Cred Trans Cases 012316

8/19/2019 Cred Trans Cases 012316

1/143

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. 26085 August 12, 1927

SEVERINO TOLENTINO and POTENCIANA MANIO, plaintiffs-appellants,vs.BENITO GONZALEZ SY CHIAM, defendants-appellee.

Araneta and Zaragoza for appellants.

Eusebio Orense for appelle.

JOHNSON, J.:

PRINCIPAL QUESTIONS PRESENTED BY THE APPEAL

The principal questions presented by this appeal are:

(a) Is the contract in question a pacto de retro or a mortgage?

(b) Under a pacto de retro, when the vendor becomes a tenant of the purchaser andagrees to pay a certain amount per month as rent, may such rent render such a contractusurious when the amount paid as rent, computed upon the purchase price, amounts to ahigher rate of interest upon said amount than that allowed by law?

(c) May the contract in the present case may be modified by parol evidence?

ANTECEDENT FACTS

Sometime prior to the 28th day of November, 1922, the appellants purchased of the Luzon RiceMills, Inc., a piece or parcel of land with the camarin located thereon, situated in themunicipality of Tarlac of the Province of Tarlac for the price of P25,000, promising to paytherefor in three installments. The first installment of P2,000 was due on or before the 2d day ofMay, 1921; the second installment of P8,000 was due on or before 31st day of May, 1921; the balance of P15,000 at 12 per cent interest was due and payable on or about the 30th day of

November, 1922. One of the conditions of that contract of purchase was that on failure of the purchaser (plaintiffs and appellants) to pay the balance of said purchase price or any of theinstallments on the date agreed upon, the property bought would revert to the original owner.

The payments due on the 2d and 31st of May, 1921, amounting to P10,000 were paid so far asthe record shows upon the due dates. The balance of P15,000 due on said contract of purchasewas paid on or about the 1st day of December, 1922, in the manner which will be explained below. On the date when the balance of P15,000 with interest was paid, the vendor of said property had issued to the purchasers transfer certificate of title to said property, No. 528. Saidtransfer certificate of title (No. 528) was transfer certificate of title from No. 40, which showsthat said land was originally registered in the name of the vendor on the 7th day of November,

1913.

PRESENT FACTS

On the 7th day of November, 1922 the representative of the vendor of the property in questionwrote a letter to the appellant Potenciana Manio (Exhibit A, p. 50), notifying the latter that if the balance of said indebtedness was not paid, an action would be brought for the purpose of


2/143

recovering the property, together with damages for non compliance with the condition of thecontract of purchase. The pertinent parts of said letter read as follows:

Sirvase notar que de no estar liquidada esta cuenta el dia 30 del corriente, procederemos judicialmente contra Vd. para reclamar la devolucion del camarin y

los daños y perjuicios ocasionados a la compañia por su incumplimiento alcontrato.

Somos de Vd. atentos y S. S.

SMITH, BELL & CO., LTD.

By (Sgd.) F. I. HIGHAM

Treasurer.

General Managers

LUZON RICE MILLS INC.

According to Exhibits B and D, which represent the account rendered by the vendor, there wasdue and payable upon said contract of purchase on the 30th day of November, 1922, the sumP16,965.09. Upon receiving the letter of the vendor of said property of November 7, 1922, the purchasers, the appellants herein, realizing that they would be unable to pay the balance due, began to make an effort to borrow money with which to pay the balance due, began to make aneffort to borrow money with which to pay the balance of their indebtedness on the purchase priceof the property involved. Finally an application was made to the defendant for a loan for the

purpose of satisfying their indebtedness to the vendor of said property. After some negotiationsthe defendants agreed to loan the plaintiffs to loan the plaintiffs the sum of P17,500 uponcondition that the plaintiffs execute and deliver to him a pacto de retro of said property.

In accordance with that agreement the defendant paid to the plaintiffs by means of a check thesum of P16,965.09. The defendant, in addition to said amount paid by check, delivered to the plaintiffs the sum of P354.91 together with the sum of P180 which the plaintiffs paid to theattorneys for drafting said contract of pacto de retro, making a total paid by the defendant to the plaintiffs and for the plaintiffs of P17,500 upon the execution and delivery of said contract. Saidcontracts was dated the 28th day of November, 1922, and is in the words and figures following:

Sepan todos por la presente:

Que nosotros, los conyuges Severino Tolentino y Potenciana Manio, ambosmayores de edad, residentes en el Municipio de Calumpit, Provincia de Bulacan, propietarios y transeuntes en esta Ciudad de Manila, de una parte, y de otra, Benito Gonzalez Sy Chiam, mayor de edad, casado con Maria Santiago,comerciante y vecinos de esta Ciudad de Manila.

MANIFESTAMOS Y HACEMOS CONSTAR:

Primero. Que nosotros, Severino Tolentino y Potenciano Manio, por y en

consideracion a la cantidad de diecisiete mil quinientos pesos (P17,500) monedafilipina, que en este acto hemos recibido a nuestra entera satisfaccion de DonBenito Gonzalez Sy Chiam, cedemos, vendemos y traspasamos a favor de dichoDon Benito Gonzalez Sy Chiam, sus herederos y causahabientes, una finca que,segun el Certificado de Transferencia de Titulo No. 40 expedido por elRegistrador de Titulos de la Provincia de Tarlac a favor de " Luzon Rice MillsCompany Limited " que al incorporarse se donomino y se denomina " Luzon Rice


3/143

Mills Inc.," y que esta corporacion nos ha transferido en venta absoluta, sedescribe como sigue:

Un terreno (lote No. 1) con las mejoras existentes en el mismo, situado en elMunicipio de Tarlac. Linda por el O. y N. con propiedad de Manuel Urquico; por

el E. con propiedad de la Manila Railroad Co.; y por el S. con un camino.Partiendo de un punto marcado 1 en el plano, cuyo punto se halla al N. 41 gds. 17'E.859.42 m. del mojon de localizacion No. 2 de la Oficina de Terrenos en Tarlac;y desde dicho punto 1 N. 81 gds. 31' O., 77 m. al punto 2; desde este punto N. 4gds. 22' E.; 54.70 m. al punto 3; desde este punto S. 86 gds. 17' E.; 69.25 m. al punto 4; desde este punto S. 2 gds. 42' E., 61.48 m. al punto de partida; midiendouna extension superficcial de cuatro mil doscientos diez y seis metros cuadrados(4,216) mas o menos. Todos los puntos nombrados se hallan marcados en el planoy sobre el terreno los puntos 1 y 2 estan determinados por mojones de P. L. S. de20 x 20 x 70 centimetros y los puntos 3 y 4 por mojones del P. L. S. B. L.: laorientacion seguida es la verdadera, siendo la declinacion magnetica de 0 gds. 45'

E. y la fecha de la medicion, 1.º de febrero de 1913.

Segundo. Que es condicion de esta venta la de que si en el plazo de cinco (5) añoscontados desde el dia 1.º de diciembre de 1922, devolvemos al expresado DonBenito Gonzalez Sy Chiam el referido precio de diecisiete mil quinientos pesos(P17,500) queda obligado dicho Sr. Benito Gonzalez y Chiam a retrovendernos lafinca arriba descrita; pero si transcurre dicho plazo de cinco años sin ejercitar elderecho de retracto que nos hemos reservado, entonces quedara esta ventaabsoluta e irrevocable.

Tercero. Que durante el expresado termino del retracto tendremos en

arrendamiento la finca arriba descrita, sujeto a condiciones siguientes:

(a) El alquiler que nos obligamos a pagar por mensualidades vencidas aDon Benito Gonzalez Sy Chiam y en su domicilio, era de trescientossetenta y cinco pesos (P375) moneda filipina, cada mes.

(b) El amillaramiento de la finca arrendada sera por cuenta de dicho DonBenito Gonzalez Sy Chiam, asi como tambien la prima del seguro contraincendios, si el conviniera al referido Sr. Benito Gonzalez Sy Chiamasegurar dicha finca.

(c) La falta de pago del alquiler aqui estipulado por dos mesesconsecutivos dara lugar a la terminacion de este arrendamieno y a la perdida del derecho de retracto que nos hemos reservado, como sinaturalmente hubiera expirado el termino para ello, pudiendo en su virtuddicho Sr. Gonzalez Sy Chiam tomar posesion de la finca y desahuciarnosde la misma.

Cuarto. Que yo, Benito Gonzalez Sy Chiam, a mi vez otorgo que acepto estaescritura en los precisos terminos en que la dejan otorgada los conyuges SeverinoTolentino y Potenciana Manio.

En testimonio de todo lo cual, firmamos la presente de nuestra mano en Manila, por cuadruplicado en Manila, hoy a 28 de noviembre de 1922.

(Fdo.) SEVERINO TOLENTINO

(Fda.) POTENCIANA MANIO

(Fdo.) BENITO GONZALEZ SY CHIAM


4/143

Firmado en presencia de:

(Fdos.) MOISES M. BUHAIN

B. S. BANAAG

An examination of said contract of sale with reference to the first question above, shows clearlythat it is a pacto de retro and not a mortgage. There is no pretension on the part of the appellantthat said contract, standing alone, is a mortgage. The pertinent language of the contract is:

Segundo. Que es condicion de esta venta la de que si en el plazo de cinco (5) añoscontados desde el dia 1.º de diciembre de 1922, devolvemos al expresado Don BenitoGonzales Sy Chiam el referido precio de diecisiete mil quinientos pesos (P17,500) quedaobligado dicho Sr. Benito Gonzales Sy Chiam a retrovendornos la finca arriba descrita; pero si transcurre dicho plazo de cinco (5) años sin ejercitar al derecho de retracto quenos hemos reservado, entonces quedara esta venta absoluta e irrevocable.

Language cannot be clearer. The purpose of the contract is expressed clearly in said quotationthat there can certainly be not doubt as to the purpose of the plaintiff to sell the property inquestion, reserving the right only to repurchase the same. The intention to sell with the right torepurchase cannot be more clearly expressed.

It will be noted from a reading of said sale of pacto de retro, that the vendor, recognizing theabsolute sale of the property, entered into a contract with the purchaser by virtue of which she became the "tenant" of the purchaser. That contract of rent appears in said quoted documentabove as follows:

Tercero. Que durante el expresado termino del retracto tendremos en arrendamiento lafinca arriba descrita, sujeto a condiciones siguientes:

(a) El alquiler que nos obligamos a pagar por mensualidades vencidas a Don BenitoGonzalez Sy Chiam y en su domicilio, sera de trescientos setenta y cinco pesos (P375)moneda filipina, cada mes.

(b) El amillaramiento de la finca arrendada sera por cuenta de dicho Don BenitoGonzalez Sy Chiam, asi como tambien la prima del seguro contra incendios, si leconviniera al referido Sr. Benito Gonzalez Sy Chiam asegurar dicha finca.

From the foregoing, we are driven to the following conclusions: First , that the contract of pactode retro is an absolute sale of the property with the right to repurchase and not a mortgage; and,second, that by virtue of the said contract the vendor became the tenant of the purchaser, underthe conditions mentioned in paragraph 3 of said contact quoted above.

It has been the uniform theory of this court, due to the severity of a contract of pacto de retro, todeclare the same to be a mortgage and not a sale whenever the interpretation of such a contract justifies that conclusion. There must be something, however, in the language of the contract or inthe conduct of the parties which shows clearly and beyond doubt that they intended the contractto be a "mortgage" and not a pacto de retro. (International Banking Corporation vs. Martinez, 10Phil., 252; Padilla vs. Linsangan, 19 Phil., 65; Cumagun vs. Alingay, 19 Phil., 415;Olino vs. Medina, 13 Phil., 379; Manalo vs. Gueco, 42 Phil., 925; Velazquez vs. Teodoro, 46Phil., 757; Villavs. Santiago, 38 Phil., 157.)

We are not unmindful of the fact that sales with pacto de retro are not favored and that the courtwill not construe an instrument to one of sale with pacto de retro, with the stringent and onerouseffect which follows, unless the terms of the document and the surrounding circumstancesrequire it.


5/143

While it is general rule that parol evidence is not admissible for the purpose of varying the termsof a contract, but when an issue is squarely presented that a contract does not express theintention of the parties, courts will, when a proper foundation is laid therefor, hear evidence forthe purpose of ascertaining the true intention of the parties.

In the present case the plaintiffs allege in their complaint that the contract in question is a pactode retro. They admit that they signed it. They admit they sold the property in question with theright to repurchase it. The terms of the contract quoted by the plaintiffs to the defendant was a"sale" with pacto de retro, and the plaintiffs have shown no circumstance whatever which would justify us in construing said contract to be a mere "loan" with guaranty. In every case in whichthis court has construed a contract to be a mortgage or a loan instead of a sale with pacto deretro, it has done so, either because the terms of such contract were incompatible or inconsistentwith the theory that said contract was one of purchase and sale. (Olino vs. Medina, supra;Padilla vs. Linsangan, supra; Manlagnit vs. Dy Puico, 34 Phil., 325; Rodriguez vs. Pamintuan andDe Jesus, 37 Phil., 876.)

In the case of Padilla vs. Linsangan the term employed in the contract to indicate the nature ofthe conveyance of the land was "pledged" instead of "sold". In the case of Manlagnit vs. DyPuico, while the vendor used to the terms "sale and transfer with the right to repurchase," yet insaid contract he described himself as a "debtor" the purchaser as a "creditor" and the contract as a"mortgage". In the case of Rodriguez vs. Pamintuan and De Jesusthe person who executed theinstrument, purporting on its face to be a deed of sale of certain parcels of land, had merely actedunder a power of attorney from the owner of said land, "authorizing him to borrow money insuch amount and upon such terms and conditions as he might deem proper, and to secure payment of the loan by a mortgage." In the case of Villa vs. Santiago (38 Phil., 157), although acontract purporting to be a deed of sale was executed, the supposed vendor remained in possession of the land and invested the money he had obtained from the supposed vendee inmaking improvements thereon, which fact justified the court in holding that the transaction was amere loan and not a sale. In the case of Cuyugan vs. Santos (39 Phil., 970), the purchaseraccepted partial payments from the vendor, and such acceptance of partial payments is absolutelyincompatible with the idea of irrevocability of the title of ownership of the purchaser at theexpiration of the term stipulated in the original contract for the exercise of the right ofrepurchase."

Referring again to the right of the parties to vary the terms of written contract, we quote from thedissenting opinion of Chief Justice Cayetano S. Arellano in the case of Government of thePhilippine Islands vs. Philippine Sugar Estates Development Co., which case was appealed to theSupreme Court of the United States and the contention of the Chief Justice in his dissentingopinion was affirmed and the decision of the Supreme Court of the Philippine Islands wasreversed. (See decision of the Supreme Court of the United States, June 3, 1918.)1 The ChiefJustice said in discussing that question:

According to article 1282 of the Civil Code, in order to judge of the intention of the contracting parties, consideration must chiefly be paid to those acts executed by said parties which arecontemporary with and subsequent to the contract. And according to article 1283, howevergeneral the terms of a contract may be, they must not be held to include things and casesdifferent from those with regard to which the interested parties agreed to contract. "The SupremeCourt of the Philippine Islands held the parol evidence was admissible in that case to vary theterms of the contract between the Government of the Philippine Islands and the Philippine SugarEstates Development Co. In the course of the opinion of the Supreme Court of the United StatesMr. Justice Brandeis, speaking for the court, said:

It is well settled that courts of equity will reform a written contract where, owing tomutual mistake, the language used therein did not fully or accurately express theagreement and intention of the parties. The fact that interpretation or construction of acontract presents a question of law and that, therefore, the mistake was one of law is not a bar to granting relief. . . . This court is always disposed to accept the construction which


6/143

the highest court of a territory or possession has placed upon a local statute. But thatdisposition may not be yielded to where the lower court has clearly erred. Here theconstruction adopted was rested upon a clearly erroneous assumption as to an establishedrule of equity. . . . The burden of proof resting upon the appellant cannot be satisfied bymere preponderance of the evidence. It is settled that relief by way of reformation will

not be granted unless the proof of mutual mistake be of the clearest and most satisfactorycharacter.

The evidence introduced by the appellant in the present case does not meet with that stringentrequirement. There is not a word, a phrase, a sentence or a paragraph in the entire record, which justifies this court in holding that the said contract of pacto de retro is a mortgage and not a salewith the right to repurchase. Article 1281 of the Civil Code provides: "If the terms of a contractare clear and leave no doubt as to the intention of the contracting parties, the literal sense of itsstipulations shall be followed." Article 1282 provides: "in order to judge as to the intention of thecontracting parties, attention must be paid principally to their conduct at the time of making thecontract and subsequently thereto."

We cannot thereto conclude this branch of our discussion of the question involved, withoutquoting from that very well reasoned decision of the late Chief Justice Arellano, one of thegreatest jurists of his time. He said, in discussing the question whether or not the contract, in thecase of Lichauco vs. Berenguer (20 Phil., 12), was a pacto de retro or a mortgage:

The public instrument, Exhibit C, in part reads as follows: "Don Macarion Berenguerdeclares and states that he is the proprietor in fee simple of two parcels of fallowunappropriated crown land situated within the district of his pueblo. The first has an areaof 73 quiñones, 8 balitas and 8 loanes, located in the sitio of Batasan, and its boundariesare, etc., etc. The second is in the sitio of Panantaglay, barrio of Calumpang has as area of

73 hectares, 22 ares, and 6 centares, and is bounded on the north, etc., etc."

In the executory part of the said instrument, it is stated:

'That under condition of right to repurchase ( pacto de retro) he sells the said properties to the aforementioned Doña Cornelia Laochangco for P4,000 and uponthe following conditions: First, the sale stipulated shall be for the period of twoyears, counting from this date, within which time the deponent shall be entitled torepurchase the land sold upon payment of its price; second, the lands sold shall,during the term of the present contract, be held in lease by the undersigned whoshall pay, as rental therefor, the sum of 400 pesos per annum, or the equivalent insugar at the option of the vendor; third, all the fruits of the said lands shall bedeposited in the sugar depository of the vendee, situated in the district of Quiapoof this city, and the value of which shall be applied on account of the price of thissale; fourth, the deponent acknowledges that he has received from the vendor the purchase price of P4,000 already paid, and in legal tender currency of this country. . .; fifth, all the taxes which may be assessed against the lands surveyed bycompetent authority, shall be payable by and constitute a charge against thevendor; sixth, if, through any unusual event, such as flood, tempest, etc., the properties hereinbefore enumerated should be destroyed, wholly or in part, it shall be incumbent upon the vendor to repair the damage thereto at his own expenseand to put them into a good state of cultivation, and should he fail to do so he binds himself to give to the vendee other lands of the same area, quality andvalue.'

x x x x x x x x x

The opponent maintained, and his theory was accepted by the trial court, that Berenguer'scontract with Laochangco was not one of sale with right of repurchase, but merely one ofloan secured by those properties, and, consequently, that the ownership of the lands in


7/143

questions could not have been conveyed to Laochangco, inasmuch as it continued to beheld by Berenguer, as well as their possession, which he had not ceased to enjoy.

Such a theory is, as argued by the appellant, erroneous. The instrument executed byMacario Berenguer, the text of which has been transcribed in this decision, is very clear.

Berenguer's heirs may not go counter to the literal tenor of the obligation, the exactexpression of the consent of the contracting contained in the instrument, Exhibit C. Not because the lands may have continued in possession of the vendor, not because the lattermay have assumed the payment of the taxes on such properties, nor yet because the same party may have bound himself to substitute by another any one of the properties whichmight be destroyed, does the contract cease to be what it is, as set forth in detail in the public instrument. The vendor continued in the possession of the lands, not as the ownerthereof as before their sale, but as the lessee which he became after its consummation, byvirtue of a contract executed in his favor by the vendee in the deed itself, Exhibit C. Rightof ownership is not implied by the circumstance of the lessee's assuming theresponsibility of the payment is of the taxes on the property leased, for their payment is

not peculiarly incumbent upon the owner, nor is such right implied by the obligation tosubstitute the thing sold for another while in his possession under lease, since thatobligation came from him and he continues under another character in its possession — areason why he guarantees its integrity and obligates himself to return the thing even in acase of force majeure. Such liability, as a general rule, is foreign to contracts of lease and,if required, is exorbitant, but possible and lawful, if voluntarily agreed to and suchagreement does not on this account involve any sign of ownership, nor other meaningthan the will to impose upon oneself scrupulous diligence in the care of a thing belongingto another.

The purchase and sale, once consummated, is a contract which by its nature transfers theownership and other rights in the thing sold. A pacto de retro, or sale with right torepurchase, is nothing but a personal right stipulated between the vendee and the vendor,to the end that the latter may again acquire the ownership of the thing alienated.

It is true, very true indeed, that the sale with right of repurchase is employed as a methodof loan; it is likewise true that in practice many cases occur where the consummation ofa pacto de retro sale means the financial ruin of a person; it is also, unquestionable thatin pacto de retro sales very important interests often intervene, in the form of the price ofthe lease of the thing sold, which is stipulated as an additional covenant. (Manresa, CivilCode, p. 274.)

But in the present case, unlike others heard by this court, there is no proof that the salewith right of repurchase, made by Berenguer in favor of Laonchangco is rather amortgage to secure a loan.

We come now to a discussion of the second question presented above, and that is, stating thesame in another form: May a tenant charge his landlord with a violation of the Usury Law uponthe ground that the amount of rent he pays, based upon the real value of the property, amounts toa usurious rate of interest? When the vendor of property under a pacto de retro rents the propertyand agrees to pay a rental value for the property during the period of his right to repurchase, hethereby becomes a "tenant" and in all respects stands in the same relation with the purchaser as atenant under any other contract of lease.

The appellant contends that the rental price paid during the period of the existence of the right torepurchase, or the sum of P375 per month, based upon the value of the property, amounted tousury. Usury, generally speaking, may be defined as contracting for or receiving something inexcess of the amount allowed by law for the loan or forbearance of money — the taking of moreinterest for the use of money than the law allows. It seems that the taking of interest for the loanof money, at least the taking of excessive interest has been regarded with abhorrence from theearliest times. (Dunham vs. Gould, 16 Johnson [N. Y.], 367.) During the middle ages the people


8/143

of England, and especially the English Church, entertained the opinion, then, current in Europe,that the taking of any interest for the loan of money was a detestable vice, hateful to man andcontrary to the laws of God. (3 Coke's Institute, 150; Tayler on Usury, 44.)

Chancellor Kent, in the case of Dunham vs. Gould , supra, said: "If we look back upon history,

we shall find that there is scarcely any people, ancient or modern, that have not had usury laws. .. . The Romans, through the greater part of their history, had the deepest abhorrence of usury. . . .It will be deemed a little singular, that the same voice against usury should have been raised inthe laws of China, in the Hindu institutes of Menu, in the Koran of Mahomet, and perhaps, wemay say, in the laws of all nations that we know of, whether Greek or Barbarian."

The collection of a rate of interest higher than that allowed by law is condemned by thePhilippine Legislature (Acts Nos. 2655, 2662 and 2992). But is it unlawful for the owner of a property to enter into a contract with the tenant for the payment of a specific amount of rent forthe use and occupation of said property, even though the amount paid as "rent," based upon thevalue of the property, might exceed the rate of interest allowed by law? That question has never

been decided in this jurisdiction. It is one of first impression. No cases have been found in this jurisdiction answering that question. Act No. 2655 is "An Act fixing rates of interest upon 'loans'and declaring the effect of receiving or taking usurious rates."

It will be noted that said statute imposes a penalty upon a "loan" or forbearance of any money,goods, chattels or credits, etc. The central idea of said statute is to prohibit a rate of interest on"loans." A contract of "loan," is very different contract from that of "rent". A "loan," as that termis used in the statute, signifies the giving of a sum of money, goods or credits to another, with a promise to repay, but not a promise to return the same thing. To "loan," in general parlance, is todeliver to another for temporary use, on condition that the thing or its equivalent be returned; orto deliver for temporary use on condition that an equivalent in kind shall be returned with a

compensation for its use. The word "loan," however, as used in the statute, has a technicalmeaning. It never means the return of the same thing. It means the return of an equivalent only, but never the same thing loaned. A "loan" has been properly defined as an advance payment ofmoney, goods or credits upon a contract or stipulation to repay, not to return, the thing loaned atsome future day in accordance with the terms of the contract. Under the contract of "loan," asused in said statute, the moment the contract is completed the money, goods or chattels givencease to be the property of the former owner and becomes the property of the obligor to be usedaccording to his own will, unless the contract itself expressly provides for a special or specificuse of the same. At all events, the money, goods or chattels, the moment the contract is executed,cease to be the property of the former owner and becomes the absolute property of the obligor.

A contract of "loan" differs materially from a contract of "rent." In a contract of "rent" the ownerof the property does not lose his ownership. He simply loses his control over the property rentedduring the period of the contract. In a contract of "loan" the thing loaned becomes the property ofthe obligor. In a contract of "rent" the thing still remains the property of the lessor. He simplyloses control of the same in a limited way during the period of the contract of "rent" or lease. In acontract of "rent" the relation between the contractors is that of landlord and tenant. In a contractof "loan" of money, goods, chattels or credits, the relation between the parties is that of obligorand obligee. "Rent" may be defined as the compensation either in money, provisions, chattels, orlabor, received by the owner of the soil from the occupant thereof. It is defined as the return orcompensation for the possession of some corporeal inheritance, and is a profit issuing out oflands or tenements, in return for their use. It is that, which is to paid for the use of land, whetherin money, labor or other thing agreed upon. A contract of "rent" is a contract by which one of the parties delivers to the other some nonconsumable thing, in order that the latter may use it duringa certain period and return it to the former; whereas a contract of "loan", as that word is used inthe statute, signifies the delivery of money or other consumable things upon condition ofreturning an equivalent amount of the same kind or quantity, in which cases it is called merely a"loan." In the case of a contract of "rent," under the civil law, it is called a "commodatum."


9/143

From the foregoing it will be seen that there is a while distinction between a contract of "loan,"as that word is used in the statute, and a contract of "rent" even though those words are used inordinary parlance as interchangeable terms.

The value of money, goods or credits is easily ascertained while the amount of rent to be paid for

the use and occupation of the property may depend upon a thousand different conditions; as forexample, farm lands of exactly equal productive capacity and of the same physical value mayhave a different rental value, depending upon location, prices of commodities, proximity to themarket, etc. Houses may have a different rental value due to location, conditions of business,general prosperity or depression, adaptability to particular purposes, even though they haveexactly the same original cost. A store on the Escolta, in the center of business, constructedexactly like a store located outside of the business center, will have a much higher rental valuethan the other. Two places of business located in different sections of the city may be constructedexactly on the same architectural plan and yet one, due to particular location or adaptability to a particular business which the lessor desires to conduct, may have a very much higher rental valuethan one not so located and not so well adapted to the particular business. A very cheap building

on the carnival ground may rent for more money, due to the particular circumstances andsurroundings, than a much more valuable property located elsewhere. It will thus be seen that therent to be paid for the use and occupation of property is not necessarily fixed upon the value ofthe property. The amount of rent is fixed, based upon a thousand different conditions and may ormay not have any direct reference to the value of the property rented. To hold that "usury" can be based upon the comparative actual rental value and the actual value of the property, is to subjectevery landlord to an annoyance not contemplated by the law, and would create a very greatdisturbance in every business or rural community. We cannot bring ourselves to believe that theLegislature contemplated any such disturbance in the equilibrium of the business of the country.

In the present case the property in question was sold. It was an absolute sale with the right onlyto repurchase. During the period of redemption the purchaser was the absolute owner of the property. During the period of redemption the vendor was not the owner of the property. Duringthe period of redemption the vendor was a tenant of the purchaser. During the period ofredemption the relation which existed between the vendor and the vendee was that of landlordand tenant. That relation can only be terminated by a repurchase of the property by the vendor inaccordance with the terms of the said contract. The contract was one of rent. The contract wasnot a loan, as that word is used in Act No. 2655.

As obnoxious as contracts of pacto de retro are, yet nevertheless, the courts have no right tomake contracts for parties. They made their own contract in the present case. There is not a word,a phrase, a sentence or paragraph, which in the slightest way indicates that the parties to thecontract in question did not intend to sell the property in question absolutely, simply with theright to repurchase. People who make their own beds must lie thereon.

What has been said above with reference to the right to modify contracts by parol evidence,sufficiently answers the third questions presented above. The language of the contract is explicit,clear, unambiguous and beyond question. It expresses the exact intention of the parties at thetime it was made. There is not a word, a phrase, a sentence or paragraph found in said contractwhich needs explanation. The parties thereto entered into said contract with the fullunderstanding of its terms and should not now be permitted to change or modify it by parolevidence.

With reference to the improvements made upon said property by the plaintiffs during the life ofthe contract, Exhibit C, there is hereby reserved to the plaintiffs the right to exercise in a separateaction the right guaranteed to them under article 361 of the Civil Code.

For all of the foregoing reasons, we are fully persuaded from the facts of the record, in relationwith the law applicable thereto, that the judgment appealed from should be and is herebyaffirmed, with costs. So ordered.


10/143


Manila

EN BANC

G.R. No. L-18208 February 14, 1922

THE UNITED STATES, plaintiff-appellee,vs.VICENTE DIAZ CONDE and APOLINARIA R. DE CONDE, defendants-appellants.

Araneta & Zaragoza for appellants.

Attorney-General Villareal for appellee.

JOHNSON, J.:

It appears from the record that on the 6th day of May, 1921, a complaint was presented in theCourt of First Instance of the city of Manila, charging the defendants with a violation of theUsury Law (Act No. 2655). Upon said complaint they were each arrested, arraigned, and pleadednot guilty. The cause was finally brought on for trial on the 1st day of September, 1921. At theclose of the trial, and after a consideration of the evidence adduced, the Honorable M. V. delRosario, judge, found that the defendants were guilty of the crime charged in the complaint andsentenced each of them to pay a fine of P120 and, in case of insolvency, to suffer subsidiaryimprisonment in accordance with the provisions of the law. From that sentence each of thedefendants appealed to this court.

The appellants now contend: (a) That the contract upon which the alleged usurious interest wascollected was executed before Act No. 2655 was adopted; (b) that at the time said contract wasmade (December 30, 1915), there was no usury law in force in the Philippine Islands; (c) thatsaid Act No. 2655 did not become effective until the 1st day of May, 1916, or four months and ahalf after the contract in question was executed; (d ) that said law could have no retroactive effector operation, and (e) that said law impairs the obligation of a contract, and that for all of saidreasons the judgment imposed by the lower court should be revoked; that the complaint should be dismissed, and that they should each be discharged from the custody of the law.

The essential facts constituting the basis of the criminal action are not in dispute, and may bestated as follows: (1) That on the 30th day of December, 1915, the alleged offended persons

Bartolome Oliveros and Engracia Lianco executed and delivered to the defendants a contract(Exhibit B) evidencing the fact that the former had borrowed from the latter the sum of P300,and (2) that, by virtue of the terms of said contract, the said Bartolome Oliveros and EngraciaLianco obligated themselves to pay to the defendants interest at the rate of five per cent (5%) permonth, payable within the first ten days of each and every month, the first payment to be madeon the 10th day of January, 1916. There were other terms in the contract which, however, are notimportant for the decision in the present case.

The lower court, in the course of its opinion, stated that at the time of the execution and deliveryof said contract (Exhibit B), there was no law in force in the Philippine Islands punishing usury; but, inasmuch as the defendants had collected a usurious rate of interest after the adoption of theUsury Law in the Philippine Islands (Act No. 2655), they were guilty of a violation of that lawand should be punished in accordance with its provisions.

The law, we think, is well established that when a contract contains an obligation to pay interestupon the principal, the interest thereby becomes part of the principal and is included within the promise to pay. In other words, the obligation to pay interest on money due under a contract, beit express or implied, is a part of the obligation of the contract. Laws adopted after the executionof a contract, changing or altering the rate of interest, cannot be made to apply to such contract


11/143

without violating the provisions of the constitution which prohibit the adoption of a law"impairing the obligation of contract." (8 Cyc., 996; 12 Corpus Juris, 1058-1059.)

The obligation of the contract is the law which binds the parties to perform their agreement if itis not contrary to the law of the land, morals or public order. That law must govern and control

the contract in every aspect in which it is intended to bear upon it, whether it affect its validity,construction, or discharge. Any law which enlarges, abridges, or in any manner changes theintention of the parties, necessarily impairs the contract itself. If a law impairs the obligation of acontract, it is prohibited by the Jones Law, and is null and void. The laws in force in thePhilippine Islands prior to any legislation by the American sovereignty, prohibited theLegislature from giving to any penal law a retroactive effect unless such law was favorable to the person accused. (Articles 21 and 22, Penal Code.)

A law imposing a new penalty, or a new liability or disability, or giving a new right of action,must not be construed as having a retroactive effect. It is an elementary rule of contract that thelaws in force at the time the contract was made must govern its interpretation and application.

Laws must be construed prospectively and not retrospectively. If a contract is legal at itsinception, it cannot be rendered illegal by any subsequent legislation. If that were permitted thenthe obligations of a contract might be impaired, which is prohibited by the organic law of thePhilippine Islands. (U.S. vs. Constantino Tan Quingco Chua, 39 Phil., 552; Aguilar vs. Rubiatoand Gonzales Vila, 40 Phil., 570.)

Ex post facto laws, unless they are favorable to the defendant, are prohibited in this jurisdiction.Every law that makes an action, done before the passage of the law, and which was innocentwhen done, criminal, and punishes such action, is an ex post facto law. In the present case Act No. 2655 made an act which had been done before the law was adopted, a criminal act, and tomake said Act applicable to the act complained of would be to give it an ex post facto operation.

The Legislature is prohibited from adopting a law which will make an act done before itsadoption a crime. A law may be given a retroactive effect in civil action, providing it is curativein character, but ex post facto laws are absolutely prohibited unless its retroactive effect isfavorable to the defendant.

For the reason, therefore, that the acts complained of in the present case were legal at the time oftheir occurrence, they cannot be made criminal by any subsequent or ex post facto legislation.What the courts may say, considering the provisions of article 1255 of the Civil Code, when acivil action is brought upon said contract, cannot now be determined. A contract may be annulled by the courts when it is shown that it is against morals or public order.

For all of the foregoing reasons, we are of the opinion, and so decide, that the acts complained of by the defendants did not constitute a crime at the time they were committed, and therefore thesentence of the lower court should be, and is hereby, revoked; and it is hereby ordered anddecreed that the complaint be dismissed, and that the defendants be discharged from the custodyof the law, with costs de oficio. So ordered.

Araullo, C.J., Street, Malcolm, Avanceña, Ostrand, Johns and Romualdez, JJ., concur.


12/143


Manila

SECOND DIVISION

G.R. No. 77735 January 29, 1988

WILFREDO VERDEJO, petitioner,vs.THE HON. COURT OF APPEALS, HON. SOFRONIO G. SAYO, Presiding Judge, RTC,Br. III, Pasay City, and HERMINIA PATINIO, ET AL., respondents.

R E S O L U T I O N

PADILLA, J.:

Petition for review on certiorari of the decision * rendered by the respondent appellate court,dated 28 November 1986, in CA-G.R. No. SP-10429 entitled: "WilfredoVerdejo, petitioner, versus Hon. Sofronio Sayo, etc., et al ., respondents", which dismissed the petition to annul and set aside the order, dated 8 October 1986, directing the issuance of a writ ofexecution in Civil Case No. 2546-P of the Regional Trial Court of Pasay City, as well as theResolution, dated 5 March 1987, which denied the petitioner's motion for reconsideration of saiddecision of 28 November 1986.

The pertinent facts of the case are as follows:

On 20 December 1984, the herein petitioner filed a complaint against the private respondentHerminia Patinio and one John Doe before the Regional Trial Court of Pasay City, docketedtherein as Civil Case No. 2546-P, for collection of a sum of money amounting to P60,500.00,which said Herminia Patinio had allegedly borrowed from him but failed to pay when it becamedue, notwithstanding demands. 1

Answering, Herminia Patinio admitted having obtained loans from the petitioner but claimed thatthe amount borrowed by her was very much less than the amount demanded in the complaint,which amount she had already paid or settled, and that the petitioner had exacted or charged

interest on the loan ranging from 10% to 12% per month, which is exorbitant and in grossviolation of the Usury Law. Wherefore she prayed that she be reimbursed the usurious interestscharged and paid. She also asked for damages, attorney's fees and costs of suit. 2

After trial court on 3 September 1986, the trial court rendered Judgment, as follows:

WHEREFORE, judgment is hereby rendered dismissing plaintiff's complaint forlack of merit.

On defendants' counterclaim plaintiff is hereby ordered to refund to defendantsthe amount of P13,890.00 and to further pay to defendants the amount of

P5,000.00 as attorney's fees and the costs of this suit.

3

Counsel for the petitioner received a copy of the trial court's decision on 5 September 1986, andon 19 September 1986, he sent a notice of appeal to the court by special delivery. The notice ofappeal was received by the court on 26 September 1986. On that same day the court alsoreceived the motion for execution filed by the private respondent, Herminia Patinio. 4


13/143

The petitioner opposed the motion claiming that he had already filed a notice of appeal through

the mail so that the motion for execution was improper. 5

The private respondent, however, replied that the petitioner's notice of appeal was filed beyondthe reglementary period and reiterated her prayer for the issuance of a writ of execution. 6

Resolving the matter, the trial court issued an Order on 8 October 1986, the dispositive part ofwhich reads as follows:

WHEREFORE, as plaintiff's Notice of appeal was filed beyond the reglementary period, the same is hereby DENIED.

As the judgment rendered herein has become final and executory, let thecorresponding Writ of Execution issue to enforce the same. 7

Thereafter, the petitioner filed a petition for certiorari before the Court of Appeals, docketed

therein as CA-G.R. No. SP-10429, to annul said Order of 8 October 1986.8

The appellate court,however, as aforestated, dismissed the petition in a Decision dated 28 November 1986. 9 The petitioner filed a motion for reconsideration of the decision, but his motion was denied in aResolution dated 5 March 1987. 10

Hence, the petitioner's present recourse.

The only issue in this petition is whether or not the Court should allow an appeal where thenotice of appeal was sent by special delivery mail within the period for perfection of appeals, butreceived in court after the expiration of said period.

For the proper exercise of the right to appeal, the petitioner should have complied with Section 1,Rule 13 of the Rules of Court which reads as follows:

Section 1. Filing with the court, defined .-The Filing of pleadings, appearances,motions, notice orders and other papers with the court as required by these rulesshall be made by filing them personally with the clerk of the court or by sendingthem by registered mail. In the first case, the clerk shall endorse on the pleadingthe date and hour of filing. In the second case, the date of mailing of motions, pleadings, or any other papers or payments or deposits, as shown by the postoffice stamp on the envelope or the registry reciept shall be considered as the dateof their filing, payment, or deposit in court. The envelope shall be attached to the

record of the case.

In justifying his failure to comply strictly with the requirements for perfecting an appeal, asaforestated, the petitioner alleges that his counsel was sick at the time, and in order to beat thedeadline for the filing of the appeal, he mailed the notice of appeal by special delivery mail, notknowing that it should be sent by registered mail. 11

We find merit in the petition. The Rules of Court expressly provide that the rules should beliberally construed in order to promote their object and to assist the parties in obtaining just,speedy, and inexpensive determination of every action and proceeding, 12 and in the absence of aclear lack of merit or intention to delay, a case should not be allowed to go off on procedural points or technicality. As much as possible, failure of' justice should be avoided. 13

In the instant case, the notice of appeal was sent by special delivery, instead of registered mail.Considering that said notice of appeal was sent within the period for perfection of appeals by the petitioner who, not being a lawyer, is not well versed in the finer points of the law, and, hence,committed an honest mistake; and that the petitioner appears to have a good and valid cause ofaction, we find that there was substantial compliance with the rules.


14/143

The case involves an alleged violation of the Usury Law, where the petitioner was found by thetrial court to have charged and collected usurious interests from the private respondent on loanswhich were first obtained on 15 February 1982, later renewed, and finally culminated with theexecution by private respondent of the Deed of Sale with Right of Repurchase on 17 November

1983. This Court has ruled in one case 14 that with the promulgation of Central Bank Circular

No. 905, series of 1982, usury has become "legally inexistent" as the lender and the borrower canagree on any interest that may be charged on the loan. This Circular was also given retroactiveeffect. But, whether or not this Circular should also be given retroactive effect and applied in thiscase is yet to be determined by the appellate court at the proper time.

Moreover, it appears that the computation of the amount considered as usurious interest isincorrect. The trial court merely added the amounts paid by the private respondent to the petitioner and, thereafter, deducted therefrom the amounts given as loan to the private respondentand considered the excess amount usurious, without apparently considering the lawful interestthat may be collected on said loans. Only usurious interests may be reimbursed.

To prevent a miscarriage of justice, the petitioner should be allowed to prosecute his appeal.

ACCORDINGLY, the petition is GRANTED. The questioned Decision and Resolution issued bythe respondent Court of Appeals on 28 November 1986 and 5 March 1987, respectively, in CA-G.R. No. SP-10429, as well as the Order issued by the Regional Trial Court of Pasay City inCivil Case No. 2546-P on 8 October 1986, are hereby ANNULLED and SET ASIDE andanother one entered approving the notice of appeal filed by the petitioner. Without costs.

SO ORDERED.


Manila

EN BANC

G.R. No. L-13708 January 29, 1919

THE UNITED STATES, plaintiff-appellee,vs.

FRANCISCO CONSTANTINO TAN QUINGCO CHUA, defendant-appellant.

C. Ledesma for appellant. Attorney-General Paredes for appellee

MALCOLM, J.:

How a lean little debt of P100 contracted in the year 1911 grew and grew until, after the lapse offive short years, interest had made of it the fat and respectable sum of approximately P700, is thestory told by this record.

The tale opens on April 29, 1911, with one, Pedro Andres, borrowing of Francisco ConstantinoTan Quingco Chua, the instant defendant, the sum of P100, with interest of 24 cavanes of palay.In less than three months, or, to be exact, on the 9th of July of the same year, the debt was raisedto P125, with interest of 30 cavanes of palay. Two years pass, and on June 28, 1913, it has become P226.70, secured by a pacto de retro, with the interest at 44 cavanes of palay annually.The day of reckoning came on October 17, 1915, when the debt was liquidated with the resultthat Andres had an obligation of P474.20, which he promised to pay on the 25th of the samemonth. One year later action was brought to recover this sum and the corresponding judgment


15/143

rendered therefor. Then, on October 25, 1916, Andres and Tan Quingco Chua executed adocumentary by which Andres sold to Tan Quingco Chua under pacto de retro a certain parcel ofland and a female carabao for the amount of P684.20; the period of redemption was to be fivemonths; Andres was to hold the land during this time as lessee and as such lessee to pay a rent of90 cavanes of palay, each cavan to weigh 44 kilos, in the month of February, 1917, and all

charges during the existence of the lease. Execution on the judgment of October 25, 1916,resulted in Andres paying to the Chinaman P474, and turning over to him 98 cavanes of palay.

The outcome of these various transactions was the filing of an information by the provincialfiscal of Nueva Ecija, charging Francisco Constantino Tan Quingco Chua with the crime ofusury, predicated specially on the document of October 25, 1916, above described. The trialcourt, the Honorable Vicente Nepomuceno, in a very able and fair decision, found that theaccused had been proved guilty and sentenced him to pay a fine of P225, or to suffer subsidiaryimprisonment in case of insolvency, and to pay the costs.

The taking of excessive interest for the loan of money has been regarded with abhorrence from

the earliest times. Usury, as such unlawful profits were known, was prohibited by the ancientlaws of the Chinese and the Hindus, by the Mosaic Law of the Jews, by the Koran, by theAthenians and by the Romans, and has been frowned upon by distinguished publiciststhroughout all the ages. (See for a learned historical discussion of usury, the opinion ofChancellor Kent in Dunham vs. Gould [1819], 16 Johnson 367; 8 Am. Dec., 323.) The illegalityof usury is now wholly a creature of legislation.

The Philippine statute on the subject is Act No. 2655, effective on the first day of May, 1916. Itis a drastic law following in many respects the most advanced American legislation. In theabsence of expressed contract, the legal rate of interest is made 6 per cent per annum. Themaximum rate for mortgage loans is 12 per cent per annum whether "directly or indirectly" taken

or received. For loans not secured by mortgage, the maximum rate of interest is 14 per cent perannum. The whole interest paid with costs and attorney's fees can be recovered from the usurer.The law proclaims that, "all conveyances, mortgages bonds, bills, notes, and other contracts orevidences of debt, and all deposits of goods or other things, whereupon or whereby there shall bereserved, secured, taken, or received, directly or indirectly, a higher rate or greater sum or valuefor the loan or forbearance of money, goods or credits than is hereinbefore allowed, shall bevoid" (sec. 7). The law closes with punitive provisions, reading as follows:

Without prejudice to the proper civil action, violations of this Act shall be subject tocriminal prosecution and the guilty person shall, upon conviction, be sentenced to a fineequivalent to the total interest stipulated or to the value of the products or seed agreedupon as interest, and in case of insolvency, subsidiary imprisonment shall beimposed: Provided , That in case of corporations, associations, societies or companies themanager, administrator or gerente or the person who has charge of the management oradministration of the business, shall be the one to suffer the subsidiary imprisonment provided by this Act in the case of a sentence of conviction. (Sec. 10.)

The gist of the offense of usury for this jurisdiction is in actually taking unlawful interest. Acorrupt intent is likewise of the essence of usurious transactions. "To constitute usury, within the prohibition of the law, there must be an intention knowingly to contract for or take usuriousinterest; for if neither party intend it, but act bona fide and innocently, the law will not infer acorrupt agreement. Where, indeed, the contract, upon its very face, imports usury, as by anexpress reservation of more than legal interest, there is no room fro the presumption; for theintent is apparent, res ipsa loquitur . But where the contract on its face is for legal interest only,there it must be proved that there was some corrupt agreement, or devise or shift, to cover usury;and that it was in the full contemplation of the parties." (United States Bank vs. Waggener[1835], 9 Pet., 378.)

Two issues present themselves, namely: 1. Did the trial court commit an error in admittingevidence relating to facts which occurred prior to the going into effect of the Usury Law, and has


16/143

this court followed in the same treacherous path in its narration of the evidence? 2. Did theaccused violate the Usury Law by the accomplishment of what purports to be a pacto de retro,now in evidence as Exhibit B?

1. It is an elementary rule of contracts that the laws, in force at the time contract was made, enter

into and govern it. The laws on the subject existing prior to the enactment of the Usury Lawwould only invalidate contracts contrary to public morals and public order. Criminal prosecutionwould then have been unlikely. The same idea prevails as to usury statutes. Ordinarily, such lawsare to be construed prospectively and not retrospectively. The reason is that if the contract islegal at its inception, it cannot be rendered illegal by any subsequent legislation for this would betantamount to the impairment of the obligation of the contract.

From one aspect, therefore, the contention of appellant is tenable. The guilt of the accused must be proved, if at all, because of the formulation of Exhibit B on and after the passage of the UsuryLaw. In another aspects, however, appellant is wrong. The rule of evidence should be to permitthe courts to look into prior occurrence, just as they take account of other criminal acts of an

accused, in order to understand the particular fact which is claimed to be a violation of the law,and in order to ascertain the criminal intent. This is after all only applied logic, for, other wise, aswill hereafter appear, a document apparently legal on its face could not be proved to be illegal byother and separate acts, which go to demonstrate that it is merely a shift to evade the statute ofusury.

2. It is indeed a delicate line which separates the nonusurious from the usurious contract. LordBacon in one of his essays concludes that two things are to be reconciled. "The one," he says,"that the tooth of usury be grinded that it bite not too much; the other, that there be left open themeans to invite moneyed men to lend for the continuing and quickening of trade." "The statute ofusury," Chancellor Kent says, "is constantly interposing its warning voice between the creditor

and the debtor, even in their most secret and dangerous negotiations, and teaches a lesson ofmoderation to the one, and offers its protecting arms to the other." (Dunham vs. Gould, supra.)

Most of the ordinary contracts, when entered into in good faith, do not come within the pale ofusury. Any person owning property may sell it at such price and at such terms as to the time andmode of payment as he may see fit, and such a sale, if bona fide, cannot be usurious howeverunconscionable it may be. Lord Mansfield characteristically says: "I lay the foundation of thewhole upon a man's going to borrow under colour of buying: there the contract is usurious; butwhere it is a bona fide sale . . . it certainly is not." (Floyer vs. Edwards, 1 Cowp., 112, 116; 98Eng. Reprint, 995.0 Rent charges as in the document before us, may be created or transferredwithout regard to the usury laws as long as such forms of transactions are not used as merecovers for usurious loans. A hard bargain need not necessarily be a void bargain. (See Webb onUsury, sec. 47.)

The form of the contract is not conclusive. The cardinal inquiry is, Did the parties resort to thetransaction for the purpose of disguising usury in violation of law? The law will not permit ausurious loan to hide itself behind a legal form. Parol evidence is admissible to show that awritten document though legal in form was in fact a device to cover usury. If from a constructionof the whole transaction it becomes apparent that there exists a corrupt in intent to violate theUsury Law, the courts should and will permit no scheme, however ingenious, to becloud thecrime of usury.

Exhibit B purports to be a pacto de retro. The ninety cavanes of palay mentioned are describedas rent. If, indeed, a pacto de retro, standing alone and by itself it would undoubtedly be valid,and would resulted in no evil consequences to the parties. This court has, however, heretoforedecided, with reference to so-called pacto de retros, that parol evidence is competent andadmissible in support of the allegation that the instrument in writing purporting on its face totransfer absolute title to property, or to transfer the title with a mere right of repurchase underspecified conditions, was in truth and in fact given merely as a security for the repayment of aloan. (Cuyugan vs. Santos [1916], 34 Phil., 100.) Likewise, the Supreme Court of Porto Rico in


17/143

Monagas vs. Alberticci ([1911]), 17 Porto Rico, 684; 235 U.S., 81) has said of a writteninstrument which was claimed to be a conditional sale: "the real intention of the parties at thetime the written instrument was made must govern in the interpretation given to it by the courts.This must be ascertained from the circumstances surrounding the transaction and from thelanguage of the document itself."

With these principles before us, we entertain little or no doubt that Exhibit B was not a true pactode retro, but was a sham document to cover usurious financial manipulation. This document,framed with legal precision, was a token of a debt originally of P100, grown to be P474,20, towhich in this document was added P210 as interests, to make a total of P684.20. Then on top ofthis latter sum was dumped 90 cavanes of palay, denominated as rent, but which in reality wasinterest valued at P225 for the use of P684.20 for five months.

In moving toward a conclusion, we have not forgotten the canon of construction which shouldgovern penal statutes of this character. The rule is as stated by the Supreme Court of Alabama,namely: "When operating on the contract or the security taken, it (the statute) is not, strictly

speaking, punitive in its character, and we should so construe it as to repress the great evil thelegislature had in view in its enactment. But when the punishment of the person who hascommitted usury, is sought, according to the benignant principle which pervades our criminal jurisprudence, it should be construed in all cases of doubt and uncertainty in favor of theaccused." (Metcalf vs.Watkins [1834], 1 Port., 57. See generally, 39 Cyc., 876 and Webb onUsury.)

No doubt and uncertainty exists in this case. If the facts as found by the trial court are true, andwe think they are, and if the law as enunciated in this decision is correct, and we think it is, then,this surely is usury, if there ever was usury. The money lenders did not alone pursue their callingin old Judea. The Shylocks have not merely strutted or skulked on the Shakesperian stage. The

Philippines abound with such who exact their pound of flesh — and for these the law wasintended and for these shall be enforced.

The penalty imposed being in accordance with the law, no other recourse exists but to affirm the judgement, with costs against appellant, "without prejudice to the proper civil action." Soordered.

Arellano, C.J., Torres, Carson, Araullo, Street, Avanceña and Moir, JJ., concur.

Ina case, the court held the contract as one of mortgage in view of the existence ofthree which

are indicative of the contract of mortgage: (1) The agreement that the full amount ofthe

indebtedness must be returned to the lenders before the borrowers could demand the returnof the

property, which is contrary to an antichretic contract wherein the products of the land should be

applied to the interest and then to the principal; (2) the use of the term “mortgage” invarious

parts of the contract; and (3) the agreement that the lenders are not to pay rentals onthe property

in consideration of the fact that the borrowers do not pay interest on the sum whichthey obtained

as a loan. (Verzosa vs. Bucag, [Unrep.] 97 Phil. 996 [1955].)


18/143


Manila

FIRST DIVISION

G.R. No. L-48349 December 29, 1986

FRANCISCO HERRERA, plaintiff-appellant,vs.PETROPHIL CORPORATION, defendant-appellee.

Paterno R. Canlas Law Offices for plaintiff-appellant.

CRUZ, J.:

This is an appeal by the plaintiff-appellant from a decision rendered by the then Court of FirstInstance of Rizal on a pure question of law. 1

The judgment appealed from was rendered on the pleadings, the parties having agreed during the pretrial conference on the factual antecedents.

The facts are as follows: On December 5, 1969, the plaintiff-appellant and ESSO StandardEastern. Inc., (later substituted by Petrophil Corporation) entered into a "Lease Agreement"whereby the former leased to the latter a portion of his property for a period of twenty (20) years

from said date, subject inter alia to the following conditions:

3. Rental: The LESSEE shall pay the LESSOR a rental of Pl.40 sqm. per month on 400sqm. and are to be expropriated later on (sic) or P560 per month and Fl.40 per sqm. permonth on 1,693 sqm. or P2,370.21 per month or a total of P2,930.20 per month 2,093sqm. more or less, payable yearly in advance within the 1st twenty days of each year; provided, a financial aid in the sum of P15,000 to clear the leased premises of existingimprovements thereon is paid in this manner; P10,000 upon execution of this lease andP5,000 upon delivery of leased premises free and clear of improvements thereon within30 days from the date of execution of this agreement. The portion on the side of theleased premises with an area of 365 sqrm. more or less, will be occupied by LESSEE

without rental during the lifetime of this lease. PROVIDED FINALLY, that the Lessor is paid 8 years advance rental based on P2,930.70 per month discounted at 12% interest perannum or a total net amount of P130,288.47 before registration of lease. Leased premisesshall be delivered within 30 days after 1st partial payment of financial aid. 2

On December 31, 1969, pursuant to the said contract, the defendant-appellee paid to the plaintfff-appellant advance rentals for the first eight years, subtracting therefrom the amount ofP101,010.73, the amount it computed as constituting the interest or discount for the first eightyears, in the total sum P180,288.47. On August 20, 1970, the defendant-appellee, explaining thatthere had been a mistake in computation, paid to the appellant the additional sum of P2,182.70,thereby reducing the deducted amount to only P98,828.03. 3

On October 14, 1974, the plaintiff-appellant sued the defendant-appellee for the sum ofP98,828.03, with interest, claiming this had been illegally deducted from him in violation of the

Usury Law. 4 He also prayed for moral damages and attorney's fees. In its answer, the defendant-appellee admitted the factual allegations of the complaint but argued that the amount deductedwas not usurious interest but a given to it for paying the rentals in advance for eight

years. 5Judgment on the pleadings was rendered for the defendant. 6


19/143

Plaintiff-appellant now prays for a reversal of that judgment, insisting that the lower court erredin the computation of the interest collected out of the rentals paid for the first eight years; thatsuch interest was excessive and violative of the Usury Law; and that he had neither agreed to noraccepted the defendant-appellant's computation of the total amount to be deducted for the eight

years advance rentals. 7

The thrust of the plaintiff-appellant's position is set forth in paragraph 6 of his complaint, whichread:

6. The interest collected by defendant out of the rentals for the first eight years wasexcessive and beyond that allowable by law, because the total interest on the said amountis only P33,755.90 at P4,219.4880 per yearly rental; and considering that the interestshould be computed excluding the first year rental because at the time the amount ofP281, 199.20 was paid it was already due under the lease contract hence no interestshould be collected from the rental for the first year, the amount of P29,536.42 only asthe total interest should have been deducted by defendant from the sum of P281,299.20.

The defendant maintains that the correct amount of the discount is P98,828.03 and that the sameis not excessive and above that allowed by law.

As its title plainly indicates, the contract between the parties is one of lease and not of loan. It isclearly denominated a "LEASE AGREEMENT." Nowhere in the contract is there any showingthat the parties intended a loan rather than a lease. The provision for the payment of rentals inadvance cannot be construed as a repayment of a loan because there was no grant or forbearanceof money as to constitute an indebtedness on the part of the lessor. On the contrary, thedefendant-appellee was discharging its obligation in advance by paying the eight years rentals,and it was for this advance payment that it was getting a rebate or discount.

The provision for a discount is not unusual in lease contracts. As to its validity, it is settled thatthe parties may establish such stipulations, clauses, terms and condition as they may want toinclude; and as long as such agreements are not contrary to law, morals, good customs, public policy or public order, they shall have the force of law between them. 8

There is no usury in this case because no money was given by the defendant-appellee to the

plaintiff-appellant, nor did it allow him to use its money already in his possession. 9 There wasneither loan nor forbearance but a mere discount which the plaintiff-appellant allowed thedefendant-appellee to deduct from the total payments because they were being made in advancefor eight years. The discount was in effect a reduction of the rentals which the lessor had theright to determine, and any reduction thereof, by any amount, would not contravene the UsuryLaw.

The difference between a discount and a loan or forbearance is that the former does not have to be repaid. The loan or forbearance is subject to repayment and is therefore governed by the lawson usury. 10

To constitute usury, "there must be loan or forbearance; the loan must be of money or somethingcirculating as money; it must be repayable absolutely and in all events; and something must be

exacted for the use of the money in excess of and in addition to interest allowed by law." 11

It has been held that the elements of usury are (1) a loan, express or implied; (2) anunderstanding between the parties that the money lent shall or may be returned; that for suchloan a greater rate or interest that is allowed by law shall be paid, or agreed to be paid, as thecase may be; and (4) a corrupt intent to take more than the legal rate for the use of money loaned.Unless these four things concur in every transaction, it is safe to affirm that no case of usury can be declared. 12

Concerning the computation of the deductible discount, the trial court declared:


20/143

As above-quoted, the 'Lease Agreement' expressly provides that the lessee (defendant)shag pay the lessor (plaintiff) eight (8) years in advance rentals based on P2,930.20 permonth discounted at 12% interest per annum. Thus, the total rental for one-year period isP35,162.40 (P2,930.20 multiplied by 12 months) and that the interest therefrom isP4,219.4880 (P35,162.40 multiplied by 12%). So, therefore, the total interest for the first

eight (8) years should be only P33,755.90 (P4,129.4880 multiplied by eight (8) years andnot P98,828.03 as the defendant claimed it to be.

The afore-quoted manner of computation made by plaintiff is patently erroneous. It ismost seriously misleading. He just computed the annual discount to be at P4,129.4880and then simply multiplied it by eight (8) years. He did not take into consideration thenaked fact that the rentals due on the eight year were paid in advance by seven (7) years,the rentals due on the seventh year were paid in advance by six (6) years, those due onthe sixth year by five (5) years, those due on the fifth year by four (4) years, those due onthe fourth year by three (3) years, those due on the third year by two (2) years, and thosedue on the second year by one (1) year, so much so that the total number of years by

which the annual rental of P4,129.4880 was paid in advance is twenty-eight (28),resulting in a total amount of P118,145.44 (P4,129.48 multiplied by 28 years) as thediscount. However, defendant was most fair to plaintiff. It did not simply multiply theannual rental discount by 28 years. It computed the total discount with the principaldiminishing month to month as shown by Annex 'A' of its memorandum. This is why thetotal discount amount to only P 8,828.03.

The allegation of plaintiff that defendant made the computation in a compounded manneris erroneous. Also after making its own computations and after examining closelydefendant's Annex 'A' of its memorandum, the court finds that defendant did not charge12% discount on the rentals due for the first year so much so that the computationconforms with the provision of the Lease Agreement to the effect that the rentals shall be'payable yearly in advance within the 1st 20 days of each year. '

We do not agree. The above computation appears to be too much technical mumbo-jumbo andcould not have been the intention of the parties to the transaction. Had it been so, then it shouldhave been clearly stipulated in the contract. Contracts should be interpreted according to theirliteral meaning and should not be interpreted beyond their obvious intendment. 13

The plaintfff-appellant simply understood that for every year of advance payment there would bea deduction of 12% and this amount would be the same for each of the eight years. There is noshowing that the intricate computation applied by the trial court was explained to him by thedefendant-appellee or that he knowingly accepted it.

The lower court, following the defendant-appellee's formula, declared that the plaintiff-appellanthad actually agreed to a 12% reduction for advance rentals for all of twenty eight years. That isabsurd. It is not normal for a person to agree to a reduction corresponding to twenty eight yearsadvance rentals when all he is receiving in advance rentals is for only eight years.

The deduction shall be for only eight years because that was plainly what the parties intended atthe time they signed the lease agreement. "Simplistic" it may be, as the Solicitor Generaldescribes it, but that is how the lessor understood the arrangement. In fact, the Court will rejecthis subsequent modification that the interest should be limited to only seven years because thefirst year rental was not being paid in advance. The agreement was for auniform deduction forthe advance rentals for each of the eight years, and neither of the parties can deviate from it now.

On the annual rental of P35,168.40, the deducted 12% discount was P4,220.21; and for eightyears, the total rental was P281,347.20 from which was deducted the total discount ofP33,761.68, leaving a difference of P247,585.52. Subtracting from this amount, the sum ofP182,471.17 already paid will leave a balance of P65,114.35 still due the plaintiff-appellant.


21/143

The above computation is based on the more reasonable interpretation of the contract as awhole rather on the single stipulation invoked by the respondent for the flat reduction ofP130,288.47.

WHEREFORE, the decision of the trial court is hereby modified, and the defendant-appellee

Petrophil Corporation is ordered to pay plaintiff-appellant the amount of Sixty Five ThousandOne Hundred Fourteen pesos and Thirty-Five Centavos (P65,114.35), with interest at the legalrate until fully paid, plus Ten Thousand Pesos (P10,000.00) as attorney's fees. Costs against thedefendant-appellee.

SO ORDERED.

Republic of the PhilippinesSUPREME COURT Manila

EN BANC

G.R. No. L-29292 March 13, 1929

TOMASA C. VIUDA DE PAMINTUAN, plaintiff-appellant,vs.JUAN TIGLAO, defendant-appellant

Jose Ma. Cavanna for plaintiff-appellant.

Alfonso Ponce Enrile for defendant-appellant.

OSTRAND, J.:

This action was instituted in the court of the justice of the peace of Mabalacat, Pampanga, byTomasa C. Vda. de Pamintuan, as guardian of her five minor children, bearing ther surname ofPamintuan y Centeno, for the purpose of recovering from Juan Tiglao the possession of 2 parcelsof land described in the complaint, as well as quantity of palay and sugar, as rent, together withdamages and an attorney's fee, and costs. In the said court the cause was decided favorably to the

plaintiff, whereupon the defendant appealed to the Court of First Instance. In the latter court thedefendant challenged the jurisdiction of the court and set up various counterclaims not necessaryto be here specified.

Upon the trial of the cause in the Court of First instance justice was again rendered in favor ofthe plaintiff for the possession of the land in question and requiring the defendant to pay for the plaintiff, as rent for the agricultural year 1925-1926, three hundred cavans of palay(Pinilingbeltu), or in the default thereof, its equivalent in the money at the rate of P3.75 percaravan, as well as four hundred piculs of sugar; and as rent for agricultural year 1926-1927,another three hundred cavans of palay, or in default thereof, its equivalent value in money at thesame rate per cavan, with interest on all of said sums from April 10, 1926. From this judgment

both the plaintiff and appellant appealed: the plaintiff appealing with respect to so much of the judgement as failed to award the stipulated attorney's fee of P1000 and stipulated interest at therate of 15 percent per annum upon the unpaid rents; the defendant appealing from the court'srefusal to dismiss the cause of lack of jurisdiction, as well as from the failure of the court toallow the defendant his own attorney's fee.

It appears that on March 18, 1925, one Jose v. Ramirez, as attorney-in-fact of FlorentinoPamintuan, entered into a written contract with the defendant herein, Juan Tiglao, whereby the


22/143

former leased to the latter 2 parcels of land described in the plaintiff's complaint, located in the barrio of Dolores, municipality of Mabalacat, Province of Pampanga. The term of the lease wasfixed at two agricultural years, beginning with the month of April, 1925, and continuing toMarch, 1927.

In the fourth paragraph of this contract the annual rent due upon the lease was fixed at threehundred cavans of palay and four hundred piculs of sugar, of defined quality, and deliverable onor before the last day of March, marking the end of two respective years covered by the lease.The rent for the first year not having been paid on or before March 31, 1926, nor thereafter, thisaction was instituted on September 10, 1926, after proper demand made, for the purposesindicated in the first paragraph of this opinion.

Logically speaking, the first question that presents itself upon this record is whether the court of justice of the peace has jurisdiction to entertain an action of the detainer, at the instance of thelandlord, upon failure of the tenant to pay rent at the time and manner stipulated; andconsequently whether this action, which was instituted prior to the termination of the full period

fixed by the lease, can be considered premature. Upon this point, it may be recalled asrudimentary in the law governing leases of rural and urban property, that it is the duty of thelessee to pay the price of the lease in the manner agreed upon (art. 1555, Civ. Code).Furthermore, the failure on the part of the lessee to comply with this obligation supplies a groundfor rescission of the contract and recovery of damages by the lessor (art. 1556, Civ. Code).Again, in section 80 of the Code of Civil Procedure, it is in effect, among other things, declaredthat any landlord against whom the possession of any land is unlawfully withheld after thedetermination of the right to hold possession shall, at any time with one year after thecommencement of such unlawful withholding of possession, be entitled, as against the person sodepriving him of possession, to restitution of the land, together with the damages and costs. Fromthese provisions it is clear that upon non-payment of rent by the lessee, the lessor may elect totreat the contract as rescinded and thereby determine the right of the lessee to continue in possession; and this right to recover possession may be enforced in an action of unlawfuldetainer. It is not necessary, in such situation, that an independent action for the recission of thelease should first be instituted, in the Court of First Instance, for the purpose of putting an end tothe right of the tenant to remain in possession under the lease. Indeed, the proviso to the sectionof the Code of Civil Procedure last above cited, gives express recognition to the right of thelandlord to recover possession in an ordinary action of detainer, for non-payment of rent by thelessee, the condition being that non-payment of the rent must have continued for the period of atleast three days after demand duly made.

It appears from the record that after this action was begun, and before the case was decided, thedefendant voluntarily surrendered possession of the land to the plaintiff. Upon this it iscontended by the attorney for the defendant that the court of the justice of the peace — andconsequently the Court of First Instance — lost jurisdiction to entertain the action. Thiscontention is of course untenable. The jurisdiction of the court having once attached, that jurisdiction continues until the complete remedy is granted. The defendant-appellant furthercontends that inasmuch as he set up a counterclaim for damages in the amount of P6,000, the jurisdiction of the court of justice of the peace over the main action was destroyed. But this proposition also is untenable.

What has been said disposes of the main points raised in the appeal of the defendant. Withrespect to the plaintiff's appeal, we note, first, a provision in the contract of lease to the effectthat if the stipulated rent should not be paid at the times stated, the lessee must indemnify thelessor in an additional amount equivalent to 15 per centum annually, or 1.25 per cent of eachmonth of delay, to be calculated upon the highest quotation registered in the market, for thecommodity which should have been paid, within the sixty days following the due date of suchrent. The trial court refused to give effect to this stipulation on the ground that, in effect, it was astipulation for the payment of usurious interest. In this connection it will be recalled that at thattime the contract in question was made, the highest rate that could be legally collected upon anyunsecured loan or forebearance of money, goods, or credits, was 14 per centum per annum. In


23/143

view of this provision, we are of the opinion that the trial court committed no error in refusing toallow the interest thus stipulated for. In dealing with situations of this kind it is the duty of thecourt to look through the form and into the substance of the transaction, and we are of theopinion that this stipulation really contemplated interest, as interest, and that the stipulation didnot contemplate what may be called liquidated damages, as contended by the plaintiff-appellant.

The second fault involved in the plaintiff's appeal has reference to the refusal of the trial court toallow an attorney's fee. In paragraph 11 of the contract, it is stipulated that in case of litigationfor non-compliance with the lease, the lessee shall pay to the lessor the sum of P1000 for hisattorney's fee and other expenses. The justice of the peace, before whom the case was brought,refused to take cognizance of this item on the ground that the sum exceeded the amount overwhich he could take jurisdiction. Upon appeal, the Court of First Instance held that as it was onlyexercising its appellate jurisdiction, it could not take cognizance of matters beyond the jurisdiction of the justice of the peace court.

In our opinion, the views of the two lower courts are correct. A justice of the peace court is of

limited jurisdiction, and the limits are fully and clearly defined in the statutes. This is an actionfor forcible entry and detainer and, as such, can only involve " the restitution of the land, building, and premises possession of which is unlawfully withheld, togetherwith damages and costs" (see sec 80, Code of Civil Procedure). Damages do not includeattorney's fees; whatever doubt there may be on that point should be dispelled by section 84 ofthe same code, which reads as follows:

If, upon trial, the court shall find that the complainant is not true, it shall enter judgementagainst the plaintiff for costs. If it finds the complaint to be true, it shall render judgementagainst the defendant in favor of the plaintiff for restitution of the premises, and cost ofsuit, and for all arrears of rent, or a reasonable compensation for the use and occupation

of the premises. (Emphasis supplied.)

The costs referred to are fixed by section 491 of the code and do not include attorney's fees.

In conclusion we note that the defendant supposes that he is entitled to recover his own attorney'sfee under section 7 of the Usury law (Act no. 2655), in view of the usurious character of thestipulation for the payment of 15 per cent interest to the lessor for the payment of overdue rents.This suggestion is untenable, since the right to the attorney's fee under the section referred toattaches only when usurious interest has in fact been paid. The circumstance that usuriousinterest is stipulated for does not entitle the borrower to an attorney's fee in an action declaringthe stipulation usurious.

The judgement appealed from is in accordance with the law and the facts and is affirmed withoutcosts. So ordered.

Johnson, Malcolm, Johns, Romualdez, and Villa-Real, JJ., concur.


24/143


25/143

x x x The increase of the price, when the sale is on credit, serves not only to cover theexpenses generally entailed by such transactions on credit, but also to encourage cashsales, so useful to commerce. It is up to the purchaser to decide which price he prefers inmaking the purchase. If he prefers to purchase for cash, he obtains a 5 per cent reductionof the price; if, on the contrary, he prefers to buy on credit, he cannot complain of the

increase of the price demanded by the vendor.

In 27 R.C.L., p. 214, it is said: "On principle and authority, the owner of property,whether real or personal, has a perfect right to name the price on which he is willing tosell, and to refuse to accede to any other. He may offer to sell at a designated price forcash or at a much higher price on credit, and a credit sale will not constitute usuryhowever great the difference between the two prices, unless the buying and selling was amere pretense." And in 39 Cyc., p. 927, it is also established that: "A vendor may well fixupon his property one price for cash and another for credit, and the mere fact that thecredit price exceeds the cost price by a greater percentage than is permitted by the usurylaws is a matter of concern to the parties but not to the courts, barring evidence of bad

faith. If the parties have acted in good faith suc

Documents

Cred Trans Cases 012316