Liam Law vs. Olympic Sawmill Co.

, 124 SCRA 439

Facts:

On September 7, 1957, plaintiff loaned Php10,000.00, without interest, to defendant

partnership and defendant Elino Lee Chi, as the managing partner. The loan became ultimately
due on January 31, 1960 but the same remained unpaid. The plaintiff asked for an extension
of three months.

The parties executed another loan document but the principal loan was increased by
Php6,000.00 to answer for attorney’s fees, legal interest, and other cost incident thereto.
Defendants failed to pay again their obligation by the end of the requested extension.

The plaintiff subsequently filed a collection case on September 23, 1960. Defendants
admitted the Php10,000.00 principal loan but they argued that the additional Php6,000.00 is
usurious. The Regional Trial Court issued a writ of attachment on real and personal properties
of defendants located at Karanglan, Nueva Ecija. After the implementation of the writ,
proceedings versed principally in regards to the attachment.

The trial court ordered the defendants to pay their principal loan plus the additional
Php6,000.00 by way of liquidated damages with legal rate interest on both amounts from April
30, 1960 to the plaintiff.

Issue:

Whether or not the agreement to pay Php6,000.00 in additional to the principal is

lawful.

Ruling:

Yes. In regards to the agreement of the parties relative to the Php6,000.00 obligation,
Article 1354 of the Civil Code provides that, “it is presumed that it exists and is lawful, unless
the debtor proves the contrary. The Court ruled that the defendants failed to prove that the
additional obligation was illegal. The Court agreed to the Regional Trial Court that the said
additional obligation is viewed as liquidated damages suffered by the plaintiff.

Section 9 of the Usury Law provided:

Sec. 9. The person or corporation sued shall file its answer in writing under oath
to any complaint brought or filed against said person or corporation before a
competent court to recover the money or other personal or real property, seeds
of agricultural products, charged or received in violation of the provisions of this
Act. The lack of taking an oath to an answer to a complaint will mean the
admission of the facts contained in the latter.

This provision, however, does apply to the case as it was the defendant, not the plaintiff
who alleges usury. Moreover, interest can now be charged as lender and borrower may agree
upon.

Investors Finance Corp. vs. Autoworld Sales Corp., 340 SCRA 735
Facts:

Petitioner Investors Finance Corporation (FNCB) is a financing company doing business

with private respondent Autoworld Sales Corporation since 1975.

Sometime in August 1980, Anthony Que, president of Autoworld, applied for a direct
loan with the petitioner. However, since the Usury Law imposed an interest rate ceiling at that
time, petitioner informed Anthony Que that it was not engaged in direct lending, consequently,
Autoworld’s request for loan was denied. But FNCB’s Assistant Vice President Leoncio Araullo
later on informed Anthony Que that although it could not grant direct loans it could extend
funds to Autoworld by purchasing any of its outstanding receivables at a discount. Then, the
parties agreed to execute an Installment Paper Purchase (IPP) to enable Autoworld to acquire
the additional capital it needed. The IPP proposed the following mechanics:

a. Pio Barretto would execute a Contract to Sell a parcel of land in favour of

Autoworldd for Php12,999,999.60 payable in 60 equal monthly instalment of
Php216,666.66.and Barretto would acquire Php12,999,999.60 worth of receivables
from Autowrold in return;
b. FNCB would then purchase the receivables worth Php12,999,999.60 from Barretto
at a discounted value of Php6,980,000.00 provided thar the amount would be
flowed back to Autoworld;
c. Barrette, would in turn, execute a Deed of Assignment, obliging Autoworld to pay
the installments of the Php12,999,999.60 directly to FNCB; and
d. Secure the payment of the receivables under the Deed of Assignment, Barretto
would mortgage the property subject of the sale to FNCB.

The proposed IPP was approved by the Executive Committee of FNCB. As a result
thereof, three contracts, namely; the Contract to Sell, Deed of Assignment and Real Estate
Mortgage, were signed by the parties to implement the IPP transaction. Then, the Autoworld
began paying the monthly instalments to FNCB.

In December 1982, after paying 19 monthly installments of P216,666.66 on the first

transaction worth P6,980,000.00 and 3 monthly installments of P93,408.00 on the second
transaction, loan worth P3,000,000.00, Autoworld advised FNCB that it intended to
preterminate the 2 transactions by paying their outstanding balances in full. It then requested
FNCB to provide a computation of the remaining balances. FNCB sent Autoworld its
computation requiring it to pay a total amount of P10,026,736.78, where P6,784,551.24 was
the amount to settle the first transaction while P3,242,165.54 was the amount to settle the
second transaction. Autoword wrote FNCB that it disagreed with the latter’s computation of its
outstanding balances. FNCB replied that it would only be willing to reconcile its accounting
records upon payment of the amounts demanded. Thus, despite its objections, Autoworld
reluctantly paid FNCB P10,026,736.78 through its UCPB account.

Subsequently, Autoworld asked FNCB for a refund of its overpayments in the total
amount of P3,082,021.84. According to the former, it overpaid P2,586,035.44 to settle the first
transaction and P418,262.00 to settle the second transaction. The parties attempted to
reconcile their accounting figures but the subsequent negotiations broke down prompting
Autoworld to file an action before the Regional Trial Court of Makati to annul the Contract to
Sell, the Deed of Assignment and the Real Estate Mortgage all dated 9 February 1981. It
likewise prayed for the nullification of the Promissory Note dated 18 June 1982 and the Real
Estate Mortgage dated 24 June 1982. It alleged that the contracts were only perfected to
facilitate a usurious loan and therefore should be annulled. FNCB should refund the amounts
of P2,586,035.44 as excess payment for the first transaction and P418,262.00 as excess
payment for the second transaction. AUTOWORLD also asked for P500,000.00 as exemplary
damages and P100,000.00 as attorney’s fees.

FNCB then filed a Third-Party Complaint against BARRETTO based on the Deed of
Assignment, which expressly provided that FNCB as assignee had a right of recourse against
BARRETTO as assignor in case AUTOWORLD defaulted in its payments.

The Regional Trial Court of Makati ruled in favor of FNCB declaring that the parties voluntarily
and knowingly executed a legitimate "IPP" transaction or the discounting of receivables.
Autoworld was not entitled to any reimbursement since it was unable to prove the existence of
a usurious loan.

The Court of Appeals modified the decision of the trial court and concluded that the
"IPP" transaction, comprising of the three contracts perfected on 9 February 1981, was merely
a scheme employed by the parties to disguise a usurious loan. It ordered the annulment of the
contracts and required FNCB to reimburse Autoworld P2,586,035.44 as excess interest
payments over the 12% ceiling rate. However, with regard to the second transaction, the
appellate court ruled that at the time it was executed the ceiling rates imposed by the Usury
Law had already been lifted thus allowing the parties to stipulate any rate of interest. The
appellate court deleted the award of P50,000.00 as attorney’s fees in favor of FNCB explaining
that the filing of the complaint against FNCB was exercised in good faith.

Issue:

Whether the three contracts all dated 9 February 1981 were executed to implement a
legitimate Installment Paper Purchase transaction or merely to conceal a usurious loan.

Ruling:

In the case at bar, the attending factors surrounding the execution of the three
contracts clearly established that the parties intended to transact a usurious loan. These
contracts should therefore be declared void. Having declared the transaction between the
parties as void, the Court is now tasked to determine how much reimbursement Autoworld is
entitled to.

In the instant case, Autoworld obtained a loan of Php6,980,000.00. Thereafter, it paid

nineteen 19 consecutive installments of Php216,666.66 amounting to a total of
Php4,116,666.54, and further paid a balance of Php6,784,551.24 to settle it. All in all, it paid
the aggregate amount of Php10,901,217.78 for a debt of Php6,980,000.00. For the 23-month
period of the existence of the loan covering the period February 1981 to January 1982,
Autoworld paid a total of Php3,921,217.78 in interests. Applying the 12% interest ceiling rate
mandated by the Usury Law, Autoworld should have only paid a total of Php1,605,400.00 in
interests. Hence, it is entitled to recover the whole usurious interest amounting to
Php3,921,217.78.

Pascua vs. Perez, 10 SCRA 199

Facts:

Purificacion Pascua mortgaged on December 13, 1956 two parcels of land in favour of
Elisa Paraiso Vda. de Verzosa to secure a loan of Php25,000.00 on a condition that the
mortgage may be redeemed within one year. Verzoisa extrajudicially foreclosed the property
when Pascua failed to redeem his property. Verzosa purchased the property for Php35,000.00
on May 8, 1959 at the foreclose sale, and a certificate of sale was then issued in her favour.
The sheriff fixed the expiration of the redemption on April 29, 1959.

When Verzosa tried to take possession of the property, Pascua instituted an action
before the Court of First Instance of Manila to annul the foreclose sale on the ground that the
mortgage was null and void because it involved usurious transaction. The court found that the
transaction was usurious and ordered the annulment of the sale. The court also ordered
Verzosa to allow Pascua to redeem the property upon payment of Php20,100.00 plus legal
interest rate from the date of the sale until the redemption is made.

Verzosa filed a motion claiming that the redemption period of Pascua has already
expired. The court a quo declared that the title to the properties under the mortgage deed is
already vested in the defendant. Pascua was prompted to file petition for certiorari contending
that the court a quo erred in holding that he failed to redeem the property in within one year,
there being no legal and factual basis thereof, and that assuming that he failed to redeem the
property, the court a quo erred in vesting the title of the property in Verzosa without proper
action and due process of law.

Issue:

Whether or not the court a quo erred in holding that Pascua failed to redeem the
property in within one year from the receipt of the decision in the annulment case.

Ruling:

Yes. There is merit in the contention that the court a quo erred in holding that
petitioner has failed to redeem the property within the period of one year from the date the
decision in the annulment case has become final for there is indeed no such period fixed either
in the body of said decision, nor in its dispositive part. Verily, that was the intention of the
court when it allowed petitioner to redeem the property upon payment of the sum of
P20,100.00, plus interest thereon from date of the sale until the redemption is made, but it
overlooked to specify or mention the period within which the redemption should be effected.
There being no such specification, it is unfair to hold petitioner delinquent in exercising the
option given to her when the period for doing so is not stated. As a matter of fact, petitioner
was of the impression that her right to redeem could be exercised within what she believed to
be a reasonable period of time, and at the time the motion for vesting was filed in court she had
almost completed negotiation to obtain the money with which she expected to effect the
redemption.

The Court added that assuming that petitioner has been delinquent in exercising her
option within the period which in the opinion of the court she should have exercised it, still the
Court is of the opinion that the court a quo erred in vesting in respondent the title of the
property outright without taking the necessary appropriate action for that purpose, or without
due process of law, since petitioner, at the time the motion was filed, was then the owner of the
property in view of the annulment of the sale executed by the sheriff in favor of respondent in
the annulment case instituted by petitioner against Respondent. Note that what was ordered by
the court a quo in said case was to allow petitioner to redeem the property upon payment of
the sum of P20,100.00 which is contrary to its decision annulling the deed of sale in favor
of Respondent. The most, therefore, that respondent could do upon failure of petitioner to pay
the above amount, was to ask the execution of the decision, and not the vesting of title to the
property in her, as the court did. The only right of respondent in the premises was merely to
collect the amount of the loan, plus the interest due thereon, which can be effected by filing a
motion for execution in the annulment case. This respondent can still do.

Briones vs. Cammayo, 41 SCRA 404

Facts:

Aurelio G. Briones filed an action in the Municipal Court of Manila against Primitivo,
Nicasio, Pedro, Hilario and Artemio, all surnamed Cammayo, to recover from them, jointly and
severally, the amount of P1,500.00, plus damages, attorney's fees and costs of suit.

Defendants alleged that they executed the real estate mortgage, as security for the loan
of P1,200.00 given to defendant Primitivo P. Cammayo upon the usurious agreement that
defendant pays to the plaintiff and that the plaintiff reserve and secure, as in fact plaintiff
reserved and secured himself, out of the alleged loan of P1,500.00 as interest the sum of
P300.00 for one year. Although the mortgage contract, was executed for securing the payment
of P1,500.00 for a period of one year, without interest, the truth and the real fact is that
plaintiff delivered to the defendant Primitivo P. Cammayo only the sum of P1,200.00 and
withheld the sum of P300.00 which was intended as advance interest for one year. Also,
defendants alleged that on account of said loan of P1,200.00, defendant Primitivo P. Cammayo
paid to the plaintiff during the period from October 1955 to July 1956 the total sum of P330.00
which plaintiff, illegally and unlawfully refuse to acknowledge as part payment of the account
but as in interest of the said loan for an extension of another term of one year and that said
contract of loan entered into between plaintiff and defendant Primitivo P. Cammayo is a
usurious contract.

 Briones filed an unverified reply in which he merely denied the allegations of the
counterclaim. The Municipal Court granted the motion and rendered judgment sentencing the
defendants to pay the plaintiff with interests plus attorney's fees. The Court of First Instance of
Manila also ordered the defendants to pay the plaintiff.

Issue:

 Whether the creditor is entitled to collect from the debtor the amount representing the
principal obligation

Ruling:

Yes. The Court held that under Act 2655 a usurious contract is void; that the creditor
had no right of action to recover the interest in excess of the lawful rate; but that this did not
mean that the debtor may keep the principal received by him as loan — thus unjustly
enriching himself to the damage of the creditor.

The Usury Law, by its letter and spirit, did not deprive the lender of his right to recover
from the borrower the money actually loaned to and enjoyed by the latter. In simple loan with
stipulation of usurious interest, the prestation of the debtor to pay the principal debt, which is
the cause of the contract (Article 1350, Civil Code), is not illegal. The illegality lies only as to
the prestation to pay the stipulated interest; hence, being separable, the latter only should be
deemed void, since it is the only one that is illegal.

The principal debt remaining without stipulation for payment of interest can thus be
recovered by judicial action. And in case of such demand, and the debtor incurs in delay, the
debt earns interest from the date of the demand (in this case from the filing of the complaint).
Such interest is not due to stipulation, for there was none, the same being void. Rather, it is
due to the general provision of law that in obligations to pay money, where the debtor incurs in
delay, he has to pay interest by way of damages 

First Metro Investment vs. Este Del Sol Mountain

Facts:

Petitioner FMIC granted respondent Este del Sol a loan of P7,385,500.00 to finance the
construction and development of the Este del Sol Mountain Reserve, a sports/resort complex
project located at Barrio Puray, Montalban, Rizal. In their loan agreement, the proceeds of the
loan were to be released on staggered basis with interest of 16% per annum based on the
diminishing balance. The loan will be payable in 36 equal and consecutive monthly
amortizations.

In case of default, an accelaration clause was provided and the amount due was made
subject to a 20% percent one-time penalty on the amount due with interest at the highest rate
permitted by law plus liquidated damages at 2% per month compounded quarterly on the
unpaid balance and accrued interests together with all the penalties, fees, expenses or charges
thereon, plus attorney’s fees of 25% of the sum to be recovered, which shall be not less than
(P20,000.00)if the services of a lawyer were hired.

Este del Sol executed guarantees to secure payment (aggregate sum of 7,500,000):(a) a
Real Estate Mortgage over two (2) parcels of land utilized as the site of its project inclusive of all
improvements, machineries, equipment, furnishings and furnitures existing thereon,
(b)individual Continuing Suretyship agreements by co-respondents Daez, Jr., Salientes,
DeVega, Asuncion, Ladores, De Vera, and Sese.

Este del Sol also executed an Underwriting Agreement that FMIC shall: (a)
underwritethe public offering of 120, 000 common shares of respondent Este del Sols capital
stock for a feeof P200,000.00; (b) Este del Sol shall pay petitioner FMIC an annual supervision
fee of P200,000.00 per annum for 4 years;(c) payment by respondent to petitioner of a
consultancy feeof P332,500.00 per annum for 4 years. A Consultancy Agreement was also
executed whereby respondent Este del Sol engaged the services of petitioner FMIC for general
consultancy services.

Petitioner billed respondent Este del Sol for the amounts of [a] P200,000.00 as the
underwriting fee;[b] P1,330,000.00 as consultancy fee for a period of four (4) years; and [c]
P200,000.00)as supervision fee. The said amounts of fees were deemed paid by respondent
Este del Sol to petitioner FMIC which deducted the same from the first release of the loan.
Since respondent Este del Sol failed to meet the schedule of repayment in accordance with a
revised Schedule of Amortization, it incurred a total obligation of P12,679,630.98.

Accordingly, petitioner FMIC caused the extrajudicial foreclosure of the real estate
mortgage. At the public auction, petitioner FMIC was the highest bidder of the mortgaged
properties 9M with deduction for the necessary fees for the proceeding. Despite individual
demands, petitioner failed to secure the payment of the alleged deficiency balance. So it
instituted the instant collection suit against the respondents to collect the alleged deficiency
balance P6,863,297.73 plus interest thereon at 21% per annum until fully paid, and 25%
thereof as and for attorney’s fees and costs.

Respondents sought the dismissal of the case that the Underwriting and Consultancy
Agreements executed simultaneously with and as integral parts of the Loan Agreement and
which provided for the payment of Underwriting, Consultancy and Supervision fees were in
reality subterfuges resorted to by petitioner FMIC and imposed upon respondent Este del Sol to
camouflage the usurious interest being charged by petitioner FMIC.

Issues:

1. Whether or not Central Bank circular 905 can be made to retroact to apply to the case

2. Whether or not the underwriting and consultancy agreements are mere subterfuges to
camouflage the usurious interest charged by the petitioner and thus, excessive,
iniquitous and unconscionable and revolting to the conscience

Ruling:

1. No. There is no merit to petitioner FMICs contention that Central Bank Circular No. 905
which took effect on January 1, 1983 and removed the ceiling on interest rates for
secured and unsecured loans, regardless of maturity, should be applied retroactively to
a contract executed on January 31, 1978, as in the case at bar, that is, while the Usury
Law was in full force and effect. It is an elementary rule of contracts that the laws, in
force at the time the contract was made and entered into, govern it. More significantly,
Central Bank Circular No. 905 did not repeal nor in any way amend the Usury Law but
simply suspended the latters effectivity. The illegality of usury is wholly the creature of
legislation. A Central Bank Circular cannot repeal a law. Only a law can
repeal another law. Thus, retroactive application of a Central Bank Circular cannot,
and should not, be presumed.

2. Yes. Although there was a written instrument evidencing the contact between the
parties, the form of the contract is not conclusive for the law will not permit a usurious
loan to hide itself behind a legal form. If from a construction of the whole transaction it
becomes apparent that there exists a corrupt intention to violate the Usury Law, the
courts should and will permit no scheme, however ingenious, to becloud the crime of
usury.

Art. 1957. Contracts and stipulations, under any cloak or device whatever, intended to
circumvent the laws against usury shall be void. An apparently lawful loan is usurious
when it is intended that additional compensation for the loan be disguised by an
ostensibly unrelated contract providing for payment by the borrower for the lenders
services which are of little value or which are not in fact to be rendered, such as in the
instant case.

In usurious loans, the entire obligation does not become void because of an agreement
for usurious interest; the unpaid principal debt still stands and remains valid but the
stipulation as to the usurious interest is void, consequently, the debt is to be
considered without stipulation as to the interest.

Sanchez vs. Bueviaje, 126 SCRA 208

Facts:
 This is a petition to review a decision rendered by the defunct Court of First Instance of
Camarines Sur, Branch VII, with following factual background.
On August 25, 1976, Alejo Sanchez sued Teodoro Sanchez and Leonor Santilles in the
Municipal Court of Bato, Camarines Sur, for the recovery of P2,000.00 which the latter had
promised to pay in two notes. Said notes also contained stipulations for interest at the rate of
10% per month The Municipal Court rendered judgment ordering Teodoro Sanchez only to pay
to Alejo Sanchez P2,000.00 plus interest thereon at the legal rate from the filing of the
complaint.

Teodoro appealed. The Court of First Instance of Camarines Sur affirmed and ordered
the defendant to pay his indebtedness to plaintiff in the total sum of P2,000.00, plus interest
thereon at the legal rate from the firing of the complaint in this case to actual payment.
Defendant to pay double the costs of the suit.

In his petition for review, Teodoro claims that in a loan with usurious interest both the
loan and the usurious interest are void. Alejo was required to comment on the petition but it
appears that he died sometime in the latter part of 1980 and the early part of 1981.
Accordingly, his children were impleaded as respondents and required to file comment which
they failed to do despite notice to them.

Issue:

Whether both the loan and the usurious interest are void in a loan with usurious
interest

Ruling:

It is now well-settled that: "the Usury Law (Act No. 2655), by its letter and spirit, does
not deprive the lender of his right to recover of the borrower the money actually loaned this
only in the case that the interest collected is usurious. The law, as it is now, does not provide
for the forfeiture of the capital in favor of the debtor in usurious contract ... (Lopez and
Javelona vs. El Hogar Filipino, 47 Phil. 249, 275 [1925].)

True it is that in Briones vs. Cammayo, L-23559, Oct. 4, 1971; 41 SCRA 404, Chief
Justice Concepcion and now Chief Justice Fernando concurred with Justice Castro who opined
that both loan and usurious interest are void. However, it must be emphasized that eight other
justices maintained that only the usurious interest is void but not the principal obligation.

First Metro vs Este del Sol

GR No. 141811, 15 November 2001
369 SCRA 99

Facts:

FMIC granted Este del Sol a loan to finance a sports/resort complex in Montalban,
Rizal. In their loan agreement, the proceeds of the loan were to be released on staggered basis
with interest of 16% per annum based on the diminishing balance. The loan will be payable in
36 equal and consecutive monthly amortizations. In case of default, an acceleration clause was
provided and the amount due was made subject to a 20% percent one-time penalty on the
amount due with interest at the highest rate permitted by law plus liquidated damages at 2%
per month compounded quarterly on the unpaid balance and accrued interests together with
all the penalties, fees, expenses or charges thereon,plus attorney’s fees of 25% of the sum to be
recovered, which shall be not less than (P20,000.00)if the services of a lawyer were hired Este
del Sol executed guarantees to secure payment (aggregate sum of 7,500,000):(a) a Real Estate
Mortgage over two (2) parcels of land utilized as the site of its project inclusiveof all
improvements, machineries, equipment, furnishings and furnitures existing thereon,
(b)individual Continuing Surety ship agreements by co-respondents Daez, Jr., Salientes,
DeVega, Asuncion, Ladores, De Vera, and Sese.Este del Sol also executed an Underwriting
Agreement that FMIC shall: (a) underwrite the public offering of 120, 000 common shares of
respondent Este del Sols capital stock for a fee of P200,000.00; (b) Este del Sol shall
pay petitioner FMIC an annual supervision fee ofP200,000.00 per annum for 4 years;
(c) payment by respondent to petitioner of a consultancy fee of P332,500.00 per annum for 4
years. A Consultancy Agreement was also executed whereby respondent Este del Sol
engaged the services of petitioner FMIC for general consultancy services.

In case of default, an acceleration clause was provided and the amount due is subject
to 20% one-time penalty on the amount due and such amount shall bear interest at the
highest rate permitted by law. Respondent executed a REM, individual continuing suretyship
and an underwriting agreement whereby FMIC shall underwrite the public offering of one
P120,000 common shares of respondent’s capital stock for one-time underwriting fee of
P200,000. For failure to pay its obligation, FMIC caused the foreclosure of the REM. At the
public auction, FIC was the highest bidder. Petitioner filed to collect for alleged deficiency
balance against respondents since it failed to collect from the sureties, plus interest at 21% pa.
The trial court ruled in favor of FMIC. Respondents appealed before the CA which held that the
fees provided for in the Underwriting and Consultancy Agreements were mere subterfuges to
camouflage the excessively usurious interest charged. The CA ordered FMIC to reimburse
petitioner representing what is due to petitioner and what is due to respondent.

Issue:

Whether or not the interests are lawful.

Ruling:

No. an apparently lawful loan is usurious when it is intended that additional

compensation for the loan be disguised by an ostensibly unrelated contract for the payment by
the borrower for the lender’s services which re of little value or which are not in fact to be
rendered. Article 1957 clearly provides: contracts and stipulations, under any cloak or device
whatever, intended to circumvent the law agaistn usury shall be void. The borrower may
recover in accordance with the laws on usury.

Art. 1957. Contracts and stipulations, under any cloak or device whatever, intended to
circumvent thelaws against usury shall be void. An apparently lawful loan is usurious when it
is intended thatadditional compensation for the loan be disguised by an ostensibly unrelated
contract providingfor payment by the borrower for the lenders services which are of little value
or which are not infact to be rendered, such as in the instant case, where:

a. The Underwriting and Consultancy Agreements which were executed

simultaneously wereset to mature or shall remain effective during the same period
of time.
b. the Underwriting Agreement, a condition precedent to extend the loan, is part and
parcel ofthe Loan Agreement.
c. Respondent Este del Sol was billed by petitioner on February 28, 1978
P1,330,000.00 asconsultancy fee despite the provision in the Consultancy
Agreement which only provides for P332,500.00 per annum.
 d. The Underwriting, Supervision and Consultancy fees were billed by petitioner to
respondent Este del Sol on the same occasion of the first partial release of the loan.
It is from this first partial release of the loan that the said corresponding bills for
Underwriting, Supervision and Consultancy fees were deducted and apparently
paid, thus, reverting back to petitioner FMIC the total amount of P1,730,000.00 as
part of the amount loaned to respondent Estedel Sol.

In usurious loans, the entire obligation does not become void because of an agreement for
usurious interest; the unpaid principal debt still stands and remains valid but the stipulation
as to the usurious interest is void, consequently, the debt is to be considered without
stipulation as to the interest.[43] The reason for this rule was adequately explained in the case
of Angel Jose Warehousing., Inc. v. Child Enterprises[44]where this Court held: In simple loan
with stipulation of usurious interest, the prestation of the debtor to pay the principal debt,
which is the cause of the contract (Article 1350, Civil Code), is not illegal. The illegality lies only
as to the prestation to pay the stipulated interest; hence, being separable, the latter only
should be deemed void, since it is the only one that is illegal. Thus, the nullity of the
stipulation on the usurious interest does not affect the lenders right to receive back the
principal amount of the loan. With respect to the debtor, the amount paid as interest under a
usurious agreement is recoverable by him, since the payment is deemed to have been made
under restraint, rather than voluntarily

DBP vs. Perez

GR. No. 148541November 11, 2004

Facts:

On April 28, 1978, petitioner Development Bank of the Philippines (DBP) sent a letter to
respondent Bonita Perez, for the approval of an industrial loan amounting to P214,000.00 and
an additional industrial loan amounting to P21,000.00 to cover unforeseen price escalation.
Thus, on May 18, 1978, the respondents were made to sign four promissory notes covering the
total amount of the loan, P235,000.00. Three promissory notes for the principal loan totaling
P214,000.00 all due on August 31, 1988. While, the fourth promissory note due on September
19, 1988 was, likewise, executed to cover the additional loan of P21,000.00. The promissory
notes were to be paid in equal quarterly amortizations and were secured by a mortgage
contract covering real and personal properties.

Despite repeated notice thru letters, the respondents failed to comply with their
amortization payments. Thus, the petitioner decided to foreclose the mortgages that secured
the obligation. On their part, Mrs. Perez requested for a restructuring of their account due to
difficulties they were encountering in collecting receivables which was approved by the
petitioners. Due to this, the respondents signed another promissory note in the amount of
P231,000.00 at eighteen percent (18%) interest per annum, payable quarterly at P12,553.27,
over a period of ten years. Though, the respondents made their first payment amounting to
P15,000.00 they again failed to meet the quarterly amortization of the loan prompting the
petitioner to institute foreclosure proceedings on the mortgages. The sale of the properties
covered by the mortgage contract was scheduled on October 30, 1985.

On October 24, 1985, the respondents filed a Complaint for the nullification of the new
promissory note with damages and preliminary prohibitory Injunction. The complaint alleged
that the petitioner restructured the respondents' obligation in bad faith by requiring them to
sign another promissory note for P231,000.00 without considering the total payments made on
the loan amounting to P224,383.43. The respondents claimed that the petitioner failed to
explain to them how it had arrived at the amount of the restructured loan. The respondents
also alleged that the petitioner failed to furnish them with a disclosure statement as required
by Rep. Act No. 3765, also known as the Truth in Lending Act, prior to the consummation of
the transaction. They averred that the interest imposed on the said transaction was usurious.
They, likewise, alleged that the new promissory note constituted a novation of the previous
obligations.

In its answer, the petitioner denied the allegations and averred that the claim for
violation of the disclosure requirement under Rep. Act No. 3765 was not within the jurisdiction
of the RTC and was barred by prescription. By way of compulsory counterclaim, the petitioner
prayed that the respondents be ordered to pay their obligation, plus exemplary damages and
costs.
On October 25, 1985, the trial court ordered the petitioner to desist from holding the public
auction of the respondents' properties and upheld the validity of the new promissory note and
ordered the respondents to pay their obligation Dissatisfied, the respondents appealed to the
CA. The CA found that the respondents did not voluntarily sign the restructured promissory
note as they were only forced to sign it for fear of having their mortgaged property foreclosed by
the bank. It ruled that the restructured promissory note which was prepared by the petitioner
alone was a contract of adhesion which violates the rule on mutuality of contracts.

Nonetheless, the CA held that the trial court should have used the formula prescribed
by paragraph 3, Sec. 2(i), Central Bank (CB) Circular No. 158, Rules and Regulations
Implementing Rep. Act No. 3765, in computing the total obligation of the respondents
considering that Sec. 3(a) thereof provides that it applies to any loans, mortgages, deeds of
trust, advances and discounts.

The CA also held that since the loan is secured by a mortgage contract, the eighteen
percent (18%) interest rate was excessive and usurious under CB Circular No. 817. According
to the appellate court, CB Circular No. 905, series of 1982, simply suspended the effectivity of
the Usury Law; it did not authorize either party to unilaterally raise the interest without the
other party's consent. Both parties moved to reconsider bet were both denied.

Issue:
Whether or not this Honorable Court of Appeals committed grave abuse of discretion
when it ruled that the 18% interest per annum agreed upon by the parties in the restructured
promissory note is usurious.

Ruling:

No. The Court agreed with the ruling of the CA that under CB Circular No. 817, if the
loan is secured by a registered real estate, the interest of eighteen percent (18%) is usurious.
They ruled that the petitioner’s argument that usury has become legally inexistent with the
promulgation of CB Circular No. 905 is without merit.

The Court emphasized that the laws in force at the time the contract was made
generally govern the effectivity of its provision. At that time, The Usury Law, Act No. 2655, as
amended by Presidential Decree No. 116, was still in force and effect. Under the Usury Law, no
person shall receive a rate of interest, including commissions, premiums, fines and penalties,
higher than twelve percent (12%) per annum or the maximum rate prescribed by the Monetary
Board for a loan secured by a mortgage upon real estate the title to which is duly registered.

In this case, by specific provision in the new promissory note, the restructured loan
continued to be secured by the same mortgage contract executed on May 18, 1978 which
covered real and personal properties of the respondents. Thus, the eighteen percent (18%)
interest rate plus the additional interest and penalty charges of eighteen percent (18%) and
eight percent (8%), respectively, is highly usurious.

In usurious loans, the entire obligation does not become void because of an agreement
for usurious interest; the unpaid principal debt still stands and remains valid, but the
stipulation as to the usurious interest is void. Consequently, the debt is to be considered
without stipulation as to the interest. In the absence of an express stipulation as to the rate of
interest, the legal rate at twelve percent (12%) per annum shall be imposed.

Neither is the contention of the respondents that the Central Bank engaged in self-
legislation correct. As we held in First Metro Investment Corporation v. Este Del Sol Mountain
Reserve, Inc. Central Bank Circular No. 905 did not repeal nor in any way amend the Usury
Law but simply suspended the latter's effectivity. The illegality of usury is wholly the creature
of legislation. A Central Bank Circular cannot repeal a law. Only a law can repeal another law.
Thus, retroactive application of a Central Bank Circular cannot, and should not, be presumed.

New Sampaguita Builders Constractions, Inc., Eduardo R. Dee and the Board of
Directors of New Sampaguita and Integral Properties vs. The Estate of Fermina Canoso,
Ines Canoso, Rene Canoso, G.R. No. 151447

Facts:

This petition stemmed from Civil Case No. C-115 filed by respondents against
petitioners before the Regional Trial Court of Tanauan, Batangas, to rescind a contract of sale
of a parcel of land sold by respondents to petitioners. During the trial, the parties were able to
work out an amicable settlement and they filed on January 12, 1999 a joint motion to dismiss.

On April 7, 2000, respondents filed a motion to enforce the compromise agreement on

the ground that petitioners violated its terms. During the hearing on the motion, petitioners
and their counsel did not appear and no opposition to the motion was filed. The Regional Trial
Court thereupon granted in open court the aforesaid motion and ordered that a writ of
execution be issued against petitioners, issuing what the parties refer to as its "May 24, 2000
Order."

Petitioners moved to reconsider the May 24, 2000 order. Their counsel claimed that it
was only after petitioners received a copy of the May 24, 2000 order that the matter was
brought to his attention. Petitioners’ counsel also claimed that the order dismissing original
civil case was already final and that petitioners did not violate the compromise
agreement. However, the Regional Trial Court denied the said motion for reconsideration.
Petitioners then elevated the matter to the Court of Appeals through a petition for certiorari
under Rule 65 of the Rules of Court. Petitioners therein alleged that the Regional Trial Court
committed grave abuse of discretion in issuing the May 24, 2000 order.

While the action was pending before the Court of Appeals, respondents filed with the
Regional Trial Court an Ex-Parte Manifestation, praying that the Order of the Court dismissing
the case be recalled and in lieu thereof, another order issue approving the Compromise
Agreement and enjoining the parties to faithfully comply with its provisions. Petitioners, on the
other hand, filed an opposition.

The Court granted plaintiffs Motion for Issuance of a Writ of Execution. Defendant then
moved for the reconsideration of the Order denying that there was no breach of the terms and
conditions of the compromise agreement. The Court of Appeals granted the petition and
reinstated the Order dated May 24, 2000.

Issues:

1. Whether or not respondents are guilty of forum shopping.

2. Whether or not the Court of Appeals erred in annulling the October 26, 2000 order.

Rulings:

1. No. Forum shopping exists whenever, as a result of an adverse opinion in one forum, a
party seeks a favorable opinion (other than by appeal or certiorari) from another. In
seeking a favorable judgment, the party guilty of forum shopping files multiple suits for
the same cause of action, either simultaneously or successively. Forum shopping is
deemed an unethical practice of subverting justice and rules have been promulgated
authorizing the dismissal of the multiple cases.
Forum shopping is the institution of two or more actions or proceedings grounded on
the same cause on the supposition that one or the other court would make a favorable
disposition. This is not what happened here, where we have two parties, each filing
their own separate petitions, against two different orders.

2. With respect to the issue of whether the Court of Appeals erred in annulling the October
26, 2000 order, it is first necessary to resolve whether the Regional Trial Court may still
continue to hear the matter and issue orders concerning the May 24, 2000 order,
despite the fact that the Court of Appeals had already taken cognizance of this issue.
The Court ruled that once questions on the force and effect of the May 24, 2000 order
had been elevated to the Court of Appeals, the Regional Trial Court effectively lost
jurisdiction to act on the same matter. As long as the issues are pending before the
Court of Appeals, the Regional Trial Court cannot interfere with or preempt whatever
action or decision the Court of Appeals may take.
In the present, after the Regional Trial Court judge realized that he made a mistake in
issuing the May 24, 2000 order, he should have made the proper manifestation with the
Court of Appeals. However, rather than admit his fault, the judge sought discreetly to
correct himself by issuing the October 26, 2000 order.
Therefore, the Court ruled that the Court of Appeals properly set aside the October 26,
2000 order since the Regional Trial Court no longer had jurisdiction to reconsider the
May 24, 2000 order, after the same was elevated to the Court of Appeals.

Advocates For Truth In Lending, Inc. vs Bangko Sentral Ng Pilipinas

668 SCRA 530

Facts:

Petitioners, claiming that they are raising issues of transcendental importance to the
public, filed directly with this Court this Petition for Certiorari under Rule 65 of the 1997 Rules
of Court, seeking to declare that the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB),
replacing the Central Bank Monetary Board (CB-MB) by virtue of Republic Act (R.A.) No. 7653,
has no authority to continue enforcing Central Bank Circular No. 905, issued by the CB-MB in
1982, which "suspended" Act No. 2655, or the Usury Law of 1916.

R.A. No. 265, which created the Central Bank (CB) of the Philippines on June 15, 1948,
empowered the CB-MB to, among others, set the maximum interest rates which banks may
charge for all types of loans and other credit operations, within limits prescribed by the Usury
Law.

On March 17, 1980, the Usury Law was amended by Presidential Decree (P.D.) No.
1684, giving the CB-MB authority to prescribe different maximum rates of interest which may
be imposed for a loan or renewal thereof or the forbearance of any money, goods or credits,
provided that the changes are effected gradually and announced in advance. Thus, Section 1-a
of Act No. 2655 now reads:

In its Resolution No. 2224 dated December 3, 1982, 3 the CB-MB issued CB Circular No.
905, Series of 1982, effective on January 1, 1983. Section 1 of the Circular, under its General
Provisions, removed the ceilings on interest rates on loans or forbearance of any money, goods
or credits, to wit:

Sec. 1. The rate of interest, including commissions, premiums, fees and other charges, on
a loan or forbearance of any money, goods, or credits, regardless of maturity and
whether secured or unsecured, that may be charged or collected by any person, whether
natural or juridical, shall not be subject to any ceiling prescribed under or pursuant to the
Usury Law, as amended.

Issues:

1. Whether the CB-MB exceeded its authority when it issued CB Circular No. 905, which
removed all interest ceilings and thus suspended Act No. 2655 as regards usurious interest
rates
2. Whether under R.A. No. 7653, the new BSP-MB may continue to enforce CB Circular No.
905.

Ruling:

1. No. The CB-MB merely suspended the effectivity of the Usury Law when it issued CB
Circular No. 905.

The power of the CB to effectively suspend the Usury Law pursuant to P.D. No. 1684 has
long been recognized and upheld in many cases. As the Court explained in the landmark
case of Medel v. CA, citing several cases, CB Circular No. 905 "did not repeal nor in anyway
amend the Usury Law but simply suspended the latter’s effectivity;" that "a CB Circular
cannot repeal a law, [for] only a law can repeal another law;" that "by virtue of CB Circular
No. 905, the Usury Law has been rendered ineffective;" and "Usury has been legally non-
existent in our jurisdiction. Interest can now be charged as lender and borrower may agree
upon."

By lifting the interest ceiling, CB Circular No. 905 merely upheld the parties’ freedom of
contract to agree freely on the rate of interest. It cited Article 1306 of the New Civil Code,
under which the contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals,
good customs, public order, or public policy.

2. Yes. Section 1 of CB Circular No. 905 provides that "The rate of interest, including
commissions, premiums, fees and other charges, on a loan or forbearance of any money,
goods, or credits, regardless of maturity and whether secured or unsecured, that may be
charged or collected by any person, whether natural or juridical, shall not be subject to any
ceiling prescribed under or pursuant to the Usury Law, as amended." It does not purport to
suspend the Usury Law only as it applies to banks, but to all lenders.

Petitioners contend that, granting that the CB had power to "suspend" the Usury Law, the
new BSP-MB did not retain this power of its predecessor, in view of Section 135 of R.A. No.
7653, which expressly repealed R.A. No. 265. The petitioners point out that R.A. No. 7653
did not reenact a provision similar to Section 109 of R.A. No. 265.

A closer perusal shows that Section 109 of R.A. No. 265 covered only loans extended by
banks, whereas under Section 1-a of the Usury Law, as amended, the BSP-MB may
prescribe the maximum rate or rates of interest for all loans or renewals thereof or the
forbearance of any money, goods or credits, including those for loans of low priority such as
consumer loans, as well as such loans made by pawnshops, finance companies and similar
credit institutions. It even authorizes the BSP-MB to prescribe different maximum rate or
rates for different types of borrowings, including deposits and deposit substitutes, or loans
of financial intermediaries.