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1) The Bangko Sentral ng Pilipinas (BSP) reduced the legal interest rate from 12% to 6% annually when no interest rate is specified in a contract.
2) Usury laws prohibit interest rates imposed from being higher than the maximum rate set by monetary authorities. Contracts with unconscionably high interest intended to circumvent usury laws are void.
3) Escalation clauses allowing interest rate increases and de-escalation clauses allowing decreases are valid if mutually agreed upon and rates are adjusted in line with legal changes.
1) The Bangko Sentral ng Pilipinas (BSP) reduced the legal interest rate from 12% to 6% annually when no interest rate is specified in a contract.
2) Usury laws prohibit interest rates imposed from being higher than the maximum rate set by monetary authorities. Contracts with unconscionably high interest intended to circumvent usury laws are void.
3) Escalation clauses allowing interest rate increases and de-escalation clauses allowing decreases are valid if mutually agreed upon and rates are adjusted in line with legal changes.
1) The Bangko Sentral ng Pilipinas (BSP) reduced the legal interest rate from 12% to 6% annually when no interest rate is specified in a contract.
2) Usury laws prohibit interest rates imposed from being higher than the maximum rate set by monetary authorities. Contracts with unconscionably high interest intended to circumvent usury laws are void.
3) Escalation clauses allowing interest rate increases and de-escalation clauses allowing decreases are valid if mutually agreed upon and rates are adjusted in line with legal changes.
January 29 In the absence of a contract expressly providing for a different rate, the rate of interest for the loan or Sample Problems: forbearance of any money, goods or credits and the rate 1. Loan of seedling for planting- Mutuum allowed in judgments has been reduced from twelve 2. Loan of cellphone- Commodatum percent (12%) to six percent (6%) per annum 3. Transfer of ownership over a Note 8 in exchange of Iphone X- Barter BAR: There was no stipulation of interest in the contract, - Non-fungible. Specific thing must be given or there was failure to pay by the borrower. The SC imposed the specific substitute. an interest rate of 6%, the legal interest. Compensatory. Note: If the specie of seedling borrowed is extinct, apply Art. 1950 which refers to the value at perfection of the Payment of interest when there is no stipulation. contract. Mistake: a. Yes- solutio indebiti, required to return. Interest: b. No- natural obligation, right to return. (Out of the Art. 1959- There must be consent to the imposition of kindness) interest. It shall be expressed stipulation. Why does this matter: Cause of Action. Art.1956- The agreement to pay interest shall be reduced Sample defense: It would depend on whether there was in writing. mistake. There was no mistake, it’s a natural obligation, Note: In the document, if interest rate is provided, it and the lender is entitled to the sum of money. No right shall be due and demandable, otherwise, it shall still be to collect it. due and demandable but the rate shall be the legal interest provided by law which is 6% per annum. Escalation and De-escalation clauses. If interest is payable in kind, it shall be stipulated and Escalation Clause value shall be the appraised value at time of payment. - Stipulation in a contract of loan, allowing the increase of interest rate without the parties Kinds of Interest: having to execute another contract. 1. Simple Interest- interest only on the principal - SC, it is valid and is not contrary to public policy. 2. Compound principal- covered by Art. 1959 and Art. 2212 of the NCC Conditions: - interest on unpaid interest and added on the principal 1. There must be a de-escalation clause. which shall earn interest, then later on be subject to De-escalation clause- if there are certain interest. conditions are met, there should be a decrease of - allowed under the Civil Code interest rate. -example: “The borrower shall pay compound interest on - Stipulation that authorizes a reduction in the the unpaid balance of 2% per month” interest rates corresponding to downward Purpose: An interest is imposed for the purpose of changes made by law or by the monetary board. making money or profits. Opportunity cost. It’s not a 2. The interest rate must be mutually agreed upon, security. otherwise void. Compound interest is to compel prompt payment and to 3. The adjustment in the rate of interest rate agreed not to prolong the loan. upon shall take effect on or after the effectivity of the increase or decrease in the maximum rate of interest. Where can there be compound interest: 1. Stipulated in writing. Why is there a need for escalation? 2. If there is a judicial demand (Art. 2212). If there is - To protect interest of both parties. already a decision from the court. “.. which interest rate may be increased at any time, According to purpose: without notice..” Those for monetary or regular interest rate or - It should be agreed upon, must be stipulated. compensable. - “which may be increased by 2% higher than the Monetary interest- Interest rate imposed is from the use maximum rate” of the money. USURY Compensatory- from damages. In the form of penalty Art. 1957 when there is a penal clause for breach of contract. Need Contracts and stipulations, under any cloak or device not be in writing or not be stipulated for it to be whatever, intended to circumvent the laws against usury enforceable. shall be void. The borrower may recover in accordance with the laws on usury. - Factoring commercial papers or account Usury Law receivables - Empowered the monetary board of the Central - Buying and selling contracts such as leases and Bank to fix the maximum rate for a loan or chattel mortgages and other evidence of forbearance. indebtedness. - Prohibits the imposition of a hiugher interest - Financial Leasing of movables and immovable. rate greater than that imposed by the monetary board. Discounting - Suspended by the virtue of Central Bank Circular Receivables of financing whereby evidence of no. 905, parties are now free to stipulate on the indebtedness of a third party, like installment contracts interest rate. are purchased by, or assigned to a financing company in - But no when, it will enslave the borrower or will an amount or for a consideration less than the face value. lead to a hemorrhaging of their assets, or would cause so much indebtedness. Using the receivables from a third party purchasing it at - The imposition of an unconscionable rate or a discount such as purchasing promissory notes from an interest on a money even if knowingly and establishment, then the makers will now be paying to the voluntarily assumed, is immoral and unjust financing company. (SC). As compared to factoring, these are open accounts. - Voluntariness does not make the stipulation an There are no proof of indebtedness. unconscionable interest, even if you agreed to it. Factoring Open accounts which are not evidenced by a written BSP Circular no. 799 promise to pay supported by documents like invoices of In the absence of a contract expressly providing for a manufacturers and suppliers are assigned to a financing different rate, the rate of interest for the loan or company in an amount or for a consideration less than forbearance of any money, goods or credits and the rate the outstanding balance of the open accounts. allowed in judgments has been reduced from twelve Finance leasing percent (12%) to six percent (6%) per annum. A mode of extending credit through a non-cancellable lease where the lessor buys the equipment and the leasee Consequences of unconscionable interest rate: pays a fixed amount of at least 70% of the purchase price 1. The nullity of the stipulation only affects the interest, for a period of two years. The lease will have a right to the loan is valid. hold and use the lease properly. 2. Stipulations are divisible, either to pay the loan or to There is no obligation or option on the part of the leasee pay the interest. to purchase the lease properly. *To declare both void, it is unjust enrichment. The court is empowered to reduce the interest rate if a rate was Requirement: stipulated but usurious. - A stock corporation, 40% of the voting stocks should be owned by Filipinos and that there is a Financing Company Act reciprocity requirement. RA 5980, as amended by RA 8556 - Foreigners from other countries with a reciprocity agreement are all allowed to be Purpose: stockholders. To regulate and promote the activities of financing and - Paid-up capital of not less than Php. 10M if in leasing companies. Metro Manila, Php. 5M in other cities and Php. To strengthen the critical role in providing credit and 2.5M in municipalities. services to small and medium enterprises and to curtail - No person, association or corporation may acts and practices. engage in the business of a financing activities or hold itself to be financing company or to call Financing companies yourself a financing, leasing or a finance and Companies other than the bank and investment houses, investment. savings and loan associations, insurance and other - They must call themselves as financing, leasing financial institutions. or financing.. Corporations primarily organized for the purpose of extending credit facilities to consumers. Limitation: Examples: - Accounts which have been factored or - Direct lending discounted shall be only be sold to banks and - Discounting not to other individuals or another financing entity.