G.R. No.

L-25704 April 24, 1968

ANGEL JOSE WAREHOUSING CO., INC., plaintiff-appellee,

vs.
CHELDA ENTERPRISES and DAVID SYJUECO, defendants-appellants.

Luis A. Guerrero for plaintiff-appellee.

Burgos and Sarte for defendants-appellants.

BENGZON, J.P., J.:

Plaintiff corporation filed suit in the Court of First Instance of Manila on May 29, 1964 against
the partnership Chelda Enterprises and David Syjueco, its capitalist partner, for recovery of
alleged unpaid loans in the total amount of P20,880.00, with legal interest from the filing of the
complaint, plus attorney's fees of P5,000.00. Alleging that post dated checks issued by
defendants to pay said account were dishonored, that defendants' industrial partner, Chellaram
I. Mohinani, had left the country, and that defendants have removed or disposed of their
property, or are about to do so, with intent to defraud their creditors, preliminary attachment was
also sought.

Answering, defendants averred that they obtained four loans from plaintiff in the total amount of
P26,500.00, of which P5,620.00 had been paid, leaving a balance of P20,880.00; that plaintiff
charged and deducted from the loan usurious interests thereon, at rates of 2% and 2.5% per
month, and, consequently, plaintiff has no cause of action against defendants and should not be
permitted to recover under the law. A counterclaim for P2,000.00 attorney's fees was
interposed.

Plaintiff filed on June 25, 1964 an answer to the counterclaim, specifically denying under oath
the allegations of usury.

After trial, decision was rendered, on November 10, 1965. The court found that there remained
due from defendants an unpaid principal amount of P20,287.50; that plaintiff charged usurious
interests, of which P1,048.15 had actually been deducted in advance by plaintiff from the loan;
that said amount of P1,048.15 should therefore be deducted from the unpaid principal of
P20,287.50, leaving a balance of P19,247.351 still payable to the plaintiff. Said court held that
notwithstanding the usurious interests charged, plaintiff is not barred from collecting the
principal of the loan or its balance of P19,247.35. Accordingly, it stated, in the dispositive portion
of the decision, thus:

WHEREFORE, judgment is hereby rendered, ordering the defendant partnership to pay to the
plaintiff the amount of P19,247.35, with legal interest thereon from May 29, 1964 until paid, plus
an additional sum of P2,000.00 as damages for attorney's fee; and, in case the assets of
defendant partnership be insufficient to satisfy this judgment in full, ordering the defendant
David Syjueco to pay to the plaintiff one-half (1/2) of the unsatisfied portion of this judgment.

With costs against the defendants.1äwphï1.ñët

Appealing directly to Us, defendants raise two questions of law: (1) In a loan with usurious
interest, may the creditor recover the principal of the loan? (2) Should attorney's fees be
awarded in plaintiff's favor?
To refute the lower court's decision which is based on the doctrine laid down by this Court
in Lopez v. El Hogar Filipino, 47 Phil. 249, holding that a contract of loan with usurious interest
is valid as to the loan but void as to the usurious interest, appellants argue that in light of the
New Civil Code provisions said doctrine no longer applies. In support thereof, they cite the case
decided by the Court of Appeals in Sebastian v. Bautista, 58 O.G. No. 15, p. 3146.

The Sebastian case was an action for recovery of a parcel of land. The Court of First Instance
therein decided in plaintiff's favor, on the ground that the so-called sale with pacto de retro of
said land was in fact only an equitable mortgage. In affirming the trial court, the writer of the
opinion of the Court of Appeals went further to state the view that the loan secured by said
mortgage was usurious in nature, and, thus, totally void. Such reasoning of the writer, however,
was not concurred in by the other members of the Court, who concurred in the result and voted
for affirmance on the grounds stated by the trial court. Furthermore, the affirmance of the
existence of equitable mortgage necessarily implies the existence of a valid contract of loan,
because the former is an accessory contract to the latter.

Great reliance is made by appellants on Art. 1411 of the New Civil Code which states:

Art. 1411. When the nullity proceeds from the illegality of the cause or object of the contract,
and the act constitutes criminal offense, both parties being in pari delicto, they shall have no
action against each other, and both shall be prosecuted. Moreover, the provisions of the Penal
Code relative to the disposal of effects or instruments of a crime shall be applicable to the things
or the price of the contract.

This rule shall be applicable when only one of the parties is guilty; but the innocent one may
claim what he has given, and shall not be bound to comply with his promise.

Since, according to the appellants, a usurious loan is void due to illegality of cause or object, the
rule of pari delicto expressed in Article 1411, supra, applies, so that neither party can bring
action against each other. Said rule, however, appellants add, is modified as to the borrower, by
express provision of the law (Art. 1413, New Civil Code), allowing the borrower to recover
interest paid in excess of the interest allowed by the Usury Law. As to the lender, no exception
is made to the rule; hence, he cannot recover on the contract. So — they continue — the New
Civil Code provisions must be upheld as against the Usury Law, under which a loan with
usurious interest is not totally void, because of Article 1961 of the New Civil Code, that:
"Usurious contracts shall be governed by the Usury Law and other special laws, so far as they
are not inconsistent with this Code." (Emphasis ours.)

We do not agree with such reasoning. Article 1411 of the New Civil Code is not new; it is the
same as Article 1305 of the Old Civil Code. Therefore, said provision is no warrant for departing
from previous interpretation that, as provided in the Usury Law (Act No. 2655, as amended), a
loan with usurious interest is not totally void only as to the interest.

True, as stated in Article 1411 of the New Civil Code, the rule of pari delicto applies where a
contract's nullity proceeds from illegality of the cause or object of said contract.

However, appellants fail to consider that a contract of loan with usurious interest consists of
principal and accessory stipulations; the principal one is to pay the debt; the accessory
stipulation is to pay interest thereon.2
And said two stipulations are divisible in the sense that the former can still stand without the
latter. Article 1273, Civil Code, attests to this: "The renunciation of the principal debt shall
extinguish the accessory obligations; but the waiver of the latter shall leave the former in force."

The question therefore to resolve is whether the illegal terms as to payment of interest likewise
renders a nullity the legal terms as to payments of the principal debt. Article 1420 of the New
Civil Code provides in this regard: "In case of a divisible contract, if the illegal terms can be
separated from the legal ones, the latter may be enforced."

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.

Neither is there a conflict between the New Civil Code and the Usury Law. Under the latter, in
Sec. 6, any person who for a loan shall have paid a higher rate or greater sum or value than is
allowed in said law, may recover thewhole interest paid. The New Civil Code, in Article 1413
states: "Interest paid in excess of the interest allowed by the usury laws may be recovered by
the debtor, with interest thereon from the date of payment." Article 1413, in speaking of "interest
paid in excess of the interest allowed by the usury laws" means the whole usurious interest; that
is, in a loan of P1,000, with interest of P20% per annum P200 for one year, if the borrower pays
said P200, the whole P200 is the usurious interest, not just that part thereof in excess of the
interest allowed by law. It is in this case that the law does not allow division. The whole
stipulation as to interest is void, since payment of said interest is the cause or object and said
interest is illegal. The only change effected, therefore, by Article 1413, New Civil Code, is not to
provide for the recovery of the interest paid in excess of that allowed by law, which the Usury
Law already provided for, but to add that the same can be recovered "with interest thereon from
the date of payment."

The foregoing interpretation is reached with the philosophy of usury legislation in mind; to
discourage stipulations on usurious interest, said stipulations are treated as wholly void, so that
the loan becomes one without stipulation as to payment of interest. It should not, however, be
interpreted to mean forfeiture even of the principal, for this would unjustly enrich the borrower at
the expense of the lender. Furthermore, penal sanctions are available against a usurious lender,
as a further deterrence to usury.

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 (Art. 2209, Civil Code). The court a quo therefore, did not err in
ordering defendants to pay the principal debt with interest thereon at the legal rate, from the
date of filing of the complaint.

As regards, however, the attorney's fees, the court a quo stated no basis for its award, beyond
saying that as a result of defendants' refusal to pay the amount of P19,247.35 notwithstanding
repeated demands, plaintiff was obliged to retain the services of counsel. The rule as to
attorney's fees is that the same are not recoverable, in the absence of stipulation. Several
exceptions to this rule are provided (Art. 2208, Civil Code). Unless shown to fall under an
exception, the act of plaintiff in engaging counsel's services due to refusal of defendants to pay
his demand, does not justify award of attorney's fees (Estate of Buan v. Camaganacan, L-
21569, Feb. 28, 1966). Defendants, moreover, had reason to resist the claim, since there was
yet no definite ruling of this Court on the point of law involved herein in light of the New Civil
Code. Said award should therefore be deleted.

WHEREFORE, with the modification that the award of attorney's fees in plaintiff's favor is
deleted therefrom, and the correction of the clerical error as to the principal still recoverable,
from P19,247.35 to P19,239.35, the appealed judgment is hereby affirmed. No costs. So
ordered.

G.R. No. L-11827 July 31, 1961

FERNANDO A. GAITE, plaintiff-appellee,

vs.
ISABELO FONACIER, GEORGE KRAKOWER, LARAP MINES & SMELTING CO., INC.,
SEGUNDINA VIVAS, FRNACISCO DANTE, PACIFICO ESCANDOR and FERNANDO
TY, defendants-appellants.

Alejo Mabanag for plaintiff-appellee.

Simplicio U. Tapia, Antonio Barredo and Pedro Guevarra for defendants-appellants.

REYES, J.B.L., J.:

This appeal comes to us directly from the Court of First Instance because the claims involved
aggregate more than P200,000.00.

Defendant-appellant Isabelo Fonacier was the owner and/or holder, either by himself or in a
representative capacity, of 11 iron lode mineral claims, known as the Dawahan Group, situated
in the municipality of Jose Panganiban, province of Camarines Norte.

By a "Deed of Assignment" dated September 29, 1952(Exhibit "3"), Fonacier constituted and
appointed plaintiff-appellee Fernando A. Gaite as his true and lawful attorney-in-fact to enter
into a contract with any individual or juridical person for the exploration and development of the
mining claims aforementioned on a royalty basis of not less than P0.50 per ton of ore that might
be extracted therefrom. On March 19, 1954, Gaite in turn executed a general assignment
(Record on Appeal, pp. 17-19) conveying the development and exploitation of said mining
claims into the Larap Iron Mines, a single proprietorship owned solely by and belonging to him,
on the same royalty basis provided for in Exhibit "3". Thereafter, Gaite embarked upon the
development and exploitation of the mining claims in question, opening and paving roads within
and outside their boundaries, making other improvements and installing facilities therein for use
in the development of the mines, and in time extracted therefrom what he claim and estimated
to be approximately 24,000 metric tons of iron ore.

For some reason or another, Isabelo Fonacier decided to revoke the authority granted by him to
Gaite to exploit and develop the mining claims in question, and Gaite assented thereto subject
to certain conditions. As a result, a document entitled "Revocation of Power of Attorney and
Contract" was executed on December 8, 1954 (Exhibit "A"),wherein Gaite transferred to
Fonacier, for the consideration of P20,000.00, plus 10% of the royalties that Fonacier would
receive from the mining claims, all his rights and interests on all the roads, improvements, and
facilities in or outside said claims, the right to use the business name "Larap Iron Mines" and its
goodwill, and all the records and documents relative to the mines. In the same document, Gaite
transferred to Fonacier all his rights and interests over the "24,000 tons of iron ore, more or
less" that the former had already extracted from the mineral claims, in consideration of the sum
of P75,000.00, P10,000.00 of which was paid upon the signing of the agreement, and

b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00) will be paid from and out of
the first letter of credit covering the first shipment of iron ores and of the first amount derived
from the local sale of iron ore made by the Larap Mines & Smelting Co. Inc., its assigns,
administrators, or successors in interests.

To secure the payment of the said balance of P65,000.00, Fonacier promised to execute in
favor of Gaite a surety bond, and pursuant to the promise, Fonacier delivered to Gaite a surety
bond dated December 8, 1954 with himself (Fonacier) as principal and the Larap Mines and
Smelting Co. and its stockholders George Krakower, Segundina Vivas, Pacifico Escandor,
Francisco Dante, and Fernando Ty as sureties (Exhibit "A-1"). Gaite testified, however, that
when this bond was presented to him by Fonacier together with the "Revocation of Power of
Attorney and Contract", Exhibit "A", on December 8, 1954, he refused to sign said Exhibit "A"
unless another bond under written by a bonding company was put up by defendants to secure
the payment of the P65,000.00 balance of their price of the iron ore in the stockpiles in the
mining claims. Hence, a second bond, also dated December 8, 1954 (Exhibit "B"),was executed
by the same parties to the first bond Exhibit "A-1", with the Far Eastern Surety and Insurance
Co. as additional surety, but it provided that the liability of the surety company would attach only
when there had been an actual sale of iron ore by the Larap Mines & Smelting Co. for an
amount of not less then P65,000.00, and that, furthermore, the liability of said surety company
would automatically expire on December 8, 1955. Both bonds were attached to the "Revocation
of Power of Attorney and Contract", Exhibit "A", and made integral parts thereof.

On the same day that Fonacier revoked the power of attorney he gave to Gaite and the two
executed and signed the "Revocation of Power of Attorney and Contract", Exhibit "A", Fonacier
entered into a "Contract of Mining Operation", ceding, transferring, and conveying unto the
Larap Mines and Smelting Co., Inc. the right to develop, exploit, and explore the mining claims
in question, together with the improvements therein and the use of the name "Larap Iron Mines"
and its good will, in consideration of certain royalties. Fonacier likewise transferred, in the same
document, the complete title to the approximately 24,000 tons of iron ore which he acquired
from Gaite, to the Larap & Smelting Co., in consideration for the signing by the company and its
stockholders of the surety bonds delivered by Fonacier to Gaite (Record on Appeal, pp. 82-94).

Up to December 8, 1955, when the bond Exhibit "B" expired with respect to the Far Eastern
Surety and Insurance Company, no sale of the approximately 24,000 tons of iron ore had been
made by the Larap Mines & Smelting Co., Inc., nor had the P65,000.00 balance of the price of
said ore been paid to Gaite by Fonacier and his sureties payment of said amount, on the theory
that they had lost right to make use of the period given them when their bond, Exhibit "B"
automatically expired (Exhibits "C" to "C-24"). And when Fonacier and his sureties failed to pay
as demanded by Gaite, the latter filed the present complaint against them in the Court of First
Instance of Manila (Civil Case No. 29310) for the payment of the P65,000.00 balance of the
price of the ore, consequential damages, and attorney's fees.
All the defendants except Francisco Dante set up the uniform defense that the obligation sued
upon by Gaite was subject to a condition that the amount of P65,000.00 would be payable out of
the first letter of credit covering the first shipment of iron ore and/or the first amount derived from
the local sale of the iron ore by the Larap Mines & Smelting Co., Inc.; that up to the time of the
filing of the complaint, no sale of the iron ore had been made, hence the condition had not yet
been fulfilled; and that consequently, the obligation was not yet due and demandable.
Defendant Fonacier also contended that only 7,573 tons of the estimated 24,000 tons of iron ore
sold to him by Gaite was actually delivered, and counterclaimed for more than P200,000.00
damages.

At the trial of the case, the parties agreed to limit the presentation of evidence to two issues:

(1) Whether or not the obligation of Fonacier and his sureties to pay Gaite P65,000.00 become
due and demandable when the defendants failed to renew the surety bond underwritten by the
Far Eastern Surety and Insurance Co., Inc. (Exhibit "B"), which expired on December 8, 1955;
and

(2) Whether the estimated 24,000 tons of iron ore sold by plaintiff Gaite to defendant Fonacier
were actually in existence in the mining claims when these parties executed the "Revocation of
Power of Attorney and Contract", Exhibit "A."

On the first question, the lower court held that the obligation of the defendants to pay plaintiff the
P65,000.00 balance of the price of the approximately 24,000 tons of iron ore was one with a
term: i.e., that it would be paid upon the sale of sufficient iron ore by defendants, such sale to be
effected within one year or before December 8, 1955; that the giving of security was a condition
precedent to Gait's giving of credit to defendants; and that as the latter failed to put up a good
and sufficient security in lieu of the Far Eastern Surety bond (Exhibit "B") which expired on
December 8, 1955, the obligation became due and demandable under Article 1198 of the New
Civil Code.

As to the second question, the lower court found that plaintiff Gaite did have approximately
24,000 tons of iron ore at the mining claims in question at the time of the execution of the
contract Exhibit "A."

Judgment was, accordingly, rendered in favor of plaintiff Gaite ordering defendants to pay him,
jointly and severally, P65,000.00 with interest at 6% per annum from December 9, 1955 until
payment, plus costs. From this judgment, defendants jointly appealed to this Court.

During the pendency of this appeal, several incidental motions were presented for resolution: a
motion to declare the appellants Larap Mines & Smelting Co., Inc. and George Krakower in
contempt, filed by appellant Fonacier, and two motions to dismiss the appeal as having become
academic and a motion for new trial and/or to take judicial notice of certain documents, filed by
appellee Gaite. The motion for contempt is unmeritorious because the main allegation therein
that the appellants Larap Mines & Smelting Co., Inc. and Krakower had sold the iron ore here in
question, which allegedly is "property in litigation", has not been substantiated; and even if true,
does not make these appellants guilty of contempt, because what is under litigation in this
appeal is appellee Gaite's right to the payment of the balance of the price of the ore, and not the
iron ore itself. As for the several motions presented by appellee Gaite, it is unnecessary to
resolve these motions in view of the results that we have reached in this case, which we shall
hereafter discuss.
The main issues presented by appellants in this appeal are:

(1) that the lower court erred in holding that the obligation of appellant Fonacier to pay appellee
Gaite the P65,000.00 (balance of the price of the iron ore in question)is one with a period or
term and not one with a suspensive condition, and that the term expired on December 8, 1955;
and

(2) that the lower court erred in not holding that there were only 10,954.5 tons in the stockpiles
of iron ore sold by appellee Gaite to appellant Fonacier.

The first issue involves an interpretation of the following provision in the contract Exhibit "A":

7. That Fernando Gaite or Larap Iron Mines hereby transfers to Isabelo F. Fonacier all his rights
and interests over the 24,000 tons of iron ore, more or less, above-referred to together with all
his rights and interests to operate the mine in consideration of the sum of SEVENTY-FIVE
THOUSAND PESOS (P75,000.00) which the latter binds to pay as follows:

a. TEN THOUSAND PESOS (P10,000.00) will be paid upon the signing of this agreement.

b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00)will be paid from and out of
the first letter of credit covering the first shipment of iron ore made by the Larap Mines &
Smelting Co., Inc., its assigns, administrators, or successors in interest.

We find the court below to be legally correct in holding that the shipment or local sale of the iron
ore is not a condition precedent (or suspensive) to the payment of the balance of P65,000.00,
but was only a suspensive period or term. What characterizes a conditional obligation is the fact
that its efficacy or obligatory force (as distinguished from its demandability) is subordinated to
the happening of a future and uncertain event; so that if the suspensive condition does not take
place, the parties would stand as if the conditional obligation had never existed. That the parties
to the contract Exhibit "A" did not intend any such state of things to prevail is supported by
several circumstances:

1) The words of the contract express no contingency in the buyer's obligation to pay: "The
balance of Sixty-Five Thousand Pesos (P65,000.00) will be paid out of the first letter of credit
covering the first shipment of iron ores . . ." etc. There is no uncertainty that the payment will
have to be made sooner or later; what is undetermined is merely the exact date at which it will
be made. By the very terms of the contract, therefore, the existence of the obligation to pay is
recognized; only its maturity or demandability is deferred.

2) A contract of sale is normally commutative and onerous: not only does each one of the
parties assume a correlative obligation (the seller to deliver and transfer ownership of the thing
sold and the buyer to pay the price),but each party anticipates performance by the other from
the very start. While in a sale the obligation of one party can be lawfully subordinated to an
uncertain event, so that the other understands that he assumes the risk of receiving nothing for
what he gives (as in the case of a sale of hopes or expectations, emptio spei), it is not in the
usual course of business to do so; hence, the contingent character of the obligation must clearly
appear. Nothing is found in the record to evidence that Gaite desired or assumed to run the risk
of losing his right over the ore without getting paid for it, or that Fonacier understood that Gaite
assumed any such risk. This is proved by the fact that Gaite insisted on a bond a to guarantee
payment of the P65,000.00, an not only upon a bond by Fonacier, the Larap Mines & Smelting
Co., and the company's stockholders, but also on one by a surety company; and the fact that
appellants did put up such bonds indicates that they admitted the definite existence of their
obligation to pay the balance of P65,000.00.

3) To subordinate the obligation to pay the remaining P65,000.00 to the sale or shipment of the
ore as a condition precedent, would be tantamount to leaving the payment at the discretion of
the debtor, for the sale or shipment could not be made unless the appellants took steps to sell
the ore. Appellants would thus be able to postpone payment indefinitely. The desireability of
avoiding such a construction of the contract Exhibit "A" needs no stressing.

4) Assuming that there could be doubt whether by the wording of the contract the parties
indented a suspensive condition or a suspensive period (dies ad quem) for the payment of the
P65,000.00, the rules of interpretation would incline the scales in favor of "the greater reciprocity
of interests", since sale is essentially onerous. The Civil Code of the Philippines, Article 1378,
paragraph 1, in fine, provides:

If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of
interests.

and there can be no question that greater reciprocity obtains if the buyer' obligation is deemed
to be actually existing, with only its maturity (due date) postponed or deferred, that if such
obligation were viewed as non-existent or not binding until the ore was sold.

The only rational view that can be taken is that the sale of the ore to Fonacier was a sale on
credit, and not an aleatory contract where the transferor, Gaite, would assume the risk of not
being paid at all; and that the previous sale or shipment of the ore was not a suspensive
condition for the payment of the balance of the agreed price, but was intended merely to fix the
future date of the payment.

This issue settled, the next point of inquiry is whether appellants, Fonacier and his sureties, still
have the right to insist that Gaite should wait for the sale or shipment of the ore before receiving
payment; or, in other words, whether or not they are entitled to take full advantage of the period
granted them for making the payment.

We agree with the court below that the appellant have forfeited the right court below that the
appellants have forfeited the right to compel Gaite to wait for the sale of the ore before receiving
payment of the balance of P65,000.00, because of their failure to renew the bond of the Far
Eastern Surety Company or else replace it with an equivalent guarantee. The expiration of the
bonding company's undertaking on December 8, 1955 substantially reduced the security of the
vendor's rights as creditor for the unpaid P65,000.00, a security that Gaite considered essential
and upon which he had insisted when he executed the deed of sale of the ore to Fonacier
(Exhibit "A"). The case squarely comes under paragraphs 2 and 3 of Article 1198 of the Civil
Code of the Philippines:

"ART. 1198. The debtor shall lose every right to make use of the period:

(1) . . .

(2) When he does not furnish to the creditor the guaranties or securities which he has promised.
(3) When by his own acts he has impaired said guaranties or securities after their
establishment, and when through fortuitous event they disappear, unless he immediately gives
new ones equally satisfactory.

Appellants' failure to renew or extend the surety company's bond upon its expiration plainly
impaired the securities given to the creditor (appellee Gaite), unless immediately renewed or
replaced.

There is no merit in appellants' argument that Gaite's acceptance of the surety company's bond
with full knowledge that on its face it would automatically expire within one year was a waiver of
its renewal after the expiration date. No such waiver could have been intended, for Gaite stood
to lose and had nothing to gain barely; and if there was any, it could be rationally explained only
if the appellants had agreed to sell the ore and pay Gaite before the surety company's bond
expired on December 8, 1955. But in the latter case the defendants-appellants' obligation to pay
became absolute after one year from the transfer of the ore to Fonacier by virtue of the deed
Exhibit "A.".

All the alternatives, therefore, lead to the same result: that Gaite acted within his rights in
demanding payment and instituting this action one year from and after the contract (Exhibit "A")
was executed, either because the appellant debtors had impaired the securities originally given
and thereby forfeited any further time within which to pay; or because the term of payment was
originally of no more than one year, and the balance of P65,000.00 became due and payable
thereafter.

Coming now to the second issue in this appeal, which is whether there were really 24,000 tons
of iron ore in the stockpiles sold by appellee Gaite to appellant Fonacier, and whether, if there
had been a short-delivery as claimed by appellants, they are entitled to the payment of
damages, we must, at the outset, stress two things:first, that this is a case of a sale of a specific
mass of fungible goods for a single price or a lump sum, the quantity of "24,000 tons of iron ore,
more or less," stated in the contract Exhibit "A," being a mere estimate by the parties of the total
tonnage weight of the mass; and second, that the evidence shows that neither of the parties had
actually measured of weighed the mass, so that they both tried to arrive at the total quantity by
making an estimate of the volume thereof in cubic meters and then multiplying it by the
estimated weight per ton of each cubic meter.

The sale between the parties is a sale of a specific mass or iron ore because no provision was
made in their contract for the measuring or weighing of the ore sold in order to complete or
perfect the sale, nor was the price of P75,000,00 agreed upon by the parties based upon any
such measurement.(see Art. 1480, second par., New Civil Code). The subject matter of the sale
is, therefore, a determinate object, the mass, and not the actual number of units or tons
contained therein, so that all that was required of the seller Gaite was to deliver in good faith to
his buyer all of the ore found in the mass, notwithstanding that the quantity delivered is less than
the amount estimated by them (Mobile Machinery & Supply Co., Inc. vs. York Oilfield Salvage
Co., Inc. 171 So. 872, applying art. 2459 of the Louisiana Civil Code). There is no charge in this
case that Gaite did not deliver to appellants all the ore found in the stockpiles in the mining
claims in questions; Gaite had, therefore, complied with his promise to deliver, and appellants in
turn are bound to pay the lump price.

But assuming that plaintiff Gaite undertook to sell and appellants undertook to buy, not a definite
mass, but approximately 24,000 tons of ore, so that any substantial difference in this quantity
delivered would entitle the buyers to recover damages for the short-delivery, was there really a
short-delivery in this case?

We think not. As already stated, neither of the parties had actually measured or weighed the
whole mass of ore cubic meter by cubic meter, or ton by ton. Both parties predicate their
respective claims only upon an estimated number of cubic meters of ore multiplied by the
average tonnage factor per cubic meter.

Now, appellee Gaite asserts that there was a total of 7,375 cubic meters in the stockpiles of ore
that he sold to Fonacier, while appellants contend that by actual measurement, their witness
Cirpriano Manlañgit found the total volume of ore in the stockpiles to be only 6.609 cubic
meters. As to the average weight in tons per cubic meter, the parties are again in disagreement,
with appellants claiming the correct tonnage factor to be 2.18 tons to a cubic meter, while
appellee Gaite claims that the correct tonnage factor is about 3.7.

In the face of the conflict of evidence, we take as the most reliable estimate of the tonnage
factor of iron ore in this case to be that made by Leopoldo F. Abad, chief of the Mines and
Metallurgical Division of the Bureau of Mines, a government pensionado to the States and a
mining engineering graduate of the Universities of Nevada and California, with almost 22 years
of experience in the Bureau of Mines. This witness placed the tonnage factor of every cubic
meter of iron ore at between 3 metric tons as minimum to 5 metric tons as maximum. This
estimate, in turn, closely corresponds to the average tonnage factor of 3.3 adopted in his
corrected report (Exhibits "FF" and FF-1") by engineer Nemesio Gamatero, who was sent by the
Bureau of Mines to the mining claims involved at the request of appellant Krakower, precisely to
make an official estimate of the amount of iron ore in Gaite's stockpiles after the dispute arose.

Even granting, then, that the estimate of 6,609 cubic meters of ore in the stockpiles made by
appellant's witness Cipriano Manlañgit is correct, if we multiply it by the average tonnage factor
of 3.3 tons to a cubic meter, the product is 21,809.7 tons, which is not very far from the estimate
of 24,000 tons made by appellee Gaite, considering that actual weighing of each unit of the
mass was practically impossible, so that a reasonable percentage of error should be allowed
anyone making an estimate of the exact quantity in tons found in the mass. It must not be
forgotten that the contract Exhibit "A" expressly stated the amount to be 24,000 tons, more or
less. (ch. Pine River Logging & Improvement Co. vs U.S., 279, 46 L. Ed. 1164).

There was, consequently, no short-delivery in this case as would entitle appellants to the
payment of damages, nor could Gaite have been guilty of any fraud in making any
misrepresentation to appellants as to the total quantity of ore in the stockpiles of the mining
claims in question, as charged by appellants, since Gaite's estimate appears to be substantially
correct.

WHEREFORE, finding no error in the decision appealed from, we hereby affirm the same, with
costs against appellants.

Bengzon, C.J., Padilla, Labrador, Concepcion, Barrera, Paredes, Dizon, De Leon and Natividad,
JJ., concur.
G.R. No. 141811 November 15, 2001

FIRST METRO INVESTMENT CORPORATION, petitioner,

vs.
ESTE DEL SOL MOUNTAIN RESERVE, INC., VALENTIN S. DAEZ, JR., MANUEL Q.
SALIENTES, MA. ROCIO A. DE VEGA, ALEXANDER G. ASUNCION, ALBERTO * M.
LADORES, VICENTE M. DE VERA, JR., and FELIPE B. SESE, respondents.

DE LEON, JR., J.:

Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals2 dated
November 8, 1999 in CA-G.R. CV No. 53328 reversing the Decision3 of the Regional Trial Court
of Pasig City, Branch 159 dated June 2, 1994 in Civil Case No. 39224. Essentially, the Court of
Appeals found and declared that the fees provided for in the Underwriting and Consultancy
Agreements executed by and between petitioner First Metro Investment Corp. (FMIC) and
respondent Este del Sol Mountain Reserve, Inc. (Este del Sol) simultaneously with the Loan
Agreement dated January 31, 1978 were mere subterfuges to camouflage the usurious interest
charged by petitioner FMIC.

The facts of the case are as follows:

It appears that on January 31, 1978, petitioner FMIC granted respondent Este del Sol a loan of
Seven Million Three Hundred Eighty-Five Thousand Five Hundred Pesos (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.4

Under the terms of the Loan Agreement, the proceeds of the loan were to be released on
staggered basis. Interest on the loan was pegged at sixteen (16%) percent per annum based on
the diminishing balance. The loan was payable in thirty-six (36) equal and consecutive monthly
amortizations to commence at the beginning of the thirteenth month from the date of the first
release in accordance with the Schedule of Amortization.5 In case of default, an acceleration
clause was, among others, provided and the amount due was made subject to a twenty (20%)
percent one-time penalty on the amount due and such amount shall bear interest at the highest
rate permitted by law from the date of default until full payment thereof plus liquidated damages
at the rate of two (2%) percent per month compounded quarterly on the unpaid balance and
accrued interests together with all the penalties, fees, expenses or charges thereon until the
unpaid balance is fully paid, plus attorney's fees equivalent to twenty-five (25%) percent of the
sum sought to be recovered, which in no case shall be less than Twenty Thousand Pesos
(P20,000.00) if the services of a lawyer were hired.6

In accordance with the terms of the Loan Agreement, respondent Este del Sol executed several
documents7 as security for payment, among them, (a) a Real Estate Mortgage dated January
31, 1978 over two (2) parcels of land being utilized as the site of its development project with an
area of approximately One Million Twenty-Eight Thousand and Twenty-Nine (1,028,029) square
meters and particularly described in TCT Nos. N-24332 and N-24356 of the Register of Deeds
of Rizal, inclusive of all improvements, as well as all the machineries, equipment, furnishings
and furnitures existing thereon; and (b) individual Continuing Suretyship agreements by co-
respondents Valentin S. Daez, Jr., Manuel Q. Salientes, Ma. Rocio A. De Vega, Alexander G.
Asuncion, Alberto M. Ladores, Vicente M. De Vera, Jr. and Felipe B. Sese, all dated February 2,
1978, to guarantee the payment of all the obligations of respondent Este del Sol up to the
aggregate sum of Seven Million Five Hundred Thousand Pesos (P7,500,000.00) each.8

Respondent Este del Sol also executed, as provided for by the Loan Agreement, an
Underwriting Agreement on January 31, 1978 whereby petitioner FMIC shall underwrite on a
best-efforts basis the public offering of One Hundred Twenty Thousand (120,000) common
shares of respondent Este del Sol's capital stock for a one-time underwriting fee of Two
Hundred Thousand Pesos (P200,000.00). In addition to the underwriting fee, the Underwriting
Agreement provided that for supervising the public offering of the shares, respondent Este del
Sol shall pay petitioner FMIC an annual supervision fee of Two Hundred Thousand Pesos
(P200,000.00) per annum for a period of four (4) consecutive years. The Underwriting
Agreement also stipulated for the payment by respondent Este del Sol to petitioner FMIC a
consultancy fee of Three Hundred Thirty-Two Thousand Five Hundred Pesos (P332,500.00) per
annum for a period of four (4) consecutive years. Simultaneous with the execution of and in
accordance with the terms of the Underwriting Agreement, a Consultancy Agreement was also
executed on January 31, 1978 whereby respondent Este del Sol engaged the services of
petitioner FMIC for a fee as consultant to render general consultancy services.9

In three (3) letters all dated February 22, 1978 petitioner billed respondent Este del Sol for the
amounts of [a] Two Hundred Thousand Pesos (P200,000.00) as the underwriting fee of
petitioner FMIC in connection with the public offering of the common shares of stock of
respondent Este del Sol; [b] One Million Three Hundred Thirty Thousand Pesos
(P1,330,000.00) as consultancy fee for a period of four (4) years; and [c] Two Hundred
Thousand Pesos (P200,000.00) as supervision fee for the year beginning February, 1978, in
accordance to the Underwriting Agreement.10 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 appeared to have incurred a total obligation of Twelve
Million Six Hundred Seventy-Nine Thousand Six Hundred Thirty Pesos and Ninety-Eight
Centavos (P12,679,630.98) per the petitioner's Statement of Account dated June 23, 1980,11 to
wit:

STATEMENT OF ACCOUNT OF ESTE DEL SOL MOUNTAIN RESERVE,

INC.
AS OF JUNE 23, 1980
PARTICULARS AMOUNT
Total amount due as of 11-22-78 per revised amortization
schedule dated 1-3-78 P7,999,631.42
Interest on P7,999,631.42 @ 16% p.a. from 11-22-78 to
2-22-79 (92 days) 327,096.04
Balance 8,326,727.46
One time penalty of 20% of the entire unpaid obligations
under Section 6.02 (ii) of Loan Agreement 1,665,345.49
Past due interest under Section 6.02 (iii) of loan 1,481,879.93
Agreement: 1,200,714.10
 @ 19% p.a. from 2-22-79 to 11-30-79 (281 days)
@ 21% p.a. from 11-30-79 to 6-23-80 (206 days)
Other charges — publication of extra judicial foreclosure
of REM made on 5-23-80 & 6-6-80 4,964.00
Total Amount Due and Collectible as of June 23, 1980 P12,679,630.98

Accordingly, petitioner FMIC caused the extrajudicial foreclosure of the real estate mortgage on
June 23, 1980.12At the public auction, petitioner FMIC was the highest bidder of the mortgaged
properties for Nine Million Pesos (P9,000,000.00). The total amount of Three Million One
Hundred Eighty-Eight Thousand Six Hundred Thirty Pesos and Seventy-Five Centavos
(P3,188,630.75) was deducted therefrom, that is, for the publication fee for the publication of the
Sheriff's Notice of Sale, Four Thousand Nine Hundred Sixty-Four Pesos (P4,964.00); for
Sheriff's fees for conducting the foreclosure proceedings, Fifteen Thousand Pesos
(P15,000.00); and for Attorney's fees, Three Million One Hundred Sixty-Eight Thousand Six
Hundred Sixty-Six Pesos and Seventy-Five Centavos (P3,168,666.75). The remaining balance
of Five Million Eight Hundred Eleven Thousand Three Hundred Sixty-Nine Pesos and Twenty-
Five Centavos (P5,811,369.25) was applied to interests and penalty charges and partly against
the principal, due as of June 23, 1980, thereby leaving a balance of Six Million Eight Hundred
Sixty-Three Thousand Two Hundred Ninety-Seven Pesos and Seventy-Three Centavos
(P6,863,297.73) on the principal amount of the loan as of June 23, 1980.13

Failing to secure from the individual respondents, as sureties of the loan of respondent Este del
Sol by virtue of their continuing surety agreements, the payment of the alleged deficiency
balance, despite individual demands sent to each of them,14 petitioner instituted on November
11, 1980 the instant collection suit15 against the respondents to collect the alleged deficiency
balance of Six Million Eight Hundred Sixty-Three Thousand Two Hundred Ninety-Seven Pesos
and Seventy-Three Centavos (P6,863,297.73) plus interest thereon at twenty-one (21%)
percent per annum from June 24, 1980 until fully paid, and twenty-five (25%) percent thereof as
and for attorney's fees and costs.

In their Answer, the respondents sought the dismissal of the case and set up several special
and affirmative defenses, foremost of which is 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.16

The petitioner FMIC presented as its witnesses during the trial: Cesar Valenzuela, its former
Senior Vice-President, Felipe Neri, its Vice-President for Marketing, and Dennis Aragon, an
Account Manager of its Account Management Group, as well as documentary evidence. On the
other hand, co-respondents Vicente M. De Vera, Jr. and Valentin S. Daez, Jr., and Perfecto
Doroja, former Senior Manager and Assistant Vice-President of FMIC, testified for the
respondents.

After the trial, the trial court rendered its decision in favor of petitioner FMIC, the dispositive
portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendants,

ordering defendants jointly and severally to pay to plaintiff the amount of P6,863,297.73
 plus 21% interest per annum, from June 24, 1980, until the entire amount is fully paid,
plus the amount equivalent to 25% of the total amount due, as attorney's fees, plus costs
of suit.

Defendants' counterclaims are dismissed, for lack of merit.

Finding the decision of the trial court unacceptable, respondents interposed an appeal to the
Court of Appeals. On November 8, 1999, the appellate court reversed the challenged decision
of the trial court. The appellate court found and declared that the fees provided for in the
Underwriting and Consultancy Agreements were mere subterfuges to camouflage the
excessively usurious interest charged by the petitioner FMIC on the loan of respondent Este del
Sol; and that the stipulated penalties, liquidated damages and attorney's fees were "excessive,
iniquitous, unconscionable and revolting to the conscience," and declared that in lieu thereof,
the stipulated one time twenty (20%) percent penalty on the amount due and ten (10%) percent
of the amount due as attorney's fees would be reasonable and suffice to compensate petitioner
FMIC for those items. Thus, the appellate court dismissed the complaint as against the
individual respondents sureties and ordered petitioner FMIC to pay or reimburse respondent
Este del Sol the amount of Nine Hundred Seventy-One Thousand Pesos (P971,000.00)
representing the difference between what is due to the petitioner and what is due to respondent
Este del Sol, based on the following computation:17

A: DUE TO THE [PETITIONER]

Principal of Loan P7,382,500.00
Add: 20% one-time
Penalty 1,476,500.00
Attorney's fees 900,000.00 P9,759,000.00
Less: Proceeds of foreclosure Sale 9,000,000.00
Deficiency P759,000.00
B. DUE TO [RESPONDENT ESTE DEL SOL]
Return of usurious interest in the
form of:
Underwriting fee P 200,000.00
Supervision fee 200,000.00
Consultancy fee 1,330,000.00
Total amount due Este P1,730,000.00

The appellee is, therefore, obliged to return to the appellant Este del Sol the difference
of P971,000.00 or (P1,730,000.00 less P759,000.00).

Petitioner moved for reconsideration of the appellate court's adverse decision. However, this
was denied in a Resolution18 dated February 9, 2000 of the appellate court.

Hence, the instant petition anchored on the following assigned errors:19

THE APPELLATE COURT HAS DECIDED QUESTIONS OF SUBSTANCE IN A WAY NOT IN

ACCORD WITH LAW AND WITH APPLICABLE DECISIONS OF THIS HONORABLE COURT
WHEN IT:
 a] HELD THAT ALLEGEDLY THE UNDERWRITING AND CONSULTANCY
AGREEMENTS SHOULD NOT BE CONSIDERED SEPARATE AND DISTINCT FROM
THE LOAN AGREEMENT, AND INSTEAD, THEY SHOULD BE CONSIDERED AS A
SINGLE CONTRACT.

b] HELD THAT THE UNDERWRITING AND CONSULTANCY AGREEMENTS ARE

"MERE SUBTERFUGES TO CAMOUFLAGE THE USURIOUS INTEREST CHARGED"
BY THE PETITIONER.

c] REFUSED TO CONSIDER THE TESTIMONIES OF PETITIONER'S WITNESSES ON

THE SERVICES PERFORMED BY PETITIONER.

d] REFUSED TO CONSIDER THE FACT [i] THAT RESPONDENTS HAD WAIVED

THEIR RIGHT TO SEEK RECOVERY OF THE AMOUNTS THEY PAID TO
PETITIONER, AND [ii] THAT RESPONDENTS HAD ADMITTED THE VALIDITY OF
THE UNDERWRITING AND CONSULTANCY AGREEMENTS.

e] MADE AN ERRONEOUS COMPUTATION ON SUPPOSEDLY "WHAT IS DUE TO

EACH PARTY AFTER THE FORECLOSURE SALE", AS SHOWN IN PP. 34-35 OF THE
ASSAILED DECISION, EVEN GRANTING JUST FOR THE SAKE OF ARGUMENT
THAT THE APPELLATE COURT WAS CORRECT IN STIGMATIZING [i] THE
PROVISIONS OF THE LOAN AGREEMENT THAT REFER TO STIPULATED
PENALTIES, LIQUIDATED DAMAGES AND ATTORNEY'S FEES AS SUPPOSEDLY
"EXCESSIVE, INIQUITOUS AND UNCONSCIONABLE AND REVOLTING TO THE
CONSCIENCE" AND [ii] THE UNDERWRITING, SUPERVISION AND CONSULTANCY
SERVICES AGREEMENT AS SUPPOSEDLY "MERE SUBTERFUGES TO
CAMOUFLAGE THE USURIOUS INTEREST CHARGED" UPON THE RESPONDENT
ESTE BY PETITIONER.

f] REFUSED TO CONSIDER THE FACT THAT RESPONDENT ESTE, AND THUS THE
INDIVIDUAL RESPONDENTS, ARE STILL OBLIGATED TO THE PETITIONER.

Petitioner essentially assails the factual findings and conclusion of the appellate court that the
Underwriting and Consultancy Agreements were executed to conceal a usurious loan. Inquiry
upon the veracity of the appellate court's factual findings and conclusion is not the function of
this Court for the Supreme Court is not a trier of facts. Only when the factual findings of the trial
court and the appellate court are opposed to each other does this Court exercise its discretion
to re-examine the factual findings of both courts and weigh which, after considering the record
of the case, is more in accord with law and justice.

After a careful and thorough review of the record including the evidence adduced, we find no
reason to depart from the findings of the appellate court.

First, there is no merit to petitioner FMIC's 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.20 More significantly, Central Bank Circular No. 905 did not
repeal nor in any way amend the Usury Law but simply suspended the latter's effectivity.21 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.22 Thus, retroactive application of a Central Bank
Circular cannot, and should not, be presumed.23

Second, when a contract between two (2) parties is evidenced by a written instrument, such
document is ordinarily the best evidence of the terms of the contract. Courts only need to rely on
the face of written contracts to determine the intention of the parties. However, this rule is not
without exception.24 The form of the contract is not conclusive for the law will not permit a
usurious loan to hide itself behind a legal form. Parol evidence is admissible to show that a
written document though legal in form was in fact a device to cover usury. 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.25

In the instant case, several facts and circumstances taken altogether show that the Underwriting
and Consultancy Agreements were simply cloaks or devices to cover an illegal scheme
employed by petitioner FMIC to conceal and collect excessively usurious interest, and these
are:

a) The Underwriting and Consultancy Agreements are both dated January 31, 1978 which is the
same date of the Loan Agreement.26 Furthermore, under the Underwriting Agreement payment
of the supervision and consultancy fees was set for a period of four (4) years27 to coincide
ultimately with the term of the Loan Agreement.28 This fact means that all the said agreements
which were executed simultaneously were set to mature or shall remain effective during the
same period of time.

b) The Loan Agreement dated January 31, 1978 stipulated for the execution and delivery of an
underwriting agreement29 and specifically mentioned that such underwriting agreement is a
condition precedent30 for petitioner FMIC to extend the loan to respondent Este del Sol,
indicating and as admitted by petitioner FMIC's employees,31 that such Underwriting Agreement
is "part and parcel of the Loan Agreement."32

c) Respondent Este del Sol was billed by petitioner on February 28, 1978 One Million Three
Hundred Thirty Thousand Pesos (P1,330,000.00)33 as consultancy fee despite the clear
provision in the Consultancy Agreement that the said agreement is for Three Hundred Thirty-
Two Thousand Five Hundred Pesos (P332,500.00) per annum for four (4) years and that only
the first year consultancy fee shall be due upon signing of the said consultancy agreement.34

d) The Underwriting, Supervision and Consultancy fees in the amounts of Two Hundred
Thousand Pesos (P200,000.00), and one Million Three Hundred Thirty Thousand Pesos
(P1,330,000.00), respectively, were billed by petitioner to respondent Este del Sol on February
22, 1978,35 that is, on the same occasion of the first partial release of the loan in the amount of
Two Million Three Hundred Eighty-Two Thousand Five Hundred Pesos (P2,382,500.00).36 It is
from this first partial release of the loan that the said corresponding bills for Underwriting,
Supervision and Constantly fees were conducted and apparently paid, thus, reverting back to
petitioner FMIC the total amount of One Million Seven Hundred Thirty Thousand Pesos
(P1,730,000.00) as part of the amount loaned to respondent Este del Sol.37

e) Petitioner FMIC was in fact unable to organize an underwriting/selling syndicate to sell any
share of stock of respondent Este del Sol and much less to supervise such a syndicate, thus
failing to comply with its obligation under the Underwriting Agreement. 38 Besides, there was
really no need for an Underwriting Agreement since respondent Este del Sol had its own
licensed marketing arm to sell its shares and all its shares have been sold through its marketing
arm.39

f) Petitioner FMIC failed to comply with its obligation under the Consultancy Agreement, 40 aside
from the fact that there was no need for a Consultancy Agreement, since respondent Este del
Sol's officers appeared to be more competent to be consultants in the development of the
projected sports/resort complex.41

All the foregoing established facts and circumstances clearly belie the contention of petitioner
FMIC that the Loan, Underwriting and Consultancy Agreements are separate and independent
transactions. The Underwriting and Consultancy Agreements which were executed and
delivered contemporaneously with the Loan Agreement on January 31, 1978 were exacted by
petitioner FMIC as essential conditions for the grant of the loan. 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 lender's services
which are of little value or which are not in fact to be rendered, such as in the instant case. 42 In
this connection, Article 1957 of the New Civil Code clearly provides that:

Art. 1957. Contracts and stipulations, under any cloak or device whatever, intended to
circumvent the laws against usury shall be void. The borrower may recover in
accordance with the laws on usury.

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 Co., Inc. v. Chelda Enterprises44 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 lender's 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.45

This Court agrees with the factual findings and conclusion of the appellate court, to wit:

We find the stipulated penalties, liquidated damages and attorney's fees, excessive,
iniquitous and unconscionable and revolting to the conscience as they hardly allow the
borrower any chance of survival in case of default. And true enough, ESTE folded up
when the appellee extrajudicially foreclosed on its (ESTE's) development project and
literally closed its offices as both the appellee and ESTE were at the time holding office
in the same building. Accordingly, we hold that 20% penalty on the amount due and 10%
of the proceeds of the foreclosure sale as attorney's fees would suffice to compensate
the appellee, especially so because there is no clear showing that the appellee hired the
 services of counsel to effect the foreclosure, it engaged counsel only when it was
seeking the recovery of the alleged deficiency.

Attorney's fees as provided in penal clauses are in the nature of liquidated damages. So long as
such stipulation does not contravene any law, morals, or public order, it is binding upon the
parties. Nonetheless, courts are empowered to reduce the amount of attorney's fees if the same
is "iniquitous or unconscionable."46 Articles 1229 and 2227 of the New Civil Code provide that:

Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has
been partly or irregularly complied with by the debtor. Even if there has been no
performance, the penalty may also be reduced by the courts if it is iniquitous or
unconscionable.

Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be

equitably reduced if they are iniquitous or unconscionable.

In the case at bar, the amount of Three Million One Hundred Eighty-Eight Thousand Six
Hundred Thirty Pesos and Seventy-Five Centavos (93,188,630.75) for the stipulated attorney's
fees equivalent to twenty-five (25%) percent of the alleged amount due, as of the date of the
auction sale on June 23, 1980, is manifestly exorbitant and unconscionable. Accordingly, we
agree with the appellate court that a reduction of the attorney's fees to ten (10%) percent is
appropriate and reasonable under the facts and circumstances of this case.

Lastly, there is no merit to petitioner FMIC's contention that the appellate court erred in
awarding an amount allegedly not asked nor prayed for by respondents. Whether the exact
amount of the relief was not expressly prayed for is of no moment for the reason that the relief
was plainly warranted by the allegations of the respondents as well as by the facts as found by
the appellate court. A party is entitled to as much relief as the facts may warrant 47

In view of all the foregoing, the Court is convinced that the appellate court committed no
reversible error in its challenged Decision.

WHEREFORE, the instant petition is hereby DENIED, and the assailed Decision of the Court of
Appeals is AFFIRMED. Costs against petitioner.

SO ORDERED.

Bellosillo, Mendoza, Quisumbing, and Buena, JJ., concur.