Medel vs.

CA [299 SCRA 481 (Nov 27 1998)] Usury Law Facts: Medel obtained several loans from Gonzales totalling P500,000. These were evidenced by several promissory notes agreeing to an interest rate of 5.5% per month with additional service charge of 2% per annum, and penalty charge of 1% per month.. On maturity, Medel failed to pay their indebtedness. Hence, Gonzales filed with the RTC of Bulacan a complaint for collection of the full amount of the loan. RTC declared that the promissory notes were genuine, however, it ruled that although the Usury Law had been repealed, the interest charged by Gonzales on the loans was unconscionable. Hence, RTC applied the legal rate of interest for loan of money, goods or credit of 12% per annum. CA reversed the ruling of the RTC holding that the Usury Law had become legally inexistent. Hence, this petition for review on certiorari. Issue: Whether or not the interest rate stipulated upon was valid. Held: NO. SC held that the stipulated rate of interest at 5.5% per month on the P500,000 loan was excessive. However, it could not consider the rate usurious because CB Circular No. 905 has expressly removed the interest ceilings prescribed by the Usury Law and that said law is now legally inexistent. CB Circular 905 did not repeal nor in any way amend the Usury Law but simply suspended the latters effectivity. A CB Circular cannot repeal a law. Only a law can repeal another law. By virtue of this circular, the Usury Law has been rendered ineffective. Interest can no be charged as lender and borrower may agree upon. Nevertheless, SC held that the interest of 5.5% per month, or 66% per annum, stipulated upon by the parties in the promissory note was unconscionable, and hence, contrary to morals, if not against the law. The stipulation is void. The courts shall reduce equitably liquidated damages, whether intended as an indemnity or a penalty if they are iniquitous or unconscionable. SC ordered that the interest of 12% per annum and additional 1% a month penalty charge as liquidated damages reasonable.