Integrated Realty Corp vs PNB
GR No. 60705, 28 June 1989
174 SCRA 295
FACTS
Raul Santos made a time deposit with OBM in the amount of P500H and he
was issued a certificate of time deposits. On another date, Santos again made a time
deposit with OBM in the amount of P200H, he was again issued a CTD. IRC, thru its
president Raul Santos, applied for a loan and/or credit line (P700H) with PNB. To
secure such, Santos executed a Deed of Assignment of the 2 time deposits. After due
dates of the time deposit certificates, OBM did not pay PNB. PNB then demanded
payment from IRC and Santos, but they replied that the loan was deemed paid with
the irrevocable assignment of the time deposit certificates.
PB then filed with RTC to collect from IRC and Santos with interest. The trial
court ruled in favor of PNB ordering IRC and Santos to pay PNB the total amount of
P700H plus interest of 9% PA, 2% additional interest and 1& PA penalty interest. On
appeal, the CA ordered OBM to pay IRC and Santos whatever amts they will to PNB
with interest.
IRC and Santos now claim that OBM should reimburse them for whatever
amts they may be adjudged to pay PNB by way of compensation for damages
incurred.
ISSUE
Whether or not the claim of IRC and Santos will prosper.
HELD
The Court held in the affirmative. The 2 time deposits matured on 11 January
1968 and 6 February 1968, respectively. However, OBM was not allowed and
suspended to operate only on 31 July 1968 and resolved on 2 August 1968. There
was a yet no obstacle to the faithful compliance by OBM of its liabilities. For having
incurred in delay in the performance of its obligation, OBM should be held for
damages. OBM contends that it had agreed to pay interest only up to the dates of
maturity of the CTD and that Santos is not entitled to interest after maturity dates had
expired.
While it is true that under Article 1956 of the CC, no interest shall be due
unless it has been expressly stipulated in writing, this applies only to interest for the
use of money. It does not comprehend interest paid as damages. OBM is being
required to pay such interest, not as interest income stipulated in the CTD, but as
damages fro failure and delay in the payment of its obligations which thereby
compelled IRC and Santos to resort to the courts.
The applicable rule is that LI, in the nature of damages for non-compliance
with an obligation to puy sum of money, is recoverable from the date judicially or
extra-judicially demand is made.
Eastern Shipping vs CA Credit Digest
Eastern Shipping vs CA
GR No. 97412, 12 July 1994
234 SCRA 78
FACTS
Two fiber drums were shipped owned by Eastern Shipping from Japan. The
shipment as insured with a marine policy. Upon arrival in Manila unto the custody of
metro Port Service, which excepted to one drum, said to be in bad order and which
damage was unknown the Mercantile Insurance Company. Allied Brokerage
Corporation received the shipment from Metro, one drum opened and without seal.
Allied delivered the shipment to the consignees warehouse. The latter excepted to
one drum which contained spillages while the rest of the contents was
adulterated/fake. As consequence of the loss, the insurance company paid the
consignee, so that it became subrogated to all the rights of action of consignee
against the defendants Eastern Shipping, Metro Port and Allied Brokerage. The
insurance company filed before the trial court. The trial court ruled in favor of plaintiff
an ordered defendants to pay the former with present legal interest of 12% per annum
from the date of the filing of the complaint. On appeal by defendants, the appellate
court denied the same and affirmed in toto the decision of the trial court.
ISSUE
(1) Whether the applicable rate of legal interest is 12% or 6%.
(2) Whether the payment of legal interest on the award for loss or damage is to be
computed from the time the complaint is filed from the date the decision appealed
from is rendered.
HELD
(1) The Court held that the legal interest is 6% computed from the decision of
the court a quo. When an obligation, not constituting a loan or forbearance of money,
is breached, an interest on the amount of damaes awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No interest shall be adjudged on
unliquidated claims or damages except when or until the demand can be established
with reasonable certainty.
When the judgment of the court awarding a sum of money becomes final and
executor, the rate of legal interest shall be 12% per annum from such finality until
satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of money.
The interest due shall be 12% PA to be computed fro default, J or EJD.
(2) From the date the judgment is made. Where the demand is established with
reasonable certainty, the interest shall begin to run from the time the claim is made
judicially or EJ but when such certainty cannot be so reasonably established at the
time the demand is made, the interest shll begin to run only from the date of judgment
of the court is made.
(3) The Court held that it should be computed from the decision rendered by the
court a quo.
EASTERN SHIPPING LINES, INC. V. CA (1994) DOCTRINE
(Compensatory, Penalty or Indemnity Interest)
Rules on Interest:
Interest upon an obligation which calls for the payment of money, absent a
stipulation, is thelegal rate. Such interest normally is allowable from the date of
demand, judicial or extrajudicial. The trial court opted for judicial demand as the
starting point.
But then upon the provisions of Article 2213 of the Civil Code, interest "cannot
be recovered upon unliquidated claims or damages, except when the demand can be
established with reasonable certainty. Here, interest should be counted from the date
of the decision (when the amount of damages are ascertained).
Art. 2209, CC. If the obligation consists in the payment of a sum of money,
and the debtor incurs in delay, the indemnity for damages, there being no stipulation
to the contrary, shall be the payment of interest agreed upon, and in the absence of
stipulation, the legal interest which is six percent per annum.
Rules of thumb (on the award of interests):
*NOTE: The legal rate of 12% has been amended to 6%. See Circular No. 799
(amending Circular No. 905) effective July 1, 2013, and the case of NACAR V.
GALLERY FRAMES AND/OR BORDEY (2013). Therefore, there is no need to
distinguish now the obligations breached as the legal interest applicable is 6%.
1) When an obligation, regardless of its source, i.e., law, contracts, quasi-
contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for
damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in
determining the measure of recoverable damages.
2) 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:
a) Obligation breached: consists in the payment of a sum of money, i.e., a loan or
forbearance of money
Interest Due:
i) that which may have been stipulated in writing. Furthermore, the
interest due shall itself earn legal interest from the time it is judicially demanded.
ii) In the absence of stipulation, the rate of interest shall be 12% per
annum to be computed from default, i.e., from judicial or extrajudicial demand under
and subject to the provisions of Article 1169 of the Civil Code. (amended to 6%)
b) Obligation breached: not constituting a loan or forbearance of money,
Interest due: may be imposed at the discretion of the court at the rate of 6% per
annum.
No interest, however, shall be adjudged on unliquidated claims or damages except
when or until the demand can be established with reasonable certainty.
o Accordingly, where the demand is established with reasonable certainty, the
interest shall begin to run from the time the claim is made judicially or extrajudicially
(Art. 1169, Civil Code)
o When such certainty cannot be so reasonably established at the time the demand
is made, the interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal interest shall, in
any case, be on the amount finally adjudged.
c) When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of
credit. (amended to 6%)
LIGUTAN V. CA, (2002)
(Compensatory, Penalty or Indemnity Interest)
The essence or rationale for the payment of interest, quite often referred to as cost of
money, is not exactly the same as that of a surcharge or a penalty. A penalty
stipulation is not necessarily preclusive of interest, if there is an agreement to that
effect, the two being distinct concepts which may separately be demanded. What may
justify a court in not allowing the creditor to impose full surcharges and penalties,
despite an express stipulation therefor in a valid agreement, may not equally justify
the non-payment or reduction of interest. Indeed, the interest prescribed in loan
financing arrangements is a fundamental part of the banking business and the core of
a bank's existence.
Here, the stipulated interest of 15.189% on the forbearance of money was
upheld by the court as reasonable.
LIGUTAN VS. CA G.R. No. 138677 | 12 February 2002 FACTS 1. Tolomeo Ligutan
and Leonidas dela Llana obtained a loan from private respondent Security Bank and
Trust Company (PN, jointly and severally, P120k, 15.189% p.a., penalty of 5% every
month on outstanding principal and interest in case of default, 10% atty fees).
Maturity date: 8 Sep 1981, extension till 29 Dec 1981.
Several demands from bank; as of 20 May 1982: P114,416.10 3. Final demand letter
(full payment required): 30 Sep 1982; default 4. Bank filed a complaint for recovery:
RTC Makati Br 143 a. Bank presented evidence, rested case b. Petitioners reset on 2
occasions 1) Bank moved to declare petitioners in default granted 2) 2 years later,
petitioners MRd denied c. TC ruled in favor of plaintiff (P114,416, 15.189% p.a., 2%
service charge, 5% p.m. penalty charge, commencing 20 May 1982 until fully paid,
10% atty fees) 5. Petitioners appealed to CA a. Assailed rejection of motion to
present evidence, 2% service charge, 5% p.m. penalty charge, 10% atty fees b. CA
affirmed except for 2% service charge (deleted pursuant to CB Circular 783) c.
Petitioners MRd for reduction of 5% p.m. penalty charge for being unconscionable d.
Bank MRd that payment of interest and penalty commences from time of default (not
filing of complaint) e. CA: when obligation fell due, 5% p.m. penalty charge f.
Petitioners filed omnibus MR and to admit newly- discovered evidence alleging
executing a real estate mortgage as security effect of novation g. Mortgage
foreclosed without notice; they did not credit them with proceeds h. CA denied MR
(R52 S2: no second MR allowed) and admission of newlydiscovered evidence
(evidence known to them, not newly-discovered) ISSUE # 1 Was penalty clause
unconscionable? RATIO Impliedly NO, but reduced due to partial performance. SC
agreed with CA that it may be reduced due to partial performance and to allow
petitioners to finally settle the obligation. (Art 1229 CC) Penalty Clause: Accessory
undertaking to assume greater liability on the part of an obligor in case of breach of
an obligation Function of Penalty Clause o To strengthen the coercive force of the
obligation; o To provide, in effect, for what could be the liquidated damages resulting
from such a breach ISSUE # 2 Was the 15% p.a. interest unreasonable? RATIO NO.
The interest on its face is not excessive. Interest: Cost of money; fundamental part
of banking business; core of banks existence Interest and penalty are distinct
concepts which may separately be demanded. ISSUE # 3 Did the execution of the
mortgage novate the contract? RATIO NO. Petitioners acknowledge that there is no
express stipulation that the mortgage is intended to supersede the loan agreement.
(Besides, as we now know, mortgage is an accessory obligation! )
EASTERN SHIPPING LINES vs. CA G.R. No. 97412 | 12 July 1994 FACTS 1.
Contract of carriage between Eastern Shipping Lines & an unnamed shipper to carry
2 fiber drums of riboflavin aboard SS Eastern Comet from Yokohama, Japan to
Manila, insured by respondent Mercantile Insurance Company a. Arrastre operator
Metro Port Service received one drum in bad order (others OK) b. Broker-forwarder
Allied Brokerage Corporation received one drum opened and without seal (others OK)
c. Consignees warehouse received one drum which contained spillages, while the
rest of the contents were adulterated/fake; losses: P19,032.95 which insurance paid
for 2. RTC held the defendants (common carrier) liable 3. CA affirmed ISSUE WON
interest should commence at filing of complaint (12% p.a.) or at date of TC decision
(6% p.a.) HELD 6% p.a. legal interest, then 12% p.a. from finality of decision till
payment 1) loan or forbearance of money a. as stipulated in writing, or b. 12% p.a.
from default (extra-judicial/judicial demand) 2) not loan or forbearance of money a.
reasonable certainty 6% p.a. from judicial/extra-judicial demand b. no certainty
6% p.a. from date of judgment 3) legal interest 12% p.a. from finality till satisfaction
Frias v. San Diego-Sison
BOBIE ROSE FRIAS v. FLORA SAN DIEGO-SISON
2007 / Austria-Martinez
On 7 Dec 1990, Bobie Rose Frias and Dr. Flora San-Diego Sison entered into a MOA
over Friasproperty
MOA consideration is 3M
Sison has 6 months from the date of contracts execution to notify Frias of her
intention to purchase the property with the improvements at 6.4M
 Prior to this 6 month period, Frias may still offer the property to other persons,
provided that 3M shall be paid to Sison including interest based on prevailing
compounded bank interest + amount of sale in excess of 7M [should the property
be sold at a price greater than 7M]
In case Frias has no other buyer within 6 months from the contracts execution, no
interest shall be charged by Sison on the 3M
In the event that on the 6th month, Sison would decide not to purchase the property,
Frias has 6 months to pay 3M (amount shall earn compounded bank interest for the
last 6 months only)
3M treated as a loan and the property considered as the security for the mortgage
Upon notice of intention to purchase, Sison has 6 months to pay the balance of 3.4M
(6.4M less 3M MOA consideration)
Frias received from Sison 3M (2M in cash; 1M post-dated check dated February 28,
1990, instead of 1991, which rendered the check stale). Frias gave Sison the TCT and
the Deed of Absolute Sale over the property. Sison decided not to purchase the
property, so shenotified Frias through a letter dated March 20, 1991 [Frias received it
only on June 11, 1991],and Sison reminded Frias of their agreement that the 2M Sison
paid should be considered as a loan payable within 6 months. Frias failed to pay this
amount.
Sison filed a complaintfor sum of money with preliminary attachment. Sison averred
that Frias tried to deprive her of the security for the loan by making a false report of the
loss of her owners copy of TCT, executing an affidavit of loss and by filing a petition[1]
for the issuance of a new owners duplicate copy. RTC issued a writ of preliminary
attachment upon the filing of a 2M bond.
RTC found that Frias was under obligation to pay Sison 2M with compounded interest
pursuant to their MOA. RTC ordered Frias to pay Sison:
2M + 32% annual interest beginning December 7, 1991 until fully paid
70k representing premiums paid by Sison on the attachment bond with legal interest
counted from the date of this decision until fully paid
100k moral, corrective, exemplary damages [liable for moral damages because of
Frias fraudulent scheme]
100k attorneys fees + cost of litigation
CA affirmed RTC with modification32% reduced to 25%. CA said that there was no
basis for Frias to say that the interest should be charged for 6 months only. It said that
a loan always bears interest; otherwise, it is not a loan. The interest should commence
on June 7, 1991 until fully paid, with compounded bank interest prevailing at the time
[June 1991] the 2M was considered as a loan (as certified by the bank).
ISSUES & HOLDING Ratio only discusses topic of INTEREST (as per syllabus)
WON compounded bank interest should be limited to 6 months as contained in the
MOA. NO
WON Sison is entitled to moral damages. YES
WON the grant of attorneys fees is proper, even if not mentioned in the body of the
decision. NO
CA committed no error in awarding an annual 25% interest on the 2M even beyond the
6-month stipulated period. In this case, the phrase for the last six months only should
be taken in the context of the entire agreement.
SC notes that the agreement speaks of two (2) periods of 6 months each (see FACTS
words in bold & underline). No interest will be charged for the 1st 6-month period [while
Sison was making up her mind], but only for the 2nd 6-month period after Sison decided
not to buy the property. There is nothing in the MOA that suggests that interest will be
charged for 6 months only even if it takes forever for Frias to pay the loan.
The payment of regular interest constitutes the price or cost of the use of money, and
until the principal sum due is returned to the creditor, regular interest continues to
accrue since the debtor continues to use such principal amount. For a debtor to
continue in possession of the principal of the loan and to continue to use the same after
maturity of the loan without payment of the monetary interest constitutes unjust
enrichment on the part of the debtor at the expense of the creditor.
CA DECISION AND RESOLUTION AFFIRMED WITH MODIFICATIONAward of
attorneys fees deleted
[1] At first, Frias petition was granted, but it was eventually set aside, since RTC
granted Sisons petition for relief from judgment (as Sison was in possession of the
owners duplicate copy).
Case Digest: G.R. No. 173227. January 20, 2009
Sebastian Siga-an, petitioner, vs. Alicia Villanueva, respondent.
Facts: Respondent filed a complaint for sum of money against petitioner. Respondent
claimed that petitioner approached her inside the PNO and offered to loan her the
amount of P540,000.00 of which the loan agreement was not reduced in writing and
there was no stipulation as to the payment of interest for the loan. Respondent issued
a check worth P500,000.00 to petitioner as partial payment of the loan. She then
issued another check in the amount of P200,000.00 to petitioner as payment of the
remaining balance of the loan of which the excess amount of P160,000.00 would be
applied as interest for the loan. Not satisfied with the amount applied as interest,
petitioner pestered her to pay additional interest and threatened to block or disapprove
her transactions with the PNO if she would not comply with his demand. Thus, she paid
additional amounts in cash and checks as interests for the loan. She asked petitioner
for receipt for the payments but was told that it was not necessary as there was mutual
trust and confidence between them. According to her computation, the total amount
she paid to petitioner for the loan and interest accumulated to P1,200,000.00.
The RTC rendered a Decision holding that respondent made an overpayment of her
loan obligation to petitioner and that the latter should refund the excess amount to the
former. It ratiocinated that respondents obligation was only to pay the loaned amount
of P540,000.00, and that the alleged interests due should not be included in the
computation of respondents total monetary debt because there was no agreement
between them regarding payment of interest. It concluded that since respondent made
an excess payment to petitioner in the amount of P660,000.00 through mistake,
petitioner should return the said amount to respondent pursuant to the principle
of solutio indebiti. Also, petitioner should pay moral damages for the sleepless nights
and wounded feelings experienced by respondent. Further, petitioner should pay
exemplary damages by way of example or correction for the public good, plus
attorneys fees and costs of suit.
Issue: (1) Whether or not interest was due to petitioner; and (2) whether the principle
of solutio indebiti applies to the case at bar.
Ruling: (1) No. Compensatory interest is not chargeable in the instant case because it
was not duly proven that respondent defaulted in paying the loan and no interest was
due on the loan because there was no written agreement as regards payment of
interest. Article 1956 of the Civil Code, which refers to monetary interest, specifically
mandates that no interest shall be due unless it has been expressly stipulated in
writing. As can be gleaned from the foregoing provision, payment of monetary interest
is allowed only if: (1) there was an express stipulation for the payment of interest; and
(2) the agreement for the payment of interest was reduced in writing. The concurrence
of the two conditions is required for the payment of monetary interest. Thus, we have
held that collection of interest without any stipulation therefor in writing is prohibited by
law.
(2) Petitioner cannot be compelled to return the alleged excess amount paid by
respondent as interest. Under Article 1960 of the Civil Code, if the borrower of loan
pays interest when there has been no stipulation therefor, the provisions of the Civil
Code concerning solutio indebiti shall be applied. Article 2154 of the Civil Code
explains the principle of solutio indebiti. Said provision provides that if something is
received when there is no right to demand it, and it was unduly delivered through
mistake, the obligation to return it arises. In such a case, a creditor-debtor relationship
is created under a quasi-contract whereby the payor becomes the creditor who then
has the right to demand the return of payment made by mistake, and the person who
has no right to receive such payment becomes obligated to return the same. The quasi-
contract of solutio indebiti harks back to the ancient principle that no one shall enrich
himself unjustly at the expense of another. The principle of solutio indebiti applies
where (1) a payment is made when there exists no binding relation between the payor,
who has no duty to pay, and the person who received the payment; and (2) the payment
is made through mistake, and not through liberality or some other cause. We have held
that the principle of solutio indebiti applies in case of erroneous payment of undue
interest.
Article 2232 of the Civil Code states that in a quasi-contract, such as solutio indebiti,
exemplary damages may be imposed if the defendant acted in an oppressive
manner. Petitioner acted oppressively when he pestered respondent to pay interest
and threatened to block her transactions with the PNO if she would not pay
interest. This forced respondent to pay interest despite lack of agreement
thereto. Thus, the award of exemplary damages is appropriate so as to deter petitioner
and other lenders from committing similar and other serious wrongdoings.
ADVOCATE FOR TRUTH IN LENDING 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. It was incorporated on July 9, 2010,and a month later, it filed this petition, joined
by its founder and president, Eduardo B. Olaguer, suing as a taxpayer and a citizen.
HISTORY OF CENTRAL BANKS POWER TO FIX MAX INTEREST RATES
1. R.A. No. 265, which created the Central Bank on June 15, 1948, empowered the
CB-MB toset the maximum interest rates which banks may charge for all types of
loans and other credit operations.
2. The Usury Law was amended by P.D.1684, 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. Section 1-a of Act No. 2655
now reads:
3. In its Resolution No. 2224 dated December 3, 1982, the CB-MB issued CB Circular
No. 905, Series of 1982, effective on January 1, 1983. It removed the ceilings on
interest rates on loans or forbearance of any money, goods or credits:
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 juridical, shall not be subject to any ceiling
prescribed under or pursuant to the Usury Law, as amended.
4. R.A. No. 7653 establishing the BSP replaced the CB:
Sec. 135. Repealing Clause. Except as may be provided 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.
Note: R.A. 7653 the law that created BSP to replace CB Note: this law did not retain
the same provision as that of Section 109 in RA 265.
PETITIONERS ARGUMENTS
To justify their skipping the hierarchy of courts petitioners contend
the transcendental importance of their Petition:
a) CB-MB 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;
b) 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;
c) Whether under R.A. No. 7653, the new BSP-MB may continue to enforce CB Circular
No. 905.
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.
CB Circular No. 905, which was promulgated without the benefit of any prior public
hearing, is void because it violated NCC 5 which provides that "Acts executed against
the provisions of mandatory or prohibitory laws shall be void, except when the law itself
authorizes their validity."
weeks after the issuance of CB Circular No. 905, the benchmark 91-day Treasury
bills shot up to 40% PA, as a result. The banks followed suit and re-priced their loans
to rates which were even higher than those of the "Jobo" bills.
CB Circular No. 905 is also unconstitutional in light of the Bill of Rights, which
commands that "no person shall be deprived of life, liberty or property without due
process of law, nor shall any person be denied the equal protection of the laws."
R.A. No. 7653 did not re-enact a provision similar to Section 109 of RA 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.
Ruling
CB-MB merely suspended the effectivity of the Usury Law when it issued CB Circular
No. 905.
In Medel v. CA, it was said that the circular did not repeal nor amend the Usury Law
but simply suspended its effectivity; that a Circular cannot repeal a low; that by virtue
of CB the Usury Law has been rendered ineffective; that the Usury has been legally
non-existent in our jurisdiction and interest can now be charged as lender and borrow
may agree upon.
Circular upheld the parties freedom of contract to agree freely on the rate of interest
citing Art. 1306 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.
BSP-MB has authority to enforce CB Circular No. 905.
RA 265 covered only banks while Section 1-a of the Usury Law, empowers the
Monetary Board, BSP for that matter, to prescribe the maximum rate or rates of interest
for all loans or renewals thereof or the forbearance of any money, good or credits
The Usury Law is broader in scope than RA 265, now RA 7653, the later merely
supplemented the former as it provided regulation for loans by banks and other financial
institutions. RA 7653 was not unequivocally repealed by RA 765.
CB Circular 905 is essentially based on Section 1-a of the Usury Law and the Usury
Law being broader in scope than the law that created the Central Bank was not deemed
repealed when the law replacing CB with the Bangko Sentral was enacted despite the
non-reenactment in the BSP Law of a provision in the CB Law which the petitioners
purports to be the basis of Circular 905. Magulo ba? Hahaha. Basta the present set up
is: The power of the BSP Monetary Board to determine interest rates emanates from
the Usury Law [which was further specified by Circular 905].
Granting that the CB had power to "suspend" the Usury Law, the new BSP-MB did not
retain this power of its predecessor, in view of Section 135 of R.A. No. 7653, which
expressly repealed R.A. No. 265. The petitioners point out that R.A. No. 7653 did not
reenact a provision similar to Section 109 of R.A. No. 265.
A closer perusal shows that Section 109 of R.A. No. 265 covered only loans
extended by banks, whereas under Section 1-a of the Usury Law, as amended, the
BSP-MB may prescribe the maximum rate or rates of interest for all loans or renewals
thereof or the forbearance of any money, goods or credits, including those for loans of
low priority such as consumer loans, as well as such loans made by pawnshops,
finance companies and similar credit institutions. It even authorizes the BSP-MB to
prescribe different maximum rate or rates for different types of borrowings, including
deposits and deposit substitutes, or loans of financial intermediaries.
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.
#generalia specialibus non derogant
The lifting of the ceilings for interest rates does not authorize stipulations charging
excessive, unconscionable, and iniquitous interest.
In Castro v. Tan, the Court held that the imposition of unconscionable interest is
immoral and unjust. It is tantamount to a repugnant spoliation and an iniquitous
deprivation of property repulsive to the common sense of man.
They are struck down for being contrary to morals, if not against the law, therefore
deemed inexistent and void ab initio. However this nullity does not affect the lenders
right to recover the principal of the loan nor affect the other terms thereof.
PROCEDURAL MATTERS
The Petition is procedurally infirm.
The CB-MB was created to perform executive functions with respect to the
establishment, operation or liquidation of banking and credit institutions. It does not
perform judicial or quasi-judicial functions. Certainly, the issuance of CB Circular No.
905 was done in the exercise of an executive function. Certiorari will not lie in the instant
case.
Petitioners have no locus standi to file the Petition
Locus standi is defined as "a right of appearance in a court of justice on a given
question." In private suits, Section 2, Rule 3 of the 1997 Rules of Civil Procedure
provides that "every action must be prosecuted or defended in the name of the real
party in interest," who is "the party who stands to be benefited or injured by the
judgment in the suit or the party entitled to the avails of the suit." Succinctly put, a
partys standing is based on his own right to the relief sought.
Even in public interest cases such as this petition, the Court has generally adopted
the "direct injury" test that the person who impugns the validity of a statute must
have "a personal and substantial interest in the case such that he has sustained,
or will sustain direct injury as a result." while petitioners assert a public right it is
nonetheless required of them to make out a sufficient interest in the vindication of the
public order and the securing of relief.
 Petitioners also do not claim that public funds were being misused in the enforcement
of CB Circular No. 905 which would have made the action a public one, "and justify
relaxation of the requirement that an action must be prosecuted in the name of the real
party-in-interest."
The Petition raises no issues of transcendental importance.
In Prof. David v. Pres. Macapagal-Arroyo,the Court summarized the requirements
before taxpayers, voters, concerned citizens, and legislators can be accorded a
standing to sue, viz:
(1) the cases involve constitutional issues;
(2) for taxpayers, there must be a claim of illegal disbursement of public funds or that
the tax measure is unconstitutional;
(3) for voters, there must be a showing of obvious interest in the validity of the election
law in question;
(4) for concerned citizens, there must be a showing that the issues raised are of
transcendental importance which must be settled early; and
(5) for legislators, there must be a claim that the official action complained of infringes
upon their prerogatives as legislators.
In CREBA v. ERC, guidelines as determinants on whether a matter is of transcendental
importance, namely:
1. the character of the funds or other assets involved in the case;
2. the presence of a clear case of disregard of a constitutional or statutory prohibition
by the public respondent agency or instrumentality of the government; and
3. the lack of any other party with a more direct and specific interest in the questions
being raised.