in
the following instances:
SECTION 1. Grounds.Within the time for but before filing the answer to
the complaint or pleading asserting a claim, a motion to dismiss may be made on
any of the following grounds:
(a) That the court has no jurisdiction over the person of the defending
party;
(b) That the court has no jurisdiction over the subject matter of the claim;
(e) That there is another action pending between the same parties for the
same cause;
(g) That the pleading asserting the claim states no cause of action;
(h) That the claim or demand set forth in the plaintiffs pleading has
been paid, waived, abandoned, or otherwise extinguished;
(j) That a condition precedent for filing the claim has not been complied
with.[44] (Emphases supplied.)
In these cases, it is evident that the first action was filed in anticipation of
the filing of the later action and the purpose is to preempt the later suit or provide
a basis for seeking the dismissal of the second action.
Even if this is not the purpose for the filing of the first action, it may
nevertheless be dismissed if the later action is the more appropriate vehicle
for the ventilation of the issues between the parties. Thus, in Ramos v.
Peralta, it was held:
[T]he rule on litis pendentia does not require that the later
case should yield to the earlier case. What is required merely is that
there be another pending action, not a prior pending action.
Considering the broader scope of inquiry involved in Civil Case
No. 4102 and the location of the property involved, no error was
committed by the lower court in deferring to the Bataan court's
jurisdiction.
Given, therefore, the pendency of two actions, the following are the
relevant considerations in determining which action should be dismissed: (1) the
date of filing, with preference generally given to the first action filed to be
retained; (2) whether the action sought to be dismissed was filed merely to
preempt the later action or to anticipate its filing and lay the basis for its
dismissal; and (3) whether the action is the appropriate vehicle for litigating the
issues between the parties.
In the case at bar, Civil Case No. V-7227 before the RTC of Roxas City was
an action for injunction against a foreclosure sale that has already been held, while
Civil Case No. 99-314 before the RTC of Makati City includes an action for the
annulment of said foreclosure, an action certainly more proper in view of the
execution of the foreclosure sale. The former case was improperly filed
in Roxas City, while the latter was filed in Makati City, the proper venue of the
action as mandated by the Credit Agreement. It is evident, therefore, that Civil
Case No. 99-314 is the more appropriate vehicle for litigating the issues between
the parties, as compared to Civil Case No. V-7227. Thus, we rule that the RTC of
Makati City was not in error in not dismissing Civil Case No. 99-314.
SO ORDERED.