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Article 1175

Medel vs Court of Appeals, 299 SCRA 481; GR No. 131622, November 27, 1998
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proved, the RTC ruled that although the Usury Law had been repealed, the interest charged on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

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 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.