Doctrine: 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. 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.
Facts:
The 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 of its sports/resort complex
project. Under the terms of the Loan Agreement, the proceeds of the loan were
to be released on installment basis with an interest of sixteen (16%) percent
per annum based on the diminishing balance.
The loan was payable in thirty-six (36) equal
and consecutive monthly and Iin case of default, an acceleration clause shall
apply 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.
However, the respondent failed to repay its
obligation, 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).
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 for Nine
Million Pesos (P9,000,000.00). A 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, 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). Thus, the petitioner demands for the
settlement of the obligations with the alleged deficiency balance, but despite
of it no avail was obtain.
The trial court rendered its decision in favor
of petitioner FMIC, against defendants, ordering them jointly and severally to
pay to plaintiff the unpaid balanced.
In contrast, the Appellate court reversed the
challenged decision of the trial court.
Issue: Whether
or not the loan agreement refers to stipulation penalties, liquidated damages
are excessive, iniquitous and unconscionable?
Held: 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. 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.
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.
In this case, this Court agrees with the
conclusion of the appellate court. 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.
WHEREFORE, the instant petition
is hereby DENIED, and the assailed Decision of the Court of Appeals is AFFIRMED.
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