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On or about September 7, 1957, plaintiff loaned P10,000.00, without interest, to defendant partnership (Olympic
Sawmill). On due date, January 31, 1960, the defendant was not able to pay. On March 17, 1960, the parties executed
another loan document. Payment of the P10,000.00 was extended to April 30, 1960, but the obligation was increased
by P6,000.00. Defendants once again failed to pay, thus the plaintiff filed a case for collection. The defendant
contended that the P6,000 interest was usurious, and that since they alleged that the interest was usurious and the
plaintiff failed to answer it under oath thus it admitted that such interest was indeed usurious (Section 9 of the Usury
Issue: Was there a usury?
Held: No. The foregoing provision envisages a complaint filed against an entity which has committed usury, for the
recovery of the usurious interest paid. In that case, if the entity sued shall not file its answer under oath denying the
allegation of usury, the defendant shall be deemed to have admitted the usury. The provision does not apply to a case,
as in the present, where it is the defendant, not the plaintiff, who is alleging usury.Moreover, for sometime now, usury
has been legally non-existent. Interest can now be charged as lender and borrower may agree upon. The Rules of
Court in regards to allegations of usury, procedural in nature, should be considered repealed with retroactive effect.
On May 20,1975Florante del Valle secured a real estate mortgage from Banco Filipino in the amount of P41,000
payable within 15 years with an interest of 12% per annum. It has an escalation clause that authorizes the bank to
increase the interest rate us in the event law should be enacted increasing the lawful rates of interest that may be
charged on this particular kind of loan. On the strength of CIRCULAR No. 494 BANCO FILIPINO gave notice to the
BORROWER on June 30, 1976 of the increase of interest rate on the LOAN from 12% to 17% per annum effective on
March 1, 1976.
Issue: Can the Banco Filipino increase the interest rate?
Held: No. The escalation clause expressly provided that an increase can be made only if there should be a law which
increases the lawful rate. The bank based its increase on Circular No. 494 which is not a law. Although it has the force
of a law, it is not a law. Furthermore, the circular did not distinguish as to what kind of loan it applies. It also provides
that loans and renewals are continued to be governed by the Usury Law. In the absence of any indication in CIRCULAR
No. 494 as to which particular type of loan was meant by the Monetary Board, the more equitable construction is to
limit CIRCULAR No. 494 to loans guaranteed by securities other than mortgage upon registered realty.
Furthermore, the escalation clause does not contain a de-escalation clause. Although PD 1684 should not be given
retroactive effect, the Court nullified the stipulation because of its one-sidedness.
Note: Loans secured by a real estate has the ceiling interest rate of 12% per annum.
Conditions for Escalation Clause:
1. The increased rate imposed or charged by petitioner does not exceed the ceiling fixed by law or the Monetary Board
2. The increase is made effective not earlier than the effectivity of the law or regulation authorizing such an increase;
3. The remaining maturities of the loans are more than 730 days as of the effectivity of the law or regulation
authorizing such an increase.
REMEDIOS JAYME-FERNANDEZ and AMADO FERNANDEZ as owners of a NACIDA-registered enterprise, obtained a loan
under the Cottage Industry Guaranty Loan Fund (CIGLF) from the Philippine National Bank (PNB). The loan contained a
unilateral increases in the interest rate of the loan. Private respondents asked the RTC to reduce those interests.
Issue: Can the PNB make unilateral increases in the interest rate?
Held: No. P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting parties to stipulate freely regarding
any subsequent adjustment in the interest rate that shall accrue on a loan or forbearance of money, goods or credits.
In fine, they can agree to adjust, upward or downward, the interest previously stipulated. However, contrary to the

stubborn insistence of petitioner bank, the said law and circular did not authorize either party to unilaterally raise the
interest rate without the other's consent. Even assuming that the loan agreement contains such unilateral increases
such increases would have been null and void for being violative of the principle of mutuality essential in contracts.
Spouses ferminmaglasang and antoniasedigo obtained a loan from petitioner in the amount of P82,682.39 from
February 5, 1976 to May 18, 1979 payable upon demand, bore 12% interest per annum plus 1% interest as penalty
charge in case of default in the payments, and has an escalation clause. On December 1, 1979, the Monetary Board of
the Central Bank, by virtue of Presidential Decree No. 116, issued CB Circular No. 705 increasing the ceiling on the rate
of interest on both secured and unsecured loans up to no more than 21% per annum, consequently PNB raised its
interest. Respondent failed to pay upon demand. Petitioner foreclose the mortgage but the proceeds were insufficient,
thus, it filed a case for the collection of such deficiency. Trial court ordered the payment of such deficiency plus 21%
interest. The CA amended, only 12% was ordered.
Issue: Was the escalation clause valid? Granting that it was valid, was the increase in the interest proper?
Held: The escalation clause was proper. However, application of the escalation must be in accordance with the rules
settled down by the circular increasing the ceiling rate of interest. Circular No. 705 requires that the maturity date
must be more than 730 from the effectivity of the law or regulation authorizing such increase. The bank has complied
with all the requirements but the 730 day requirement. Although there was no showing as to when the demand was
made, it was clear that when the foreclosure was made, the 730 day requirement had not yet elapsed, counted from
the effectivity of the regulation.
FACTS: Plaintiff filed an action against the defendants to recover from them the amount of P1, 500.00, plus damages,
attorney's fees and costs of suit. The defendants answered that a mortgage contract was executed for securing the
payment ofP1,500.00 for a period of one year, without interest, but the plaintiff delivered to the defendant Primitivo
only the sum of P1,200.00 and withheld the sum of P300.00 which was intended as advance interest for one year; that
on account of said loan ofP1,200.00, defendant Primitivo paid to the plaintiff the total sum of P330.00 which plaintiff,
illegally and unlawfully refuse to acknowledge as part payment of the account but as an interest of the said loan for an
extension of another term of one year; and that said contract of loan entered into between plaintiff and defendant
Primitivo is a usurious contract. Briones denied the allegations of the counterclaim. The Municipal Court rendered
judgment sentencing the defendants to pay the plaintiff with interests thereon plus attorney's fees. The Court of First
Instance of Manila also ordered the defendants to pay the plaintiff. Defendants claim that the trial court erred in
sentencing them to pay the principal of the loan notwithstanding its finding that the same was tainted with usury. It is
not now disputed that the contract of loan in question was tainted with usury.
ISSUE: Whether the creditor is entitled to collect from the debtor the amount representing the principal obligation in a
contract of loan tainted with usury
HELD: Yes. Under the Usury Law a usurious contract is void and the creditor had noright of action to recover the
interest in excess of the lawful rate but this did not meanthat the debtor may keep the principal received by him as
loan thus unjustly enrichinghimself to the damage of the creditor. The Usury Law, by its letter and spirit, did
notdeprive the lender of his right to recover from the borrower the money actually loaned to and enjoyed by the latter.
In simple loan with stipulation of usurious interest, the prestation of the debtor to pay the principal debt, which is the
cause of the contract, is not illegal. The illegality lies only as to the prestation to pay the stipulated interest; hence,
being separable, the latter only should be deemed void, since it is the only one that is illegal. The principal debt
remaining without stipulation for payment of interest can be recovered by judicial action. And in case of such demand,
and the debtor incurs in delay, the debt earns interest from the date of the demand. Such interest is not due to
stipulation, for there was none, the same being void. Rather, it is due to the general provision of law that in obligations
to pay money, where the debtor incurs in delay, he has to pay interest by way of damages
(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
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
latters 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]).
FACTS: FMIC granted Este del Sol a loan to finance a sports/resort complex in Montalban, Rizal. Under the agreement,
the interest was 16% pa based on the diminishing balance. In case of default, an acceleration clause was provided and
the amount due is subject to 20% one-time penalty on the amount due and such amount shall bear interest at the
highest rate permitted by law. respondent executed a REM, individual continuing suretyship and an underwriting
agreement whereby FMIC shall underwrite the public offering of one P120,000 common shares of respondents capital

stock for one-time underwriting fee of P200,000. For failure to pay its obligation, FMIC caused the foreclosure of the
REM. At the public auction, FIC was the highest bidder. Petitioner filed to collect for alleged deficiency balance against
respondents since it failed to collect from the sureties, plus interest at 21% pa. the trial court ruled in favor of FMIC.
Respondents appealed before the CA which held that the fees provided for in the Underwriting and Consultacy
Agreements were mere subterfuges to camouflage the excessively usurious interest charged. The CA ordered FMIC to
reimburse petitioner representing what is ue to petitioner and what is due to respondent.
ISSUE: Whether or not the interests are lawful
HELD: No. an apparently lawful loan is usurious when it is intended that additional compensation for the loan be
disguised by an ostensibly unrelated contract for the payment by the borrower for the lenders services which re of
little value or which are not in fact to be rendered. Article 1957 clearly provides: contracts and stipulations, under any
cloak or device whatever, intended to circumvent the law agaistn usury shall be void. The borrower may recover in
accordance with the laws on usury.


We have held that a Central Bank Circular cannot repeal a law. Only a law can repeal another law.
FACTS: Petitioners executed a real estate mortgage of a parcel of land to private respondent to secure payment of a
loan of P60,000.00 payable in 4 months, with 6% interest per month. The following year, petitioners executed another
real estate mortgage of the same parcel of land to private respondent to secure payment of a loan of P136,512.00
payable in 1 year, with interest thereon at the legal rate (the maximum interest rate, set by statute that may be
charged on a loan).The following year, petitioners executed another real estate mortgage of the same parcel of land to
private respondent to secure payment of a loan of P230,000.00 payable in 4 months, with interest thereon at the legal
rate. The action was initiated by the petitioners to prevent the foreclosure of the mortgaged property. They contend
that they obtained only one loan from respondent for the amount of P60,000.00; and that the subsequent mortgages
were merely continuations of the first one, which is null and void because it provided for unconscionable rate of
interest. Moreover, private respondent assured them that he will not foreclose the mortgage as long as they pay the
stipulated interest upon maturity or within a reasonable time thereafter. Private respondent allege that there were
three separate loans, and that the first two was paid, but the last was not. He denied having said that he will not
foreclose the mortgage.
ISSUES:W/N the interest rate of 6% per annum is valid
DECISION: The Court affirmed the decision of the Court of Appeals and modified the interest rate of 72% perannum to
12% per annum.
Supplemental Information
The Usury Law is Act 2655, as amended by PD 116, provides that in the absence of express contract as to the rate of
interest in loans/mortgages, it shall be set in default at 12% per annum. Any amount in excess of that fixed by the law
is considered usurious, therefore unlawful. However, pursuant to Central
Bank Circular No. 905, the Supreme Court declared that the Usury law is now legally inexistent.
It should be clarified that CB Circular No. 905 did not repeal nor in anyway amend the Usury Law but simply suspended
the latter's effectivity. Interest can now be charged as lender and borrower may agree upon. In the case at bar, the
court held that the Usury Law ceiling on interest rates was lifted by C.B. CircularNo. 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 the case at bar, the 6% interest rate per month cannot be considered usurious;
nevertheless it is definitely outrageous and inordinate (exceeding reasonable limits).