Case Digest (G.R. No. L-26284)
Facts:
First Metro Investment Corporation v. Este Del Sol Mountain Reserve, Inc., G.R. No. 141811, November 15, 2001, the Supreme Court Second Division, De Leon, Jr., J., writing for the Court.Petitioner First Metro Investment Corporation (FMIC) advanced a loan of P7,385,500.00 to Este del Sol Mountain Reserve, Inc. (Este del Sol) by a Loan Agreement dated January 31, 1978 to finance a resort development. The Loan Agreement fixed interest at 16% per annum on the diminishing balance, established a 36-month amortization schedule (with payments to commence in the thirteenth month after first release), and contained harsh default remedies including a one‑time 20% penalty, liquidated damages, escalating past‑due interest rates up to the statutory maximum, and attorney’s fees allegedly equivalent to 25% of the sum sought to be recovered.
As conditions precedent to lending, Este del Sol executed extensive securities (mortgages, assignments of receivables and subscription rights) and contemporaneous Underwriting and Consultancy Agreements dated January 31, 1978. The Underwriting Agreement provided for a one‑time underwriting fee (P200,000) plus supervision fees of P200,000 per annum for four years; the Consultancy Agreement purported to provide consultancy services at P332,500 per annum for four years. FMIC billed and immediately deducted underwriting, supervision and consultancy fees (totaling P1,730,000) from the first partial loan release on February 22, 1978.
When Este del Sol defaulted, FMIC issued a Statement of Account (June 23, 1980) showing total obligations of P12,679,630.98 and proceeded with extrajudicial foreclosure of the mortgage on June 23, 1980. FMIC was the highest bidder at the auction (P9,000,000); after deductions and application to interest and penalties, FMIC claimed a deficiency of P6,863,297.73. Having failed to collect from individual continuing sureties, FMIC filed Civil Case No. 39224 (then Court of First Instance of Rizal, raffled to Branch XI; later before the Regional Trial Court of Pasig, Branch 159) on November 11, 1980 to recover the deficiency, plus interest at 21% from June 24, 1980 and 25% attorney’s fees.
The trial court (Judge Willelmo C. Fortun) rendered judgment for FMIC on June 2, 1994 ordering the defendants to pay P6,863,297.73 plus 21% interest from June 24, 1980 and attorney’s fees equal to 25% of the total amount, and dismissed defendants’ counterclaims. On appeal, the Court of Appeals (Special Seventh Division) in CA‑G.R. CV No. 53328 reversed on November 8, 1999: it held the underwriting and consultancy agreements to be subterfuges concealing usurious interest, reduced the penal provisions (one‑time 20% penalty; attorney’s fees to 10%), dismissed the suit as against the individual sureties, and ordered FMIC to reimburse Este del Sol P971,000 as the net difference computed from returns of the disguised fees. A motion for reconsideration before the Court of Appeals was denied on February 9, 2000.
FMIC filed a petition for review on certiorari to the Supreme ...(Subscriber-Only)
Issues:
- Should this Court re‑examine and overturn the Court of Appeals’ factual findings that the Underwriting and Consultancy Agreements were devices to conceal usurious interest?
- May Central Bank Circular No. 905 (effective January 1, 1983) be applied retroactively to validate contracts made on January 31, 1978 when the Usury Law was then in force?
- Were the Underwriting and Consultancy Agreements separate, bona fide contracts or mere subterfuges used to camouflage usurious interest?
- Were the stipulated penalties, liquidated damages and attorney’s...(Subscriber-Only)
Ruling:
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Ratio:
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Doctrine:
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