The document discusses regulations for interest rates on loans in the Philippines. It outlines that there is no regulatory ceiling on interest rates. If a rate is not stipulated, the default rate is 12% annually. It also discusses escalation clauses, which allow interest rates to increase if maximum rates set by the Monetary Board increase, as long as there is also a provision to decrease rates if maximums decrease. Escalation clauses must include both escalation and de-escalation components to be valid and prevent one-sidedness favoring lenders. The document also notes that courts may reduce interest rates found to be iniquitous, unconscionable or exorbitant.
The document discusses regulations for interest rates on loans in the Philippines. It outlines that there is no regulatory ceiling on interest rates. If a rate is not stipulated, the default rate is 12% annually. It also discusses escalation clauses, which allow interest rates to increase if maximum rates set by the Monetary Board increase, as long as there is also a provision to decrease rates if maximums decrease. Escalation clauses must include both escalation and de-escalation components to be valid and prevent one-sidedness favoring lenders. The document also notes that courts may reduce interest rates found to be iniquitous, unconscionable or exorbitant.
The document discusses regulations for interest rates on loans in the Philippines. It outlines that there is no regulatory ceiling on interest rates. If a rate is not stipulated, the default rate is 12% annually. It also discusses escalation clauses, which allow interest rates to increase if maximum rates set by the Monetary Board increase, as long as there is also a provision to decrease rates if maximums decrease. Escalation clauses must include both escalation and de-escalation components to be valid and prevent one-sidedness favoring lenders. The document also notes that courts may reduce interest rates found to be iniquitous, unconscionable or exorbitant.
The document discusses regulations for interest rates on loans in the Philippines. It outlines that there is no regulatory ceiling on interest rates. If a rate is not stipulated, the default rate is 12% annually. It also discusses escalation clauses, which allow interest rates to increase if maximum rates set by the Monetary Board increase, as long as there is also a provision to decrease rates if maximums decrease. Escalation clauses must include both escalation and de-escalation components to be valid and prevent one-sidedness favoring lenders. The document also notes that courts may reduce interest rates found to be iniquitous, unconscionable or exorbitant.
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Manual of Regulations for Banks: Stipulation of Interests
Sec. X305 Interest and Other Charges The rate of interest, including commissions, premiums, fees and other charges, on any loan, or forbearance of any money, goods or credits regardless of maturity and whether secured or unsecured shall not be subject to any regulatory ceiling.
X305.1 Rate of interest in the absence of stipulation. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in the absence of expressed contract as to such rate of interest, shall be twelve percent (12%) per annum.
X305.2 Escalation clause; when allowable. Parties to an agreement pertaining to a loan or
forbearance of money, goods or credits may stipulate that the rate of interest agreed upon may be increased in the event that the applicable maximum rate of interest is increased by the Monetary Board: Provided, That such stipulation shall be valid only if there is also a stipulation in the agreement that the rate of interest agreed upon shall be reduced in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board: Provided, further, That the adjustment in the rate of interest agreed upon shall take effect on or after the effectivity of the increase or decrease in the maximum rate of interest.
ESCALATION CLAUSE
It is a stipulation whereby the rate of interest agreed upon may be increased
Parties to an agreement pertaining to a loan or forbearance of money, goods, or credits may
stipulate that the rate of interest agreed upon may be increased in the event that the applicable maximum rate of interest is increased by the Monetary Board.
Provided, that there is also a stipulation in the agreement that the ROI agreed upon shall be reduced in the event that the applicable maximum ROI is reduced by LAW r the Monetary Board.
Usury law Sec 7-a similar provision
Escalation clause are not void per se. But one which grants creditor an unbridled right to adjust the interest independently and upwardly, completely depriving the debtor of the right to assent to an important modification in the agreement is void.
Requisites to be valid
There can be an increase in interest if increased by law or by Monetary Board
It must include a provision for reduction of the stipulated interest in the event that the applicable maximum ROI is reduced by law or by Monetary Board. (De-escalation clause)
The purpose of law in mandating the inclusion of de-escalation clause is to prevent one- sidedness in favor of the lender which is considered repugnant to the Principle of Mutuality of Contracts.
Art 1308 of the Civil Code. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.
ANNULMENT OF ESCALATION CLAUSE
In case the escalation clause is annulled, the principal amount of the loan is subject to the original or stipulated rate of interest. Upon maturity, the amount due is subject to legal interest at the rate of 12% per annum.
Exception:
Even if there is no de-escalation clause, the escalation clause remains valid if the creditor unilaterally and actually decreased the interest charges whenever the rate of interest is reduced by law or the Monetary Board.
Llorin v CA GR. No. 103592 (1993)
Promissory note contains an escalation clause, however, no correlative de-escalation clause
was provided.
Petitioner admitted that respondent APEX unilaterally and actually decreased the interest charges it imposed on the petitioner on three occasions.
The escalation clause remained VALID.
Cessante ratione legis cessat ipsa lex - the reason for a law ceasing, the law itself ceases.
UNILATERAL INCREASE OF RATES
The unilateral determination and imposition of increased rates are void for being violative of Principle of Mutuality of Contracts. An agreement to be binding between parties to a contract must be premised on two principles:
1. That obligations from contract have the force of law between contracting parties 2. There must be mutuality between the parties
Example: VOID Provision in a PN authorizing a bank to increase, decrease or change from time to time the rate of interest or bank charges without advance notice, where the monthly adjustment of interest rate is left to the will of the bank.
Central Bank Circular No. 905
Section 1. The rate of interest, including commissions, premiums, fees and other charges, on a loan or forbearance of any money, goods, or credits, regardless of maturity date and whether secured or unsecured, that may be charged or collected by any person, whether natural or judicial, shall not be subject to any ceiling prescribed under or pursuant to the Usury Law, as amended.
Lifted ceiling interest rates under Usury Law.
However, lenders are not granted carte blanche authority to rate interest rates to enslave their borrowers.
INIQUITOUS, UNCONSCIONABLE AND EXORBITANT INTERESTS
Are void as if no express contract thereon.
Supreme Court consistently held that Usury has been legally non-existent and that interest can now be charged as lender and borrower may agree upon.
CB Circular No. 905 (no ceiling rates)
Iniquitous, Unconscionable and Exorbitant Interests must be equitably reduced on the
ground that it is against public policy or morals to charge excessively.
Supreme Court Rulings
Medel v CA
Interest at 5.5% per month or 66% per annum is unconscionable, contra bonos mores and void. Court shall reduce equitably.
New Sampaguita Builders v PNB
Although interest ranging from 26% to 35% are not usurious (Usury Law nonexistent), the same must be equitably reduced.
EFFECT OF VOID INTEREST
It is as if there was no express contract thereon
Courts may reduce the interest rate as reason and equity demand.
Pryce Corp. v PAGCOR
Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. If the terms of the contract clearly express the intention of the contracting parties, the literal meaning of the stipulations would be controlling. The court has to enforce the contractual stipulations in the manner that they have been agreed for as long as they are not unconscionable or contrary to morals and public policy.
