Loan Shark Scam (10% interest per month)

FACTS:

            Peter John Nunez is an employee of Zardo International currently assigned at the Accounting Department as a Payroll Supervisor. He is also the Secretary of the employees association. Reports and complaints have reached the Management of Zardo International that Nunez had been lending money to his co-employee with 10% interest per month. He also collected the ATM cards of the employees and forcibly collects the payment of the loan by withdrawing the money from the ATM cards of the employees.

ISSUES:

            Zardo International sought assistance to determine whether:

1.    The actuation of Nunez in lending with 10% interest is legal.

2.    The actuation of Nunez in collecting the ATM cards and forcing withdrawal as payment is legal

3.    The actuation of Nunez in having a loan business and at the same time employee legal

OPINION:

A.   10% MONTHLY INTEREST ON A LOAN IS VOID AND ILLEGAL

The loan with 10% monthly interest is void, illegal, and has no legal effect. The 10% monthly interest is illegal since it was declared by the Supreme Court as excessive. As point of reference, the Court in a case ruled that 5.5% per month or 66% per annum interest in a loan is excessive, iniquitous, unconscionable and exorbitant (Medel v. Court of Appeals, and Spouses Solangon v. Salazar). Clearly, this is smaller than 10% per month, yet the Court ruled it as illegal. The reasonable rate is 12% per annum (in a year) or 1% per month interest.

Stipulations in a contract authorizing iniquitous or unconscionable interests are contrary to morals, if not against the law (Cauton v. Salud). Under Article 1409 of the Civil Code, these contracts are inexistent and void from the beginning. They cannot be ratified nor the right to set up their illegality as a defense be waived. Therefore, even if the employees who loaned signed a contract agreeing to the 10% interest, this has no effect since it is against morals and law. As a result, it would mean that the contracts have no stipulations on interest at all. The employees who made a loan are not required to pay interest.

B.   COLLECTING ATM AND FORCING WITHDRAWAL AS PAYMENT IS ILLEGAL

The act of collecting ATM cards and forcing withdrawal as payment could fall as a criminal offense of COERCION, punishable under the Revised Penal Code Art. 286 and 287. Any person who, without authority of law, compel another to do something against his will, whether it be right or wrong, is liable for coercion. The act of forcing withdrawal from the ATM, even if the employee has a valid debt is illegal.

C.   BEING EMPLOYED AND MAINTAINING A LOAN BUSINESS IS NOT ILLEGAL PER SE, BUT IF PERFORMRED DURING WORKABLE HOURS AND WITHIN THE PREMISES OF THE COMPANY, IT IS ILLEGAL

The employee when inside the premises of the company must perform actions to the benefit of the company. He is not allowed to engage in any other business during workable hours.  

CGRLAW & Associates
Campos Rueda Building, Unit 408
101 Export Drive, Makati City
Tel. No. (+63 2) 985 4322
Mobile: +63 918 948 6092
email:atty.claudio.g.requino@live.com.ph

   claude.requino@cgrlaw.tk

           info@cgrlaw.tk

website: http://www.cgrlaw.tk

This email and any files transmitted with it are confidential and intended solely for the use of the individual or entity to whom they are addressed. You are hereby notified that disclosing, copying, distributing or taking any action in reliance on the contents of this information is strictly prohibited.