GR 141811; (November, 2001) (Digest)
G.R. No. 141811; November 15, 2001
FIRST METRO INVESTMENT CORPORATION, petitioner, vs. ESTE DEL SOL MOUNTAIN RESERVE, INC., ET AL., respondents.
FACTS
Petitioner First Metro Investment Corporation (FMIC) granted respondent Este del Sol Mountain Reserve, Inc. a loan of P7,385,500.00 on January 31, 1978, secured by a real estate mortgage and suretyship agreements. The loan carried 16% annual interest and was payable in 36 monthly amortizations. Simultaneously, the parties executed an Underwriting Agreement and a Consultancy Agreement. Under these, FMIC was to receive a P200,000.00 underwriting fee, a P200,000.00 annual supervision fee for four years, and a P332,500.00 annual consultancy fee for four years. These fees, totaling P1,730,000.00, were deducted from the first loan release.
When Este del Sol defaulted, FMIC foreclosed the mortgage. The respondents then filed an action for annulment of the foreclosure and accounting, arguing the combined interest and fees constituted usury. The Regional Trial Court upheld the agreements, but the Court of Appeals reversed, declaring the fees a subterfuge for usurious interest.
ISSUE
Whether the underwriting and consultancy fees, when considered together with the stipulated loan interest, constituted a camouflaged usurious transaction.
RULING
Yes. The Supreme Court affirmed the Court of Appeals, ruling the fees were a device to conceal usury. The legal logic rests on the principle of substance over form. The Court examined the intrinsic nature and simultaneous execution of the agreements. The Consultancy Agreement was vague, describing services FMIC was already obligated to provide under the Loan Agreement, such as supervision of fund releases. Crucially, the fees were automatically deducted from the very first loan disbursement, meaning they were paid without any service being rendered, transforming them into an additional loan cost.
By adding these substantial, pre-deducted fees to the 16% nominal interest, the effective interest rate exceeded the legal ceiling at the time, which was 12% per annum under Central Bank Circular No. 416. The Court pierced the formal separate contracts to reveal a single usurious loan transaction. Consequently, the stipulations on the additional fees, as well as the excessive interest and penalties in the loan, were declared void. The obligation was reduced to the principal loan amount, with interest limited to the legal rate from the date of judicial demand.