MEL STA.MARIA | Bangko Sentral Circular 799 imposing new interest rates may be illegal
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The Bangko Sentral Issued Circular No. 799 Series of 2013 dated July 1, 2013. It provides:

The Monetary Board in its Resolution No. 796 dated May 16, 2013 approved the following revisions governing the rate of interest in the absence of stipulation in loan contracts, thereby amending Section 2of Circular No. 905, Series of 1982:

Section 1. The Rate of interest for the loan or forebearance of  any money, goods or credit and the rate allowed in judgments, in the absence of an express contract as to such rate of interest, shall be six percent  (6%) per annum

Section 2. In view of the above, Subsection X305.1 of the Manual of Regulations for Banks and Sections 4305Q.1, 4305S.3, and 4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions are hereby amended accordingly.

This Circular shall take effect on July 1, 2013

This circular is highly questionable. It is an imposition which is not allowed by law. It is illegal and therefore void ab initio.

It is well entrenched that, in the Philippines, there is a hierarchy of laws. The most important law is the Constitution.  Coming second are statutes made by Congress and approved by the President. And the last are rules and regulations such as circulars. Accordingly, Article 7 of the Civil Code of the Philippines is very clear when it provides that “laws are repealed only by subsequent ones” and declares that  “administrative or executive orders and regulations shall be valid only when they are not contrary to the laws or the Constitution.”  Consequently, Article 5 of the same Civil Code provides that “acts executed against the provisions of mandatory or prohibitory laws shall be void, except when the law itself authorizes its validity.”

Circular No.799 mandates  a new monetary interest rate. It provides that the rate of interest for the loan or forebearance of any money, goods or credit … in the absence of an express contract as to such rate of interest, shall be six percent (6%) per annum. This mere circular cannot repeal the law on monetary interest, which is Article 1956 of the Civil Code providing that, “no interest shall be due unless it has been expressly stipulated in writing.” Article 1956 is a mandatory law as it uses the word “shall” connoting a command. It is likewise a prohibitory law as it starts with the phrase “no interest.” Thus, in accordance with Article 5 of the Civil Code, Circular No. 799 may be considered void. It may be considered to have no effect. 

As the Supreme Court said in Sebastian Siga-An vs. Villanueva (G.R. No. 173227 January 20, 2009), “collection of interest without any stipulation therefor in writing is prohibited by law.” The Bangko Sentral just issued a circular which is prohibited by law.

Likewise Circular No. 799 provides that “the rate allowed in judgments, in the absence of an express contract as to such rate of interest, shall be six percent (6%) per annum.” This is what is called compensatory interest, which is currently governed by Article 2209 of the Civil Code.  Again in the case of Sebastian Siga-An vs. Villanueva (G.R. No. 173227 January 20, 2009), the Supreme Court said:

“There are instances in which an interest may be imposed even in the absence of express stipulation, verbal or written, regarding payment of interest. Article 2209 of the Civil Code states that if the obligation consists in the payment of a sum of money, and the debtor incurs delay, a legal interest of 12% per annum may be imposed as indemnity for damages if no stipulation on the payment of interest was agreed upon.  Likewise, Article 2212 of the Civil Code provides that interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent on this point.”

Given the pronouncement of the Supreme Court which cited Article 2209 of the Civil Code providing a legal interest of 12% per annum as rate allowed in judgments, how then could a mere Bangko Sentral Circular repeal this rate of 12% and make it at 6%? 

Circular No. 799 must be withdrawn. Our regulators must know and follow the law. They cannot substitute their own discretionary and official acts and decisions over norms and rules mandated by law. Given their important government positions, it is unforgivable for them not to know the substantive law precisely having a great bearing on their official functions, thereby resulting in the issuance of legally improper circulars impacting our economy and prejudicing our business people. Not even the Bangko Sentral or the Monetary Board can usurp legislative sovereign functions which are the exclusive domain of the legislature. A mere circular cannot amend an act of Congress. Such circular likewise cannot revise an interpretation of the law made by the Supreme Court.  The Bangko Sentral and the Monetary Board must know their places in our political and constitutional system. They cannot act ultra vires.