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PALMONES, ELOISA C.

Credit Transactions
Usury Law
(Act 2655, as amended by Presidential Decree No. 116)
The Usury Law is Act 26, as a!ended "y Presidentia# $ecree No. %%6, which &ro'ides, a!on( others,
that the #e(a# rate o) interest )or the #oan or )or"earance o) any !oney, (oods or credits, where such #oan or
renewa# or )or"earance is secured in who#e or in &art "y a !ort(a(e u&on rea# estate the tit#e to which is du#y
re(istered, in the a"sence o) e*&ress contract as to such rate o) interest, sha## "e %2+ &er annu!. Any a!ount o)
interest &aid or sti&u#ated to "e &aid in e*cess o) that )i*ed "y #aw is considered usurious, there)ore un#aw)u#.
,owe'er, &ursuant to Centra# -an. Circu#ar No. /0, ado&ted on 22 $ece!"er %/12, the Su&re!e Court
dec#ared that the Usury #aw is now 2#e(a##y ine*istent2.It shou#d "e c#ari)ied that C- Circu#ar No. /0 did not
re&ea# nor in anyway a!end the Usury Law "ut si!&#y sus&ended the #atter3s e))ecti'ity. Usury has "een #e(a##y
non4e*istent in our 5urisdiction. Interest can now "e char(ed as #ender and "orrower !ay a(ree u&on.
Usury is deined as!
 Contractin( )or or recei'in( so!ethin( in e*cess o) the a!ount a##owed "y #aw )or the )or"earance o)
!oney, (oods or thin(s in action.
 Any a!ount o) interest &aid or sti&u#ated to "e &aid in e*cess o) that )i*ed "y #aw.
"ac#$round
 Ta.in( o) e*cessi'e interest )or the #oan o) !oney has "een re(arded with a"horrence )ro! the
ear#iest ti!es 6 &rohi"ited "y the ancient #aws o) the Chinese and ,indus, the Mosaic Law o) the
7ews, "y the 8oran, "y the Athenians and "y the 9o!ans and has "een )rowned u&on "y
distin(uished &u"#icists throu(hout a## the a(es.
 The ear#y A!erican co#onia# usury acts were !ode#ed a)ter the En(#ish act, the rate o) interest
a##owed "ein( usua##y hi(her. These ear#y enact!ents ado&ted the &ena#ty )or usury )i*ed "y the
statue o) the !other country. The tendency o) su"se:uent statutes has "een steadi#y to !iti(ate the
&unish!ent in)#icted on the usurer.
 The i##e(a#ity o) usury is now who##y a creature o) #e(is#ation. The Phi#i&&ine statute on the su"5ect is
Act No. 26. It is a drastic #aw )o##owin( in !any res&ects the !ost ad'anced A!erican Le(is#ation.
Centra# -an. Circu#ar No. /0 si!&#y sus&ended the e))ecti'ity o) the Usury Law, it did not re&ea# or
in any way sus&end the Usury Law. On#y a #aw can re&ea# another #aw.

Usury Law
 The Usury Law is Act 26, as a!ended "y Presidentia# $ecree No. %%6, which &ro'ides, a!on(
others, that the #e(a# rate o) interest )or the #oan or )or"earance o) any !oney, (oods or credits, where
such #oan or renewa# or )or"earance is secured in who#e or in &art "y a !ort(a(e u&on rea# estate the
tit#e to which is du#y re(istered, in the a"sence o) e*&ress contract as to such rate o) interest, sha## "e
%2+ &er annu!. Any a!ount o) interest &aid or sti&u#ated to "e &aid in e*cess o) that )i*ed "y #aw is
considered usurious, there)ore un#aw)u#.
 Usury #aw has "een enacted )or the &rotection o) the "orrower )ro! the i!&osition o) unscru&u#ous
#enders who are ready to ta.e undue ad'anta(e o) the necessities o) others. It )or!s a &art o) the
&u"#ic &o#icy o) the state, and is intended to &re'ent e*cessi'e char(es )or the #oan o) !oney.
 It &roceeds on the theory that a usurious #oan is attri"uta"#e to such ine:ua#ity in the re#ation o) the
#ender and "orrower that the "orrower;s necessities de&ri'e hi! o) )reedo! in contractin( and &#ace
hi! at the !ercy o) the #ender.
 Pursuant to Centra# -an. Circu#ar No. /0, ado&ted on 22 $ece!"er %/12, the Su&re!e Court
dec#ared that the Usury #aw is now 2#e(a##y ine*istent2. Under the authority.
%&'()*N 1.
 The rate o) interest, inc#udin( co!!issions, &re!iu!s, )ees and other char(es, on a #oan or
)or"earance o) any !oney, (oods, or credits, re(ard#ess o) !aturity and whether secured or
unsecured, that !ay "e char(ed or co##ected "y any &erson, whether natura# or 5uridica#, sha## not "e
su"5ect to any cei#in( &rescri"ed under or &ursuant to the Usury Law, as a!ended.
%&'()*N 2.
 The rate o) interest )or the #oan or )or"earance o) any !oney, (oods or credits and the rate a##owed in
5ud(!ents, in the a"sence o) e*&ress contract as to such rate o) interest, sha## continue to "e twe#'e
&er cent <%2+= &er annu!.
It shou#d "e c#ari)ied that C- Circu#ar No. /0 did not re&ea# nor in anyway a!end the Usury Law "ut si!&#y
sus&ended the #atter3s e))ecti'ity. Usury has "een #e(a##y non4e*istent in our 5urisdiction. Interest can now "e
char(ed as #ender and "orrower !ay a(ree u&on.
&lements!
%. Loan or )or"earance.
2. An understandin( "etween the &arties that the #oan sha## or !ay "e returned.
>. Un#aw)u# intent to ta.e !ore than the #e(a# rate )or the use o) !oney.
?. Ta.in( or a(reein( to ta.e )or the use o) the #oan o) so!ethin( in e*cess o) what is a##owed "y #aw.
 To deter!ine whether a## o) these e#e!ents is &resent, the court wi## disre(ard the )or! which the
transaction !ay ta.e and #oo. on#y u&on its su"stance.
)nterest +ates under t,e Usury Law!
 @ith the sus&ension o) the Usury Law and the re!o'a# o) interest cei#in(s, the &arties are (enera##y
)ree to sti&u#ate the interest rates to "e i!&osed on !onetary o"#i(ations. As a ru#e, the interest rate
a(reed "y the creditor and the de"tor is "indin( u&on the!. This ru#e, howe'er, is not a"so#ute. The
stri.in( down o) unconsciona"#e interest is "ased on Artic#e %?0/ o) the Ci'i# Code, which considers
certain contracts as ine*istent and 'oid )ro! the "e(innin(, inc#udin(A 2Those whose cause, o"5ect or
&ur&ose is contrary to #aw, !ora#s, (ood custo!s, &u"#ic order or &u"#ic &o#icy2.
 In a recent case, the SC a(ain dea#t with the 'a#idity o) interest a(reed "y the &arties, statin( thatA
Sti&u#ated interest rates are i##e(a# i) they are unconsciona"#e and the Court is a##owed to te!&er
interest rates when necessary. In e*ercisin( this 'ested &ower to deter!ine what is ini:uitous and
unconsciona"#e, the Court !ust consider the circu!stances o) each case. @hat !ay "e ini:uitous
and unconsciona"#e in one case, !ay "e 5ust in another.
 In that case, the SC reduced the interest rate )ro! %1+ to %2+ &er annu!, notin(, a!on( others, that
the a!ount in'o#'ed has "a##ooned to an outra(eous a!ount )our ti!es the &rinci&a# de"t. Indeed,
there is no hard and )ast ru#e to deter!ine the reasona"#eness o) interest rates. Sti&u#ated interest rates
o) 2%+, 2>+ and 2?+ &er annu! had "een sustained in certain cases. On the other hand, there are
&#enty o) cases when the SC e:uita"#y reduced the sti&u#ated interest ratesB )or instance, )ro! %1+ to
%0+ &er annu!. The SC a#so 'oided the sti&u#ated interest o) .+ &er !onth <or 66+ &er annu!=,
)or "ein( Ce*cessi'e, ini:uitous, unconsciona"#e and e*or"itant, hence, contrary to !ora#s <contra
bonos mores=, i) not a(ainst the #awD. The sa!e is true with cases in'o#'in( >6+ &er annu!, 6+ &er
!onth <or E2+ &er annu!=, and %0+ and 1+ &er !onth. In these instances, the SC i!&osed the #e(a#
interest o) %2+.
 C#e(a# interestD doesn;t !ean that anythin( "eyond %2+ is Ci##e(a#D. It si!&#y !eans that in a #oan or
)or"earance o) !oney, the interest due shou#d "e that sti&u#ated in writin(, and in the a"sence thereo),
the rate sha## "e %2+ &er annu!.
)nterest +ate 'eilin$
 The Usury Law had "een rendered #e(a##y ine))ecti'e "y 9eso#ution No. 22? dated > $ece!"er %/12
o) the Monetary -oard o) the Centra# -an., and #ater "y Centra# -an. Circu#ar No. /0 which too.
e))ect on % 7anuary %/1>. These circu#ars re!o'ed the cei#in( on interest rates )or secured and
unsecured #oans re(ard#ess o) !aturity. The e))ect o) these circu#ars is to a##ow the &arties to a(ree on
any interest that !ay "e char(ed on a #oan. The 'irtua# re&ea# o) the Usury Law is within the ran(e o)
5udicia# notice which courts are "ound to ta.e into account. A#thou(h interest rates are no #on(er
su"5ect to a cei#in(, the #ender sti## does not ha'e an un"rid#ed #icense to i!&ose increased interest
rates. The #ender and the "orrower shou#d a(ree on the i!&osed rate, and such i!&osed rate shou#d
"e in writin(.
 ,ere, the sti&u#ations on interest rate re&ricin( are 'a#id "ecause <%= the &arties !utua##y a(reed on
said sti&u#ationsB <2= re&ricin( ta.es e))ect on#y u&on So#id"an.;s written notice to Per!anent o) the
new interest rateB and <>= Per!anent has the o&tion to &re&ay its #oan i) Per!anent and So#id"an. do
not a(ree on the new interest rate. The &hrases Cirre'oca"#y authoriFe,D Cat any ti!eD and
Cad5ust!ent o) the interest rate sha## "e e))ecti'e )ro! the date indicated in the written notice sent to
us "y the "an., or i) no date is indicated, )ro! the ti!e the notice was sent,D e!&hasiFe that
Per!anent shou#d recei'e a written notice )ro! So#id"an. as a condition )or the ad5ust!ent o) the
interest rates. (So#id"an. Cor&oration 's. Per!anent ,o!es, Inc., G.9. No. %E%/2, 7u#y 2>, 20%0.=