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G.R. No.

113412
Spouses PONCIANO ALMEDA and EUFEMIA P. ALMEDA, petitioner, vs.
THE COURT OF APPEALS and PHILIPPINE NATIONAL BANK, respondents
April 17, 1996
. . . increases in interest rates are not subject to any ceiling prescribed by the Usury Law, but it did not authorize the
PNB, or any bank for that matter, to unilaterally and successively increase the agreed interest rates from 18% to 48%
within a span of four (4) months, in violation of P.D. 116 which limits such changes to once every twelve months.
Besides violating P.D. 116, the unilateral action of the PNB in increasing the interest rate on the private respondent's
loan, violated the mutuality of contracts ordained in Article 1308 of the Civil Code: Art. 308. The contract must bind
both contracting parties; its validity or compliance cannot be left to the will of one of them. In order that obligations
arising from contracts may have the force of law between the parties, there must be mutuality between the parties
based on their essential equality.

FACTS:
On various dates in 1981, the Philippine National Bank granted to herein petitioners, the spouses Ponciano
L. Almeda and Eufemia P. Almeda several loan/credit accommodations totaling P18.0 Million pesos
payable in a period of six years at an interest rate of 21% per annum. To secure the loan, the spouses
Almeda executed a Real Estate Mortgage Contract covering a 3,500 square meter parcel of land, together
with the building erected thereon (the Marvin Plaza) located at Pasong Tamo, Makati, Metro Manila.
Between 1981 and 1984, petitioners made several partial payments on the loan totaling P7,735,004.66, a
substantial portion of which was applied to accrued interest. On March 31, 1984, respondent bank, over
petitioners' protestations, raised the interest rate to 28%, allegedly pursuant to Section III-c (1) of its credit
agreement. Said interest rate thereupon increased from an initial 21% to a high of 68% between March of
1984 to September, 1986. Petitioner protested the increase in interest rates, to no avail. Before the loan was
to mature in March, 1988, the spouses filed on February 6, 1988 a petition for declaratory relief with prayer
for a writ of preliminary injunction and temporary restraining order with the Regional Trial Court of
Makati.
ISSUES:
1) Whether or not respondent bank was authorized to raise its interest rates from 21% to as high as
68% under the credit agreement; and
2) Whether or not respondent bank is granted the authority to foreclose the Marvin Plaza under the
mandatory foreclosure provisions of P.D. 385.
HELD:
1) No. Petitioners never agreed in writing to pay the increased interest rates demanded by respondent
bank in contravention to the tenor of their credit agreement.
In fact, the manner of agreement is itself explicitly stipulated by the Civil Code when it provides,
in Article 1956 that "No interest shall be due unless it has been expressly stipulated in writing."
What has been "stipulated in writing" from a perusal of interest rate provision of the credit
agreement signed between the parties is that petitioners were bound merely to pay 21% interest,
subject to a possible escalation or de-escalation, when 1) the circumstances warrant such
escalation or de-escalation; 2) within the limits allowed by law; and 3) upon agreement. The
interest rate which appears to have been agreed upon by the parties to the contract in this case was
the 21% rate stipulated in the interest provision.
2) No. In the first place, because of the dispute regarding the interest rate increases, an issue which
was never settled on merit in the courts below, the exact amount of petitioner's obligations could
not be determined. Thus, the foreclosure provisions of P.D. 385 could be validly invoked by
respondent only after settlement of the question involving the interest rate on the loan, and only
after the spouses refused to meet their obligations following such determination.

G.R. No. 131622


LETICIA Y. MEDEL DR. RAFAEL MEDEL and SERVANDO FRANCO, petitioners, vs.
COURT OF APPEALS, SPOUSES VERONICA R. GONZALES and DANILO G. GONZALES, JR.,
doing lending business under the trade name and style "GONZALES CREDIT ENTERPRISES",
respondents
November 27, 1998
The stipulated rate of interest at 5.5% per month on the P500,000.00 loan is excessive, iniquitous, unconscionable and
exorbitant. However, we can not consider the rate "usurious" because this Court has consistently held that Circulr No.
905 of the Central Bank, adopted on December 22, 1982, has expressly removed the interest ceilings prescribed by the
Usury Law and that the Usury Law is now "legally inexistent".
In Security Bank and Trust Company vs.Regional Trial Court of Makati, Branch 61 the Court held that CB Circular
No. 905 "did not repeal nor in anyway amend the Usury Law but simply suspended the latter's effectivity." Indeed, we
have held that "a Central Bank Circular can not repeal a law. Only a law can repeal another law."

FACTS:
On November 7, 1985, Servando Franco and Leticia Medel (hereafter Servando and Leticia) obtained a
loan from Veronica R. Gonzales (hereafter Veronica), who was engaged in the money lending business
under the name "Gonzales Credit Enterprises", in the amount of P50,000.00, payable in two months.
Veronica gave only the amount of P47,000.00, to the borrowers, as she retained P3,000.00, as advance
interest for one month at 6% per month. Servado and Leticia executed a promissory note for P50,000.00, to
evidence the loan, payable on January 7, 1986.
On November 19, 1985, Servando and Leticia obtained from Veronica another loan in the amount of
P90,000.00, payable in two months, at 6% interest per month. They executed a promissory note to evidence
the loan, maturing on January 19, 1986. They received only P84,000.00, out of the proceeds of the loan.
On maturity of the two promissory notes, the borrowers failed to pay the indebtedness.
On June 11, 1986, Servando and Leticia secured from Veronica still another loan in the amount of
P300,000.00, maturing in one month, secured by a real estate mortgage over a property belonging to Leticia
Makalintal Yaptinchay, who issued a special power of attorney in favor of Leticia Medel, authorizing her to
execute the mortgage. Servando and Leticia executed a promissory note in favor of Veronica to pay the sum
of P300,000.00, after a month, or on July 11, 1986.However, only the sum of P275,000.00, was given to
them out of the proceeds of the loan. Like the previous loans, Servando and Medel failed to pay the third
loan on maturity.
On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael Medel, consolidated all their
previous unpaid loans totaling P440,000.00, and sought from Veronica another loan in the amount of
P60,000.00, bringing their indebtedness to a total of P500,000.00, payable on August 23, 1986.
ISSUES:
1) Whether or not the stipulated rate of interest at 5.5% per month on the loan in the sum of
P500,000.00, that plaintiffs extended to the defendants is usurious?
2) Is the Usury Law still effective, or has it been repealed by Central Bank Circular No. 905?
HELD:
1) No. We can not consider the rate "usurious" because this Court has consistently held that Circular
No. 905 of the Central Bank, adopted on December 22, 1982, has expressly removed the interest
ceilings prescribed by the Usury Law and that the Usury Law is now "legally inexistent".
Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated upon by the parties in
the promissory note iniquitous or unconscionable, and, hence, contrary to morals ("contra bonos mores"), if
not against the law. The stipulation is void.
2) No. The CB Circular No. 905 "did not repeal nor in anyway amend the Usury Law but simply
suspended the latter's effectivity." Indeed, we have held that "a Central Bank Circular can not
repeal a law. Only a law can repeal another law."

G.R. No. 125944


SPOUSES DANILO SOLANGON and URSULA SOLANGON, petitioners, vs.
JOSE AVELINO SALAZAR, respondent
June 29, 2001
The interest at 5.5 % per month, or 66% per annum, stipulated upon by the parties in the promissory note is iniquitous
or unconscionable, and hence, contrary to morals (contra bonos mores), if not against the law. The stipulation is
void.

FACTS:
On August 22, 1986, the plaintiffs-appellants executed a deed or real estate mortgage in which they
mortgaged a parcel of land situated in Sta. Maria, Bulacan, in favor of the defendant-appellee, to secure
payment of a loan of P60,000.00 payable within a period of four (4) months, with interest thereon at the
rate of 6% per month.
On May 27, 1987, the plaintiffs-appellants executed a deed of real estate mortgage in which they
mortgaged the same parcel of land to the defendant-appellee, to secure payment of a loan of P136,512.00,
payable within a period of one (1) year, with interest thereon at the legal rate.
On December 29, 1990, the plaintiffs-appellants executed a deed of real estate mortgage in which they
mortgaged the same parcel of land in favor of defendant-appellee, to secure payment of a loan in the
amount of P230,000.00 payable within a period of four (4) months, with interest thereon at the legal rate.
ISSUE:
Whether or not the interest rate of 72% per annum or 6% per month is usurious?
HELD:
We agree with petitioners that the stipulated rate of interest at 5.5% per month on the P500,000.00 loan is
excessive, iniquitous, unconscionable and exorbitant. However, we can not consider the rate usurious
because this Court has consistently held that Circular No. 905 of the Central Bank, adopted on December
22, 1982, has expressly removed the interest ceilings prescribed by the Usury Law and that the Usury Law
is now legally inexistent. CB Circular No. 905 did not repeal nor in any way amend the Usury Law but
simply suspended the latters effectivity. Indeed, we have held that a Central Bank Circular can not repeal
a law. Only a law can repeal another law.
While the Usury Law ceiling on interest rates was lifted by C.B. Circular No. 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.
Nevertheless, we find the interest at 5.5 % per month, or 66% per annum, stipulated upon by the parties in
the promissory note iniquitous or unconscionable, and hence, contrary to morals (contra bonos mores), if
not against the law. The stipulation is void.

G.R. No. 146942


CORAZON G. RUIZ, petitioner,
vs. COURT OF APPEALS and CONSUELO TORRES, respondents
April 22, 2003
The 1% surcharge on the principal loan for every month of default is valid. This surcharge or penalty stipulated in a
loan agreement in case of default partakes of the nature of liquidated damages under Art. 2227 of the New Civil Code,
and is separate and distinct from interest payment. Also referred to as a penalty clause, it is expressly recognized by
law. It is an accessory undertaking to assume greater liability on the part of an obligor in case of breach of an
obligation. The obligor would then be bound to pay the stipulated amount of indemnity without the necessity of proof
on the existence and on the measure of damages caused by the breach.

FACTS:
Petitioner Corazon G. Ruiz is engaged in the business of buying and selling jewelry.4 She obtained loans
from private respondent Consuelo Torres on different occasions, in the following amounts: P100,000.00;
P200,000.00; P300,000.00; and P150,000.00.5 Prior to their maturity, the loans were consolidated under
one (1) promissory note. The consolidated loan of P750,000.00 was secured by a real estate mortgage and
the lot was registered in the name of petitioner.
Thereafter, petitioner obtained three (3) more loans from private respondent, and it was secured by three
promissory notes in the amount of 100,000 each. These combined loans of P300,000.00 were secured by
P571,000.00 worth of jewelry pledged by petitioner to private respondent.
Petitioner paid the stipulated 3% monthly interest on the P750,000.00 loan, amounting to P270,000.00.
After that, petitioner was unable to make interest payments as she had difficulties collecting from her
clients in her jewelry business. Due to petitioners failure to pay the principal loan of P750,000.00, as well
as the interest payment, private respondent demanded payment not only of the P750,000.00 loan, but also
of the P300,000.00 loan. When petitioner failed to pay, private respondent sought the extra-judicial
foreclosure of the aforementioned real estate mortgage.
Acting Clerk of Court and Ex-Officio Sheriff Perlita V. Ele, Deputy Sheriff In-Charge Rolando G. Acal and
Supervising Sheriff Silverio P. Bernas issued a Notice of Sheriffs Sale of subject lot. One (1) day before
the scheduled auction sale, petitioner filed a complaint with the RTC, with a prayer for the issuance of a
TRO to enjoin the sheriff from proceeding with the foreclosure sale and to fix her indebtedness to private
respondent to P706,000.00. The computed amount of P706,000.00 was based on the aggregate loan of
P750,000.00, plus the other loans of P300,000.00, covered by separate promissory notes, plus interest,
minus P571,000.00 representing the amount of jewelry pledged in favor of private respondent.
ISSUES:
1) Whether the real property covered by the subject deed of mortgage dated March 20, 1995 is
paraphernal property of petitioner; and
2) Whether the rates of interests and surcharges on the obligation of petitioner to private respondent
are valid.
HELD:
1) Yes, the real property covered by the subject deed of mortgage is paraphernal property. The
property subject of the mortgage is registered in the name of Corazon G. Ruiz, of legal age,
married to Rogelio Ruiz, Filipinos. Thus, title is registered in the name of Corazon alone because
the phrase married to Rogelio Ruiz is merely descriptive of the civil status of Corazon and
should not be construed to mean that her husband is also a registered owner.
2) No. We affirm the ruling of the appellate court, striking down as invalid the 10% compounded
monthly interest, the 10% surcharge per month stipulated in the promissory notes dated May 23,
1995 and December 1, 1995, and the 1% compounded monthly interest stipulated in the
promissory note dated April 21, 1995. The legal rate of interest of 12% per annum shall apply after
the maturity dates of the notes until full payment of the entire amount due. Also, the only
permissible rate of surcharge is 1% per month, without compounding.
G.R. No. 158382

MANSUETO CUATON, petitioner, vs.


REBECCA SALUD and COURT OF APPEALS (Special Fourteenth Division), respondents
January 27, 2004
The 10% and 8% interest rates per month on the one-million-peso loan of petitioner are even higher than those
previously invalidated by the Court in the above cases. Accordingly, the reduction of said rates to 12% per annum is
fair and reasonable. Stipulations authorizing iniquitous or unconscionable interests are contrary to morals (contra
bonos mores), if not against the law. Under Article 1409 of the Civil Code, these contracts are inexistent and void from
the beginning

FACTS:
On January 5, 1993, respondent Rebecca Salud, joined by her husband Rolando Salud, instituted a suit for
foreclosure of real estate mortgage with damages against petitioner Mansueto Cuaton and his mother,
Conchita Cuaton, with the Regional Trial Court of General Santos City, Branch 35, docketed as SPL. Civil
Case No. 359. The trial court rendered a decision declaring the mortgage constituted on October 31, 1991
as void, because it was executed by Mansueto Cuaton in favor of Rebecca Salud without expressly stating
that he was merely acting as a representative of Conchita Cuaton, in whose name the mortgaged lot was
titled. The court ordered petitioner to pay Rebecca Salud, inter alia, the loan secured by the mortgage in the
amount of One Million Pesos plus a total P610,000.00 representing interests of 10% and 8% per month for
the period February 1992 to August 1992.
ISSUE:
Whether the 8% and 10% monthly interest rates imposed on the one-million-peso loan obligation of
petitioner to respondent Rebecca Salud are valid?
HELD:
No. In the present case, the 10% and 8% interest rates per month on the one-million-peso loan of petitioner
are even higher than those previously invalidated by the Court in the above cases. Accordingly, the
reduction of said rates to 12% per annum is fair and reasonable.
Stipulations authorizing iniquitous or unconscionable interests are contrary to morals (contra bonos
mores), if not against the law.

G.R. No. 149004

RESTITUTA M. IMPERIAL, petitioner, vs.


ALEX A. JAUCIAN, respondent
April 14, 2004
The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with
by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or
unconscionable.
In exercising this power to determine what is iniquitous and unconscionable, courts must consider the circumstances of
each case. What may be iniquitous and unconscionable in one may be totally just and equitable in another.

FACTS:
The present controversy arose from a case for collection of money, filed by Alex A. Jaucian against
Restituta Imperial, on October 26, 1989. The complaint alleges, inter alia, that defendant obtained from
plaintiff six (6) separate loans for which the former executed in favor of the latter six (6) separate
promissory notes and issued several checks as guarantee for payment. When the said loans became overdue
and unpaid, especially when the defendants checks were dishonored, plaintiff made repeated oral and
written demands for payment.
The loans were covered by six (6) separate promissory notes executed by defendant. The face value of each
promissory notes is bigger [than] the amount released to defendant because said face value already
include[d] the interest from date of note to date of maturity. Said promissory notes, which indicate the
interest of 16% per month, date of issue, due date, the corresponding guarantee checks issued by defendant,
penalties and attorneys fees.
Although, admittedly, defendant made several payments, the same were not enough and she always
defaulted whenever her loans mature[d]. As of August 16, 1991, the total unpaid amount, including accrued
interest, penalties and attorneys fees, [was] P2,807,784.20.
The loan on November 13, 1987 and January 6, 1988 had been fully paid including the usurious interests of
16% per month, this is the reason why these were not included in the complaint. Defendant alleges that all
the above amounts were released respectively by checks drawn by the plaintiff, and the latter must produce
these checks as these were returned to him being the drawer if only to serve the truth. The above amount
are the real amount released to the defendant but the plaintiff by masterful machinations made it appear that
the total amount released was P462,600.00. Because in his computation he made it appear that the true
amounts released was not the original amount, since it include[d] the unconscionable interest for four
months.
Defendant contends that from all perspectives the above excess payment of P121,780.00 is more than the
interest that could be legally charged, and in fact as of January 25, 1989, the total releases have been fully
paid.
ISSUES:
1) Whether charging of interest of twenty-eight (28%) per centum per annum without any writing is
illegal?
2) Whether the charging of excessive attorneys fees is legal?
HELD:
1) The records show that there was a written agreement between the parties for the payment of
interest on the subject loans at the rate of 16 percent per month. As decreed by the lower courts,
this rate must be equitably reduced for being iniquitous, unconscionable and exorbitant. While
the Usury Law ceiling on interest rates was lifted by C.B. Circular No. 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 present case, the rate is even more iniquitous and unconscionable, as it amounts to 192 percent per
annum. When the agreed rate is iniquitous or unconscionable, it is considered contrary to morals, if not

against the law. [Such] stipulation is void.


2) Strictly speaking, this covenant on attorneys fees is different from that mentioned in and regulated
by the Rules of Court. Rather, the attorneys fees here are in the nature of liquidated damages and
the stipulation therefor is aptly called a penal clause. So long as the stipulation does not
contravene the law, morals, public order or public policy, it is binding upon the obligor. It is the
litigant, not the counsel, who is the judgment creditor entitled to enforce the judgment by
execution.

G.R 154129
TERESITA DIO, petitioner, vs.

SPOUSES VIRGILIO and LUZ ROCES JAPOR and MARTA[1] JAPOR, respondents
July 8, 2005
Central Bank Circular No. 905, which took effect on January 1, 1983, effectively removed the ceiling on interest rates
for both secured and unsecured loans, regardless of maturity. However, nothing in said Circular grants lenders carte
blanche authority to impose interest rates which would result in the enslavement of their borrowers or to the
hemorrhaging of their assets. While a stipulated rate of interest may not technically and necessarily be usurious under
Circular No. 905, usury now being legally non-existent in our jurisdiction, nonetheless, said rate may be equitably
reduced should the same be found to be iniquitous, unconscionable, and exorbitant, and hence, contrary to morals
(contra bonos mores), if not against the law.

FACTS:
Herein respondents Spouses Virgilio Japor and Luz Roces Japor were the owners of an 845.5 square-meter
residential lot including its improvements, situated in Barangay Ibabang Mayao, Lucena City, as shown by
Transfer Certificate of Title (TCT) No. T-39514. Adjacent to the Japors lot is another lot owned by
respondent Marta Japor, which consisted of 325.5 square meters and titled under TCT No. T-15018.
On August 23, 1982, the respondents obtained a loan of P90,000 from the Quezon Development Bank
(QDB), and as security therefor, they mortgaged the lots covered by TCT Nos. T-39514 and T-15018 to
QDB, as evidenced by a Deed of Real Estate Mortgage duly executed by and between the respondents and
QDB.
On December 6, 1983, respondents and QDB amended the Deed of Real Estate Mortgage increasing
respondents loan to P128,000. The respondents failed to pay their aforesaid loans. However, before the
bank could foreclose on the mortgage, respondents, thru their broker, one Lucia G. Orian, offered to
mortgage their properties to petitioner Teresita Dio. Petitioner prepared a Deed of Real Estate Mortgage,
whereby respondents mortgaged anew the two properties already mortgaged with QDB to secure the timely
payment of a P350,000 loan that respondents had from petitioner Dio. The Deed of Real Estate Mortgage,
though dated January 1989, was actually executed on February 13, 1989 and notarized on February 17,
1989.
Under the terms of the deed, respondents agreed to pay the petitioner interest at the rate of five percent
(5%) a month, within a period of two months or until April 14, 1989. In the event of default, an additional
interest equivalent to five percent (5%) of the amount then due, for every month of delay, would be charged
on them. The respondents failed to settle their obligation to petitioner on April 14, 1989, the agreed
deadline for settlement.
On August 27, 1991, petitioner made written demands upon the respondents to pay their debt. Despite
repeated demands, respondents did not pay, hence petitioner applied for extrajudicial foreclosure of the
mortgage. The auction of the unredeemed properties was set for February 26, 1992.
ISSUE:
Whether or not the stipulated penalty and interest are excessive, iniquitous, unconscionable, exorbitant, and
contrary to morals?
HELD:
Yes. In the instant case, the Court of Appeals found that the 5% interest rate per month and 5% penalty rate
per month for every month of default or delay is in reality interest rate at 120% per annum. This Court has
held that a stipulated interest rate of 5.5% per month or 66% per annum is void for being iniquitous or
unconscionable. We have likewise ruled that an interest rate of 6% per month or 72% per annum is
outrageous and inordinate. Conformably to these precedent cases, a combined interest and penalty rate at
10% per month or 120% per annum, should be deemed iniquitous, unconscionable, and inordinate.
The evidence shows that it was indeed the respondents who proposed the 5% interest rate per month for
two (2) months. Having agreed to said rate, the parties are now estopped from claiming otherwise. For the
succeeding period after the two months, however, the Court of Appeals correctly reduced the interest rate to
12% per annum and the penalty rate to 1% per month, in accordance with Article 2227 of the Civil Code.
G.R. No. 145871
Leonides C. Dio, Petitioner, vs.
Lina Jardines, Respondent

January 31, 2006


Pursuant to the freedom of contract principle embodied in Article 1306 of the Civil Code, contracting parties may
establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary
to law, morals, good customs, public order, or public policy. In the ordinary course, the codal provision may be invoked
to annul the excessive stipulated interest.

FACTS:
On December 14, 1992, Leonides C. Dio (petitioner) filed a Petition for Consolidation of Ownership with
the Regional Trial Court of Baguio City, Branch 7 (RTC). She alleged that: on January 31, 1987, Lina
Jardines (respondent) executed in her favor a Deed of Sale with Pacto de Retro over a parcel of land with
improvements thereon covered by Tax Declaration No. 44250, the consideration for which amounted to
P165,000.00; it was stipulated in the deed that the period for redemption would expire in six months or on
July 29, 1987; such period expired but neither respondent nor any of her legal representatives were able to
redeem or repurchase the subject property; as a consequence, absolute ownership over the property has
been consolidated in favor of petitioner.
Respondent countered in her Answer that: the Deed of Sale with Pacto de Retro did not embody the real
intention of the parties; the transaction actually entered into by the parties was one of simple loan and the
Deed of Sale with Pacto de Retro was executed just as a security for the loan; the amount borrowed by
respondent during the first week of January 1987 was only P50,000.00 with monthly interest of 9% to be
paid within a period of six months, but since said amount was insufficient to buy construction materials for
the house she was then building, she again borrowed an additional amount of P30,000.00; it was never the
intention of respondent to sell her property to petitioner; the value of respondents residential house alone is
over a million pesos and if the value of the lot is added, it would be around one and a half million pesos; it
is unthinkable that respondent would sell her property worth one and a half million pesos for only
P165,000.00; respondent has even paid a total of P55,000.00 out of the amount borrowed and she is willing
to settle the unpaid amount, but petitioner insisted on appropriating the property of respondent which she
put up as collateral for the loan; respondent has been the one paying for the realty taxes on the subject
property; and due to the malicious suit filed by petitioner, respondent suffered moral damages.
On September 14, 1993, petitioner filed an Amended Complaint adding allegations that she suffered actual
and moral damages. Thus, she prayed that she be declared the absolute owner of the property and/or that
respondent be ordered to pay her P165,000.00 plus the agreed monthly interest of 10%; moral and
exemplary damages, attorneys fees and expenses of litigation.
ISSUE:
1) Whether or not the true nature of the contract entered into by the parties is one equitable and not
pacto de retro sale?
2) Whether or not the interest to be paid under the agreement is 10% or 9% or whether or not this
amount of interest shall be reduced equitably pursuant to law?
HELD:
1) The CA correctly ruled that the true nature of the contract entered into by herein parties was one of
equitable mortgage. The presence of even one of the mentioned circumstances as enumerated in
Article 1602 is sufficient basis to declare a contract of sale with right to repurchase as one of
equitable mortgage. As stated by the Code Commission which drafted the new Civil Code, in
practically all of the so-called contracts of sale with right of repurchase, the real intention of the
parties is that the pretended purchase price is money loaned and in order to secure the payment of
the loan, a contract purporting to be a sale with pacto de retro is drawn up.
In the instant case, the presence of the circumstances provided for under paragraphs (2) and (5) of Article
1602 of the Civil Code, and the fact that petitioner herself demands payment of interests on the purported
purchase price of the subject property, clearly show that the intention of the parties was merely for the
property to stand as security for a loan.

2) The inescapable conclusion is that the agreed interest rate of 9% per month or 108% per annum, as
claimed by respondent; or 10% per month or 120% per annum, as claimed by petitioner, is clearly
excessive, iniquitous, unconscionable and exorbitant. Although respondent admitted that she
agreed to the interest rate of 9%, which she believed was exorbitant, she explained that she was
constrained to do so as she was badly in need of money at that time.
Since the agreed interest rate is void, the parties are considered to have no stipulation regarding the interest
rate. Thus, the rate of interest should be 12% per annum to be computed from judicial or extrajudicial
demand, subject to the provisions of Article 1169 of the Civil Code.

G.R. No. 164358


THERESA MACALALAG, petitioner, vs.
PEOPLE OF THE PHILIPPINES, respondent

December 20, 2006


Batas Pambansa Blg. 22 was not intended to shelter or favor nor encourage users of the banking system to enrich
themselves through the manipulation and circumvention of the noble purpose and objectives of the law.11Such
manipulation is manifest when payees of checks issued as security for loans present such checks for payment even after
the payment of such loans.
Subsequent payments can only affect her civil, not criminal, liability. A subsequent payment by the accused would not
obliterate the criminal liability theretofore already incurred. It is well to note that the gravamen of Batas Pambansa
Blg. 22 is the issuance of a check, not the nonpayment of an obligation. The law has made the act of issuing a bum
check a malum prohibitum.

FACTS:
On two separate occasions, particularly on 30 July 1995 and 16 October 1995, petitioner Theresa
Macalalag obtained loans from Grace Estrella (Estrella), each in the amount of P100,000.00, each bearing
an interest of 10% per month. Macalalag consistently paid the interests starting 30 August 1995. Finding
the interest rates so burdensome, Macalalag requested Estrella for a reduction of the same to which the
latter agreed. On 16 April 1996 and 1 May 1996, Macalalag executed Acknowledgment/Affirmation
Receipts promising to pay Estrella the face value of the loans in the total amount of P200,000.00 within
two months from the date of its execution plus 6% interest per month for each loan. Under the two
Acknowledgment/Affirmation Receipts, she further obligated herself to pay for the two (2) loans the total
sum of P100,000.00 as liquidated damages and attorney's fees in the total sum of P40,000.00 as stipulated
by the parties the moment she breaches the terms and conditions thereof.
As security for the payment of the aforesaid loans, Macalalag issued two Philippine National Bank (PNB)
Checks (Check No. C-889835 and No. 889836) on 30 June 1996, each in the amount of P100,000.00, in
favor of Estrella. However, when Estrella presented said checks for payment with the drawee bank, the
same were dishonored for the reason that the account against which the same was drawn was already
closed. Estrella sent a notice of dishonor and demand to make good the said checks to Macalalag, but the
latter failed to do so.
ISSUES:
1) Whether or not the stipulated interest of 10% per month, and even the reduced rate of 6% per
month, is a valid interest?
2) Whether or not the petitioner violated the Batas Pambansa Blg. 22?
HELD:
1) The stipulated interest of 10% per month, and even the reduced rate of 6% per month, are higher
than the interest rates declared unconscionable in Medel case and in several other cases with
allegations of unconscionable interests. We held that while the Usury Law has been suspended by
Central Bank Circular No. 905, s. 1982, effective on January 1, 1983, and parties to a loan
agreement have been given wide latitude to agree on any interest rate, still stipulated interest rates
are illegal if they are unconscionable. 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.
2) There is no doubt that Macalalag is liable under B.P. Blg. 22. Macalalag admitted having issued
the said check and that said check, when presented for payment for payment with the drawee bank
bounced for the reason "account closed". Despite notice of dishonor, Macalalag failed to make
good the said check. All the elements of violation of B.P. Blg. 22, viz: a) the making, drawing or
issuance of any check to apply to account or for value; b) the knowledge of the maker[,] drawer, or
issuer that at the time of the issue he does not have sufficient funds in, or credit with, the drawee
bank for the payment of the check in full upon its presentment; and, c) the subsequent dishonor of
the check by the drawee bank for insufficiency of funds or credit, or dishonor for the same reason
had not the drawer, without any valid cause, ordered the bank to stop payment are, therefore,
present.