USURIOUS TRANSACTIONS

Transactions which involve “excessive interest” under the

Usury Law. However, the Usury Law have long been
inoperative or suspended by Bank Circular No. 905 on
January 1, 1983.

WHAT IS USURY?
Usury is contracting or receiving in excess of the amount
allowed by the law for the use of money, loan, goods,
chattels or credits.
In the case of Security Bank v. RTC of Makati, the
Supreme Court ruled that the Usury Law has long been
rendered inoperative or suspended through the issuance
of Bank Circular No. 905. The circular did not repeal the
Usury Law because the former is not a law. Amendment
and repeal are matters to be done only by the legislative.

CONTRA BONUS MORES

It is contrary to morals if it resulted to the hemorrhaging of
the assets of the debtors.

One illustration which shows that the interest rate is

Contra Bonus Mores is in the case of SPS. Solangon v.
Salazar where the Court annulled a stipulated interest of
5.5% per month or 66% per annum interest on a P500,000
loan and a 6% per month or 72& per annum interest on a
P60,000 loan respectively, for being excessive,
unconscionable and exorbitant. The Court reduced the
interest rates into 12% per annum.

Note: Stipulations that are iniquitous or unconscionable

interest are contra bonus mores if not against the law.

Article 1409. These kinds of contracts that are contrary to

law, morals, good customs, public order are inexistent and
void from the beginning. They cannot be ratified nor the
right to set up the defense of illegality be waived.