Facts:
The adverse claim
- 1962: Catholic Vicar Apostolic of the Mountain Province
(Vicar), petitioner, filed with the court an application for the
registration of title over lots 1, 2, 3 and 4 situated in
Poblacion Central, Benguet, said lots being used as sites of
the Catholic Church, building, convents, high school building,
school gymnasium, dormitories, social hall and stonewalls.
- 1963: Heirs of Juan Valdez and Heirs of Egmidio Octaviano
claimed that they have ownership over lots 1, 2 and 3. (2
separate civil cases)
- 1965: The land registration court confirmed the registrable
title of Vicar to lots 1 , 2, 3 and 4. Upon The Court of Appeals
found that petitioner did not meet the requirement of 30
years possession for acquisitive prescription over Lots 2 and
3. Neither did it satisfy the requirement of 10 years
possession for ordinary acquisitive prescription because of
the absence of just title. The appellate court did not believe
the findings of the trial court that Lot 2 was acquired from
Juan Valdez by purchase and Lot 3 was acquired also by
purchase from Egmidio Octaviano by petitioner Vicar
because there was absolutely no documentary evidence to
support the same and the alleged purchases were never
mentioned in the application for registration.appeal by the
private respondents (heirs), the decision of the lower court
was reversed. Title for lots 2 and 3 were cancelled.
- VICAR filed with the Supreme Court a petition for review on
certiorari of the decision of the Court of Appeals dismissing
his application for registration of Lots 2 and 3.
- During trial, the Heirs of Octaviano presented one (1)
witness, who testified on the alleged ownership of the land
in question (Lot 3) by their predecessor-in-interest, Egmidio
Octaviano; his written demand to Vicar for the return of the
land to them; and the reasonable rentals for the use of the
land at P10,000 per month. On the other hand, Vicar
presented the Register of Deeds for the Province of Benguet,
Atty. Sison, who testified that the land in question is not
covered by any title in the name of Egmidio Octaviano or any
of the heirs. Vicar dispensed with the testimony of Mons.
Brasseur when the heirs admitted that the witness if called
to the witness stand, would testify that Vicar has been in
possession of Lot 3, for 75 years continuously and peacefully
and has constructed permanent structures thereon.
Issue: WON Vicar had been in possession of lots 2 and 3
merely as bailee borrower in commodatum, a gratuitous loan
for use.
Held: YES.
Private respondents were able to prove that their
predecessors' house was borrowed by petitioner Vicar after
the church and the convent were destroyed. They never
asked for the return of the house, but when they allowed its
free use, they became bailors in commodatum and the
petitioner the bailee.
The bailees' failure to return the subject matter of
commodatum to the bailor did not mean adverse possession
on the part of the borrower. The bailee held in trust the
property subject matter of commodatum.
of petitioner came only in 1951 when it declared the lots for
taxation purposes. The action of petitioner Vicar by such
adverse claim could not ripen into title by way of ordinary
acquisitive prescription because of the absence of just title.
The Court of Appeals found that petitioner Vicar did not meet
the requirement of 30 years possession for acquisitive
prescription over Lots 2 and 3. Neither did it satisfy the
requirement of 10 years possession for ordinary acquisitive
prescription because of the absence of just title. The
appellate court did not believe the findings of the trial court
that Lot 2 was acquired from Juan Valdez by purchase and
Lot 3 was acquired also by purchase from Egmidio Octaviano
by petitioner Vicar because there was absolutely no
documentary evidence to support the same and the alleged
purchases were never mentioned in the application for
registration.
There is evidence that petitioner Vicar occupied Lots 1 and 4,
which are not in question, but not Lots 2 and 3, because the
buildings standing thereon were only constructed after
liberation in 1945. Petitioner Vicar only declared Lots 2 and
3 for taxation purposes in 1951. The improvements oil Lots
1, 2, 3, 4 were paid for by the Bishop but said Bishop was
appointed only in 1947, the church was constructed only in
1951 and the new convent only 2 years before the trial in
1963.
When petitioner Vicar was notified of the oppositor's claims,
the parish priest offered to buy the lot from Fructuoso
Valdez. Lots 2 and 3 were surveyed by request of petitioner
Vicar only in 1962.
Private respondents were able to prove that their
predecessors' house was borrowed by petitioner Vicar after
the church and the convent were destroyed. They never
asked for the return of the house, but when they allowed its
free use, they became bailors in commodatum and the
petitioner the bailee. The bailees' failure to return the
subject matter of commodatum to the bailor did not mean
adverse possession on the part of the borrower. The bailee
held in trust the property subject matter of commodatum.
The adverse claim of petitioner came only in 1951 when it
declared the lots for taxation purposes. The action of
petitioner Vicar by such adverse claim could not ripen into
title by way of ordinary acquisitive prescription because of
the absence of just title.
The Court of Appeals found that the predecessors-in-interest
and private respondents were possessors under claim of
ownership in good faith from 1906; that petitioner Vicar was
only a bailee in commodatum; and that the adverse claim
and repudiation of trust came only in 1951.

Advocates for Truth in Lending, Inc. vs. BSP, et. al.
G.R. No. 192986 / January 15, 2013
REYES, J
FACTS:
Advocates for Truth in Lending, Inc. and its President,
Eduardo Olaguer claim that they are raising issues of
transcendental importance to the public and so they filed
Petition for Certiorari under Rule 65 ROC seeking to declare
that the Bangko Sentral ng Pilipinas Monetary Board (BSP-
MB), replacing the Central Bank Monetary Board (CB-MB) by
virtue of R.A. No. 7653, has no authority to continue
enforcing Central Bank Circular No. 905, issued by the CB-MB
in 1982, which "suspended" the Usury Law of 1916 (Act No.
2655).
R.A. No. 265, which created the Central Bank (CB) of the
Philippines, empowered the CB-MB to, among others, set the
maximum interest rates which banks may charge for all types
of loans and other credit operations, within limits prescribed
by the Usury Law.
In its Resolution No. 2224, the CB-MB issued CB Circular No.
905, Series of 1982. Section 1 of the Circular, under its
General Provisions, removed the ceilings on interest rates on
loans or forbearance of any money, goods or credits.
On June 14, 1993, President Fidel V. Ramos signed into law
R.A. No. 7653 establishing the Bangko Sentral ng Pilipinas
(BSP) to replace the CB.
ISSUE/S:
1. 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. NO
2. Whether under R.A. No. 7653, the BSP-MB may continue
to enforce CB Circular No. 905. YES
RULING:
1. The CB-MB merely suspended the effectivity of the Usury
Law when it issued CB Circular No. 905.
The power of the CB to effectively suspend the Usury Law
pursuant to P.D. No. 1684 has long been recognized and
upheld in many cases. As the Court explained in the landmark
case of Medel v. CA, citing several cases, CB Circular No. 905
"did not repeal nor in anyway amend the Usury Law but
simply suspended the latter’s effectivity;" that "a CB Circular
cannot repeal a law, [for] only a law can repeal another law;"
that "by virtue of CB Circular No. 905, the Usury Law has been
rendered ineffective;" and "Usury has been legally non-
existent in our jurisdiction. Interest can now be charged as
lender and borrower may agree upon."
By lifting the interest ceiling, CB Circular No. 905 merely
upheld the parties’ freedom of contract to agree freely on
the rate of interest. It cited Article 1306 of the New Civil
Code, under which the contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals,
good customs, public order, or public policy
2. The BSP-MB has authority to enforce CB Circular No. 905.
Section 1 of CB Circular No. 905 provides that, "The rate of
interest, including commissions, premiums, fees and other
charges, on a loan or forbearance of any money, goods, or
credits, regardless of maturity and whether secured or
unsecured, that may be charged or collected by any person,
whether natural or juridical, shall not be subject to any
ceiling prescribed under or pursuant to the Usury Law, as
amended." It does not purport to suspend the Usury Law
only as it applies to banks, but to all lenders.
Petitioners contend that, 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.
Further, the lifting of the ceilings for interest rates does not
authorize stipulations charging excessive, unconscionable,
and iniquitous interest. It is settled that nothing in CB Circular
No. 905 grants lenders a carte blanche authority to raise
interest rates to levels which will either enslave their
borrowers or lead to a hemorrhaging of their assets.
Stipulations authorizing iniquitous or unconscionable
interests have been invariably struck down for being contrary
to morals, if not against the law.
D. The CB-MB merely suspended the effectivity of the Usury
Law when it issued CB Circular No. 905.
E. The BSP-MB has authority to enforce CB Circular No. 905.

The power of the CB to effectively suspend the Usury Law

Section 1 of CB Circular No. 905 provides that "The rate of
pursuant to P.D. No. 1684 has long been recognized and
interest, including commissions, premiums, fees and other
upheld in many cases. As the Court explained in the landmark
charges, on a loan or forbearance of any money, goods, or
case of Medel v. CA,36 citing several cases, CB Circular No.
credits, regardless of maturity and whether secured or
905 "did not repeal nor in anyway amend the Usury Law but
unsecured, that may be charged or collected by any person,
simply suspended the latter’s effectivity;"37 that "a CB
whether natural or juridical, shall not be subject to any
Circular cannot repeal a law, [for] only a law can repeal
ceiling prescribed under or pursuant to the Usury Law, as
another law;"38 that "by virtue of CB Circular No. 905, the
amended." It does not purport to suspend the Usury Law
Usury Law has been rendered ineffective;"39 and "Usury has
only as it applies to banks, but to all lenders.
been legally non-existent in our jurisdiction. Interest can now
be charged as lender and borrower may agree upon."40

Petitioners contend that, granting that the CB had power to

"suspend" the Usury Law, the new BSP-MB did not retain this
In First Metro Investment Corp. v. Este Del Sol Mountain
power of its predecessor, in view of Section 135 of R.A. No.
Reserve, Inc.41 cited in DBP v. Perez,42 we also belied the
7653, which expressly repealed R.A. No. 265. The petitioners
contention that the CB was engaged in self-legislation. Thus:
point out that R.A. No. 7653 did not reenact a provision
similar to Section 109 of R.A. No. 265.

Central Bank Circular No. 905 did not repeal nor in any way
amend the Usury Law but simply suspended the latter’s
A closer perusal shows that Section 109 of R.A. No. 265
effectivity. The illegality of usury is wholly the creature of
covered only loans extended by banks, whereas under
legislation. A Central Bank Circular cannot repeal a law. Only
Section 1-a of the Usury Law, as amended, the BSP-MB may
a law can repeal another law. x x x.43
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
In PNB v. Court of Appeals,44 an escalation clause in a loan
consumer loans, as well as such loans made by pawnshops,
agreement authorized the PNB to unilaterally increase the
finance companies and similar credit institutions. It even
rate of interest to 25% per annum, plus a penalty of 6% per
authorizes the BSP-MB to prescribe different maximum rate
annum on past dues, then to 30% on October 15, 1984, and
or rates for different types of borrowings, including deposits
to 42% on October 25, 1984. The Supreme Court invalidated
and deposit substitutes, or loans of financial intermediaries.
the rate increases made by the PNB and upheld the 12%
interest imposed by the CA, in this wise:

Act No. 2655, an earlier law, is much broader in scope,

whereas R.A. No. 265, now R.A. No. 7653, merely
P.D. No. 1684 and C.B. Circular No. 905 no more than allow
supplemented it as it concerns loans by banks and other
contracting parties to stipulate freely regarding any
financial institutions. Had R.A. No. 7653 been intended to
subsequent adjustment in the interest rate that shall accrue
repeal Section 1-a of Act No. 2655, it would have so stated in
on a loan or forbearance of money, goods or credits. In fine,
unequivocal terms.
they can agree to adjust, upward or downward, the interest
previously stipulated. x x x.45

Moreover, the rule is settled that repeals by implication are

not favored, because laws are presumed to be passed with
Thus, according to the Court, by lifting the interest ceiling, CB
deliberation and full knowledge of all laws existing pertaining
Circular No. 905 merely upheld the parties’ freedom of
to the subject.46 An implied repeal is predicated upon the
contract to agree freely on the rate of interest. It cited Article
condition that a substantial conflict or repugnancy is found
1306 of the New Civil Code, under which the contracting
between the new and prior laws. Thus, in the absence of an
parties may establish such stipulations, clauses, terms and
express repeal, a subsequent law cannot be construed as
conditions as they may deem convenient, provided they are
repealing a prior law unless an irreconcilable inconsistency
not contrary to law, morals, good customs, public order, or
and repugnancy exists in the terms of the new and old
public policy.
laws.47 We find no such conflict between the provisions of
Act 2655 and R.A. No. 7653.
F. The lifting of the ceilings for interest rates does not
authorize stipulations charging excessive, unconscionable,
and iniquitous interest.
It is settled that nothing in CB Circular No. 905 grants lenders
a carte blanche authority to raise interest rates to levels
which will either enslave their borrowers or lead to a
hemorrhaging of their assets.48 As held in Castro v. Tan:49
The imposition of an unconscionable rate of interest on a
money debt, even if knowingly and voluntarily assumed, is
immoral and unjust. It is tantamount to a repugnant
spoliation and an iniquitous deprivation of property,
repulsive to the common sense of man. It has no support in
law, in principles of justice, or in the human conscience nor
is there any reason whatsoever which may justify such
imposition as righteous and as one that may be sustained
within the sphere of public or private morals.50
Stipulations authorizing iniquitous or unconscionable
interests have been invariably struck down for being contrary
to morals, if not against the law.51 Indeed, under Article
1409 of the Civil Code, these contracts are deemed inexistent
and void ab initio, and therefore cannot be ratified, nor may
the right to set up their illegality as a defense be waived.
Nonetheless, the nullity of the stipulation of usurious
interest does not affect the lender’s right to recover the
principal of a loan, nor affect the other terms thereof.52
Thus, in a usurious loan with mortgage, the right to foreclose
the mortgage subsists, and this right can be exercised by the
creditor upon failure by the debtor to pay the debt due. The
debt due is considered as without the stipulated excessive
interest, and a legal interest of 12% per annum will be added
in place of the excessive interest formerly
imposed,53following the guidelines laid down in the
landmark case of Eastern Shipping Lines, Inc. v. Court of
Appeals,54 regarding the manner of computing legal
interest:
II. 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:
1. When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially
demanded. 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.
2. When an obligation, not constituting a loan or forbearance
of money, is breached, an interest on the amount of damages
awarded 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. 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) but 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.
3. 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.55 (Citations
omitted)
The foregoing rules were further clarified in Sunga-Chan v.
Court of Appeals, 56 as follows:
Eastern Shipping Lines, Inc. synthesized the rules on the
imposition of interest, if proper, and the applicable rate, as
follows: The 12% per annum rate under CB Circular No. 416
shall apply only to loans or forbearance of money, goods, or
credits, as well as to judgments involving such loan or
forbearance of money, goods, or credit, while the 6% per
annum under Art. 2209 of the Civil Code applies "when the
transaction involves the payment of indemnities in the
concept of damage arising from the breach or a delay in the
performance of obligations in general," with the application
of both rates reckoned "from the time the complaint was
filed until the [adjudged] amount is fully paid." In either
instance, the reckoning period for the commencement of the
running of the legal interest shall be subject to the condition
"that the courts are vested with discretion, depending on the
equities of each case, on the award of interest."57 (Citations
omitted)
EASTERN SHIPPING LINES, INC., petitioner, vs. HON. COURT
OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC.,
respondents.
FACTS:
This is an action against defendants shipping company,
arrastre operator and broker-forwarder for damages
sustained by a shipment while in defendants' custody, filed
by the insurer-subrogee who paid the consignee the value of
such losses/damages.
the losses/damages were sustained while in the respective
and/or successive custody and possession of defendants
carrier (Eastern), arrastre operator (Metro Port) and broker
(Allied Brokerage).
As a consequence of the losses sustained, plaintiff was
compelled to pay the consignee P19,032.95 under the
aforestated marine insurance policy, so that it became
subrogated to all the rights of action of said consignee
against defendants.
DECISION OF LOWER COURTS: * trial court: ordered payment
of damages, jointly and severally * CA: affirmed trial court.
ISSUES AND RULING:
(a) whether or not a claim for damage sustained on a
shipment of goods can be a solidary, or joint and several,
liability of the common carrier, the arrastre operator and the
customs broker;
YES, it is solidary. Since it is the duty of the ARRASTRE to take
good care of the goods that are in its custody and to deliver
them in good condition to the consignee, such responsibility
also devolves upon the CARRIER. Both the ARRASTRE and the
CARRIER are therefore charged with the obligation to deliver
the goods in good condition to the consignee.
The common carrier's duty to observe the requisite diligence
in the shipment of goods lasts from the time the articles are
surrendered to or unconditionally placed in the possession
of, and received by, the carrier for transportation until
delivered to, or until the lapse of a reasonable time for their
acceptance by, the person entitled to receive them (Arts.
1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161
SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863).
When the goods shipped either are lost or arrive in damaged
condition, a presumption arises against the carrier of its
failure to observe that diligence, and there need not be an
express finding of negligence to hold it liable.
(b) whether the payment of legal interest on an award for
loss or damage is to be computed from the time the
complaint is filed or from the date the decision appealed
from is rendered; and
FOLLOW THESE VERY IMPORTANT RULES (GUIDANCE BY THE
SUPREME COURT)
I. 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.
II. 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:
1. When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially
demanded. 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.
2. When an obligation, not constituting a loan or forbearance
of money, is breached, an interest on the amount of damages
awarded 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
certainty. 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) but 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
3. 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.
(c) whether the applicable rate of interest, referred to above,
is twelve percent (12%) or six percent (6%).
SIX PERCENT (6%) on the amount due computed from the
decision, dated 03 February 1988, of the court a quo (Court
of Appeals) AND A TWELVE PERCENT (12%) interest, in lieu of
SIX PERCENT (6%), shall be imposed on such amount upon
finality of the Supreme Court decision until the payment
thereof.
RATIO: when the judgment awarding a sum of money
becomes final and executory, the monetary award shall earn
interest at 12% per annum from the date of such finality until
its satisfaction, regardless of whether the case involves a
loan or forbearance of money. The reason is that this interim
period is deemed to be by then equivalent to a forbearance
of credit.
NOTES: the Central Bank Circular imposing the 12% interest
per annum applies only to loans or forbearance of money,
goods or credits, as well as to judgments involving such loan
or forbearance of money, goods or credits, and that the 6%
interest under the Civil Code governs when the transaction
involves the payment of indemnities in the concept of
damage arising from the breach or a delay in the
performance of obligations in general. Observe, too, that in
these cases, a common time frame in the computation of the
6% interest per annum has been applied, i.e., from the time
the complaint is filed until the adjudged amount is fully paid.
MEDEL VS CA
(Credit Transactions – Loans, Usury Law, Interest Rates)
Facts: Defendants obtained a loan from Plaintiff in the
amount P50, 000.00, payable in 2 months and executed a
promissory note. Plaintiff gave only the amount of P47,
000.00 to the borrowers and retained P3, 000.00 as advance
interest for 1 month at 6% per month.
Defendants obtained another loan from Defendant in the
amount of P90, 000.00, payable in 2 months, at 6% interest
per month. They executed a promissory note to evidence the
loan and received only P84, 000.00 out of the proceeds of the
loan.
For the third time, Defendants secured from Plaintiff another
loan in the amount of P300, 000.00, maturing in 1 month,
and secured by a real estate mortgage. They executed a
promissory note in favor of the Plaintiff. However, only the
sum of P275, 000.00, was given to them out of the proceeds
of the loan.
Upon maturity of the three promissory notes, Defendants
failed to pay the indebtedness
Defendants consolidated all their previous unpaid loans
totalling P440, 000.00, and sought from Plaintiff another loan
in the amount of P60, 000.00, bringing their indebtedness to
a total of P50,000.00. They executed another promissory
note in favor of Plaintiff to pay the sum of P500, 000.00 with
a 5.5% interest per month plus 2% service charge per annum,
with an additional amount of 1% per month as penalty
charges.
On maturity of the loan, the Defendants failed to pay the
indebtedness which prompt the Plaintiffs to file with the RTC
a complaint for collection of the full amount of the loan
including interests and other charges.
Declaring that the due execution and genuineness of the four
promissory notes has been duly proved, the RTC ruled that
although the Usury Law had been repealed, the interest
charged on the loans was unconscionable and “revolting to
the conscience” and ordered the payment of the amount of
the first 3 loans with a 12% interest per annum and 1% per
month as penalty.
On appeal, Plaintiff-appellants argued that the promissory
note, which consolidated all the unpaid loans of the
defendants, is the law that governs the parties.
The Court of Appeals ruled in favor of the Plaintiff-appellants
on the ground that the Usury Law has become legally
inexistent with the promulgation by the Central Bank in 1982
of Circular No. 905, the lender and the borrower could agree
on any interest that may be charged on the loan, and ordered
the Defendants to pay the Plaintiffs the sum of P500,000,
plus 5.5% per month interest and 2& service charge per
annum , and 1% per month as penalty charges.
Defendants filed the present case via petition for review on
certiorari.
Issue: WON the stipulated 5.5% interest rate per month on
the loan in the sum of P500, 000.00 is usurious.
Held: No.
A stipulated rate of interest at 5.5% per month on the P500,
000.00 loan is excessive, iniquitous, unconscionable and
exorbitant, but it cannot be considered “usurious” because
Central Bank Circular No. 905 has expressly removed the
interest ceilings prescribed by the Usury Law and that the
Usury Law is now “legally inexistent.”
Doctrine: A CB Circular cannot repeal a law. Only a law can
repeal another law.
Jurisprudence provides that CB Circular did not repeal nor in
a way amend the Usury Law but simply suspended the
latter’s effectivity (Security Bank and Trust Co vs RTC). Usury
has been legally non-existent in our jurisdiction. Interest can
now be charged as lender and borrower may agree upon.
Law: Article 2227, Civil Code
The courts shall reduce equitably liquidated damages,
whether intended as an indemnity or a penalty if they are
iniquitous or unconscionable.
Note: While the Usury Law ceiling on interest rates was lifted
by the CB Circular 905, nothing in the said circular could
possibly be read as granting carte blanche authority to
lenders to raise interest rates to levels which would either
enslave their borrowers or lead to a haemorrhaging of their
assets (Almeda vs. CA, 256 SCRA 292 [1996]).
On November 7, 1985, Servando Franco and Leticia Medel
(hereafter Servando and Leticia) obtained a loan from
Veronica R. Gonzales (hereafter Veronica), who was engaged
in the money lending business under the name "Gonzales
Credit Enterprises", in the amount of P50,000.00, payable in
two months. Veronica gave only the amount of P47,000.00,
to the borrowers, as she retained P3,000.00, as advance
interest for one month at 6% per month. Servado and Leticia
executed a promissory note for P50,000.00, to evidence the
loan, payable on January 7, 1986.
On November 19, 1985, Servando and Leticia obtained from
Veronica another loan in the amount of P90,000.00, payable
in two months, at 6% interest per month. They executed a
promissory note to evidence the loan, maturing on January
19, 1986. They received only P84,000.00, out of the proceeds
of the loan.
Held:
The SC agree with petitioners that the stipulated rate of
interest at 5.5% per month on the P500,000.00 loan is
excessive, iniquitous, unconscionable and exorbitant.
However, SC cannot consider the rate "usurious" because it
has consistently held that Circular No. 905 of the Central
Bank, adopted on December 22, 1982, has expressly
removed the interest ceilings prescribed by the Usury Law
and that the Usury Law is now "legally inexistent".
In Security Bank and Trust Company vs. Regional Trial Court
of Makati, Branch 61 the Court held that CB Circular No. 905
"did not repeal nor in anyway amend the Usury Law but
simply suspended the latter's effectivity." Indeed, we have
held that "a Central Bank Circular cannot repeal a law. Only
a law can repeal another law." In the recent case of Florendo
vs. Court of Appeals, the Court reiterated the ruling that "by
virtue of CB Circular 905, the Usury Law has been rendered
ineffective". "Usury has been legally non-existent in our
jurisdiction. Interest can now be charged as lender and
borrower may agree upon."

On maturity of the two promissory notes, the borrowers
failed to pay the indebtedness.
On June 11, 1986, Servando and Leticia secured from
Veronica still another loan in the amount of P300,000.00,
maturing in one month, secured by a real estate mortgage
over a property belonging to Leticia Makalintal Yaptinchay,
who issued a special power of attorney in favor of Leticia
Medel, authorizing her to execute the mortgage. Servando
and Leticia executed a promissory note in favor of Veronica
to pay the sum of P300,000.00, after a month, or on July 11,
1986. However, only the sum of P275,000.00, was given to
them out of the proceeds of the loan.
Nevertheless, SC find the interest at 5.5% per month, or 66%
per annum, stipulated upon by the parties in the promissory
note iniquitous or unconscionable, and, hence, contrary to
morals ("contra bonos mores"), if not against the law. The
stipulation is void. The courts shall reduce equitably
liquidated damages, whether intended as an indemnity or a
penalty if they are iniquitous or unconscionable.
Consequently, the Court of Appeals erred in upholding the
stipulation of the parties. Rather, we agree with the trial
court that, under the circumstances, interest at 12% per
annum, and an additional 1% a month penalty charge as
liquidated damages may be more reasonable.

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

Servando and Leticia with the latter's husband, Dr. Rafael

Medel, consolidated all their previous unpaid loans totaling
P440,000.00, and sought from Veronica another loan in the
amount of P60,000.00, bringing their indebtedness to a total
of P500,000.00, payable on August 23, 1986. The executed a
promissory note.

On maturity of the loan, the borrowers failed to pay the

indebtedness of P500,000.00, plus interests and penalties. A
complaint for collection of the full amount of the loan
including interests and other charges was filed.

Issue: WON the stipulated rates of interest at 5.5% per

month on the loan in the sum of P500,00 that plaintiffs
extended to the defendant is usurious?