VOL.

299, NOVEMBER 27, 1998 481

Medel s. Co r of Appeals
*
G.R. No. 131622. No ember 27, 1998.

LETICIA Y. MEDEL, DR. RAFAEL MEDEL and SERVANDO

FRANCO, pe i ioner , . COURT OF APPEALS, SPOUSES
VERONICA R. GONZALES and DANILO G. GONZALES, JR.
doing lending b ine nder he rade name and le
GONZALES CREDIT ENTERPRISES, re ponden .

Loan ; U La ; In e e Ra e ; A i la ed a e of in e e a 5.5%
e mon h on a P500,000.00 loan i e ce i e, ini i o , ncon cionable
and e o bi an ; The U La i no legall ine i en . We agree with
petitioners that the stipulated rate of interest

* HIRD DI I ION.

4 2

482 SUPREME COURT REPORTS ANNOTATED

Medel s. Court of Appeals

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.

Same; Same; Same; C.B. Ci c la No. 905 did no e eal no in an

a amend he U La b im l ended he la e effec i i . 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
any way 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. In the recent case of
Florendo vs. Court of Appeals, the Court reiterated the ruling that by virtue
of CB Circular No. 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.

Same; Same; Same; The co hall ed ce e i abl li ida ed

damage , he he in ended a an indemni o a enal if he a e
ini i o o ncon cionable. We nd 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.

PETITION for re ie on cer iorari of a deci ion of he Co r of

Appeal .

The fac are a ed in he opinion of he Co r .

D C &C L O for pe i ioner .
L C. S . M for pri a e re ponden .

PARDO, J.:

The ca e before he Co r i a pe i ion for re ie on cer iorari, nder

R le 45 of he Re i ed R le of Co r , eeking o
483

VOL. 299, NOVEMBER 27, 1998 483

Medel s. Co r of Appeals
1
e a ide he deci ion of2 he Co r of Appeal , and i re ol ion
den ing recon idera ion, he di po i i e por ion of hich deci ion
read a follo :

WHEREFORE, the appealed judgment is hereby MODIFIED such that

defendants are hereby ordered to pay the plaintiff: the sum of P500,000.00,
plus 5.5% per month interest and 2% service charge per annum effective
July 23, 1986, plus 1% per month of the total amount due and demandable
as penalty charges effective August 23, 1986, until the entire amount is fully
paid.
The award to the plaintiff of P50,000.00 as attorney s fees is af rmed.3
And so is the imposition of costs against the defendants. SO ORDERED.
4

The Co r req ired he re ponden 5 o commen on he pe i ion,

hich a led on April 3, 1998, and 6 he pe i ioner o repl
here o, hich a led on Ma 29, 1998. We no re ol e o gi e
d e co r e o he pe i ion and decide he ca e.
The fac of he ca e, a fo nd b he Co r of Appeal in i
deci ion, hich are con idered binding and concl i e on he par ie
herein, a he appeal i limi ed o q e ion of la , are a follo :
On No ember 7, 1985, Ser ando Franco and Le icia Medel
(hereaf er Ser ando and Le icia) ob ained a loan from Veronica R.
Gon ale (hereaf er Veronica), ho a engaged in he mone
lending b ine nder he name Gon ale Credi En erpri e , in
he amo n of P50,000.00, pa able in o mon h . Veronica ga e
onl he amo n of P47,000.00, o he borro er , a he re ained
P3,000.00, a ad ance in ere for one mon h a 6% per mon h.
Ser ando and Le icia e ec ed a

1 CA-G.R. C N . 36096, M 21, 1997.

2 I N 25, 1995.
3 R , . 22-28.
4 R F 23, 1998, . 44, R .
5 R , . 45-48.
6 R , . 53-56.

484

484 SUPREME COURT REPORTS ANNOTATED

Medel s. Co r of Appeals

promi or no e for P50,000.00, o e idence he loan, pa able on

Jan ar 7, 1986.
On No ember 19, 1985, Ser ando and Le icia ob ained from
Veronica ano her loan in he amo n of P90,000.00, pa able in o
mon h , a 6% in ere per mon h. The e ec ed a promi or no e
o e idence he loan, ma ring on Jan ar 19, 1986. The recei ed
onl P84,000.00, o of he proceed of he loan.
On ma ri of he o promi or no e , he borro er failed o
pa he indeb edne .
On J ne 11, 1986, Ser ando and Le icia ec red from Veronica
ill ano her loan in he amo n of P300,000.00, ma ring in one
mon h, ec red b a real e a e mor gage o er a proper belonging
o Le icia Makalin al Yap incha , ho i ed a pecial po er of
a orne in fa or of Le icia Medel, a hori ing her o e ec e he
mor gage. Ser ando and Le icia e ec ed a promi or no e in fa or
of Veronica o pa he m of P300,000.00, af er a mon h, or on J l
11, 1986. Ho e er, onl he m of P275,000.00, a gi en o hem
o of he proceed of he loan.
Like he pre io loan , Ser ando and Medel failed o pa he
hird loan on ma ri .
On J l 23, 1986, Ser ando and Le icia i h he la er h band,
Dr. Rafael Medel, con olida ed all heir pre io npaid loan
o aling P440,000.00, and o gh from Veronica ano her loan in he
amo n of P60,000.00, bringing heir indeb edne o a o al of
P500,000.00, pa able on A g 23, 1986. The e ec ed a
promi or no e, reading a follo :

Ba ag, B aca J l 23, 1986

Ma Da e A g s 23, 1986
 P500,000.00

FOR VALUE RECEIVED, I/WE join l and e erall promi e o

pa o he order of VERONICA R. GONZALES doing b ine in
he b ine le of GONZALES CREDIT ENTERPRISES,
Filipino, of legal age, married o Danilo G. Gon ale , Jr., of
Bali ag, B lacan, he m of PESOS . . . . . FIVE HUNDRED
THOUSAND . . . . . (P500,000.00) Philippine C rrenc

485

VOL. 299, NOVEMBER 27, 1998 485

Medel s. Co r of Appeals

5.5 PER CENT 2%

n il f ll paid according o he amor i a ion
ched le con ained herein. (I alic pplied)
Pa men ill be made in f ll a he ma ri da e.
S I/WE
, all he o her in allmen oge her i h all in ere accr ed
hall immedia el be d e and pa able and I/WE hereb agree o pa
an (1%)

n il f ll paid; and he f r her TWENT

FIVE PER CENT (25%) , i ho ded c ion
A F he her ac all inc rred or no , of he o al amo n
d e and demandable, e cl i e of co and j dicial or e ra j dicial
e pen e . (I alic pplied)
I, WE f r her agree ha in he e en he pre en ra e of in ere
on loan i increa ed b la or he Cen ral Bank of he Philippine ,
he holder hall ha e he op ion o appl and collec he increa ed
in ere charge i ho no ice al ho gh he original in ere ha e
alread been collec ed holl or par iall nle he con rar i
req ired b la .
I i al o a pecial condi ion of hi con rac ha he par ie
herein agree ha he amo n of pe o-obliga ion nder hi agreemen
i ba ed on he pre en al e of he pe o, and if here be an change
in he al e hereof, d e o e raordinar in a ion or de a ion, or
an o her ca e or rea on, hen he pe o-obliga ion herein con rac ed
hall be adj ed in accordance i h he al e of he pe o hen
pre ailing a he ime of he comple e f l llmen of he obliga ion.
Demand and no ice of di honor ai ed. Holder ma accep
par ial pa men and gran rene al of hi no e or e en ion of
pa men , re er ing righ again each and all indor er and all
par ie o hi no e.
IN CASE OF JUDICIAL E ec ion of hi obliga ion, or an
par of i , he deb or ai e all hi / heir righ nder he pro i ion
of Sec ion 12, R le 39, of he Re i ed R le of Co r .
On ma ri of he loan, he borro er failed o pa he
indeb edne of P500,000.00, pl in ere and penal ie , e idenced
b he abo e-q o ed promi or no e.

486

486 SUPREME COURT REPORTS ANNOTATED

Medel s. Co r of Appeals

On Febr ar 20, 1990, Veronica R. Gon ale , joined b her h band

Danilo G. Gon ale , led i h he Regional Trial Co r of B lacan,
Branch 16, a Malolo , B lacan, a complain for collec ion of he
f ll amo n of he loan incl ding in ere and o her charge .
In hi an er o he complain led i h he rial co r on April
5, 1990, defendan Ser ando alleged ha he did no ob ain an loan
from he plain iff ; ha i a defendan Le icia and Dr. Rafael
Medel ho borro ed from he plain iff he m of P500,000.00,
and ac all recei ed he amo n and bene ed herefrom; ha he
loan a ec red b a real e a e mor gage e ec ed in fa or of he
plain iff , and ha he (Ser ando Franco) igned he promi or no e
onl a a i ne .
In heir epara e an er led on April 10, 1990, defendan
Le icia and Rafael Medel alleged ha he loan a he ran ac ion of
Le icia Yap incha , ho e ec ed a mor gage in fa or of he
plain iff o er a parcel of real e a e i a ed in San J an, Ba anga ;
ha he in ere ra e i e ce i e a 5.5% per mon h i h addi ional
er ice charge of 2% per ann m, and penal charge of 1% per
mon h; ha he ip la ion for a orne fee of 25% of he amo n
d e i ncon cionable, illegal and e ce i e, and ha b an ial
pa men made ere applied o in ere , penal ie and o her charge .
Af er d e rial, he lo er co r declared ha he d e e ec ion
and gen inene of he fo r promi or no e had been d l pro ed,
and r led ha al ho gh he U r La had been repealed, he
in ere charged b he plain iff on he loan a ncon cionable
and re ol ing o he con cience. Hence, he rial co r applied he
pro i ion of he Ne [Ci il] Code ha he legal ra e of in ere for
loan or forbearance of mone , good or credi i 12% per ann m.
Accordingl , on December 9, 1991, he rial co r rendered
j dgmen , he di po i i e por ion of hich read a follo :

P ,R , . 8-21, 17.

487

VOL. 299, NOVEMBER 27, 1998 487

Medel s. Co r of Appeals

WHEREFORE, premises considered, judgment is hereby rendered, as

follows:
 1. Ordering the defendants Servando Franco and Leticia Medel,
jointly and severally, to pay plaintiffs the amount of P47,000.00
plus 12% interest per annum from November 7, 1985 and 1% per
month as penalty, until the entire amount is paid in full;
2. Ordering the defendants Servando Franco and Leticia Y. Medel to
plaintiffs, jointly and severally the amount of P84,000.00 with 12%
interest per annum and 1% per cent per month as penalty from
November 19, 1985 until the whole amount is fully paid;
3. Ordering the defendants to pay the plaintiffs, jointly and severally,
the amount of P285,000.00 plus 12% interest per annum and 1%
per month as penalty from July 11, 1986, until the whole amount is
fully paid;
4. Ordering the defendants to pay plaintiffs, jointly and severally, the
amount of P50,000.00 as attorney s fees;
5. All counterclaims are hereby dismissed.
With costs against the defendants.

In d e ime, bo h plain iff and defendan appealed o he Co r of

Appeal .
In heir appeal, plain iff -appellan arg ed ha he promi or
no e, hich con olida ed all he npaid loan of he defendan , i
he la ha go ern he par ie . The f r her arg ed ha Circ lar
No. 416 of he Cen ral Bank pre cribing he ra e of in ere for loan
or forbearance of mone , good or credi a 12% per ann m, applie
onl in he ab ence of a ip la ion on in ere ra e, b no hen he
par ie agreed hereon.
The Co r of Appeal ained he plain iff -appellan
con en ion. I r led ha he U r La ha ing become legall
ine i en i h he prom lga ion b he Cen ral Bank in 1982 of
Circ lar No. 905, he lender and borro er co ld agree on an
in ere ha ma be charged on he loan. The

R , . 36-A-43.
C . C A , 157 CRA 743 (1988); L L .
O C ., 129 CRA 439 (1984).

488

488 SUPREME COURT REPORTS ANNOTATED

Medel s. Co r of Appeals

Co r of Appeal f r her held ha he impo i ion of an addi ional

amo n eq i alen o 1% per mon h of he amo n d e and
demandable a penal charge in he 10 form of liq ida ed damage
n il f ll paid a allo ed b la .
Accordingl , on March 21, 1997, he Co r of Appeal
prom lga ed i deci ion re er ing ha of he Regional Trial Co r ,
di po ing a follo :
 WHEREFORE, the appealed judgment is hereby MODIFIED such that
defendants are hereby ordered to pay the plaintiffs the sum of P500,000.00,
plus 5.5% per month interest and 2% service charge per annum effective
July 23, 1986, plus 1% per month of the total amount due and demandable
as penalty charges effective August 24, 1986, until the entire amount is fully
paid.
The award to the plaintiffs of P50,000.00 as attorney s fees is af rmed.
And so is the imposition
11 of costs against the defendants.
SO ORDERED.

On April 15, 1997, defendan -appellan led a mo ion for

recon idera ion of he aid deci ion. B re ol ion 12 da ed No ember
25, 1997, he Co r of Appeal denied he mo ion.
Hence, defendan 13 in erpo ed he pre en reco r e pe i ion for
re ie on cer iorari.
We nd he pe i ion meri orio .
Ba icall , he i e re ol e on he alidi of he in ere ra e
ip la ed pon. Th , he q e ion pre en ed i he her or no he
ip la ed ra e of in ere a 5.5% per mon h on he loan in he m
of P500,000.00, ha plain iff e ended o he defendan i
rio . In o her ord , i he U r La ill effec i e, or ha i
been repealed b Cen ral Bank Circ lar No. 905, adop ed on
December 22, 1982, p r an o i po er nder P.D. No. 116, a
amended b P.D. No. 1684?

10 C A 2209, C C , I H ,I . .C
A , 198 CRA 390.
11 R , . 27.
12 R , . 36.
13 R , . 8-21.

48

VOL. 299, NOVEMBER 27, 1998 489

Medel s. Co r of Appeals

We agree i h pe i ioner ha he ip la ed ra e of in ere a 5.5%

per mon h on he P500,000.00 14 loan i e ce i e, iniq i o ,
ncon cionable and e orbi an . Ho e er, e can no con ider he
ra e rio beca e hi Co r ha con i en l held ha Circ lar
No. 905 of he Cen ral Bank, adop ed on December 22, 1982, ha
e pre15 l remo ed he in ere ceiling pre cribed b 16 he U r
La and ha he U r La i no legall ine i en .
In Sec ri Bank1 and Tr Compan . Regional Trial Co r of
Maka i, Branch 61 he Co r held ha CB Circ lar No. 905 did
no repeal nor in an a amend he U r La b impl
pended he la er effec i i . Indeed, e ha e held ha a
Cen ral Bank1 Circ lar can no repeal a la . Onl a la can repeal 1
ano her la . In he recen ca e of Florendo . Co r of Appeal ,
he Co r rei era ed he r ling ha b ir e of CB Circ lar 905, he
U r La ha been rendered ineffec i e. U r ha been legall
non-e i en in o r j ri dic ion. In ere
20 can no be charged a
lender and borro er ma agree pon.
Ne er hele , e nd he in ere a 5.5% per mon h, or 66% per
ann m, ip la ed pon b he par ie in he promi or no e
iniq i o or ncon cionable, and, hence, con
21 rar o moral
( con22ra bono more ), if no again he la . The ip la ion i
oid. The co r hall red ce eq i abl liq i-

14 P , . 15-17, R .
15 P .D , 329 P . 687 1996 .
16 L L .O C ., 129 CRA 439, 442.
1 331 P . 787 1996 .
1 P .C A , 238 CRA 593, 601 1994 .
1 333 P . 535 1996 .
20 P .D , s pra, .
21 A 1306, C C .
22 C.I .A , 37 P . 274; A .C A , 256 CRA 292
1996 .

4 0

490 SUPREME COURT REPORTS ANNOTATED

Medel s. Co r of Appeals

da ed damage , he her in ended a 23an indemni or a penal if

he are iniq i o or ncon cionable.
Con eq en l , he Co r of Appeal erred in pholding he
ip la ion of he par ie . Ra her, e agree i h he rial co r ha ,
nder he circ m ance , in ere a 12% per ann m, and an
addi ional 1% a mon h penal charge a liq ida ed damage ma be
more rea onable.
WHEREFORE, he Co r hereb REVERSES and SETS ASIDE
he deci ion of he Co r of Appeal prom lga ed on March 21,
1997, and i re ol ion da ed No ember 25, 1997. In ead, e
render j dgmen REVIVING and AFFIRMING he deci ion da ed
December 9, 1991, of he Regional Trial Co r of B lacan, Branch
16, Malolo , B lacan, in Ci il Ca e No. 134-M-90, in ol ing he
ame par ie .
No prono ncemen a o co in hi in ance.
SO ORDERED.

N (C.J., C ), R ,K and P ,
JJ., conc r.

J ,
R T C B , B . 16 .

No e . Under he Ci il Ser ice La , lending mone a rio

ra e of in ere i peci call li ed a gro nd for di ciplinar
 ac ion; Co r are no lending in i ion . (RTC M M
A G C .D , 247 SCRA 108 [1995])
While he U r La ceiling on in ere ra e a lif ed b C.B.
Circ lar No. 905, no hing in he aid circ lar co ld po ibl be read
a gran ing a hori o lender o

23 A 2227, C C ;J R E .A E
C ., 104 P . 33 1958 ; C .A , 168 CRA 474
1988 ; P .C A , G.R. N . 126490, M 31, 1998,
C J , E 1, O , 1998, . 79-93.

4 1

VOL. 299, DECEMBER 2, 1998 491

S a. Ines Melale Fores Prod c s Corpora ion s. Macaraig, Jr.

rai e in ere ra e o le el hich o ld ei her en la e heir

borro er or lead o a hemorrhaging of heir a e . (A .
C A , 256 SCRA 292 [1996])

o0o

C g 2023 Ce a B S , I c. A g e e ed.