First Metro Investment Corporation vs. Este del Sol Mountain Reserve, Inc., et al.

Contracts executed contemporaneously with a loan and exacted as conditions for its grant may be treated as cloaks or devices to conceal usurious interest; the usurious interest stipulation is void, but the unpaid principal remains valid, and penalties or attorney's fees that are iniquitous or unconscionable may be equitably reduced.

First Metro Investment Corporation (FMIC) was a financing corporation, while Este del Sol Mountain Reserve, Inc. (Este del Sol) was developing a sports/resort complex in Barrio Puray, Montalban, Rizal. The individual respondents acted as sureties for Este del Sol's obligations. The loan and related agreements were executed on January 31, 1978, while the Usury Law was in full force. Central Bank Circular No. 905, which removed the ceiling on interest rates for secured and unsecured loans, took effect only on January 1, 1983.

On January 31, 1978, First Metro Investment Corporation (FMIC) granted Este del Sol Mountain Reserve, Inc. (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. Under the Loan Agreement, the proceeds were to be released on a staggered basis; interest was pegged at sixteen percent (16%) per annum based on the diminishing balance; and the loan was payable in thirty-six (36) equal and consecutive monthly amortizations commencing at the beginning of the thirteenth month from the date of the first release in accordance with the Schedule of Amortization. In case of default, the Loan Agreement provided for an acceleration clause and made the amount due subject to a twenty percent (20%) one-time penalty on the amount due, with such amount to bear interest at the highest rate permitted by law from the date of default until full payment, plus liquidated damages at two percent (2%) per month compounded quarterly on the unpaid balance and accrued interests together with all penalties, fees, expenses or charges thereon until fully paid, and attorney's fees equivalent to twenty-five percent (25%) 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.

As security, Este del Sol executed a Real Estate Mortgage dated January 31, 1978 over two 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 machineries, equipment, furnishings and furniture existing thereon. 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 each executed individual Continuing Suretyship agreements, all dated February 2, 1978, to guarantee payment of all the obligations of Este del Sol up to the aggregate sum of Seven Million Five Hundred Thousand Pesos (P7,500,000.00) each. Este del Sol also executed an Assignment of Receivables over all its receivables from sales of its shares/capital stock, an Assignment of Realty Rights and Interests over nine parcels of land, an Assignment of Subscription Rights, and a Voting Trust Agreement.

Also on January 31, 1978, as provided for by the Loan Agreement, Este del Sol executed an Underwriting Agreement whereby FMIC would underwrite on a best-efforts basis the public offering of One Hundred Twenty Thousand (120,000) common shares of 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 required Este del Sol to pay FMIC an annual supervision fee of Two Hundred Thousand Pesos (P200,000.00) per annum for four consecutive years and a consultancy fee of Three Hundred Thirty-Two Thousand Five Hundred Pesos (P332,500.00) per annum for four consecutive years. Simultaneous with and in accordance with the Underwriting Agreement, a Consultancy Agreement was executed on January 31, 1978 engaging FMIC's services as consultant to render general consultancy services. In three letters all dated February 22, 1978, FMIC billed Este del Sol Two Hundred Thousand Pesos (P200,000.00) as underwriting fee, One Million Three Hundred Thirty Thousand Pesos (P1,330,000.00) as consultancy fee for four years, and Two Hundred Thousand Pesos (P200,000.00) as supervision fee for the year beginning February 1978. The amounts were deemed paid by Este del Sol to FMIC, which deducted them from the first release of the loan. The decision also notes that Este del Sol was billed on February 28, 1978 for One Million Three Hundred Thirty Thousand Pesos (P1,330,000.00) as consultancy fee despite the Consultancy Agreement's provision for Three Hundred Thirty-Two Thousand Five Hundred Pesos (P332,500.00) per annum for four years and that only the first year consultancy fee was due upon signing.

Este del Sol failed to meet the schedule of repayment in accordance with a revised Schedule of Amortization. FMIC's Statement of Account dated June 23, 1980 showed a total obligation of Twelve Million Six Hundred Seventy-Nine Thousand Six Hundred Thirty Pesos and Ninety-Eight Centavos (P12,679,630.98), consisting of the total amount due as of November 22, 1978 per the revised amortization schedule dated January 3, 1978 in the amount of Seven Million Nine Hundred Ninety-Nine Thousand Six Hundred Thirty-One Pesos and Forty-Two Centavos (P7,999,631.42); interest on that amount at 16% per annum from November 22, 1978 to February 22, 1979 (92 days) in the amount of Three Hundred Twenty-Seven Thousand Ninety-Six Pesos and Four Centavos (P327,096.04); a balance of Eight Million Three Hundred Twenty-Six Thousand Seven Hundred Twenty-Seven Pesos and Forty-Six Centavos (P8,326,727.46); a one-time penalty of 20% of the entire unpaid obligations under Section 6.02(ii) of the Loan Agreement in the amount of One Million Six Hundred Sixty-Five Thousand Three Hundred Forty-Five Pesos and Forty-Nine Centavos (P1,665,345.49); past due interest under Section 6.02(iii) at 19% per annum from February 22, 1979 to November 30, 1979 (281 days) in the amount of One Million Four Hundred Eighty-One Thousand Eight Hundred Seventy-Nine Pesos and Ninety-Three Centavos (P1,481,879.93) and at 21% per annum from November 30, 1979 to June 23, 1980 (206 days) in the amount of One Million Two Hundred Thousand Seven Hundred Fourteen Pesos and Ten Centavos (P1,200,714.10); and other charges for publication of the extrajudicial foreclosure of the real estate mortgage made on May 23, 1980 and June 6, 1980 in the amount of Four Thousand Nine Hundred Sixty-Four Pesos (P4,964.00). Accordingly, FMIC caused the extrajudicial foreclosure of the real estate mortgage on June 23, 1980. At the public auction, FMIC was the highest bidder for the mortgaged properties at Nine Million Pesos (P9,000,000.00). From that amount, Three Million One Hundred Eighty-Eight Thousand Six Hundred Thirty Pesos and Seventy-Five Centavos (P3,188,630.75) was deducted for the publication fee of Four Thousand Nine Hundred Sixty-Four Pesos (P4,964.00), sheriff's fees of Fifteen Thousand Pesos (P15,000.00), and attorney's fees of 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, 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.

After failing to secure payment from the individual respondents, as sureties of Este del Sol's loan under their continuing surety agreements, despite individual demands sent to each of them, FMIC instituted a collection suit on November 11, 1980 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 at twenty-one percent (21%) per annum from June 24, 1980 until fully paid, and twenty-five percent (25%) thereof as attorney's fees and costs. In their Answer, the respondents sought dismissal and set up several special and affirmative defenses, foremost of which was that the Underwriting and Consultancy Agreements, executed simultaneously with and as integral parts of the Loan Agreement, were in reality subterfuges resorted to by FMIC and imposed upon Este del Sol to camouflage the usurious interest being charged by FMIC. During trial, FMIC presented 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. 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. The trial court found in favor of FMIC, but the Court of Appeals found that the fees provided for in the Underwriting and Consultancy Agreements were mere subterfuges to camouflage the excessively usurious interest charged by FMIC and that the stipulated penalties, liquidated damages, and attorney's fees were excessive, iniquitous, unconscionable, and revolting to the conscience.

• Retroactive Application of CB Circular No. 905: Petitioner contended that Central Bank Circular No. 905, effective January 1, 1983, which removed the ceiling on interest rates for secured and unsecured loans regardless of maturity, should be applied retroactively to the January 31, 1978 Loan Agreement.
• Separate and Distinct Agreements: Petitioner argued that the Court of Appeals erred in holding that the Underwriting and Consultancy Agreements should not be considered separate and distinct from the Loan Agreement and instead should be treated as a single contract.
• No Usurious Subterfuge: Petitioner maintained that the Court of Appeals erred in holding that the Underwriting and Consultancy Agreements were mere subterfuges to camouflage usurious interest.
• Services Actually Performed: Petitioner argued that the Court of Appeals refused to consider the testimonies of its witnesses on the services performed by petitioner.
• Waiver and Admission: Petitioner argued that the Court of Appeals refused to consider that respondents had waived their right to seek recovery of amounts paid to petitioner and had admitted the validity of the Underwriting and Consultancy Agreements.
• Erroneous Computation: Petitioner contended that the Court of Appeals made an erroneous computation of what was due to each party after the foreclosure sale, even assuming the appellate court was correct in stigmatizing the penalties, liquidated damages, and attorney's fees as excessive and the agreements as subterfuges.
• Continuing Obligation: Petitioner argued that the Court of Appeals refused to consider that Este del Sol, and thus the individual respondents, remained obligated to petitioner.
• Relief Not Prayed For: Petitioner contended that the Court of Appeals erred in awarding an amount not asked nor prayed for by respondents.

• Usurious Subterfuge: Respondents sought dismissal and set up special and affirmative defenses, foremost of which was that the Underwriting and Consultancy Agreements, executed simultaneously with and as integral parts of the Loan Agreement, were in reality subterfuges resorted to by FMIC and imposed upon Este del Sol to camouflage the usurious interest charged by FMIC.

• Retroactive Application of Central Bank Circular No. 905: Whether Central Bank Circular No. 905, effective January 1, 1983, may be applied retroactively to the January 31, 1978 Loan Agreement executed while the Usury Law was in force.
• Nature of the Underwriting and Consultancy Agreements: Whether the Underwriting and Consultancy Agreements executed simultaneously with the Loan Agreement are separate and distinct contracts or mere subterfuges to camouflage usurious interest.
• Parol Evidence and Usury: Whether parol evidence is admissible to show that written contracts, legal in form, were devices to cover usury.
• Reduction of Penalties, Liquidated Damages, and Attorney's Fees: Whether the stipulated penalties, liquidated damages, and attorney's fees are excessive, iniquitous, or unconscionable and should be equitably reduced.
• Liability of Individual Sureties and Deficiency: Whether respondents, including the individual sureties, remain liable for the alleged deficiency balance after foreclosure.
• Relief Not Expressly Prayed For: Whether the Court of Appeals erred in awarding an amount not expressly prayed for by respondents.

• Retroactive Application of Central Bank Circular No. 905: No. The circular cannot be applied retroactively to a contract executed on January 31, 1978 while the Usury Law was in force; laws in force at the time of contracting govern, and a Central Bank Circular cannot repeal a law.
• Nature of the Underwriting and Consultancy Agreements: They are not separate and distinct. The agreements were exacted as conditions for the loan and were mere cloaks or devices to conceal usurious interest, rendering the usurious stipulation void under Article 1957 of the New Civil Code.
• Parol Evidence and Usury: Yes. Although a written contract is ordinarily the best evidence of its terms, parol evidence is admissible to show that a written document legal in form was in fact a device to cover usury.
• Reduction of Penalties, Liquidated Damages, and Attorney's Fees: Yes. The stipulated penalties, liquidated damages, and attorney's fees were excessive and unconscionable; the 20% penalty was retained and attorney's fees were reduced to 10% under Articles 1229 and 2227 of the New Civil Code.
• Liability of Individual Sureties and Deficiency: No. The Court of Appeals dismissed the complaint against the individual sureties and, after invalidating the usurious fees and reducing the penalty and attorney's fees, computed a net amount of P971,000 due to Este del Sol; the Supreme Court affirmed.
• Relief Not Expressly Prayed For: No. The relief was plainly warranted by the allegations and the facts found, and a party is entitled to as much relief as the facts may warrant.

• Retroactive Application of Central Bank Circular No. 905: The Court held that CB 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, could not be applied retroactively to the Loan Agreement executed on January 31, 1978. It is an elementary rule of contracts that the laws in force at the time the contract was made govern it. More significantly, CB Circular No. 905 did not repeal nor amend the Usury Law but simply suspended its effectivity. The illegality of usury is wholly the creature of legislation; a Central Bank Circular cannot repeal a law, and only a law can repeal another law. Thus, retroactive application of a Central Bank Circular cannot, and should not, be presumed.
• Nature of the Underwriting and Consultancy Agreements: The Court found no reason to depart from the appellate court's factual findings. Although written contracts are ordinarily the best evidence of their terms, the form of a contract is not conclusive because the law will not permit a usurious loan to hide behind a legal form. Several circumstances showed the Underwriting and Consultancy Agreements were cloaks or devices to cover an illegal scheme to conceal and collect excessively usurious interest: (a) both agreements were dated January 31, 1978, the same date as the Loan Agreement, and the supervision and consultancy fees were set for four years to coincide with the loan term; (b) the Loan Agreement stipulated the execution and delivery of an underwriting agreement and made it a condition precedent for the loan, with FMIC employees admitting it was "part and parcel of the Loan Agreement"; (c) Este del Sol was billed P1,330,000 as consultancy fee despite the Consultancy Agreement fixing P332,500 per annum for four years and making only the first year's fee due upon signing; (d) the fees were billed on February 22, 1978, the same occasion as the first partial release of P2,382,500, and were deducted from that release, reverting P1,730,000 to FMIC as part of the loan; (e) FMIC failed to organize an underwriting/selling syndicate or supervise one, and there was no need for the Underwriting Agreement because Este del Sol had its own licensed marketing arm that sold all its shares; and (f) FMIC failed to comply with the Consultancy Agreement, and there was no need for it because Este del Sol's officers were more competent. These facts established that the agreements were exacted as essential conditions for the loan. An apparently lawful loan is usurious when additional compensation for the loan is disguised by an ostensibly unrelated contract for services of little value or not in fact rendered. Article 1957 of the New Civil Code provides that contracts and stipulations under any cloak or device intended to circumvent the laws against usury are void, and the borrower may recover under the usury laws.
• Parol Evidence and Usury: The Court applied the exception to the rule that a written instrument is the best evidence of the terms of a contract. While courts ordinarily rely on the face of written contracts to determine the parties' intention, the form of the contract is not conclusive. 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, courts should and will permit no scheme, however ingenious, to becloud the crime of usury. The extrinsic facts and circumstances in this case were therefore properly considered to expose the usurious scheme.
• Reduction of Penalties, Liquidated Damages, and Attorney's Fees: The Court agreed with the appellate court that the stipulated penalties, liquidated damages, and attorney's fees were excessive, iniquitous, unconscionable, and revolting to the conscience because they hardly allowed the borrower any chance of survival in case of default. The Court noted that Este del Sol folded up after the extrajudicial foreclosure and closed its offices. It held that a 20% penalty on the amount due and 10% of the proceeds of the foreclosure sale as attorney's fees would suffice to compensate FMIC, especially since there was no clear showing that FMIC hired counsel to effect the foreclosure; it engaged counsel only when seeking recovery of the alleged deficiency. Attorney's fees provided in penal clauses are in the nature of liquidated damages; while binding if they do not contravene law, morals, or public order, courts are empowered to reduce them if iniquitous or unconscionable. Articles 1229 and 2227 of the New Civil Code allow equitable reduction. The stipulated attorney's fees of P3,188,630.75, equivalent to 25% of the alleged amount due as of the auction sale on June 23, 1980, were manifestly exorbitant and unconscionable; reduction to 10% was appropriate and reasonable.
• Liability of Individual Sureties and Deficiency: The Court affirmed the appellate court's dismissal of the complaint against the individual sureties. In usurious loans, the entire obligation does not become void; the unpaid principal debt remains valid, but the stipulation as to usurious interest is void, and the debt is considered without stipulation as to interest. The amount paid as interest under a usurious agreement is recoverable by the debtor because payment is deemed made under restraint rather than voluntarily. The appellate court returned to Este del Sol the usurious fees of P200,000 (underwriting), P200,000 (supervision), and P1,330,000 (consultancy), totaling P1,730,000. It computed the amount due to FMIC as P7,382,500 principal plus P1,476,500 (20% penalty) and P900,000 attorney's fees, totaling P9,759,000; after crediting the P9,000,000 foreclosure proceeds, the deficiency was P759,000. Offsetting this against the P1,730,000 due to Este del Sol left a net amount of P971,000 in Este del Sol's favor. The Supreme Court found no reversible error in the appellate court's decision, thus leaving no deficiency for which the individual sureties could be held liable.
• Relief Not Expressly Prayed For: The Court held that whether the exact amount of relief was not expressly prayed for is of no moment because the relief was plainly warranted by the allegations of the respondents and by the facts as found by the appellate court. A party is entitled to as much relief as the facts may warrant. Thus, the appellate court did not err in awarding the amount it computed.

• Usury; Contracts Under Any Cloak or Device — Article 1957 of the New Civil Code declares void contracts and stipulations, under any cloak or device, intended to circumvent the laws against usury, and allows the borrower to recover under the usury laws. The Court applied this doctrine by treating the Underwriting and Consultancy Agreements, executed simultaneously with and as conditions for the Loan Agreement, as cloaks or devices to conceal excessively usurious interest.
• Separability of the Usurious Interest Stipulation — In usurious loans, the entire obligation does not become void; the unpaid principal debt remains valid, and only the stipulation as to usurious interest is void, so the debt is considered without stipulation as to interest. The debtor may recover amounts paid as interest under a usurious agreement because payment is deemed made under restraint rather than voluntarily. The Court applied this by upholding the principal debt while ordering the return of the usurious fees.
• Parol Evidence Exception for Usury — Although a written contract is ordinarily the best evidence of its terms and courts may rely on its face, the form of the contract is not conclusive; parol evidence is admissible to show that a written document, legal in form, was in fact a device to cover usury. The Court applied this exception to examine extrinsic facts showing the true nature of the Underwriting and Consultancy Agreements.
• Equitable Reduction of Penalties and Liquidated Damages — Under Articles 1229 and 2227 of the New Civil Code, the judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with, and liquidated damages, whether intended as indemnity or penalty, shall be equitably reduced if iniquitous or unconscionable. Attorney's fees provided in penal clauses are in the nature of liquidated damages. The Court applied this by reducing the stipulated 25% attorney's fees to 10% and retaining the 20% penalty.
• Non-Retroactivity of Central Bank Circular No. 905 — Central Bank Circular No. 905, which removed the ceiling on interest rates for secured and unsecured loans, took effect on January 1, 1983; it did not repeal or amend the Usury Law but merely suspended its effectivity. A Central Bank Circular cannot repeal a law, only a law can repeal another law, and retroactive application of a Central Bank Circular cannot be presumed. The Court applied this by holding that the January 31, 1978 loan remained governed by the Usury Law.
• Relief Warranted by Facts — A party is entitled to as much relief as the facts may warrant, even if the exact amount of the relief was not expressly prayed for. The Court applied this by upholding the appellate court's award to Este del Sol.

• "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." — This passage states the exception to the parol evidence rule and supplies the ratio for admitting extrinsic evidence to expose the usurious nature of the Underwriting and Consultancy Agreements.
• "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." — This is the Court's canonical formulation of the disguised-usury doctrine and the basis for treating the service agreements as cloaks for usurious interest.
• "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." — This passage articulates the separability doctrine, allowing recovery of the principal while voiding only the usurious interest stipulation.
• "A Central Bank Circular cannot repeal a law. Only a law can repeal another law." — This passage rejects the retroactive application of Central Bank Circular No. 905 and confirms that the Usury Law governed the 1978 loan.

• United States vs. Diaz Conde and R. de Conde, 42 Phil. 767, 769 [1922] — Cited for the rule that the laws in force at the time a contract was made govern it, supporting the non-retroactive application of Central Bank Circular No. 905.
• Medel vs. Court of Appeals, 299 SCRA 481, 489 [1998]; Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61, 263 SCRA 483, 488 [1996] — Cited for the holding that Central Bank Circular No. 905 did not repeal or amend the Usury Law but merely suspended its effectivity.
• Palanca vs. Court of Appeals, 238 SCRA 593, 601 [1994] — Cited for the principle that a Central Bank Circular cannot repeal a law, only a law can repeal another law.
• United States vs. Constantino Tan Quingco Chua, 39 Phil. 552, 558 [1919] — Cited for the rule that parol evidence is admissible to show that a written document, though legal in form, was in fact a device to cover usury.
• Angel Jose Warehousing Co., Inc. vs. Chelda Enterprises, 23 SCRA 119, 124 [1968] — Cited for the separability doctrine: in a simple loan with usurious interest, the debtor's prestation to pay the principal debt is not illegal; only the stipulation to pay usurious interest is void.
• Private Development Corporation of the Philippines vs. Intermediate Appellate Court, 213 SCRA 282, 287 [1992] — Cited for the rule that the nullity of a usurious interest stipulation does not affect the lender's right to receive back the principal amount of the loan.
• Barons Marketing Corp. vs. Court of Appeals, 286 SCRA 96, 108 [1998] — Cited for the rule that courts are empowered to reduce attorney's fees if the same is iniquitous or unconscionable.
• UBS Marketing Corporation vs. The Honorable Special Third Division of the Court of Appeals, et al., G.R. No. 130328, May 31, 2000; Schenker vs. Gemperle, 5 SCRA 1042, 1046 [1962]; Baguioro vs. Barrios and Tupas Vda. De Atas, 77 Phil. 120, 123-124 [1946] — Cited for the rule that a party is entitled to as much relief as the facts may warrant, even if the exact amount was not expressly prayed for.
• Terry Trading Corporation vs. Barsky, 292 P 474 [1930] — Cited for the rule that an apparently lawful loan is usurious when additional compensation is disguised by an ostensibly unrelated contract for services of little value or not in fact rendered.

• Article 1957, New Civil Code — Contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws against usury are void, and the borrower may recover in accordance with the laws on usury. Applied to void the usurious interest concealed in the Underwriting and Consultancy Agreements.
• Article 1229, New Civil Code — The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with, and even if there has been no performance, the penalty may be reduced if it is iniquitous or unconscionable. Applied to reduce the stipulated penalty.
• Article 2227, New Civil Code — Liquidated damages, whether intended as indemnity or penalty, shall be equitably reduced if they are iniquitous or unconscionable. Applied to reduce the attorney's fees stipulated in the penal clause.
• Article 7, Civil Code — Cited for the principle that only a law can repeal another law. Applied to hold that Central Bank Circular No. 905 could not repeal the Usury Law.
• Article 4, Civil Code — Laws shall have no retroactive effect unless the contrary is provided. Cited to support the non-retroactive application of Central Bank Circular No. 905.
• Section 3, Rule 130, Rules of Court — The parol evidence rule. Cited as the general rule, subject to the exception that parol evidence is admissible to show that a written document legal in form was a device to cover usury.
• Central Bank Circular No. 905 — Took effect on January 1, 1983 and removed the ceiling on interest rates for secured and unsecured loans regardless of maturity. Held not retroactive and not a repeal of the Usury Law.

Justices Bellosillo, Mendoza, Quisumbing, and Buena concurred.