Article.1175.

Usurious transactions shall be governed by

special laws

1.Usury,concept

Usury is the contracting for or receiving something in excess of the

amount allowed by the law for the loan or forbearance of money the

taking of more interest for the use than the law allows.

2.Law Applicable

The law governing usurious transactions is the Usury Law. The

following are the maximum lawful rates of interest under the usury

law which may be charged for loan or forbearance money.

a. Twelve Percent (12%) per annum- If the security given is a

real estate the title to which is duly recorded or government

securities

b. Fouteen Percent (14%) per annum- If the security given is

unregistered real estate or personal property, or where there

is no security

c. For Pawnbrokers
 1) Two and a half percent (2 ½%) a month- If the loan is less

than 500.00

2) Two percent (2%) a month- If the loan is from 500.00 to

2,000

3) Fouteen percent (14%) per annum- If the loan is more than

2000.00

3. Usury Law, Legally inexistent

The Usury had been rendered legally ineffective by

resolution No.224 dated December 3, 1982 of the Monetary Board

of the Central Bank, and later by Central Bank circular No.905

which took effect on January 1, 1983. These circulars removed the

ceiling on interest rates for secured and unsecured loans regardless

of maturity. The effect of this circulars is to allow the parties to

agree on any interest that may be charged on a loan. The interest

imposed should be in writing. (Solidbank Corp. vs. Permanent

Homes, Inc., G. R. No. 171925, July 23, 2010; See also Verdejo vs.

CA, 157 SCRA 743).

 Nonetheless, the Supreme Court held that nothing is the said

circular grants lenders carte blanche to raise to raise interest rates

to levels which will either enslave their borrowers or lead to a

haemorrhaging of their assets. Stipulations authorizing such interest

ar contra bonos mores,i.e., contrary to good customs, if not against

the law. They are inexistent and void from the beginning. Thus, the

interest rate of 0% per month agreed upon by the parties is clearly

excessive, iniquitous and unconscionable and cannot be sustained.

(Svendsen vs people, G.R. No. 175381, February 26, 2008)

But the Supreme Court in certain cases [ Macalalag vs

People,511 SCRA 400 (2006) ] [ Dino vs Jardines 481 SCRA 278

(2004)] found the 10% interest per month clearly excessive and

reduced it to 12% per annum. In effect the difference between may

be recovered by the debtor if he had paid such excessive interest

(NOTE; Supreme Court, in Sps. Albos vs Sps. Embinas, G.R

No,210831, November 26,2014, citing judicial pronouncement in

various cases, allowed the imposition of the legal rate of 12 % per

annum where the interest agreed upon was iniquitous or

unconscionable)
4. New legal rate of interest

Under circular No. 799 the monetary board declared that effective

July 1, 2013,” the rate of interest for the loan or forbearance of

money, goods or credits and the rate allowed in judgement, in tha

absence of an express agreement as to such rate if interest, shall 6

percent per annum”

ILLUSTRATIVE CASES:

Stipulationinafirearmbondmakeslicenseeresponsibleforfortuitous
events.
Facts: X was issued a license for the possession of four firearms for
which he gave a bond. He failed to comply with the terms of the bond,
claiming that the failure was due to force majeure, i.e., that his house
was attacked by a band of robbers who carried away three of them.

Issue: Is X relieved from responsibility upon the bond which he had

given for their return?
 —-— —-— —-—

Responsibilityforfortuitouseventsisnotclearlystipulated.
Facts:Inthecontract,itisdeclaredthedutyofE,lessee,tomaintain
theimprovementsofthehaciendaingoodconditionandtodeliverthem
inthesamestatetoR,lessor,upontheterminationofthelease.

Issue: Is E responsible for loss resulting from fortuitous events?

Held: No. The above is merely a statement of the obligation imposed by law,

generally upon all lessees. (see Arts. 1657[2], 1665.) It is truethat

underArticle1174 apartytoacontractmaymakehimselfresponsiblefor loss

occurring without his fault. But the provision imposing this obliga- tion should be

clearly expressed. Where the parties to a contract desire to create an unusual

obligation, the expression of an intention to that effect shouldbeclea

ART. 1175. Usurious transactions shall be governed by

special laws. (n)

Meaning of simple loan or mutuum.

Simple loan or mutuum is a contract whereby one of the parties

delivers to another money or other consumable thing, upon the
condition that the same amount of the same kind and quality shall be
paid. It may be gratuitous or with a stipulation to pay interest. (Art.
1933.)

Meaning of usury.

Usury is contracting for or receiving interest in excess of the

amount allowed by law for the loan or use of money, goods, chattels,
orcredits.(Tolentinovs.Gonzales,50Phil.558[1927].)

Kinds of interest.

They are:
 Simpleinterest.—whentherateofinterestisstipulatedbythe parties
(Art.2209.);
Compoundinterest.—whentheinterestearnedisuponinterest due
(Arts. 2212,1959.);
Legal interest. — when the rate of interest intended by the
parties is presumed by law, as when the loan mentions interest but
doesnotspecifytheratethereof.(Art.2209.)Thesamerateisallowed in
judgments where there is no express contract between the parties
in anticipation of the same. Its use is not justified where there is a
stipulatedrateofinterestintheloancontract;
Lawful interest. — when the rate of interest is within the
maximumallowedby(usury)law(Secs.2,3,UsuryLaw,ActNo.2655, as
amended.);and
Unlawful interest. — when the rate of interest is beyond the
maximum fixed bylaw.
Interest rules.

Under the Usury Law, they are:

Legalrate.—12%perannum.(seeSec.1,Ibid.)Thelegalrate is 12% (from default until fully paid) if

the transaction is a loan or forbearance of money, goods, or credits or the judgment involves a
loanorforbearanceofmoney,goodsorcredits,asprescribedinCentral Bank Circular No. 416 (infra.);
otherwise (e.g., indemnity for damages occasioned by an injury to person or loss of property), it is
only 6% as providedinArticle2209oftheCivilCode.(infra.)
Maximumrate:
12% per annum — if the loan is secured in whole or in
partbyamortgageuponrealestatewithaTorrensTitleorbyany
agreementconveyingsuchrealestate(alsoregistered)oraninterest
therein.Forpurposesoftheceiling,loanssecuredbygovernment securities such as treasury bills,
CB certificates ofindebtedness, etc.,qualifyassecuredloans;and
14% per annum — if the loan is not secured as provided above;or
The rate prescribed by the Monetary Board of the Central Bank.(Secs.1,1-a,2,3,[UsuryLaw].)
Under Section 2 (secured loan) of the Usury Law, the taking or
receiving(notmereagreeing)ofusuriousinterestistheactpenalized. Under Section 3 (unsecured
loan), the mere demanding or agreeing
tochargeexcessiveinterestisalsopunishable.Ineithercase,itisonly
thecreditorwhoiscriminallyliable.Toconcealusury,variousdevices
 have been resorted to whereby the true nature of the transaction is
concealedfromwhatmaybeviewedfromthewrittenagreement.(see Art.1346.)

Requisites for recovery of monetary interest.

Interestfixedbythepartiestoacontractfortheeaseorforbearance of money is referred to as

monetary interest. It is called compensatory interest if it is imposed by law or by courts as penalty or
indemnity for damages.(Siga-anvs.Villanueva,576SCRA696[2009].)

In order that monetary interest may be recovered, the following requisites must be present:

The payment of interest must be expressly stipulated (Art. 1956.);

Theagreementmustbeinwriting;and
The interest must be lawful. (Art.1957.)
Astipulationforthepaymentofusuriousinterestisvoid,thatis, as if there is no stipulation as to
interest. (see comments under Art. 1413.)

Note: By virtue of Central Bank Circular No. 905 (Dec. 10, 1982,

effectiveJan.1,1983.)issuedbytheMonetaryBoardundertheauthority grantedtoitbytheUsuryLaw(Secs.1-

a,4-9,and4-bthereof.),therate of interest and other charges on a loan or forbearance of money, goods,

or credit, regardless of maturity and whether secured and unsecured, that may be charged or collected

shall not be subject to any ceiling prescribed under the Usury Law. Usury is now legally non-existent.

Interest can be charged as lender and borrower may agree upon. (Liam

Lawvs.OlympicSawmillCo.,129SCRA439[1984].)Accordingtothe Supreme Court, the circular did not

repeal or in any way amend the Usury Law but simply suspended the latter’s effectivity. Only a law can

repeal or amend another law.

Liability for legal interest.

Art. 2209.)

The debtor in delay is liable to pay interest which is 6% per annum, now 12%, by virtue of
Central Bank Circular No. 416 (July29,1974)andNo.905(Dec.10,1982),asindemnityfordam- ages
even in the absence of stipulation for the payment of interest computed from default, i.e., from
judicial or extrajudicial demand. (Art. 1169.) The claim for legal interest and increase in the
indem- nity may be entertained by the appellate court in spite of the fail- ure of the claimant to
appeal the judgment where the appeal of the defendant was obviously dilatory and oppressive
of the rights of the claimant. (De Lima vs. Laguna Tayabas Co., 160 SCRA 70 [1988].)
Furthermore, interest due shall earn legal interest from the time it is judicially demanded
although the obligation may be si- lent upon this point. (Art. 2212; Cortes vs. Venturanza, 79
SCRA 709 [1977].) Where no interest had been stipulated by the parties, the debtor is not liable
to pay compound interest even after judi- cial demand for in such case, there can be no accrued
(convention- al) interest which can further earn interest upon judicial demand. (Phil. American
Accident Insurance Co., Inc. vs. Flores, 97 SCRA
811[1980];Davidvs.CourtofAppeals,316SCRA710[1999].)
A debtor cannot be considered delinquent and liable to pay interest where he offered checks
backed by sufficient deposit or is ready to pay cash if the creditor chose that means ofpayment.
(G.Araneta,Inc.vs.DePaterno,91Phil.786[1952];Bresterbosvs.
CourtofAppeals,411SCRA396[2003].)
 Finalandexecutoryjudgmentawardingasumofmoney.—When the judgment of the court awarding a
sum of money becomes finaland
above,shallbe12%perannumfromsuchfinalityuntilitssatisfaction, this interim period being deemed to
be by then an equivalent to a forbearance of credit. The actual base for the computation of this 12%
interest is the amount due upon the finality of the judgment. (Eastern
ShippingLines,Inc.vs.CourtofAppeals,234SCRA78[1994];DeLima
vs.LagunaBusCo.,160SCRA70[1988];KoreanAirlinesCo.,Ltd.vs.
CourtofAppeals,234SCRA717[1994];Montillavs.AugustinianCorp., 25 Phil. 447 [1913]; Huibonhoa vs.
Court of Appeals, 320 SCRA 625 [1999];EasternAssuranceandSuretyCorporationvs.CourtofAppeals,
322 SCRA 73 [2000]; Bangko Sentral ng Pilipinas vs. Santamaria,395
SCRA84[2003];Almedavs.Cariño,395SCRA144[2003];Vicentevs. Planters Development Bank, 396
SCRA 282 [2003]; Heirs of O.Reyes vs.Mijares,410SCRA97[2003];Cuatonvs.Salud,421SCRA278[2004];
Cosingvs.CourtofAppeals,425SCRA192[2004];GaramontSteamship
Agencies,Inc.vs.SprintTransportServices,Inc.,592SCRA622[2009].)
Summary.—Theaboverulingsmaybesummarizedasfollows:
For loan or forbearance of money, the rate of interest dueis that stipulated; otherwise, 12%
per annum computed fromjudicial or extrajudicial demand until fully paid. In addition, interest
due shall earn legal interest (compound interest) from the time it is judiciallydemanded.
Forotherthanloanorforbearanceofmoney,theinterestshall
be6%asindemnityatthediscretionofthecourt.Whentheamount of the obligation is reasonably
established, the interest shall run from judicial or extra-judicial demand; otherwise, from the
time the amount is finallyadjudged.
Whereajudgmentawardingasumofmoneyunder(a)or(b) above, has become final and
executory, the legal rate of interest shall be 12% from such finality, based on the adjudged
principal and unpaid interest, until fullsatisfaction.