MCMP Construction Corp. v. Monark Equipment Corp.
Excessive and unconscionable interests are void for being contrary to morals, if not against the law.
G.R. No. 201001, 10 November 2014
Plaintiff Monark Equipment Corp. initiated a Complaint for a Sum of Money against Defendant MCMP Construction Corp. after the latter failed to pay rental fees for the use of five (5) pieces of heavy equipment as stated in their Rental Equipment Contract. In the agreement, interest and penalties were stated as follows:
“Credit sales are payable within 30 days from the date of invoice. Customer agrees to pay interest at 24% p.a. on all amounts. In addition, customer agrees to pay a collection fee of 1% compounded monthly and 2% per month penalty charge for late payment on amounts overdue. Customer agrees to pay a sum equal to 25% of any amount due as attorney’s fees in case of suit, and expressly submit to the jurisdiction of the courts of Quezon City, Makati, Pasig or Manila, Metro Manila, for any legal action arising from, this transactions.”
The trial court ruled in favor of plaintiff.
HELD: The trial court’s decision was affirmed with modifications as to the granting of the “24% per annum interest on the rental fees as well as a collection fee of 1% per month compounded monthly and a 2% per month penalty charge. In all then, the effective interest rate foisted upon MCMP is 60% per annum.”
Citing Macalinao v. Bank of the Philippine Islands, a 36% interest imposed by a bank was reduced for being excessive and unconscionable. That being the case, the interest is void for being contrary to morals, if not against the law. “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.”
In Chuam v. Timam, it was held “[w]hile 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.”
For penalties, the Macalinao case also struck down the 3% penalty charge per month imposed by a bank in the Terms and Conditions Governing the Issuance and Use of the BPI Credit Card. As stated in Article 1229 of the Civil Code, “[t]he 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 view thereof, “the interest and penalty charges imposed upon MCMP must also be considered as iniquitous, unconscionable and, therefore, void. As such, the rates may validly be reduced. Thus, the interest rate of 24% per annum is hereby reduced to 12% per annum. Moreover, the interest shall start to accrue thirty (30) days after receipt of the second set of invoices on January 21, 2001, or March 1, 2001 in accordance with the provisions in the invoices themselves.” Likewise, “the penalty and collection charge of 3% per month, or 36% per annum, is also reduced to 6% per annum. And the amount of attorney’s fees is reduced from 25% of the total amount due to 5%.”