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THE
Court of Appeals (CA) has affirmed the constitutionality
of Central Bank Circular 905 which removes the ceiling
on interest that may be charged on loans.
In a
14-page decision penned by Associate Justice Mario L.
Guariña III, the CA First Division declared that CB
Circular 905 which took effect on January 1, 1983, has
effectively suspended the implementation of Commonwealth
Act 2655 or the Usury Law, which prohibits the
imposition of annual interest higher than 12 percent for
secured and 14 percent for unsecured loans.
Thus,
the appellate court junked the petition for review filed
by Eduardo Rayo assailing the July 10, 2003, ruling of
the regional trial court of Las Piñas, which held that
the more than 12 percent interest that Metropolitan Bank
and Trust Company imposed on loan transactions involving
42 parcels of land that petitioner acquired in March
2002 were not violative of the Usury Law in the light of
CB 905.
“With
the validity of CB 905, it follows that the interests
stipulated in the loan contracts are not usurious
although above the maximum rates in the Usury Law…The
plaintiff is thus liable for the full obligations of its
assignors under the loans and as secured by the real
estate mortgages…CB 905 clearly applies to secured and
unsecured loans regardless of maturity,” the CA noted.
In its
complaint before the Las Piñas RTC, Rayo claimed that he
acquired from Louisville Realty and Development
Corporation and DSH Realty and Development Corp. all
their rights and interest over the 42 parcels of land
that were subject of real-estate mortgages in favor of
Metrobank.
Rayo
later found that the lot was to be sold on October 8,
2001, to satisfy the mortgage obligations in the amount
of P1.82 billion which was more than double the
principal loans, being subject to interest and penalty
charges that were higher than the rate of 12 percent
yearly.
He
contended that the loans, mortgage contracts and
foreclosure sales of the properties were null and void
for imposing interest higher than the maximum rate of 12
percent fixed in the usury law.
The
appellant further argued that the authority granted by
Presidential Decree 116 to the Monetary Board of CB to
modify the usury law amounts to an undue delegation of
the legislative power.
Presidential Decree 116, issued in 1973, authorized the
MB to prescribe the maximum rates of interest for
different types of loans and charge rates depending on
the prevailing economic and social conditions.
In
upholding the lower court’s decision, the CA noted CB
905 has been in place for more than 20 years already
without being recalled by the MB.
Thus,
the appellate court, said, it can be concluded that its
issuance was pursuant to the powers delegated to the MB
by law. In addition, the CA said the MB is authorized
under Presidential Decree 858 to suspend the effectivity
of interest rate ceilings on loans.
“While
the CB Act had restricted the authority of the MB to fix
the maximum rates within the limits of the usury law, no
such limitation is contained in PD 116. Thus, under PD
116, the MB can raise the maximum rates above the rates
fixed in the usury law and, under PD 858, lift rates
whether fixed under the usury law or PD 116,” the CA
said.
“There
is no gain saying that the parties may freely agree on
any interest rate for as long as the ceilings remain
lifted, provided that it is not unreasonable or
iniquitous…,” the appellate added.
Concurring in the decision were Presiding Justice Ruben
Reyes and Associate Japar Dimaampao. |
