EN BANC
G.R. No. L-26971 April 11, 1972
THE CENTRAL BANK OF THE PHILIPPINES, petitioner,
vs.
HON. JUDGE GAUDENCIO CLORIBEL and BANCO FILIPINO, Savings and Mortgage Bank, respondents.
F.E. Evangelista, Alfredo L. Bautista, Clara C. Cruz-Espiritu and Antonio N. Tan for petitioner.
Bienvenido A. Tan, Jr. for respondents.
Separate Opinions
TEEHANKEE, J., dissenting:
The issue at bar is the validity of petitioner Central Bank Circulars Nos. 185 and 222 dated December 15, 1964 and June 14, 1966, respectively, (Circular No. 222 having been issued by virtue of Monetary Board Resolution No. 805 dated May 20, 1966) and of Monetary Board Resolution No. 1566 dated September 20, 1966 directing respondent bank specifically to comply strictly with said circulars "prescribing the regulations governing rates of interest, on demand, savings and time deposits." Respondent court's writ of preliminary injunction enjoining petitioner Central Bank from enforcing said circulars and resolutions "insofar as they restrict the payment of monthly interest on savings deposits and advance interest in time deposits"1 by respondent bank is assailed in this action of certiorari and prohibition.
Petitioner's motion for the issuance of a writ of preliminary injunction against the enforcement of respondent court's preliminary injunction writ against it, pending this action, was heard by the Court on January 11, 1967, but the Court did not grant the same.
There is no question that petitioner Central Bank, through the Monetary Board is authorized under section 109 of its Charter (Republic Act No. 265) to "fix the maximum rates of interest which banks may pay on deposits and on any other obligations" as well as the maximum rates of interest which banks may charge their customers "within the limits prescribed in the Usury Law (Act No. 2655, as amended)" and that "(I)n order to avoid possible evasion of maximum interest rates set by the Monetary Board, the Board may also fix the maximum rates that banks may pay to or collect from their customers in the form of commissions, discounts, charges, fees or payments of any sort."
The issue at bar arises from petitioner Central Bank's assertion that its power to fix the maximum rate of interest which banks may pay on deposits under section 109 of the Central Bank Act "carries with it the power to regulate or provide for the manner of paying the interest in order that the maximum rate fixed by it may be maintained" and that "to permit monthly payments of interests on savings deposits and advance payments of interests on time deposits ... would in truth and in fact give to the depositor a higher rate of interest than what has been fixed by the Monetary Board ... for after a monthly payment or advance payment of interest is made, the same would in turn be included as part of the principal and earn interest for the following month."2
Respondent bank, however, maintains on the contrary that the Central Bank's authority is limited to fixing the maximum rates of interest and does not extend to regulating the manner of paying interest on savings and time deposits and that the challenged circulars "result in unequal protection of the laws in that it places banking institutions in a preferential position over their depositors."
Respondent bank, a savings and mortgage bank commenced its operations since July, 1964. At the time, the Central Bank regulation governing interest rates for savings and time deposits was Circular No. 149 dated March 27, 1963, (as amended by Circular No. 161, dated December 9, 1963), fixing a maximum rate for savings deposits, of 3-1/2% for commercial banks and of 4% for savings banks; and for time deposits, of 4-1/2% for both commercial and savings banks. The circular did not specify that the maximum rates of interest were to be compounded quarterly, although previous circulars so provided. Under such previous circulars, the maximum annual rate of interest on savings deposits was 3% for both savings and commercial banks, and 3-1/2% on time deposits, (Circular No. 74 dated September 2, 1957), increased to 3-1/2% on savings deposits for savings banks (Circular No. 78, dated October 25, 1957), and increased to 4% for time deposits on October 26, 1960 (Circular No. 112).
Respondent bank, at the commencement of its operations, paid its depositors the maximum rate of interest, compounded quarterly, per its rules and regulations printed on its savings passbook, but subsequently in the same year 1964 changed its policy by compounding and paying the maximum rate of interest on its savings deposits from the quarterly to the monthly basis, and by paying, in advance, the maximum rates of interest on time deposits with it.
Circular No. 185 dated December 15, 1964, expressly superseding all previous circulars, to take effect on January 1, 1965 was subsequently promulgated by petitioner fixing an increased maximum annual rate of interest for savings deposits, of 4% for commercial banks and of 4-1/2% for savings banks, in both cases compounded, quarterly.ℒαwρhi৷ The maximum annual rate of interest for time deposits for both commercial and savings banks was correspondingly increased to 5%.
Circular No..222 dated June 14, 1966, supplementing Circular No. 185 was later issued, effective immediately, for the first time providing a uniform increased maximum annual rate of 5-3/4%, compounded quarterly, for savings deposits in both commercial and savings banks. The maximum annual rate of interest for time deposits was increased to 6-1/2% and likewise, for the first time, provided additional restrictions that "(I)nterest on time deposit shall not be paid in advance, but only at maturity, or upon withdrawal of the deposit x"3 and that "(N)o bank or banking institution shall disseminate, advertise or release any information that it is paying or will pay interest at rates higher than those prescribed herein, or indicate the effective rates resulting from a compounding of the rates."4
Although not in the record, it may be taken judicial notice of that Circular 222 was amended subsequently by Circular No. 239, dated June 7, 1967, effective July 1, 1967, whereby the maximum annual rate of interest on time deposits of commercial and savings banks was reduced from 6-1/2% to 6% "in order to enable banks to reduce the prime rate on loans for production and projects included in the economic program of the Government"; by Circular No. 272 dated April 14, 1969, effective immediately, whereby the maximum annual rate of interest on savings deposits was increased to 6% and that for time deposits to 7%, with a proviso that no time deposit shall be accepted for a term of less than 180 days or more than 360 days or 1 year; and lastly by Circular No. 292 dated February 20, 1970, effective immediately, whereby the maximum annual rate of interest on time deposits was again further increased to 8% for 540 days.
I
1. On the first question of the Central Bank's authority or power to provide for the manner of payment of interest in implementation of its conceded power to fix the maximum rate of interest, it should be noted that the power specifically granted is to "fix the maximum rates of interest" which banks may pay on deposits or any other obligations as well as collect for their loans and other credit operations. Regulation of interest payments, by concept and by accepted usage, has generally taken the form of fixing the maximum rate of interest payable and does not extend to the manner or time of payment of the stipulated interest, whether on a daily, monthly, quarterly, semi-annual or annual basis. The time and manner of payment of the stipulated interest within the maximum allowable rate is generally left to lender-borrower agreement.
Hence, lender-banks are not restricted as to the manner or time of collecting interest from their borrowers, and generally collect interest in advance upon the loans granted by them, save in overdraft agreements, where interest is computed and charged daily on the basis of the largest balance availed of each day. When the borrower is delinquent, the accrued interest is further compounded, and interest thereon is computed on a daily basis until the principal, as compounded, is paid in full.
Aside from granting petitioner the power to fix the maximum rates of interest, section 109 of the Act for the express purpose of "avoiding possible evasion of maximum interest rates set by the Monetary Board", expressly empowers in the Board only to "fix the maximum rates that banks may pay to or collect from their customers in the form of commissions, discounts, charges, fees or payments of any sort." This express enumeration of rates on payments of any sort payable to or collectible from the bank's customers clearly ruled out regulating the manner or time of payment of the maximum prescribed interest by the banks.
2. Besides the fact that banks in their lending operations have never been restricted by the Central Bank as to the manner or time of collecting interest from their borrowers, as above stated, the principle that regulation of interest payments has generally taken the form of fixing the maximum rate of interest payable, to the point of banning the payment of interest, e.g. on demand deposits. — and does not extend to the manner or time of payment of such interest — is shown by two other factors. First is that no contrary authority has been cited by petitioner Central Bank in support of its position. The very authorities cited by it in its memorandum show that regulation of competitive interest payments by members-banks of the Federal Reserve System is effected "by prohibiting ... payment of interests on demand deposits and by providing that the maximum rate of interest paid on time deposits should be set by the Board of Governors" (Thomas' "Our Modern Banking and Monetary System") and by "limiting interest rates paid by members for the purpose of protecting the members" (Encyclopedia of Banking & Finance). Second is the very change in position of petitioner here before this Court in its memorandum that.
(W)hen petitioner fixes the maximum rate of interest on savings deposits at 5-3/4% per annum compounded quarterly, the board is in effect setting up a maximum effective rate of 5.875%per annum.5
and that
(T)he Monetary Board does not prohibit Banco Filipino from compounding interest at other than quarterly intervals provided that the aggregate amount of such interest so compounded does not exceed the aggregate amount of interest fixed by the Monetary Board.6
as contrasted with its posture in the proceedings below, where in its letter of June 17, 1965, it enjoined respondent bank "to stop immediately advertisements of the effective rates of interest on savings and time deposits in the newspapers, bank premises or any media of information"7 which it formalized later in the questioned Circular 222 of June 14, 1966 enjoining all banks from "disseminating, advertising or releasing any information ... indicating the effective rates (of interest) resulting from a compounding of the rates."
3. Petitioner's position now, therefore, is that "Banco Filipino may compound daily or even weekly or monthly and the Central Bank will not prevent it from doing so, provided that the maximum effective rate of interest by compounding other than the quarterly method will not be in the aggregate amount exceeding the maximum effective rate of 5.875% per annum, which is the maximum or ceiling effective rate set by the Monetary Board."8 So, it perforce has abandoned its strictures or restrictions on the manner of payment of the interest, on condition that its maximum effective rate of 5.875% per annum (which seemingly exceeds by 0.125% the maximum rate of 5.75% stated in its own circular) is observed. For this, it has submitted with its memorandum a complicated mathematical formula, with a solution that "(S)o that a bank will not exceed the maximum effective rate of 5.875% per annum, the bank should compound interest monthly at the rate of 5.7227% per annum." This changed position of petitioner in effect abandons or admits to be without valid or justifiable basis that questioned portion of its Circular No. 222 enjoining all banks from "indicating the effective rates resulting from a compounding of the rates."
The fallacy of this changed position and formula of petitioner is that it applies the abstract theory of "effective rate" to only one set of conditions, i.e. where a deposit is made and nothing is withdrawn over a period of one year, whereas the more common occurrence and experience is that the depositor may need and withdraw his deposit before the end of the year or make periodic partial withdrawals as well as deposits, and the "effective rate" of interest would fluctuate and vary accordingly. In practice, none of the banks would ever consider the abstract maximum "effective rate" of 5.875% set by petitioner only now in its petition at bar, but only the maximum rate set by it in its Circular No. 222. The instances given by respondent bank suffice to bring this out.9 It has never been banking practice or usage for banks to work out and make use of complicated mathematical formulas so that its compounding or payment of interest on a annual monthly basis would be at a rate equivalent to the so-called/maximum "effective rate" prescribed just now in this case by petitioner — for the Central Bank prescribes no such maximum "effective rate" but only the maximum rate as evidenced by its own circulars.
4. The problem arises from the Central Bank dictum providing that the maximum rate of 5.75% p.a. is to be "compounded quarterly", which if the deposit is kept intact for one year results in its so-called maximum "effective rate" of 5.875% p.a. For compounding is "capitalizing the interest due and unpaid, which as added principal, shall earn new interest." 10 Compounded interest is in effect new or added principal which earns new interest and is not to be taken into account in the computation or determination of the interest earned by the original principal. Thus, an express agreement to charge interest on interest, i.e. to compound or capitalize interest, is not to be taken into consideration in determining whether or not the stipulated interest exceeds the limit prescribed by the Usury Law. 11
If interest at the maximum rate prescribed by the Central Bank Circulars were not compounded or capitalized, but simply funds as new principal, which together with the original principal, would of course earn and draw the stipulated interest. There would be no question either of a maximum "effective rate" of interest, for in the example given, the original principal as well as the new principal would be earning only the maximum rate of interest set and no more.
6. The Central Bank in the case at bar, rather than construe its proviso of "compounded quarterly" as a requirement on banks to pay interest at least quarterly and to compound or capitalize the interest due and unpaid, would construe it as a limitation that banks must pay interest on savings deposits only on a quarterly basis, or if they pay on a more frequent basis such as a daily or monthly basis, that the interest compounded must not exceed its so-called maximum "effective rate" of 5.875% which it has set only now in its memorandum at bar. As can readily be seen, however, the Central Bank provision of compounding quarterly in its circulars is per se a requirement, i.e. to capitalize the interest due and not a limitation to the banks not to pay the interest oftener than quarterly nor to compound the interest oftener than quarterly should the interest be due and unpaid sooner than quarterly, as would be the case in the depositary bank should undertake to pay the maximum interest prescribed on a monthly basis. The banks may have heretofore construed the Central Bank provision of compounding quarterly as a convenient expedient so as to uniformly pay and/or compound interest quarterly, but now that the authority of the Central Bank to construe and impose the provision as a limitation has been squarely challenged it must be taken for the minimum requirement that its terms express it to be and in accordance with the statutory grant of authority, based on accepted usage and practice practical considerations — which is to fix and prescribe the maximum rates of interest payable and collectible by banks but excluding the power to likewise fix and prescribe the time and manner of payment of such interest. Otherwise there would be no justification for the imposition of such limitation solely on savings deposits, and the absolute absence of any such limitation on the manner and time that banks may in turn collect interest on loans extended by them to their borrowers and depositors, which is generally collected in advance and compounded daily after maturity while paying the prescribed interest on savings deposits on the basis of the lowest balance during a given quarter.
7. Petitioner's contention that respondent bank's compounding monthly of the interest earned on savings deposits (instead of quarterly, which is an "effective rate" of 5.875% p.a. on the prescribed maximum rate of 5.75% p. a.) is equivalent to 5.904% p.a. and exceeds by 0.029% the maximum set is therefore fallacious, in that the new principal represented by the compounded or capitalized interest is taken into account, when actually it should not. The prescribed interest is generally computed on the basis of the original principal, without or regardless of compounding of interest earned which is new or added principal and this is best shown by the illustration (of 6% interest p.a. on a deposit of P10,000.00), supra, that if the interest earned were paid out, it would not make any difference if interest were paid monthly (at P50.00) or quarterly (at P150.00) — the prescribed maximum rate of 6% interest could never be deemed to be exceeded by the "effective rate," which would be exactly the same as the prescribed maximum — the total earning under either time of payment at year's end would be the same amount of P600.00.
8. Petitioner commits the same fallacy with regard to its contention on time deposits that payment in advance of the prescribed 6.5% p.a. interest ceiling set by it, as in the illustration of a P100,000.00-time deposit given by it, would mean "an effective rate of 6.952% which is 0.452% higher than the maximum rate of 6.5% allowed by the Monetary Board to be paid on time deposits, contending that "if a time deposit of P100,000.00 is paid interest of P6,500.00 in advance, the depositor, in effect, is allowing the bank the use of only P93,500.00 (P100,000.00 less P6,500.00 interest paid in advance). But at the end of the year, the bank will pay back to him the amount of P100,000.00. This means that. his actual deposit of P93,500.00 ... will earn interest of P6,500.00 after one year", 13 or an "effective rate" of 6.952% p.a. The fallacy is that just as compounded interest is not taken into account in computing the maximum prescribed rate of interest, the interest paid is likewise never deducted from the principal, as in petitioner's illustration. In the illustration given, the P6,500.00-interest paid by the bank is an interest expense, and it cannot be gainsaid that the principal of the deposit is P100,000.00, and the 6.5% prescribed interest is computed on the basis of this principal of P1,000.00 and not on the lesser amount of P93,500.00 (with the interest expense deducted). If the P6,500.00-interest paid in advance were compounded or deposited likewise immediately by the depositor, there would be no question that such new or added principal would likewise earn the same prescribed interest of 6.5% or a total of P6,992.50 (P6,500.00 on original of P100,000.00 plus P422.50 on the added principal of P6,500.00). The net amount which the depositor has allowed the bank to use in such case would be the original intact principal of P100,000.00 (less the small amount of P422.50 paid in advance on the new principal of P6,500.00).
9. The fallacy in petitioner's mode of computation of computing the interest rate on the basis of the net amount remaining with the banks after deducting the interest expense paid in advance is made patent, if the same mode of computation is applied to loans by the banks. Banks presently collect in advance — no Central Bank circular enjoins them from doing so — the maximum interest of l4% p.a. allowable under the Usury Law on loans not secured by mortgage on registered real estate 14 and of 12% p.a. on loans so secured. 15 Under petitioner's mode of computation, using the same illustration of a P100,000.00-loan the bank in effect allows the borrower the use of only P86,000.00 in 14% interest loans (P100,000.00 less P14,000.00 paid or deducted in advance) or only P88,000.00 in 12% interest loans (P100,000.00 less P12,000.00 paid or deducted in advance) but at the end of the year the borrower pays back the principal of P100,000.00, and the actual amounts of P86,000.00 and P88,000.00 received by the borrower would earn interest of P14,000.00 and P12,000.00 after one year, or an "effective rate," in apparent violation of the Usury Law ceilings, of 16.28% and 13.636%, respectively. That such transactions are not usurious nor proscribed by petitioner is a fact of common knowledge, since as already stated, the maximum allowable interest is computed on the basis of the principal loan (in deposits, the amount deposited is the principal loaned by the depositor to the bank) and the interest expense is not taken into account nor deducted therefrom. The Usury Law expressly permits the collection and payment of interest in advance for not more than one year. 16 And such interest paid in advance for one year by the borrower is not recoverable, in the absence of express agreement, even should the buyer repay the loan in advance of the one-year expiry period, say, after six months. 17
II
10. Respondent bank further submits with reason that assuming that the grant of statutory authority to petitioner to fix the maximum rates of interest payable to and by banks may be deemed to include as an incident the power to likewise prescribe the manner or time of paying such interest, the challenged circulars in their pinpointing only of savings deposits (requiring no other mode of payment than compounding quarterly) and time deposits (enjoining any payment of interest in advance) violate due process in that they are manifestly arbitrary and unduly oppressive as well as violate the equal protection clause in that they place banks in a preferential position over their depositors — since no similar restriction or regulation is imposed by petitioner on the time and manner of payment of interest by borrowers of the banks.
On this question, respondent bank contends that:
— the use of the term "compounded quarterly" in Circular 185 finds little bearing to the entire context of the circular since all banks already pay or credit the depositors with their corresponding interest either every month or at least once every quarter and there would, therefore, be no unpaid interest for them to compound quarterly
— the method of computation and payment prescribed by the Central Bank can lead as it actually leads to a situation where depositors receive no interest even after they have kept their savings with their depository banks for as long as 5-1/2 months and is, therefore, unjust and inequitable to the depositing public;
— the monthly computation and payment of interest beneficial to all and harmful to no one; 18
— it serves the public welfare and economy "by sharing a little more of the bank's earnings with the general public; 19 and
— no similar restriction in contrast is placed on banks which collect the maximum interest rates in advance and compute delinquent interest on a daily basis until the principal is paid.ℒαwρhi৷
11. Petitioner contends on the other hand that its power to fix maximum rates of interest, including the asserted power of fixing "the manner of compounding and payment" is based on the guiding principle in section 108 of Central Bank Act imposing upon it "the duty — to ensure that the cost of money is in accord with the needs of Philippine economy." 21 But petitioner makes no satisfactory reply to respondent's charge of arbitrariness and discrimination. Respondent points out that assuming that the total savings deposits with all Philippine banks amount to P1 billion, the difference of 0.029 of 1% interest the principal — on the basis of monthly compounding used by respondent and which petitioner would proscribe through the circulars — represents a total interest payment of P290,000.00 p.a. on P1 billion deposits (or P29.00 per P100,000 of savings deposit) which could not possibly affect the cost of money. Indeed, the effect of such interest payment the Philippine economy is practically nil. The cost of money would certainly be much more greatly affected in the given illustration by the rates at which the banks lend the total P1 billion deposit in their lending operations: — the difference of over 6% between the Central Bank's maximum "effective rate" of 5.875% p.a. paid by banks depositors and the minimum of 12% interest p.a. charged by banks to their borrowers would amount to over P60 million, and if we were to apply the "effective rate" computation of petitioner on interest paid in advance (an "effective rate" of 13.636% less 5.875% = a difference of 7.761% supra), the difference would reach the staggering amount of P77,610,000.00.
12. Respondent makes no answer either to the charge of unequal protection of the laws and discrimination in that the restriction of no payment of interest in advance on time deposits or other than on the quarterly compounding basis on savings deposits (and no monthly compounding, as is done by respondent) is directly solely against savings and time deposits of depositors, where the banks are the borrowers of the funds deposited, whereas petitioner makes no such restriction where the banks are the lenders of the very same funds and permits the banks to collect the interest in advance for one year, besides charging and compounding delinquent interest on a daily basis.
Indeed, as emphasized by respondent "many other factors are more vital in determining the cost of money such as availability of credit, rediscounting facilities and rates with the Central Bank, inflationary or deflationary condition, nature of credit risks, reserve requirements, duration of the loan," 22 and "while the disputed monthly payment of interest has been enforced since 1964, the Central Bank cannot point out to (sic) a single case of injury to the Philippine economy brought about by this practice." 23 Furthermore, if the challenged restriction were devised to keep down the cost of money in accordance with the needs of the country's economy, the aim is manifestly defeated by petitioner's own actions of periodically increasing the maximum annual interest rates on savings and time deposits from 3% and 4%, respectively, in 1957 by 100% to 6% and 8%, respectively, at present (supra).
13. The only justification given by petitioner is "that the Monetary Board, in the exercise of its discretion as the agency entrusted with the duty and responsibility of implementing the provisions of sec. 109, is the sole judge in determining whether or not the maximum interest rates fixed by it is (sic) in accord with the cost of money in relation to our economic needs and the court may not disturb it. " 24 Here, petitioner has confused the issue. The maximum interest rates fixed by it are not here questioned at all and are concededly within its statutory authority. What is questioned, here is the arbitrariness and discrimination of its pinpointing only of savings and time deposits on which to impose its restriction of compounding interest only on quarterly period and proscribing payment of interest in advance, while imposing no similar restriction on the time and manner of payment of interest where the banks are the lenders, and not the borrowers. For restrictions and regulations imposed by a supervisory agency such as the Central Bank under the authority granted it by the Central Bank Act for the purpose of protecting public interest must not constitute arbitrary interference with the banking business or impose unusual or unnecessary restrictions. The means adopted for protecting public interest, when challenged, must be shown to be reasonably necessary for the accomplishment of the purpose and not unduly oppressive so as to violate due process — which forbids governmental action that is unreasonable or arbitrary. With the case made out by respondent, as discussed above, petitioner has failed to refute it and to show that the challenged imposition on savings and time deposits exclusively is reasonable and necessary to its avowed duty of attuning the cost of money to the needs of the country's economy.
14. The same observations hold true with reference to petitioner's contention that "(T) he objective is to prohibit the use of interest as a competitive device for causing the shifting of bank deposits from one bank to another" 25 and thus, a uniform ceiling of interest payable is applied to all banks to avoid ruinous competition. As already stressed, the maximum interest rate prescribed by petitioner is not questioned at bar, but petitioner's banning an insignificant leeway of 0.029% resulting from respondent bank's monthly compounding of interest rather than quarterly compounding, as imposed by petitioner, amounting to P29.00 a year per P100,000.00-deposit. And this is not exceeding the prescribed interest rate ceiling, for it is actually interest earned not on the original principal, but on interest due and unpaid which becomes added or new principal which properly earns interest on its own. The same could not conceivably cause "ruinous competition" or cause the shifting of bank deposits, since it is a matter of common knowledge and experience that depositors select their depositary banks, not merely on the basis of this small margin of "effective rate" of interest, but more on the basis of the bank's known assets, the reputation and integrity of its directors and officers, and the services and facilities offered. If at all, the respondent's "effective rate" inducements to the public to deposit their savings with it have served in their own way to promote the Central Bank's campaign to encourage thrift and to attract "floating money" into the banking system where it may be properly channeled and utilized for productive industrial and agricultural projects redounding to the benefit of the economy — a promotional device that is indeed more subdued in tone than the Madison Avenue-style promotional plugs and claims, including jingles, presently made by other banks in the public media, such as the press, radio and television, in this era of modern advertising and marketing, which may not be validly proscribed by petitioner.
ACCORDINGLY, the challenged order of respondent Court and the writ of preliminary injunction issued in pursuance thereof enjoining petitioner from enforcing the questioned circulars, "insofar as they restrict the payment of monthly interest on savings deposits and advance interest on time deposits" should be upheld. I therefore vote for the dismissal of the petition.
Makalintal, Castro, Fernando and Villamor, JJ., concur.
Footnotes
1 Annex "G", petition; emphasis furnished.
2 Petition, Annex C, p. 11.
3 Paragraph 3(b), Petition, Annex H-11.
4 Paragraph 4, Petition, Annex H-11, emphasis furnished.
5 Petitioner's memorandum, p. 10, emphasis copied.
6 Idem., p. 11, emphasis copied.
7 Respondent's memorandum, Annex "D", emphasis furnished.
8 Petitioner's memo, p. 11, emphasis furnished.
9 "For example, if a deposit is made by Juan de la Cruz on January 1, 1966 of P1,000.00, this money has to remain in the bank up to December 31, 1966 without any movement in order to arrive at the theoretical effective rate of 5.875% per annum. If conditions change, the theoretical effective rate of 5.875% does not exist and is many times exceeded. For instance, if said deposit of P1,000.00 was made on January 10, 1966, under the grace period system observed today this deposit would earn interest from January 1, 1966.
"On March 31, 1966, the deposit, therefore, would earn P14.38 interest or effectively 6.46% per annum;
"On June 30, 1966, the deposit plus the accrued interest would earn P14.58 or effectively 6.13% per annum;
"On September 30, 1966, the principal plus accrued interest would earn P14.79 or 6.05% effective rate;
"On December 31, 1966, the principal plus accrued interest would earn P15.00 or effectively 6.04%.
"This manner of computation could continue theoretically to almost an infinity and the abstract effective rate of 5.875% per annum would continue to be exceeded.
"This practice is accepted as correct by the Central Bank.
"Another illustration — if on January 1, 1966 a deposit of P1,000.00 is made, this deposit would earn on March 31, 1966, P14.38. Suppose, the depositor withdraws on April 1, 1966 P500.00 this would leave in the bank a balance of P514.38. On June 30, 1966 this amount would earn P7.39 interest or effectively 5.91% per annum on the balance of the principal of P500.00. This is another example of the fact that in practice all over the banks in the Philippines the abstract effective rate of 5.875% is never considered." (Rollo, pp. 148-149)
10 Art. 1959, Civil Code.
11 I Agbayani's Commercial Laws, 1964 Ed. p. 489; see Gov't. vs. Conde, 61 Phil. 714; Gov't. vs. Vaca, 64 Phil. 6.
13 Petition, p. 11.
14 Act No. 2655, as amended, section 3.
15 Idem, section 2.
16 "Section 5. In computing the interest on any obligation, promissory note or other instrument or contract, compound interest shall not be recioned, except by agreement, or, in default thereof, whenever the debt is judicially claimed, in which last case it shall draw six per centum per annum interest. No person or corporation shall require interest to be paid in advance for a period of more than one year."
17 1 Agbayani's Commercial Laws, 1964 Ed. pp. 490-491; citing Hodges vs. Salas, 36 0.G., 898; Pando vs. Kette, 52 Phil. 150; Lopez vs. El Hogar Filipino, 47 Phil. 249; Lerma vs. Reyes, 103 Phil. 1027.
18 Rollo, p. 22.
19 Idem., p. 153.
20 Idem., p. 154.
21 Rollo, p. 152.
22 Idem., pp. 132-133.
23 Idem., pp. 132-133.
24 Rollo, pp. 196-197.
25 Rollo, p. 199.
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