Facts:

• On January 31, 1978, First Metro Investment Corporation (FMIC) granted Este del Sol Mountain Reserve, Inc. (Este del Sol) a loan of PHP 7,385,500.
• The loan was intended to finance a sports/resort complex in Barrio Puray, Montalban, Rizal.
• The loan agreement included a 16% annual interest rate on the diminishing balance, payable in 36 equal monthly amortizations starting from the 13th month after the first release.
• In case of default, a 20% one-time penalty, compounded quarterly interest, and 25% attorney's fees were imposed.
• Este del Sol secured the loan with a real estate mortgage over two parcels of land and individual continuing suretyship agreements by several co-respondents.
• Este del Sol also executed an Underwriting Agreement and a Consultancy Agreement with FMIC, which included fees for underwriting, supervision, and consultancy services, deducted from the first loan release.
• Este del Sol defaulted, leading to a total obligation of PHP 12,679,630.98 by June 23, 1980.
• FMIC foreclosed the mortgaged properties, bidding PHP 9,000,000 at the auction, leaving a balance of PHP 6,863,297.73 after deductions.
• FMIC filed a collection suit to recover the deficiency.
• Respondents argued that the underwriting and consultancy agreements were subterfuges for usurious interest charges.
• The Regional Trial Court of Pasig City ruled in favor of FMIC, but the Court of Appeals reversed the decision, finding the agreements to be subterfuges for usurious interest and reducing penalties and attorney's fees.
• FMIC petitioned for review on certiorari to the Supreme Court.

Issue:

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Ruling:

1. The Supreme Court affirmed the Court of Appeals' decision that the Underwriting and Consultancy Agreements were subterfuges to camouflage usurious interest charges.
2. The Supreme Court agreed with the Court of Appeals that the stipulated penalties, liquidated d...(Unlock)

Ratio:

• The Supreme Court found that the Underwriting and Consultancy Agreements were executed simultaneously with the Loan Agreement and were essential conditions for the loan, indicating they were not separate transactions.
• The agreements were designed to disguise additional compensation for the loan, which was not in fact rendered, thus violating the Usury Law.
• The Court emphasized that the form of the contract is not conclusive, and parol evidence is admissible to show that a written document, though legal ...continue reading