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All Jurisprudence based

0 tracked cards Commercial and Taxation Laws

A licensed bank, Unity Bank, extends a loan to Quantum Components Corp. Principal: ₱120,000,000. The loan agreement provides: (i) Interest at 1.75% per month; (ii) Default interest at 3.25% per month on overdue amounts; (iii) Processing charge of 0.4% of the principal; (iv) Clause: 'All charges, including interest and penalties, are valid and enforceable under law.' After nine months, Quantum defaults; Unity Bank sues for principal, accrued interest, and penalties. Quantum defends the stipulations as usurious; Unity Bank contends that stipulations on interest are permitted for banks under RA 8791 and the contract is enforceable. (a)Identify the doctrine governing stipulation on interest in bank lending under RA 8791. (b)Distinguish the controlling rule for banks versus ordinary borrowers and state the test to determine the validity of interest stipulations. (c)Apply the rule to the facts and determine what portions of Unity Bank’s claim are likely enforceable and why.

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Unconscionability-based contract doctrine; a loan term on interest is void if it is grossly unfair to the borrower, regardless of status as bank or non-bank. Default interest is always void unless the contract states it is a distinct, express term with a separate basis for calculation. Stipulation on Interest in Banking under RA 8791; Banks may stipulate interest and penalties in loan contracts, and such stipulations are generally enforceable; For banks, the usury ceiling does not apply in the same way as for ordinary borrowers, and the test is whether the terms are within RA 8791 allowances and not unconscionable for non-banks. Penalty interest cannot be charged unless expressly authorized in the loan agreement and not contrary to any usury restrictions.

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