MANILA, Philippines – After Macalinao’s motion for reconsideration was denied by the Court of Appeals, Macalinao elevated her case to the Supreme Court.

Petitioner Macalinao raised in the Supreme Court the issue that the stipulated rate of interest provided for in the Agreement between BPI and Macalinao was unconscionable and iniquitous, and thus illegal.

Thereafter, the Supreme Court issued its ruling on the case. To summarize the Supreme Court decision in the Macalinao case:-

1) The monthly interest rate of 1 ½% decided by the Court of Appeals was reduced to 1%;

2) The monthly penalty rate of 1 ½% decided by the Court of Appeals was reduced to 1%;

3) The stipulation of 3% monthly interest rate and 3% monthly penalty rate appearing in the Credit Card Agreement between BPI and Petitioner Macalinao was ruled to be excessive and iniquitous;

4) Article 1229 of the Civil Code is the provision of law used by the Supreme Court to justify its reduction of the rate of interest and penalty charges. Article 1229 of the Civil Code states that:

“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.”

5) Since the Agreement between BPI and Macalinao particularly on the rate of monthly interest was declared VOID by the Supreme Court, it decided on the matter of interest as if there was no expressed contract;

6) While Article 1229 of the Civil Code as aforequoted refers only to penalty charges, the reduction of the rate of interest was also included in the Supreme Court decision.

In the words of the Supreme Court:-

“We find for petitioner. We are of the opinion that the interest rate and penalty charge of 3% per month should be equitably reduced to 2% per month or 24% per annum.

“Indeed, in the Terms and Conditions Governing the Issuance and Use of the BPI Credit Card, there was a stipulation on the 3% interest rate. Nevertheless, it should be noted that this is not the first time that this Court has considered the interest rate of 36% per annum as excessive and unconscionable. We held in Chua vs. Timan:

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. (Emphasis supplied.)

“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.”

The Supreme Court ruling in the Macalinao case as well as in earlier cases on the issue of interest rates is very clear and emphatic that “interest rates of 3% per month and higher are iniquitous, unconscionable, and exorbitant.”

As reiterated in the case of Castro vs. De Leon Tan, et al (G.R. No. 168940, November 24, 2009):-

“The imposition of an unconscionable rate of interest on a money debt, even if knowingly and voluntarily assumed, is immoral and unjust. It is tantamount to a repugnant spoliation and an iniquitous deprivation of property, repulsive to the common sense of man. It has no support in law, in principles of justice, or in the human conscience nor is there any reason whatsoever which may justify such imposition as righteous and as one that may be sustained within the sphere of public or private morals.” [Ibarra v. Aveyro, 37 Phil. 273, 282 (1917)]

“In several cases, we have ruled that stipulations authorizing iniquitous or unconscionable interests are contrary to morals, if not against the law. In Medel v. Court of Appeals, we annulled a stipulated 5.5% per month or 66% per annum interest on a P500,000.00 loan and a 6% per month or 72% per annum interest on a P60,000.00 loan, respectively, for being excessive, iniquitous, unconscionable and exorbitant. In Ruiz v. Court of Appeals, we declared a 3% monthly interest imposed on four separate loans to be excessive. In both cases, the interest rates were reduced to 12% per annum.

“In this case, the 5% monthly interest rate, or 60% per annum, compounded monthly, stipulated in the Kasulatan is even higher than the 3% monthly interest rate imposed in the Ruiz case. Thus, we similarly hold the 5% monthly interest to be excessive, iniquitous, unconscionable and exorbitant, contrary to morals, and the law. It is therefore void ab initio for being violative of Article 1306 of the Civil Code. With this, and in accord with the Medel and Ruiz cases, we hold that the Court of Appeals correctly imposed the legal interest of 12% per annum in place of the excessive interest stipulated in the Kasulatan.”

At this point, one may ask: What then are the implications of the Supreme Court ruling in the Macalinao case especially with regard to credit cardholders? Can credit cardholders raise the decision in this case as a defense in cases filed by credit card companies against them demanding the payment of 3% monthly interest rate or more as stipulated between the credit cardholder and the credit card company? Or is the ruling in the Macalinao case a legal basis to compel Bangko Sentral ng Pilipinas (BSP) to issue a Circular mandating credit card companies to reduce both the monthly rate of interest and monthly penalty charges being imposed on credit cardholders to one (1%) percent each? (TO BE CONTINUED)