Simple Loan

A. General Concepts

B. Object
 Act No. 2137
o Sec. 58. Definitions. –
(a) In this Act, unless the content or subject matter otherwise requires:
…“Fungible goods” means goods of which any unit is, from its nature by
mercantile custom, treated…

C. Obligation to Pay

D. Interest
1. Conventional Interest
a. General Concepts
b. Monetary Interest
c. Interest Rate
i. Usury Law
o Sec. 1. The rate of interest for the loan or forbearance of any
money goods, or credits and the rate allowed in judgments, in the
absence of express contract as to such rate of interest, shall be six
per centum per annum or such rate as may be prescribed by the
Monetary Board of the Central Bank of the Philippines for that
purpose in accordance with the authority hereby granted.
d. Escalation Clauses
i. Usury Law
o Sec. 7. All covenants and stipulations contained in conveyances,
mortgages, bonds, bills, notes, and other contracts or evidences of
debts, and all deposits of goods or other things, whereupon or
whereby there shall be stipulated, charged, demanded, reserved,
secured, taken, or received, directly or indirectly, a higher rate or
greater sum or value for the loan or renewal or forbearance of
money, goods, or credits than is hereinbefore allowed, shall be
void: Provided, however, That no merely clerical error in the
computation of interest, made without intent to evade any of the
provisions of this Act, shall render a contract void: Provided,
further, That parties to a loan agreement, the proceeds of which
may be availed of partially or fully at some future time, may
stipulate that the rate of interest agreed upon at the time the loan
agreement is entered into, which rate shall not exceed the
maximum allowed by law, shall prevail notwithstanding subsequent
changes in the maximum rates that may be made by the Monetary
Board: And Provided, finally, That nothing herein contained shall
 be construed to prevent the purchase by an innocent purchaser of
a negotiable mercantile paper, usurious or otherwise, for valuable
consideration before maturity, when there has been no intention
on the part of said purchaser to evade the provisions of this Act
and said purchase was not a part of the original usurious
transaction. In any case, however, the maker of said note shall
have the right to recover from said original holder the whole
interest paid by him thereon and, in case of litigation, also the
costs and such attorney’s fees as may be allowed by the court.

o Sec. 7-a. Parties to an agreement pertaining to a loan or

forbearance of money, goods or credits may stipulate that the rate
of interest agreed upon may be increased in the event that the
applicable maximum rate of interest is increased by law or by the
Monetary Board:

Provided, That such stipulation shall be valid only if there is also a

stipulation in the agreement that the rate of interest agreed upon
shall be reduced in the event that the applicable maximum rate of
interest is reduced by law or by the Monetary Board:

Provided, further, That the adjustment in the rate of interest

agreed upon shall take effect on or after the effectivity of the
increase or decrease in the maximum rate of interest.
e. Interest on Interest
i. Usury Law
o Sec. 5. In computing the interest on any obligation, promissory note
or other instrument or contract, compound interest shall not be
reckoned, except by agreement: Provided, That whenever compound
interest is agreed upon, the effective rate of interest charged by the
creditor shall not exceed the equivalent of the maximum rate
prescribed by the Monetary Board, or, in default thereof, whenever
the debt is judicially claimed, in which last case it shall draw six per
centum per annum interest or such rate as may be prescribed by the
Monetary Board. No person or corporation shall require interest to
be paid in advance for a period of more than one year:

Provided, however, That whenever interest is paid in advance, the

effective rate of interest charged by the creditor shall not exceed
the equivalent of the maximum rate prescribed by the Monetary
Board.

2. Compensatory Interest
a. General Concepts
 b. Interest Rate
i. Usury Law
o Sec. 1. The rate of interest for the loan or forbearance of any
money goods, or credits and the rate allowed in judgments, in the
absence of express contract as to such rate of interest, shall be six
per centum per annum or such rate as may be prescribed by the
Monetary Board of the Central Bank of the Philippines for that
purpose in accordance with the authority hereby granted.

c. Interest on Interest
3. Finance Charges
a. Truth in Lending Act
i. Sec. 4. Any creditor shall furnish to each person to whom credit is
extended, prior to the consummation of the transaction, a clear statement
in writing setting forth, to the extent applicable and in accordance with
rules and regulations prescribed by the Board, the following information:

(1) the cash price or delivered price of the property or service to be

acquired;

(2) the amounts, if any, to be credited as down payment and/or trade-in;

(3) the difference between the amounts set forth under clauses (1) and (2);

(4) the charges, individually itemized, which are paid or to be paid by such
person in connection with the transaction but which are not incident to
the extension of credit;

(5) the total amount to be financed;

(6) the finance charge expressed in terms of pesos and centavos; and

(7) the percentage that the finance bears to the total amount to be
financed expressed as a simple annual rate on the outstanding unpaid
balance of the obligation.

ii. Sec. 6. (a) Any creditor who in connection with any credit transaction fails
to disclose to any person any information in violation of this Act or any
regulation issued thereunder shall be liable to such person in the amount
of P100 or in an amount equal to twice the finance charged required by
such creditor in connection with such transaction, whichever is the
greater, except that such liability shall not exceed P2,000 on any credit
transaction. Action to recover such penalty may be brought by such
person within one year from the date of the occurrence of the violation, in
 any court of competent jurisdiction. In any action under this subsection in
which any person is entitled to a recovery, the creditor shall be liable for
reasonable attorney's fees and court costs as determined by the court.

(b) Except as specified in subsection (a) of this section, nothing contained

in this Act or any regulation contained in this Act or any regulation
thereunder shall affect the validity or enforceability of any contract or
transactions.

(c) Any person who willfully violates any provision of this Act or any
regulation issued thereunder shall be fined by not less than P1,00 or more
than P5,000 or imprisonment for not less than 6 months, nor more than
one year or both.

(d) No punishment or penalty provided by this Act shall apply to the

Philippine Government or any agency or any political subdivision thereof.

(e) A final judgment hereafter rendered in any criminal proceeding under

this Act to the effect that a defendant has willfully violated this Act shall
be prima facie evidence against such defendant in an action or
proceeding brought by any other party against such defendant under this
Act as to all matters respecting which said judgment would be an
estoppel as between the parties thereto.

4. Usury
a. General Concepts
i. Usury Law
o Sec. 1. The rate of interest for the loan or forbearance of any
money goods, or credits and the rate allowed in judgments, in the
absence of express contract as to such rate of interest, shall be six
per centum per annum or such rate as may be prescribed by the
Monetary Board of the Central Bank of the Philippines for that
purpose in accordance with the authority hereby granted.

o Sec. 1-a. The Monetary Board is hereby authorized to prescribe

the maximum rate or rates of interest for the loan or renewal
thereof or the forbearance of any money, goods or credits, and to
change such rate or rates whenever warranted by prevailing
economic and social conditions:

Provided, That changes in such rate or rates may be effected

gradually on scheduled dates announced in advance.
 In the exercise of the authority herein granted the Monetary Board
may prescribe higher maximum rates for loans of low priority, such
as consumer loans or renewals thereof as well as such loans made
by pawnshops, finance companies and other similar credit
institutions although the rates prescribed for these institutions
need not necessarily be uniform. The Monetary Board is also
authorized to prescribed different maximum rate or rates for
different types of borrowings, including deposits and deposit
substitutes, or loans of financial intermediaries.

o Sec. 4-a. The Monetary Board may eliminate, exempt from, or

suspend the effectivity of, interest rate ceilings on certain types of
loans or renewals thereof or forbearances of money, goods, or
credit, whenever warranted by prevailing economic and social
conditions.

o Sec. 4-b. In the exercise of its authority to fix the maximum rate or
rates of interest under this Act, the Monetary Board shall be
guided by the following:
1. The existing economic conditions in the country and the general
requirements of the national economy;
2. The supply of and demand for credit;
3. The rate of increase in the price levels; and
4. Such other relevant criteria as the Monetary Board may adopt.

o Sec. 5. In computing the interest on any obligation, promissory

note or other instrument or contract, compound interest shall not
be reckoned, except by agreement:

Provided, That whenever compound interest is agreed upon, the

effective rate of interest charged by the creditor shall not exceed
the equivalent of the maximum rate prescribed by the Monetary
Board, or, in default thereof, whenever the debt is judicially
claimed, in which last case it shall draw six per centum per annum
interest or such rate as may be prescribed by the Monetary Board.
No person or corporation shall require interest to be paid in
advance for a period of more than one year:

Provided, however, That whenever interest is paid in advance, the

effective rate of interest charged by the creditor shall not exceed
the equivalent of the maximum rate prescribed by the Monetary
Board.
 o Sec. 9-a. The Monetary Board shall promulgate such rules and
regulations as may be necessary to implement effectively the
provisions of this Act.

b. Usurious Acts
i. Usury Law
o Sec. 2. No person or corporation shall directly or indirectly take or
receive in money or other property, real or personal, or choses in
action, a higher rate of interest or greater sum or value, including
commissions, premiums, fines and penalties, for the loan or
renewal thereof or forbearance of money, goods, or credits, where
such loan or renewal or forbearance is secured in whole or in part
by a mortgage upon real estate the title to which is duly
registered, or by any document conveying such real estate or an
interest therein, than twelve per centum per annum or the
maximum rate prescribed by the Monetary Board and in force at
the time the loan or renewal thereof or forbearance is granted:

Provided, That the rate of interest under this section or the

maximum rate of interest that may be prescribed by the Monetary
Board under this section may likewise apply to loans secured by
other types of security as may be specified by the Monetary Board.

o Sec. 3. No person or corporation shall directly or indirectly

demand, take, receive or agree to charge in money or other
property, real or personal, a higher rate or greater sum or value for
the loan or forbearance of money, goods, or credits where such
loan or forbearance is not secured as provided in Section two
hereof, than fourteen per centum per annum or the maximum rate
or rates prescribed by the Monetary Board and in force at the time
the loan or forbearance is granted.

o Sec. 4. No pawnbroker or pawnbroker’s agent shall directly or

indirectly stipulate, charge, demand, take or receive any higher
rate or greater sum or value for any loan or forbearance than two
and one-half per centum per month when the sum lent is less than
one hundred pesos; two per centum per month when the sum lent
is one hundred pesos or more, but not exceeding five hundred
pesos; and fourteen per centum per annum when it is more than
the amount last mentioned; or the maximum rate or rates
prescribed by the Monetary Board and in force at the time the
loan or forbearance is granted. A pawnbroker or pawnbroker’s
agent shall be considered such, for the benefits of this Act, only if
he be duly licensed and has an establishment open to the public.
c. Remedies
i. Usury Law
o Sec. 6. Any person or corporation who, for any such loan or
renewal thereof or forbearance, shall have paid or delivered a
higher rate or greater sum or value than is hereinbefore allowed to
be taken or received, may recover the whole interest,
commissions, premiums penalties and surcharges paid or
delivered with costs and attorneys’ fees in such sum as may be
allowed by the court in an action against the person or
corporation who took or received them if such action is brought
within two years after such payment or delivery:

Provided, however, That the creditor shall not be obliged to return

the interest, commissions and premiums for a period of not more
than one year collected by him in advance when the debtor shall
have paid the obligation before it is due, provided such interest,
and commissions and premiums do not exceed the rates fixed in
this Act.

o Sec. 7. All covenants and stipulations contained in conveyances,

mortgages, bonds, bills, notes, and other contracts or evidences of
debts, and all deposits of goods or other things, whereupon or
whereby there shall be stipulated, charged, demanded, reserved,
secured, taken, or received, directly or indirectly, a higher rate or
greater sum or value for the loan or renewal or forbearance of
money, goods, or credits than is hereinbefore allowed, shall be
void:

Provided, however, That no merely clerical error in the

computation of interest, made without intent to evade any of the
provisions of this Act, shall render a contract void: Provided,
further, That parties to a loan agreement, the proceeds of which
may be availed of partially or fully at some future time, may
stipulate that the rate of interest agreed upon at the time the loan
agreement is entered into, which rate shall not exceed the
maximum allowed by law, shall prevail notwithstanding
subsequent changes in the maximum rates that may be made by
the Monetary Board:

And Provided, finally, That nothing herein contained shall be

construed to prevent the purchase by an innocent purchaser of a
negotiable mercantile paper, usurious or otherwise, for valuable
 consideration before maturity, when there has been no intention
on the part of said purchaser to evade the provisions of this Act
and said purchase was not a part of the original usurious
transaction. In any case, however, the maker of said note shall
have the right to recover from said original holder the whole
interest paid by him thereon and, in case of litigation, also the
costs and such attorney’s fees as may be allowed by the court.

o Sec. 8. All loans under which payment is to be made in agricultural

products or seed or in any other kind of commodities shall also be
null and void unless they provide that such products or seed or
other commodities shall 6e appraised at the time when the
obligation falls due at the current local market price:

Provided, That unless otherwise stated in a document written in a

language or dialect intelligible to the debtor and subscribed in the
presence of not less than two witnesses, any contract advancing
money to be repaid later in agricultural products or seed or any
other kind of commodities shall be understood to be a loan, and
any person or corporation having paid otherwise shall be entitled
in case action is brought within two years after such payment or
delivery to recover all the products or seed delivered as interest, or
the value thereof, together with the costs and attorney’s fees in
such sum as may be allowed by the court. Nothing contained in
this section shall be construed to prevent the lender from taking
interest for the money lent, provided such interest be not in excess
of the rates herein fixed.

o Sec. 9. The person or corporation sued shall file its answer in

writing under oath to any complaint brought or filed against said
person or corporation before a competent court to recover the
money or other personal or real property, seeds or agricultural
products, charged or received in violation of the provisions of this
Act. The lack of taking an oath to an answer to a complaint will
mean the admission of the facts contained in the latter.

o Sec. 10. Without prejudice to the proper civil action violation of

this Act and the implementing rules and regulations promulgated
by the Monetary Board shall be subject to criminal prosecution
and the guilty person shall, upon conviction, be sentenced to a
fine of not less than fifty pesos nor more than five hundred pesos,
or to imprisonment for not less than thirty days nor more than one
year, or both, in the discretion of the court, and to return the
entire sum received as interest from the party aggrieved, and in
the case of non-payment, to suffer subsidiary imprisonment at the
rate of one day for every two pesos:

Provided, That in case of corporations, associations, societies, or

companies the manager, administrator or gerent or the person
who has charge of the management or administration of the
business shall be criminally responsible for any violation of this
Act.