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.