The stipulated
interest rates of 7% and 5% per month imposed on respondents’ loans must be
equitably reduced to 1% per month or 12% per annum. We need not unsettle the
principle we had affirmed in a plethora of cases that stipulated interest rates
of 3% per month and higher are excessive, iniquitous, unconscionable and
exorbitant. Such stipulations are void for being contrary to morals, if not
against the law. While C.B. Circular No. 905-82, which took effect on
January 1, 1983, effectively removed the ceiling on interest rates for both
secured and unsecured loans, regardless of maturity, nothing in the said
circular could possibly be read as granting carte blanche authority to lenders
to raise interest rates to levels which would either enslave their borrowers or
lead to a hemorrhaging of their assets.
Since the
stipulation on the interest rate is void, it is as if there was no express
contract thereon. Hence, courts may reduce the interest rate as reason and
equity demand.
The same is true
with respect to the penalty charge. Notably, under the Terms and Conditions
Governing the Issuance and Use of the BPI Credit Card, it was also stated
therein that respondent BPI shall impose an additional penalty charge of 3% per
month. Pertinently, Article 1229 of the Civil Code states:
Art. 1229.
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 since what may be iniquitous and
unconscionable in one may be totally just and equitable in another
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