1. The BSP, through the Monetary Board is granted the power and authority to prescribe different maximum rates of interest which may be imposed for a loan or renewal thereof or the forbearance of any money, goods or credits, provided that the changes are effected gradually and announced in advance. Thus, it issued CB Circular No. 905, removing all interest ceilings and suspended the usury law. Did the BSP commit grave abuse of discretion in issuing CB Circular No. 905?
No. The BSP has the power to do so. It has been held that CB Circular No. 905 “did not repeal nor in anyway amend the Usury Law but simply suspended the latter’s effectivity;” that “a [CB]
Circular cannot repeal a law, [for] only a law can repeal another law;” that “by virtue of CB Circular No. 905, the Usury Law has been rendered ineffective;” and “Usury has been legally non-existent in our jurisdiction. Interest can now be charged as lender and borrower may agree upon.” The law creating the BSP covered only loans extended by banks, whereas under Section 1-a of the Usury Law, as amended, the BSP-MB may prescribe the maximum rate or rates of interest for all loans or renewals thereof or the forbearance of any money, goods or credits, including those for loans of low priority such as consumer loans, as well as such loans made by pawnshops, finance companies and similar credit institutions. It even authorizes the BSP-MB to prescribe different maximum rate or rates for different types of borrowings, including deposits and deposit substitutes, or loans of financial intermediaries. By lifting the interest ceiling, CB Circular No. 905 merely upheld the parties’
freedom of contract to agree freely on the rate of interest. Article 1306 of the New Civil Code provides that the contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.
Nothing in CB Circular No. 905 grants lenders a carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets.
Stipulations authorizing iniquitous or unconscionable interests have been invariably struck down for being contrary to morals, if not against the law. Indeed, under Article 1409 of the Civil Code, these contracts are deemed inexistent and void ab initio, and therefore cannot be ratified, nor may the right to set up their illegality as a defense be waived.
Nonetheless, the nullity of the stipulation of usurious interest does not affect the lender’s right to recover the principal of a loan, nor affect the other terms thereof. [Advocates for Truth in Lending v. Bangko Sentral Monetary Board, G.R. No. 192986, 15 January 2013]
2. Can the exercise by the BSP Monetary Board of its power under Section 37 of RA No. 7653 and Section 66 of RA No. 8791, imposing, at its discretion, administrative sanctions, upon any bank for violation of any banking law, be the subject of an action for declaratory relief?
No, the act of the BSP Monetary Board imposing administrative sanctions is done in the exercise of its quasi-judicial power, which cannot be the subject of an action for declaratory relief.
A quasi-judicial agency or body is an organ of government other than a court and other than a legislature, which affects the rights of private parties through either adjudication or rule-making. The very definition of an administrative agency includes its being vested with quasi-judicial powers. The ever increasing variety of powers and functions given to administrative agencies recognizes the need for the active intervention of administrative agencies in matters calling for technical knowledge and speed in countless controversies which cannot possibly be handled by regular courts. A “quasi-judicial function” is a term which applies to the action, discretion, etc. of public administrative officers or bodies, who are required to investigate facts,
or ascertain the existence of facts, hold hearings, and draw conclusions from them, as a basis for their official action and to exercise discretion of a judicial nature.
Undoubtedly, the BSP Monetary Board is a quasi-judicial agency exercising quasi-judicial powers or functions. The BSP Monetary Board is an independent central monetary authority and a body corporate with fiscal and administrative autonomy, mandated to provide policy directions in the areas of money, banking, and credit. It has the power to issue subpoena, to sue for contempt those refusing to obey the subpoena without justifiable reason, to administer oaths and compel presentation of books, records and others, needed in its examination, to impose fines and other sanctions and to issue cease and desist order.
Section 37 of Republic Act No. 7653, in particular, explicitly provides that the BSP Monetary Board shall exercise its discretion in determining whether administrative sanctions should be imposed on banks and quasi-banks, which necessarily implies that the BSP Monetary Board must conduct some form of investigation or hearing regarding the same.
A priori, having established that the BSP Monetary Board is indeed a quasi-judicial body exercising quasi-judicial functions, then its act in imposing sanctions upon a bank cannot be the proper subject of an action for declaratory relief. [Monetary Board v. Philippine Veterans Bank, G.R. No. 189571, January 21, 2015]
3. The late Mr. G deposited 2 million pesos with PALI. Conflicting claims of his relatives were presented to PALI seeking the release of the money deposited. Pending investigation of the claims, PALI deposited the money with UCPB, in account which was in trust for the heirs of Mr. G. UCPB however allowed PALI to withdraw the money leaving a balance of around 9 thousand pesos. Can UCPB be held liable for the allowing the withdrawal?
No. UCPB did not become a trustee by the mere opening of the ACCOUNT. While this may seem to be the case, by reason of the fiduciary nature of the bank’s relationship with its depositors, this fiduciary relationship does not “convert the contract between the bank and its depositors from a simple loan to a trust agreement, whether express or implied.” It simply means that the bank is obliged to observe “high standards of integrity and performance” in complying with its obligations under the contract of simple loan. Per Article 1980 of the Civil Code, a creditor-debtor relationship exists between the bank and its depositor. The savings deposit agreement is between the bank and the depositor; by receiving the deposit, the bank impliedly agrees to pay upon demand and only upon the depositor’s order. [Joseph Goyanko, Jr., as administrator of the Estate of Joseph Goyanko, Sr. vs. United Coconut Planters Bank, Mango Avenue Branch, G.R. No. 179096.
February 6, 2013]
4. BOMC was created by a BSP circular to provide support service for banks, and is a subsidiary of BPI. A service agreement was entered into by BPI and BOMC where the latter provides services to a branch of the former.
Later on, the services included those for another branch. As a result, some services of the employees of BPI were transferred to BOMC. This was contested by the Union of BPI, mainly invoking DOLE department order No.
10 which provides what jobs may be contracted out. BSP has a circular on bank service contracts, while the DOLE has a department order governing what jobs may be contracted out. Which administrative issuance should prevail?
Both actually apply. There is no conflict between D.O. No. 10 and CBP Circular No. 1388.
In fact, they complement each other.
Consistent with the maxim, interpretare et concordare leges legibus est optimus interpretandi modus, a statute should be
construed not only to be consistent with itself but also to harmonize with other laws on the same subject matter, as to form a complete, coherent and intelligible system of jurisprudence.35 The seemingly conflicting provisions of a law or of two laws must be harmonized to render each effective.36 It is only when harmonization is impossible that resort must be made to choosing which law to apply.
In the case at bench, the Union submits that while the Central Bank regulates banking, the Labor Code and its implementing rules regulate the employment relationship. To this, the Court agrees. The fact that banks are of a specialized industry must, however, be taken into account.
The competence in determining which banking functions may or may not be outsourced lies with the BSP. This does not mean that banks can simply outsource banking functions allowed by the BSP through its circulars, without giving regard to the guidelines set forth under D.O. No. 10 issued by the DOLE.
While D.O. No. 10, Series of 1997, enumerates the permissible contracting or subcontracting activities, it is to be observed that, particularly in Sec. 6(d) invoked by the Union, the provision is general in character – "x x x Works or services not directly related or not integral to the main business or operation of the principal… x x x." This does not limit or prohibit the appropriate government agency, such as the BSP, to issue rules, regulations or circulars to further and specifically determine the permissible services to be contracted out. CBP Circular No. 138838 enumerated functions which are ancillary to the business of banks, hence, allowed to be outsourced. Thus, sanctioned by said circular, BPI outsourced the cashiering (i.e., cash-delivery and deposit pick-up) and accounting requirements of its Davao City branches D.O. No. 10 is but a guide to determine what functions may be contracted out, subject to the rules and established jurisprudence on legitimate job contracting and prohibited labor only contracting. Even if the Court considers D.O. No. 10 only, BPI would still be within the bounds of D.O. No. 10 when it
contracted out the subject functions. This is because the subject functions were not related or not integral to the main business or operation of the principal which is the lending of funds obtained in the form of deposits. From the very definition of “banks” as provided under the General Banking Law, it can easily be discerned that banks perform only two (2) main or basic functions – deposit and loan functions. Thus, cashiering, distribution and bookkeeping are but ancillary functions whose outsourcing is sanctioned under CBP Circular No. 1388 as well as D.O. No. 10. Even BPI itself recognizes that deposit and loan functions cannot be legally contracted out as they are directly related or integral to the main business or operation of banks. The CBP’s Manual of Regulations has even categorically stated and emphasized on the prohibition against outsourcing inherent banking functions, which refer to any contract between the bank and a service provider for the latter to supply, or any act whereby the latter supplies, the manpower to service the deposit transactions of the former. [BPI Employees Union-Davao City-Fubu (BPIEU-Davao City-Fubu) v. Bank of the Philippine Islands (BPI), et al., G.R. No. 174912, July 24, 2013]
5. A was the corporate secretary of BPI, a bank. He was also the corporate secretary of IPB, a quasi-bank. Does this violate the rule on interlocking directors?
No, not exactly. As a general rule, there shall be no concurrent officerships, including secondments, between banks, or between an bank and a quasi-bank or a non-bank financial institution. However, subject to approval of the Monetary Board, concurrent officerships, including secondments, may be allowed for
“concurrent officiership positions as corporate secretary or assistance corporate secretary between bank/s, quasi-bank/s and non-bank financial institutions,” provided that proof of disclosure to and consent from all of the involved financial institutions, on the concurrent officership positions, shall be submitted to the BSP. Likewise, concurrent
officership positions in the same capacity which do not involve management functions, i.e.
internal auditors, corporate secretary, assistant corporate secretary and security officer, between a quasi-bank and one or more of its subsidiary quasi-banks or non-bank financial institutions, or between a quasi-bank and/or a non-bank financial institution, or between bank/s, quasi-bank/s and non-bank financial institution/s, other than investment houses, may also be allowed. Provides than in the last two instances, at least 20% of the equity of each bank, quasi-bank and non-bank financial institution is owned by a holding company or by any banks or quasi-banks within the group.
[BSP Circular No. 851, series of 2014, amending Section X145 of the Manual of Regulations for Banks (MORB) and Section 4145Q of the Manual for Regulations for Non-Bank Financial Institutions (MORNBFI)]
6. BSP Circular No. 799 was issued in 2013, which changed the legal rate of interest for loans and forebearances of money from 12% to 6% per annum. How will this affect the rules governing interest rates laid down by the Court in the case of Eastern Shipping Lines?
The guidelines laid down in the case of Eastern Shipping Lines are accordingly modified to embody BSP-MB Circular No. 799, as follows:
I. When an obligation, regardless of its source, i.e., law, contracts, quasicontracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on
“Damages” of the Civil Code govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 6% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.
7. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages, except when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.
8. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. And, in addition to the above, judgments that have become
final and executory prior to July 1, 2013, shall not be disturbed and shall continue to be implemented applying the rate of interest fixed therein.
[Dario Nacar v. Gallery Frames and/or Felipe Bordey, Jr., G.R. No. 189871, August 13, 2013.]
9. M obtained a loan with time deposit from Prubank evidenced by a promissory note, wherein it was stipulated that the loan was subject to 21% p.a., attorney's fees equivalent to 15% of the total amount due but not less than P200.00 and, in case of default, a penalty and collection charges of 12% p.a. of the total amount due, with maturity date of 10 January 1985. The loan was renewed up to 17 February 1985. Through a deed of assignment, M authorized BPI to pay his loan obligations with Prubank. M and his wife again obtained a loan from BPI covered by a promissory note with maturity date of 22 March 1990, to bear interest at 23% p.a., with attorney's fees equivalent to 15% p.a. of the total amount due. To secure such loan, M mortgaged his land in favor of BPI. M failed to pay his loan obligations, thus BPI sought to have the mortgage extrajudicially foreclosed. Thereafter, M and his wife filed an action for annulment of mortgage. Are the interest rate of 23% p.a. and the penalty charge of 12% p.a., excessive or unconscionable?
No. Jurisprudence establish that the 24% p.a.
stipulated interest rate was not considered unconscionable, thus, the 23% p.a. interest rate imposed on M’s loan in this case can by no means be considered excessive or unconscionable. In Medel v. Court of Appeals, the Court found the stipulated interest rate of 66%
p.a. or a 5.5% per month on a P500,000.00 loan excessive, unconscionable and exorbitant, hence, contrary to morals if not against the law and declared such stipulation void. In Toring v.
Spouses Ganzon-Olan, the stipulated interest rates involved were 3% and 3.81% per month on a P10 million loan, which the Court found under the circumstances excessive and reduced the same to 1% per month. While in Chua v.
Timan, where the stipulated
interest rates were 7% and 5% a month, which are equivalent to 84% and 60% p.a., respectively, the Court reduced the same to 1%
per month or 12% p.a. the Court said that it need not unsettle the principle it had affirmed in a plethora of cases that stipulated interest rates of 3% per month and higher are excessive, unconscionable and exorbitant, hence, the stipulation was void for being contrary to morals. However, in Spouses Zacarias Bacolor and Catherine Bacolor v. Banco Filipino Savings and Mortgage Bank, Dagupan City Branch, this Court held that the interest rate of 24% per annum on a loan of P244,000.00, agreed upon by the parties, may not be considered as unconscionable and excessive. As such, the Court ruled that the borrowers cannot renege on their obligation to comply with what is incumbent upon them under the contract of loan as the said contract is the law between the parties and they are bound by its stipulations.
Also, in Garcia v. Court of Appeals, the Court sustained the agreement of the parties to a 24%
per annum interest on an P8,649,250.00 loan finding the same to be reasonable and clearly evidenced by the amended credit line agreement entered into by the parties as well as two promissory notes executed by the borrower in favor of the lender.
Likewise, the stipulated 12% p.a. penalty charge is not excessive or unconscionable. In Ruiz v. CA, the Court has held that 1% surcharge on the principal loan for every month of default is valid. This surcharge or penalty stipulated in a loan agreement in case of default partakes of the nature of liquidated damages under Art.
2227 of the New Civil Code, and is separate and distinct from interest payment. Also referred to as a penalty clause, it is expressly recognized by law. It is an accessory undertaking to assume greater liability on the part of an obligor in case of breach of an obligation. The obligor would then be bound to pay the stipulated amount of