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LIM, ADELAIDE JOIE BANKING LAW FEBRUARY 2018

GLORIA OCAMPO and TERESITA TAN vs. LAND BANK OF THE PHILIPPINES, et al
G.R. No. 149004
April 14, 2004
PANGANIBAN, J.:

FACTS:

On October 26, 1989, Alex A. Jaucian filed a case for collection of money against
Restituta Imperial. The complaint alleges, inter alia, that defendant obtained from plaintiff six
(6) separate loans for which the former executed in favor of the latter six (6) separate promissory
notes and issued several checks as guarantee for payment. When the said loans became overdue
and unpaid, especially when the defendants checks were dishonored, plaintiff made repeated oral
and written demands for payment.

The loans were covered by six (6) separate promissory notes executed by defendant. The
face value of each promissory notes is bigger than the amount released to defendant because said
face value already included the interest from date of note to date of maturity. Said promissory
notes indicate the interest of 16% per month, date of issue, due date, the corresponding guarantee
checks issued by defendant, penalties and attorneys fees.

The arrangement between plaintiff and defendant regarding these guarantee checks was
that each time a check matures the defendant would exchange it with cash.

Although, admittedly, defendant made several payments, the same were not enough and
she always defaulted whenever her loans matured. As of August 16, 1991, the total unpaid
amount, including accrued interest, penalties and attorneys fees, was P2,807,784.20.

Defendant claims that she was extended loans by the plaintiff on several occasions, i.e.,
from November 13, 1987 to January 13, 1988, in the total sum of P320,000.00 at the rate of
sixteen percent (16%) per month. The notes matured every four (4) months with unearned
interest compounding every four (4) months if the loan was not fully paid.

The loan on November 13, 1987 and January 6, 1988 had been fully paid including the
usurious interests of 16% per month, this is the reason why these were not included in the
complaint.

Defendant contends that from all perspectives the above excess payment of P121,780.00 is
more than the interest that could be legally charged, and in fact as of January 25, 1989, the total
releases have been fully paid.

On appeal, the CA held that without judicial inquiry, it was improper for the RTC to rule on
the constitutionality of Section 1, Central Bank Circular No. 905, Series of 1982. Nonetheless,
the appellate court affirmed the judgment of the trial court, holding that the latters clear and
detailed computation of petitioners outstanding obligation to respondent was convincing and
satisfactory.
Hence, this petition.
LIM, ADELAIDE JOIE BANKING LAW FEBRUARY 2018

ISSUE:

Whether or not the charging of interest of twenty-eight (28%) per centum per annum without any
writing is illegal

RULING:

YES. The trial court, as affirmed by the CA, reduced the interest rate from 16 percent to
1.167 percent per month or 14 percent per annum; and the stipulated penalty charge, from 5
percent to 1.167 percent per month or 14 percent per annum.
Petitioner alleges that absent any written stipulation between the parties, the lower courts
should have imposed the rate of 12 percent per annum only.
The records show that there was a written agreement between the parties for the payment
of interest on the subject loans at the rate of 16 percent per month. As decreed by the lower
courts, this rate must be equitably reduced for being iniquitous, unconscionable and exorbitant.
While the Usury Law ceiling on interest rates was lifted by C.B. Circular No. 905, nothing in the
said circular grants lenders carte blanche authority to raise interest rates to levels which will
either enslave their borrowers or lead to a hemorrhaging of their assets
In Medel v. CA, the Court found the stipulated interest rate of 5.5 percent per month, or
66 percent per annum, unconscionable. In the present case, the rate is even more iniquitous and
unconscionable, as it amounts to 192 percent per annum. When the agreed rate is iniquitous or
unconscionable, it is considered contrary to morals, if not against the law. Such stipulation is
void.
Since the stipulation on the interest rate is void, it is as if there were no express contract
thereon. Hence, courts may reduce the interest rate as reason and equity demand. We find no
justification to reverse or modify the rate imposed by the two lower courts.
WHEREFORE, the Petition is DENIED.