Arbitrary, Illegal, and Unconscionable INTEREST RATE
Arbitrary, Illegal, and Unconscionable INTEREST RATE Parties to a contract are free to stipulate the terms and conditions of their agreement, including the payment of interest and the interest rate. Under Article 1159 of the Civil Code, their respective obligations arising from their contract have the force of law between the parties and should be complied with in good faith. Accordingly, with respect to the payment of interest, the debtor (obligor) is bound to pay the interest rate stipulated and agreed upon, EXCEPT when no interest rate was agreed upon, or when the interest rate is illegal and unconscionable, or the imposition of interest is arbitrary. In cases where the interest rate was not agreed upon, or its imposition was arbitrarily made only by the creditor (obligee), or when the interest rate imposed is illegal and unconscionable, the courts will step in and impose the prevailing and legal interest. The obligation to pay interest may arise eith...