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.
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.
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. The executed a promissory note.
On maturity of the loan, the borrowers failed to pay the
indebtedness of P500,000.00, plus interests and penalties. A complaint for
collection of the full amount of the loan including interests and other charges
was filed.
Issue: WON the
stipulated rates of interest at 5.5% per month on the loan in the sum of
P500,00 that plaintiffs extended to the defendant is usurious?
Held:
The SC 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, SC cannot consider the
rate "usurious" because it 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".
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 cannot repeal a law. Only a law can repeal another law." In
the recent case of Florendo vs. Court of Appeals, the Court reiterated the
ruling that "by virtue of CB Circular 905, the Usury Law has been rendered
ineffective". "Usury has been legally non-existent in our
jurisdiction. Interest can now be charged as lender and borrower may agree
upon."
Nevertheless, SC 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. The courts shall reduce
equitably liquidated damages, whether intended as an indemnity or a penalty if
they are iniquitous or unconscionable.
Consequently, the Court of Appeals erred in upholding the
stipulation of the parties. Rather, we agree with the trial court that,
under the circumstances, interest at 12% per annum, and an additional 1% a
month penalty charge as liquidated damages may be more reasonable.
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