US vs. Diaz-Conde (Crim1) : Johnson, J.

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US vs.

Diaz-Conde (Crim1)

US vs. Diaz-Conde (42 Phil 766)

Facts:
On December 30, 1915, complainants Bartolome Oliveros and Engracia Lianco entered into a contract
with the defendants concerning a debt of P300. Oliveros and co. were obligated to pay five percent
interest per month within the first ten days of every month. On May 6, 1921, Vicente Diaz Conde and
Apolinaria R. De Conde were charged with violating the Usury Law in the Court of First Instance of the
city of Manila. They were found guilty, sentenced to pay a fine of P120 and in case of insolvency, to
suffer subsidiary imprisonment in accordance with the provisions of law. They took it to SC to plead.

Issues:
WoN the Usury Law has a retroactive effect in this case
WoN the law impaired the contract

Held and Ratio:


No. The Usury Law, a penal law, cannot become retroactive unless it is favorable to the person accused.
(Art. 21 and 22 Penal Code)
Yes. If a contract is legal at its inception, it cannot be rendered illegal by any subsequent legislation.

Decision: Judgment reversed, defendants acquitted.

[ G.R. No. 26085, August 12, 1927 ]

SEVERINO TOLENTINO AND POTENCIANA MANIO, PLAINTIFFS AND APPELLANTS, VS.


BENITO GONZALEZ SY CHIAM, DEFENDANT AND APPELLEE.

DECISION

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 and agrees to pay a
certain amount per month as rent, may such rent render such a contract usurious when the amount paid as
rent, computed upon the purchase price, amounts to a higher rate of interest upon said amount than that
allowed by law?

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

Sometime prior to the 28th day of November, 1922, the appellants purchased of the Luzon Rice Mills,
Inc., a piece or parcel of land with the camarin located thereon, situated in the municipality of Tarlac of
the Province of Tarlac for the price of P25,000, promising to pay therefor in three installments.  The first
installment of P2,000 was due on or before the 2d day of May, 1921; the second installment of P8,000
was due on or before the 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 purchasers (plaintiffs and appellants) to pay the balance of said
purchase price or any of the installments 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 as the record
shows upon the due dates. The balance of P15,000 due on said contract of purchase was 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. Said transfer certificate of title (No. 528) was transfer
certificate of title from No. 40, which shows that 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 question wrote 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 recovering the property,
together with damages for non compliance with the condition of the contract 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 incumplimien to al contrato.

"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 was due and
payable upon said contract of purchase on the 30th day of November, 1922, the sum P16,965.09. 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 of their indebtedness on the purchase price of 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 negotiations the defendant agreed to loan the
plaintiffs the sum of P17,500 upon condition 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 the sum 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 the attorneys 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.  Said contract 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, ambos mayores 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 Potenciana Manio, por y en consideracion a la cantidad de
diecisiete mil quinientos pesos (P17,500) moneda filipina, que en este acto hemos recibido a nuestra
entera satisfaccion de Don Benito Gonzalez Sy Chiam, cedemos, vendemos y traspasamos a favor de
dicho Don Benito Gonzalez Sy Chiam, sus herederos y causahabientes, una finca que, segun el
Certificado de Transferencia de Titulo No. 40 expedido por el Registrador de Titulos de la Provincia de
Tarlac a favor de 'Luzon Rice Mills Company Limited' que al incorporarse se denomino y se denomina
'Luzon Rice Mills Inc.,' y que esta corporacion nos ha transferido en venta absoluta, se describe como
sigue:

"Un terreno (lote No. 1) con las mejoras existentes en el mismo, situado en el Municipio 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. 4 gds. 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; midiendo una extension superficial de cuatro mil doscientos diez y seis metros cuadrados (4,216)
mas o menos. Todos los puntos nombrados se hallan marcados en el piano y sobre el terreno los puntos 1
y 2 estan determinados por mojones de P. L. S. de 20 x 20 x 70 centimetros y los puntos 3 y 4 por
mojones del P. L. S. B. L.; la orientation seguida es la verdadera, siendo la declinacion magnetica de 0
gds. 45' E. y la fecha de la medicion, 1.° de febrero de 1913.

"Segundo. Que es condicion de esta venta la de que si en el plazo de cinco (5) años contados desde el dia
1.° de diciembre de 1922, devolvemos al expresado Don Benito Gonzalez Sy Chiam el referido precio de
diecisiete mil quinientos pesos (P17,500) queda obligado dicho Sr. Benito Gonzalez Sy Chiam a
retrovendernos la finca arriba descrita; pero si transcurre dicho plazo de cinco años sin ejercitar el
derecho de retracto que nos hemos reservado, entonces quedara esta venta absoluta 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 a Don Benito Gonzalez 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 Benito Gonzalez Sy Chiam, asi
como tambien la prima del seguro contra incendios, si le conviniera al referido Sr. Benito Gonzalez Sy
Chiam asegurar dicha finca.

"(c) La falta de pago del alquiler aqui estipulado por dos meses consecutivos dara lugar a la terminacion
de este arrendamiento y a la perdida del derecho de retracto que nos hemos reservado, como si
naturalmente hubiera expirado el termino para ello, pudiendo en su virtud dicho Sr. Gonzalez Sy Chiam
tomar posesion de la finca y desahuciarnos de la misma.

"Cuarto. Que yo, Benito Gonzalez Sy Chiam, a mi vez otorgo que acepto esta escritura en los precisos
terminos en que la dejan otorgada los conyuges Severino Tolentino 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

"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 clearly that it is
a pacto de retro and not a mortgage. There is no pretension on the part of the appellant that safd 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) años contados desde el dia
1.° de diciembre de 1922, devolvemos al expresado Don Benito Gonzalez Sy Chiam el referido precio de
diecisiete mil quinientos pesos (P17,500) queda obligado dicho Sr. Benito Gonzalez Sy Chiam a
retrovendernos la finca arriba deserita; pero si transcurre dicho plazo de cinco (5) años sin ejercitar el
derecho de retracto que nos hemos reservado, entonces quedara esta venta absoluta e irrevocable."

Language cannot be clearer. The purpose of the contract is expressed clearly in said quotation that there
can certainly be no doubt as to the purpose of the plaintiff to sell the property in question, reserving the
right only to repurchase the same. The intention to sell with the right to repurchase cannot be more clearly
expressed.

It will be noted from a reading of said sale of pacto de retro, that the vendor, recognizing the absolute
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 document above as follows:

"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 a Don Benito Gonzalez 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 Benito Gonzalez Sy Chiam, asi
como tambien la prima del seguro contra incendios, si le conviniera 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 pacto de
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, under the conditions
mentioned in paragraph 3 of said contract quoted above.

It has been the uniform theory of this court, due to the severity of a contract of pacto de retro, to declare
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 in the conduct of the
parties which shows clearly and beyond doubt that they intended the contract to be a "mortgage" and not
a pacto de retro. (International Banking Corporation vs. Martinez, 10 Phil., 252; Padilla vs. Linsangan, 19
Phil., 65; Cumagun vs.Allingay, 19 Phil., 415; Olino vs. Medina, 13 Phil., 379; Manalo vs. Gueco, 42
Phil., 925; Velazquez vs. Teodoro, 46 Phil., 757; Villa vs.Santiago, 38 Phil. 157.)

We are not unmindful of the fact that sales with pacto de retro are not favored, and that the court will not
construe an instrument to be one of sale with pacto de retro, with the stringent and onerous effect which
follows, unless the terms of the document and the surrounding circumstances require it. 
(Manalo vs. Gueco, supra.)

While it is a general rule that parol evidence is not admissible for the purpose of varying the terms of a
contract, but when an issue is squarely presented that a contract does not express the intention of the
parties, courts will, when a proper foundation is laid therefor, hear evidence for the purpose of
ascertaining the true intention of the parties.  (Manalo vs. Gueco, supra.)

In the present case the plaintiffs allege in their complaint that the contract in question is a pacto de retro. 
They admit that they signed it. They admit that they sold the property in question with the right to
repurchase it. The terms of the contract quoted above clearly show that the transfer of the land in question
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 which this court has construed a contract to be a mortgage or a loan instead of a
sale with pacto de retro, it has done so, either because the terms of such contract are ambiguous or
because the circumstances surrounding the execution or the performance of the contract were
incompatible or inconsistent with 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 and De Jesus, 37 Phil., 876.)

In the case of Padilla vs. Linsangan the term employed in the contract to indicate the nature of the
conveyance of the land was "pledged" instead of "sold." In the case of Manlagnit vs. Dy Puico, while the
vendor used the terms "sale and transfer with the right to repurchase," yet in said 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 Jesus the person who executed the instrument, purporting on its face to
be a deed of sale of certain parcels of land, had merely acted under a power of attorney from the owner of
said land, "authorizing him to 'borrow' money in such amount and upon such terms and conditions as hei
might deem proper, and to secure payment of the loan by a mortgage."  In the case of Villa vs. Santiago
(38 Phil., 157), although a contract 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 in
making improvements thereon, which fact justified the court in holding that the transaction was a mere
loan and not a sale.  In the case of Cuyugan vs. Santos (39 Phil., 970), the purchaser accepted partial
payments from the vendor, and such acceptance of partial payments "is absolutely incompatible with the
idea of irrevocability of the title of ownership of the purchaser at the expiration of the term stipulated in
the original contract for the exercise of the right of repurchase."

Referring again to the right of the parties to vary the terms of a written contract, we quote from the
dissenting opinion of Chief Justice Cayetano S. Arellano in the case of Government of the Philippine
Islands vs. Philippine Sugar Estates Development Co. (30 Phil., 27, 38), which case was appealed to the
Supreme Court of the United States and the contention of the Chief Justice in his dissenting opinion was
affirmed and the decision of the Supreme Court of the Philippine Islands was reversed. (See decision of
the Supreme Court of the United States, June 3, 1918.)[1] The Chief Justice 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 are contemporary with and
subsequent to the contract. And according to article 1283, however general the terms of a contract may
be, they must not be held to include things and cases different from those with regard to which the
interested parties agreed to contract." The Supreme Court of the Philippine Islands held that parol
evidence was admissible in that case to vary the terms of the contract between the Government of the
Philippine Islands and the Philippine Sugar Estates Development Co. In the course of the opinion of the
Supreme Court of the United States Mr. Justice Brandeis, speaking for the court, said:

"It is well settled that courts of equity will reform a written contract where, owing to mutual mistake, the
language used therein did not fully or accurately express the agreement and intention of the parties. The
fact that interpretation or construction of a contract 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 the highest court of a territory or possession has placed upon a local statute. But that
disposition may not be yielded to where the lower court has clearly erred.  Here the construction adopted
was rested upon a clearly erroneous assumption as to an established rule of equity. *  *  *  The burden of
proof resting upon the appellant cannot be satisfied by mere 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 satisfactory character.' "

The evidence introduced by the appellant in the present case does not meet with that stringent
requirement. 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 sale with the right to
repurchase. Article 1281 of the Civil Code provides:  "If the terms of a contract are clear and leave no
doubt as to the intention of the contracting parties, the literal sense of its stipulations shall be followed."
Article 1282 provides: "In order to judge as to the intention of the contracting parties, attention must be
paid principally to their conduct at the time of making the contract and subsequently thereto."

We cannot conclude this branch of our discussion of the question involved, without quoting from that
very well reasoned decision of the late Chief Justice Arellano, one of the greatest jurists of his time. He
said, in discussing the question whether or not the contract, in the case 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 Macario Berenguer declares and states
that he is the proprietor in fee simple of two parcels of fallow unappropriated crown land situated within
the district of his pueblo. The first has an area of 73quiñones, 8 balitas, and 8 loanes, located in
the sitio of Batasan, and its boundaries are, etc., etc. The second is in the sitio of Panantaglay, barrio of
Calumpang, has an 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 upon the following conditions: First, the sale
stipulated shall be for the period of two years, counting from this date, within which time the deponent
shall be entitled to repurchase 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 who shall pay, as rental therefor, the
sum of 400 pesos per annum, or the equivalent in sugar at the option of the vendor; third, all the fruits of
the said lands shall be deposited in the sugar depository of the vendee, situated in the district of Quiapo of
this city, and the value of which shall be applied on account of the price of this sale; 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 by competent authority, shall be payable by and constitute a charge against the vendor; 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
expense and 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 and value.'

*    *    *    *    *    *    *

"The opponent maintained, and his theory was accepted by the trial court, that Berenguer's contract with
Laochangco was not one of sale with right of repurchase, but merely one of loan secured by those
properties, and, consequently, that the ownership of the lands in question could not have been conveyed
to Laochangco, inasmuch as it continued to he held by Berenguer, as well as their possession, which he
had not ceased to enjoy.
"Such a theory is, as argued by the appellants, erroneous. The instrument executed by Macario 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 exact expression of the consent of the contracting parties
contained in the instrument, Exhibit C. Not because the lands may have continued in possession of the
vendor, not because the latter may 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 which
might 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 owner thereof as before their sale, but as
the lessee which he became after its consummation, by virtue of a contract executed in his favor by the
vendee in the deed itself, Exhibit C.  Right of ownership is not implied by the circumstance of the lessee's
assuming the responsibility of the payment 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 to substitute the thing
sold for another while in his possession under lease, since that obligation came from him and he continues
under another character in its possession a reason why he guarantees its integrity and obligates himself to
return the thing even in a case 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 such agreement
does not on this account involve any sign of ownership, nor other meaning than the will to impose upon
oneself scrupulous diligence in the care of a thing belonging to another.

"The purchase and sale, once consummated, is a contract which by its nature transfers the ownership and
other rights in the thing sold. A pacto de retro, or sale with right to repurchase, 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 method of loan; it is
like wise true that in practice many cases occur where the consummation of a pacto de retro sale means
the financial ruin of a person; it is also, unquestionable that in pacto de retro sales very important
interests often intervene, in the form of the price of the lease of the thing sold, which is stipulated as an
additional covenant.'  (Manresa, Civil Code, p. 274.)

"But in the present case, unlike others heard by this court, there is no proof that the sale with right of
repurchase, made by Berenguer in favor of Laochangco is rather a mortgage to secure a loan."

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

The appellant contends that the rental price paid during the period of the existence of the right to
repurchase, or the sum of P375 per month, based upon the value of the property, amounted to usury.
Usury, generally speaking, may be defined as contracting for or receiving something in excess of the
amount allowed by law for the loan or forbearance of money the taking of more interest for the use of
money than the law allows. It seems that the taking of interest for the loan of money, at least the taking of
excessive interest has ben regarded with abhorrence from the earliest times.  (Dunham vs. Gould, 16
Johnson [N. Y.], 367.)  During the middle ages the people 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 and contrary 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 in the laws of China, in
the Hindu institutes of Menu, in the Koran of Mahomet, and perhaps, we may 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 the Philippine
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 for the use and occupation of said
property, even though the amount paid as "rent," based upon the value 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 a very different contract from that of "rent". A "loan," as that term is 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 to deliver to another for
temporary use, on condition that the thing or its equivalent be returned; or to 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 technical meaning. 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 advancement of money, goods or credits upon a contract or stipulation to repay, not to
return, the thing loaned at some future day in accordance with the terms of the contract. Under the
contract of "loan," as used in said statute, the moment the contract is completed the money, goods or
chattels given cease to be the property of the former owner and becomes the property of the obligor to be
used according to his own will, unless the contract itself expressly provides for a special or specific use 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 owner of the
property does not lose his  ownership.  He simply loses his control over the property rented during the
period of the contract. In a contract of "loan" the thing loaned becomes the property of the obligor. In a
contract of "rent" the thing still remains the property of the lessor.  He simply loses control of the same in
a limited way during the period of the contract of "rent" or lease. In a contract of "rent" the relation
between the contractors ¦ is that of landlord and tenant. In a contract of "loan" of money, goods, chattels
or credits, the relation between the parties is that of obligor and obligee. "Rent" may be defined as the
compensation either in money, provisions, chattels, or labor, received by the owner of the soil from the
occupant thereof. It is defined as the return or compensation for the possession of some corporeal
inheritance, and is a profit issuing out of lands or tenements, in return for their use. It is that, which is to
be paid for the use of land, whether in 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 during a certain period and return it to the former; whereas a contract of "loan," as that
word is used in the statute, signifies the delivery of money or other consumable things upon condition of
returning 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."

From the foregoing it will be seen that there is a wide 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 in ordinary 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 for example, farm
lands of exactly equal productive capacity and of the same physical value may have a different rental
value, depending upon location, prices of commodities,  proximity to the market, 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 have exactly the same original cost.  A store on the
Escolta, in the center of business, constructed exactly like a store located outside of the business center,
will have a much higher rental value than the other. Two places of business located in different sections
of the city may be constructed exactly 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 value than 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 and
surroundings, than a much more valuable property located elsewhere. It will thus be seen that the rent to
be paid for the use and occupation of property is not necessarily fixed' upon the value of the property. The
amount of rent is fixed, based upon a thousand different conditions and may or may 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 subject every landlord to an annoyance not
contemplated by the law, and would create a very great disturbance in every business or rural
community.  We cannot bring ourselves to believe that the Legislature conr templated 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 only to
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. During the period of
redemption the vendor was a tenant of the purchaser. During the period of redemption the relation which
existed between the vendor and the vendee was that of landlord and tenant. That relation can only be
terminated by a repurchase of the property by the vendor in accordance with the terms of the said
contract. The contract was one of rent. The contract was not 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 to make
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 the contract in question did
not intend to sell the property in question absolutely, simply with the right to repurchase.  People who
make their own beds must He thereon.

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

With reference to the improvements made upon said property by the plaintiffs during the life of the
contract, Exhibit C, there is hereby reserved to the plaintiffs the right to exercise in a separate action 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 relation with the
law applicable thereto, that the judgment appealed from should be and is hereby affirmed, with costs.  So
ordered.

Avanceña, C. J., Street, Villamor, Romualdez, and Villa-Real, JJ., concur.

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.

PADILLA, J.:

Facts: 

On 20 December 1984, the herein petitioner filed a complaint against the private respondent Herminia
Patinio and one John Doe before the Regional Trial Court of Pasay City, 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 became due, notwithstanding demands.

In her answer, Herminia Patinio admitted having obtained loans from the petitioner but claimed that the
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 gross violation of the Usury Law. Wherefore she
prayed that she be reimbursed the usurious interests charged and paid. She also asked for damages,
attorneys fee and costs of suit.

After trial court on 3 September 1986, the trial court rendered Judgment, as follows:WHEREFORE,
judgment is hereby rendered dismissing plaintiff’s complaint for lack of merit.

The petitioner filed a petition for certiorari before the Court of Appeals, to annul RTC Order of 8 October
1986.The appellate court, however, as aforestated, dismissed the petition in a Decision dated 28
November 1986. The petitioner filed a motion for reconsideration of the decision, but his motion was
denied in a Resolution dated 5 March 1987.

Issues:

Whether or not defendant defense claim for being charged usuriously is correct?

Held: 

Article 1413. Interest in excess of the interest allowed by the usury laws may be recovered by the debtor,
with interest thereon from the date of the payments.

This Court has ruled in one case, that with the promulgation of Central Bank Circular No. 905, series of
1982, usury has become “legally inexistent” as the lender and the borrower can agree on any interest that
may be charged on the loan. This Circular was also given retroactive effect. But, whether or not this
Circular should also be given retroactive effect and applied in this case is yet to be determined by the
appellate court at the proper time.

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 respondent and considered the excess amount
usurious, without apparently considering the lawful interest that may be collected on said loans.

Only usurious interests may be reimbursed.

[ G.R. No. 13708, January 29, 1919 ]

THE UNITED STATES, PLAINTIFF AND APPELLEE, VS. FRANCISCO CONSTANTINO TAN
QUINGCO CHUA, DEFENDANT AND APPELLANT.

DECISION

MALCOLM, J.:
How a lean little debt of P100 contracted in the year 3911 grew and grew until, after the lapse of five
short years, interest had made of it the fat and respectable gum of approximately P700, is the story told by
this record.

The tale opens on April 29, 1911, with one, Pedro Andres, borrowing of Francisco Constantino Tan
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 raised to P125, with
interest of 30 cavanes of palay. Two years pass, and on June 28, 1913, it has become P226.70, secured t»y
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 result that Andres had an obligation of P474.20; which he
promised to pay on the 25th of the s&me month. One year later, action was brought to recover this, sum
and the corresponding judgment rendered therefor. Then, on October 25, 1916, Andres and Tan Quingco
Ghua executed a document by which Andres sold to Tan Quingco Chua under pacto de retro a certain
parcel of land and a female carabao for the amount of P684.20; the period of redemption was to be five
months; Andres was to hold the land during this time as lessee and as such lessee to pay a rent of 90
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 the1 filing of an information by the provincial fiscal of
Nueva Ecija, charging Francisco ConstantinojFan Quingco Chua with the crime of usury, predicated
specially on the document of October 25,1916, above described. The trial court, the Honorable Vicente
Nepomuceno, in a very able and fair decision, found that the accused had been proved guilty and
entenced him to pay a fine of P225, or to suffer subsidiary imprisonment 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 ancient laws of the
Chines and Jhe Hindus, by the Mosaic Law of the Jews, by the Koran, by the Athenians and by the
Romans, and has been frowned upon by distinguished publicists throughout all the ages. (See for a
learned historical discussion of usury, the opinion of Chancellor Kent in Dunham vs. Gould [1819], 16
Johnson, 367; 8 Am. Dec, 323.) The illegality of 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. It is a
drastic law following in jnany respects the most advanced American legislation. Aln the absence of
expressed contract/The legal rate of interest is made 6 per cent annum. The maximum 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 per annum. 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 or evidences of debt, and all deposits of goods or other things,
whereupon or whereby there shall be reserved, secured, taken, or received, directly or indirectly, a higher
rate or greater sum or value for the loan or forbearance of money, goods or -credits than is hereinbefore
allowed, shall be void' (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 to criminal
prosecution and the guilty person shall, upon conviction, be sentenced to a $ne equivalent to the total
interest stipulated or to tfie value of the products or seed agreed upon as interest, and in case of
insolvency, subsidiary, imprisonment shall be imposed: Provided, That in case of corporations,
associations, societies or companies the managerj administrator or gerente or the person who has charge
of the management or administration 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. A Corrupt
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 usurious interest; for if neither party
intend it, but act bona fide and innocently, the law will not infer a corrupt agreement. Where, indeed, the
contract, upon its very face, imports usury, as by an express reservation of more than legal interest, there
is no room for the presumption; for the intent 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 admitting evidence
relating to facts which occurred prior to the going into effect of the Usury Law, and has this court
followed in the same treacherous path in its narration of the evidence? 2. Did the accused 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 the contract was made, enter
into and govern it. The laws on the subject existing prior to/the enactment of the Usury Law
would only invalidate Contracts contrary to public morals and public order. Criminal prosecution
would then have been unlikely. The same idea prevails as to usury statutes. Ordinarily, such laws
are to be construed prospectively and not retrospectively The reason is that if the contract is legal
at its inception, it cannot be rendered illegal by any subsequent legislation for this would be
tantamount 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 Usury Law. In
another aspect, however, appellant is wrong. The rule of evidence should be to permit the courts to look
into prior occurrences, 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, fer, otherwise, as will hereafter appear, a document
apparently legal on its face could not be proved to be illegal by other and separate acts, which go to
demonstrate that it is merely a shift to evade the statute of usury.

2. It is indeed a delicate line which separates the nonusurious from the usurious contract., Lord
Bacon 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 the
means to invite moneyed men to lend for the continuing and quickening of trade." "The statute of
usury," 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 of
moderation 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 of usury.
Any person owning property may sell it at such price and at such terms as to the time and mode of
payment as he may see fit, and such a sale, if bona fide, cannot be usurious however unconscionable it
may be. Lord Mansfield characteristically says: "I lay the foundation of the whole upon a man's going to
borrow under colour of buying: there the contract is usurious ; but where it is a bona fide sale * * * it
certainly is not." (Floyer vs. Edwards, 1 Cowp., 112, 116; 98 Eng. Reprint, 995.) JRentjiharges, as in the
document before us, may be created or transferred without regard to the usury laws as long as such forms
of transaction are not used as mere covers for usurious loans. A hard bargain need not necessarily be a
void bargain. (See Webb on Usury, sec. 47.)

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

Exhibit B purports to be a pacto de retro. The ninety cavanes of palay mentioned are described as rent. If,
indeed, a pacto de retro, standing alone and by itself it would undoubtedly be valid, and would result in
no evil consequences to the parties. This court has, however, heretofore decided, with reference to so-
called pacto de retros, that parol evidence is competent and admissible in support of the allegation that the
instrument in writing purporting on its face to transfer absolute title to property, or to transfer the title
with a mere^ight of repurchase under specified conditions, was in truth and in fact merely as a security
for the repayment of a loan. (Cuyugan vs. Santos [l916], 34 Phil, 100.) Likewise, the Supreme Court of
Porto Rico in Monagas vs. Albertucci ([1911], 17 Porto Rico, 684; 235 U. S., 81) has said of a written
instrument which was claimed to be a conditional sale: "The real intention of the parties at the time 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 the language of the document
itself.

With these principles before us, we entertain little or no doubt that Exhibit B was not a true pacto de 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 PlOO, grown to be P474.20, to which in this document was
added P210 as interests, to make a total of P684.20. Then on top of this latter sum was dumped 90
cavanes of palay, denominated as rent, but which in reality was interest 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 should govern
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 the legislature had in view in its
enactment. But when the punishment of the person who has committed 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 the accused." (Metcalf vs, Watkins [1834], 1 Port., 57. See generally, 39
Cyc, 876 and Webb on Usury.)

No doubt and uncertainty exists in this case. If the facts as found by the trial court are true, and we think
they are, and if the law as enunciated in this decision is correct, and we think it is, then, this surelv^is
usury, if there ever was usury. The money lenders did not alone pursue their calling in 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 was intended and for these shall be enforced.

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

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

Judgment affirmed.
Herrera vs Petro Phil Corp 146 Scra 385
FACTS:
 On December 5, 1969, Herrera and ESSO Standard, (later substituted by Petrophil Corp.,) entered into alease agreement,
whereby the former leased to the latter a portion of his property for a period of 20yrs.subject to the condition that monthly
rentals should be paid and there should be an advance payment ofrentals for the first eight years of the contract, to which ESSO
paid on December 31, 1969. However,ESSO deducted the amount of 101, 010.73 as interest or discount for the eight years
advance rental.

 
On August 20, 1970, ESSO informed Herrera that there had been a mistake in the computation of theinterest and paid an
additional sum of 2,182.70; thus, it was reduced to 98, 828.03.

 
As such, Herrera sued ESSO for the sum of 98, 828.03, with interest, claiming that this had beenillegally deducted to him
in violation of the Usury Law.

 
ESSO argued that amount deducted was not usurious interest but rather a discount given to it forpaying the rentals in
advance. Judgment on the pleadings was rendered in favor of ESSO. Thus, thematter was elevated to the
SC for only questions of law was involve.
ISSUE
: W/N the contract between the parties is one of loan or lease.
RULING
:

 
Contract between the parties is one of lease and not of loan. It is clearly denominated a "LEASEAGREEMENT." Nowhere in
the contract is there any showing that the parties intended a loan ratherthan a lease. The provision for the payment of
rentals in advance cannot be construed as arepayment of a loan because there was no grant or forbearance
of money as to constitute anindebtedness on the part of the lessor. On the contrary, the defendant-appellee
was discharging itsobligation in advance by paying the eight years rentals, and it was for this advance
payment that itwas getting a rebate or discount.

 
---

 
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. There was neither loan
norforbearance but a mere discount which the plaintiff-appellant allowed the defendant-appellee todeduct
from the total payments because they were being made in advance for eight years. Thediscount was in effect a reduction of the
rentals which the lessor had the right to determine, and anyreduction thereof, by any amount, would not contravene the Usury
Law

PEOPLE vs. CONCEPCION, 44 Phil. 126FACTS:

Venancio Concepcion, President of the Philippine National Bank and a member of theBoard thereof,
authorized an extension of credit in favor of "Puno y Concepcion, S. en C.” to themanager of the Aparri
branch of the Philippine National Bank. "Puno y Concepcion, S. en C."was a co-partnership where
Concepcion is a partner. Subsequently, Concepcion was charged andfound guilty in the Court of First
Instance of Cagayan with violation of section 35 of Act
No.2747. Section 35 of Act No. 2747 provides that the National Bank shall not, directly or indirectly,
grant loans to any of the members of the board of directors of the bank nor to agentsof the branch banks.
Counsel for the defense argue that the documents of record do not provethat authority to make a loan was
given, but only show the concession of a credit. They averredthat the granting of a credit to the co-
partnership "Puno y Concepcion, S. en C." by VenancioConcepcion, President of the Philippine National
Bank, is not a "loan" within the meaning of section 35 of Act No. 2747.

ISSUE:

Whether or not the granting of a credit of P300,000 to the co-partnership "Puno yConcepcion, S. en C."
by Venancio Concepcion, President of the Philippine National Bank, a"loan" within the meaning of
section 35 of Act No. 2747.

HELD:

The Supreme Court ruled in the affirmative. The "credit" of an individual means hisability to borrow
money by virtue of the confidence or trust reposed by a lender that he will paywhat he may promise. A
"loan" means the delivery by one party and the receipt by the other  party of a given sum of money, upon
an agreement, express or implied, to repay the sum loaned,with or without interest. The concession of a
"credit" necessarily involves the granting of "loans"up to the limit of the amount fixed in the "credit,"

Republic vs. Bagtas, No. L-17474, 6 SCRA 262, October 25, 1962

G.R. No. L-17474            October 25, 1962

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, 


vs.
JOSE V. BAGTAS, defendant, 
FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by the late Jose V.
Bagtas, petitioner-appellant.

D. T. Reyes, Liaison and Associates for petitioner-appellant.


Office of the Solicitor General for plaintiff-appellee.

PADILLA, J.:

The Court of Appeals certified this case to this Court because only questions of law are raised.

On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the Philippines through the Bureau of
Animal Industry three bulls: a Red Sindhi with a book value of P1,176.46, a Bhagnari, of P1,320.56 and a
Sahiniwal, of P744.46, for a period of one year from 8 May 1948 to 7 May 1949 for breeding purposes
subject to a government charge of breeding fee of 10% of the book value of the bulls. Upon the expiration
on 7 May 1949 of the contract, the borrower asked for a renewal for another period of one year. However,
the Secretary of Agriculture and Natural Resources approved a renewal thereof of only one bull for
another year from 8 May 1949 to 7 May 1950 and requested the return of the other two. On 25 March
1950 Jose V. Bagtas wrote to the Director of Animal Industry that he would pay the value of the three
bulls. On 17 October 1950 he reiterated his desire to buy them at a value with a deduction of yearly
depreciation to be approved by the Auditor General. On 19 October 1950 the Director of Animal Industry
advised him that the book value of the three bulls could not be reduced and that they either be returned or
their book value paid not later than 31 October 1950. Jose V. Bagtas failed to pay the book value of the
three bulls or to return them. So, on 20 December 1950 in the Court of First Instance of Manila the
Republic of the Philippines commenced an action against him praying that he be ordered to return the
three bulls loaned to him or to pay their book value in the total sum of P3,241.45 and the unpaid breeding
fee in the sum of P199.62, both with interests, and costs; and that other just and equitable relief be granted
in (civil No. 12818).

On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and Manalo, answered that because of
the bad peace and order situation in Cagayan Valley, particularly in the barrio of Baggao, and of the
pending appeal he had taken to the Secretary of Agriculture and Natural Resources and the President of
the Philippines from the refusal by the Director of Animal Industry to deduct from the book value of the
bulls corresponding yearly depreciation of 8% from the date of acquisition, to which depreciation the
Auditor General did not object, he could not return the animals nor pay their value and prayed for the
dismissal of the complaint.

After hearing, on 30 July 1956 the trial court render judgment —

. . . sentencing the latter (defendant) to pay the sum of P3,625.09 the total value of the three bulls plus the
breeding fees in the amount of P626.17 with interest on both sums of (at) the legal rate from the filing of
this complaint and costs.

On 9 October 1958 the plaintiff moved ex parte for a writ of execution which the court granted on 18
October and issued on 11 November 1958. On 2 December 1958 granted an ex-parte motion filed by the
plaintiff on November 1958 for the appointment of a special sheriff to serve the writ outside Manila. Of
this order appointing a special sheriff, on 6 December 1958, Felicidad M. Bagtas, the surviving spouse of
the defendant Jose Bagtas who died on 23 October 1951 and as administratrix of his estate, was notified.
On 7 January 1959 she file a motion alleging that on 26 June 1952 the two bull Sindhi and Bhagnari were
returned to the Bureau Animal of Industry and that sometime in November 1958 the third bull, the
Sahiniwal, died from gunshot wound inflicted during a Huk raid on Hacienda Felicidad Intal, and praying
that the writ of execution be quashed and that a writ of preliminary injunction be issued. On 31 January
1959 the plaintiff objected to her motion. On 6 February 1959 she filed a reply thereto. On the same day,
6 February, the Court denied her motion. Hence, this appeal certified by the Court of Appeals to this
Court as stated at the beginning of this opinion.

It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the appellant by the late defendant, returned the
Sindhi and Bhagnari bulls to Roman Remorin, Superintendent of the NVB Station, Bureau of Animal
Industry, Bayombong, Nueva Vizcaya, as evidenced by a memorandum receipt signed by the latter
(Exhibit 2). That is why in its objection of 31 January 1959 to the appellant's motion to quash the writ of
execution the appellee prays "that another writ of execution in the sum of P859.53 be issued against the
estate of defendant deceased Jose V. Bagtas." She cannot be held liable for the two bulls which already
had been returned to and received by the appellee.

The appellant contends that the Sahiniwal bull was accidentally killed during a raid by the Huk in
November 1953 upon the surrounding barrios of Hacienda Felicidad Intal, Baggao, Cagayan, where the
animal was kept, and that as such death was due to force majeure she is relieved from the duty of
returning the bull or paying its value to the appellee. The contention is without merit. The loan by the
appellee to the late defendant Jose V. Bagtas of the three bulls for breeding purposes for a period of one
year from 8 May 1948 to 7 May 1949, later on renewed for another year as regards one bull, was subject
to the payment by the borrower of breeding fee of 10% of the book value of the bulls. The appellant
contends that the contract was commodatum and that, for that reason, as the appellee retained ownership
or title to the bull it should suffer its loss due to force majeure. A contract of commodatum is essentially
gratuitous.1 If the breeding fee be considered a compensation, then the contract would be a lease of the
bull. Under article 1671 of the Civil Code the lessee would be subject to the responsibilities of a possessor
in bad faith, because she had continued possession of the bull after the expiry of the contract. And even if
the contract be commodatum, still the appellant is liable, because article 1942 of the Civil Code provides
that a bailee in a contract of commodatum —

. . . is liable for loss of the things, even if it should be through a fortuitous event:

(2) If he keeps it longer than the period stipulated . . .

(3) If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation
exempting the bailee from responsibility in case of a fortuitous event;

The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one bull was renewed
for another period of one year to end on 8 May 1950. But the appellant kept and used the bull until
November 1953 when during a Huk raid it was killed by stray bullets. Furthermore, when lent and
delivered to the deceased husband of the appellant the bulls had each an appraised book value, to with:
the Sindhi, at P1,176.46, the Bhagnari at P1,320.56 and the Sahiniwal at P744.46. It was not stipulated
that in case of loss of the bull due to fortuitous event the late husband of the appellant would be exempt
from liability.
The appellant's contention that the demand or prayer by the appellee for the return of the bull or the
payment of its value being a money claim should be presented or filed in the intestate proceedings of the
defendant who died on 23 October 1951, is not altogether without merit. However, the claim that his civil
personality having ceased to exist the trial court lost jurisdiction over the case against him, is untenable,
because section 17 of Rule 3 of the Rules of Court provides that —

After a party dies and the claim is not thereby extinguished, the court shall order, upon proper notice, the
legal representative of the deceased to appear and to be substituted for the deceased, within a period of
thirty (30) days, or within such time as may be granted. . . .

and after the defendant's death on 23 October 1951 his counsel failed to comply with section 16 of Rule 3
which provides that —

Whenever a party to a pending case dies . . . it shall be the duty of his attorney to inform the court
promptly of such death . . . and to give the name and residence of the executory administrator, guardian,
or other legal representative of the deceased . . . .

The notice by the probate court and its publication in the Voz de Manila that Felicidad M. Bagtas had
been issue letters of administration of the estate of the late Jose Bagtas and that "all persons having claims
for monopoly against the deceased Jose V. Bagtas, arising from contract express or implied, whether the
same be due, not due, or contingent, for funeral expenses and expenses of the last sickness of the said
decedent, and judgment for monopoly against him, to file said claims with the Clerk of this Court at the
City Hall Bldg., Highway 54, Quezon City, within six (6) months from the date of the first publication of
this order, serving a copy thereof upon the aforementioned Felicidad M. Bagtas, the appointed
administratrix of the estate of the said deceased," is not a notice to the court and the appellee who were to
be notified of the defendant's death in accordance with the above-quoted rule, and there was no reason for
such failure to notify, because the attorney who appeared for the defendant was the same who represented
the administratrix in the special proceedings instituted for the administration and settlement of his estate.
The appellee or its attorney or representative could not be expected to know of the death of the defendant
or of the administration proceedings of his estate instituted in another court that if the attorney for the
deceased defendant did not notify the plaintiff or its attorney of such death as required by the rule.

As the appellant already had returned the two bulls to the appellee, the estate of the late defendant is only
liable for the sum of P859.63, the value of the bull which has not been returned to the appellee, because it
was killed while in the custody of the administratrix of his estate. This is the amount prayed for by the
appellee in its objection on 31 January 1959 to the motion filed on 7 January 1959 by the appellant for the
quashing of the writ of execution.

Special proceedings for the administration and settlement of the estate of the deceased Jose V. Bagtas
having been instituted in the Court of First Instance of Rizal (Q-200), the money judgment rendered in
favor of the appellee cannot be enforced by means of a writ of execution but must be presented to the
probate court for payment by the appellant, the administratrix appointed by the court.

ACCORDINGLY, the writ of execution appealed from is set aside, without pronouncement as to costs.
Producers Bank of the Philippines vs CA (2003)

Doctrine:

Facts:

Vives (will be the creditor in this case) was asked by his friend Sanchez to help thelatter’s friend,
Doronilla (will be the debtor in this case) in incorporating Doronilla’sbusiness “Strela”. This “help”
basically involved Vives depositing a certain amount of money in Strela’s bank account for purposes of
incorporation (rationale: Doronilla had toshow that he had sufficient funds for incorporation). This
amount shall later be returnedto Vives.

Relying on the assurances and representations of Sanchez and Doronilla, Vives issued acheck of P200,00
in favor of Strela and deposited the same into Strela’s newly-openedbank account (the passbook was
given to the wife of Vives and the passbook had aninstruction that no withdrawals/deposits will
be allowed unless the passbook ispresented).

Later on, Vives learned that Strela was no longer holding office in the address previouslygiven to him. He
later found out that the funds had already been withdrawn leaving onlya balance of P90,000. The Vives
spouses tried to withdraw the amount, but it wasunable to since the balance had to answer for certain
postdated checks issued byDoronilla.

Doronilla made various tenders of check in favor of Vives in order to pay his debt. All of which were
dishonored.

Hence, Vives filed an action for recovery of sum against Doronilla, Sanchez, Dumagpiand Producer’s
Bank.

 TC & CA: ruled in favor of Vives.

Issue/s:

(1)WON the transaction is a commodatum or a mutuum. COMMODATUM.(2) WON the fact that there
is an additional P 12,000 (allegedly representing interest) inthe amount to be returned to Vives converts
the transaction from commodatum tomutuum. NO.(3)WON Producer’s Bank is solidarily liable to Vives,
considering that it was not privy tothe transaction between Vives and Doronilla. YES.

Held/Ratio:
(1)The transaction is a commodatum.

CC 1933 (the provision distinguishing between the two kinds of loans) seem to implythat if the subject of
the contract is a consummable thing, such as money, the contractwould be a mutuum. However, there are
instances when a commodatum may have forits object a consummable thing. Such can be found in CC
1936 which states that“consummable goods may be the subject of commodatum if the purpose of the
contractis not the consumption of the object, as when it is merely for exhibition”. In this case,the intention
of the parties was merely for exhibition.

Catholic Vicar Apostolic of the Mt. Prov. vs. Court of Appeals, Nos. L-80294-95, 165 SCRA 515 ,
September 21, 1988

G.R. No. 80294-95 September 21, 1988

CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE, petitioner, 


vs.
COURT OF APPEALS, HEIRS OF EGMIDIO OCTAVIANO AND JUAN VALDEZ, respondents.

Valdez, Ereso, Polido & Associates for petitioner.

Claustro, Claustro, Claustro Law Office collaborating counsel for petitioner.

Jaime G. de Leon for the Heirs of Egmidio Octaviano.

Cotabato Law Office for the Heirs of Juan Valdez.

GANCAYCO, J.:

The principal issue in this case is whether or not a decision of the Court of Appeals promulgated a long
time ago can properly be considered res judicata by respondent Court of Appeals in the present two cases
between petitioner and two private respondents.

Petitioner questions as allegedly erroneous the Decision dated August 31, 1987 of the Ninth Division of
Respondent Court of Appeals 1 in CA-G.R. No. 05148 [Civil Case No. 3607 (419)] and CA-G.R. No.
05149 [Civil Case No. 3655 (429)], both for Recovery of Possession, which affirmed the Decision of the
Honorable Nicodemo T. Ferrer, Judge of the Regional Trial Court of Baguio and Benguet in Civil Case
No. 3607 (419) and Civil Case No. 3655 (429), with the dispositive portion as follows:

WHEREFORE, Judgment is hereby rendered ordering the defendant, Catholic Vicar Apostolic of the
Mountain Province to return and surrender Lot 2 of Plan Psu-194357 to the plaintiffs. Heirs of Juan
Valdez, and Lot 3 of the same Plan to the other set of plaintiffs, the Heirs of Egmidio Octaviano
(Leonardo Valdez, et al.). For lack or insufficiency of evidence, the plaintiffs' claim or damages is hereby
denied. Said defendant is ordered to pay costs. (p. 36, Rollo)

Respondent Court of Appeals, in affirming the trial court's decision, sustained the trial court's conclusions
that the Decision of the Court of Appeals, dated May 4,1977 in CA-G.R. No. 38830-R, in the two cases
affirmed by the Supreme Court, touched on the ownership of lots 2 and 3 in question; that the two lots
were possessed by the predecessors-in-interest of private respondents under claim of ownership in good
faith from 1906 to 1951; that petitioner had been in possession of the same lots as bailee in commodatum
up to 1951, when petitioner repudiated the trust and when it applied for registration in 1962; that
petitioner had just been in possession as owner for eleven years, hence there is no possibility of
acquisitive prescription which requires 10 years possession with just title and 30 years of possession
without; that the principle of res judicata on these findings by the Court of Appeals will bar a reopening
of these questions of facts; and that those facts may no longer be altered.

Petitioner's motion for reconsideation of the respondent appellate court's Decision in the two
aforementioned cases (CA G.R. No. CV-05418 and 05419) was denied.

The facts and background of these cases as narrated by the trail court are as follows —

... The documents and records presented reveal that the whole controversy started when the defendant
Catholic Vicar Apostolic of the Mountain Province (VICAR for brevity) filed with the Court of First
Instance of Baguio Benguet on September 5, 1962 an application for registration of title over Lots 1, 2, 3,
and 4 in Psu-194357, situated at Poblacion Central, La Trinidad, Benguet, docketed as LRC N-91, said
Lots being the sites of the Catholic Church building, convents, high school building, school gymnasium,
school dormitories, social hall, stonewalls, etc. On March 22, 1963 the Heirs of Juan Valdez and the Heirs
of Egmidio Octaviano filed their Answer/Opposition on Lots Nos. 2 and 3, respectively, asserting
ownership and title thereto. After trial on the merits, the land registration court promulgated its Decision,
dated November 17, 1965, confirming the registrable title of VICAR to Lots 1, 2, 3, and 4.

The Heirs of Juan Valdez (plaintiffs in the herein Civil Case No. 3655) and the Heirs of Egmidio
Octaviano (plaintiffs in the herein Civil Case No. 3607) appealed the decision of the land registration
court to the then Court of Appeals, docketed as CA-G.R. No. 38830-R. The Court of Appeals rendered its
decision, dated May 9, 1977, reversing the decision of the land registration court and dismissing the
VICAR's application as to Lots 2 and 3, the lots claimed by the two sets of oppositors in the land
registration case (and two sets of plaintiffs in the two cases now at bar), the first lot being presently
occupied by the convent and the second by the women's dormitory and the sister's convent.

On May 9, 1977, the Heirs of Octaviano filed a motion for reconsideration praying the Court of Appeals
to order the registration of Lot 3 in the names of the Heirs of Egmidio Octaviano, and on May 17, 1977,
the Heirs of Juan Valdez and Pacita Valdez filed their motion for reconsideration praying that both Lots 2
and 3 be ordered registered in the names of the Heirs of Juan Valdez and Pacita Valdez. On August
12,1977, the Court of Appeals denied the motion for reconsideration filed by the Heirs of Juan Valdez on
the ground that there was "no sufficient merit to justify reconsideration one way or the other ...," and
likewise denied that of the Heirs of Egmidio Octaviano.

Thereupon, the VICAR filed with the Supreme Court a petition for review on certiorari of the decision of
the Court of Appeals dismissing his (its) application for registration of Lots 2 and 3, docketed as G.R. No.
L-46832, entitled 'Catholic Vicar Apostolic of the Mountain Province vs. Court of Appeals and Heirs of
Egmidio Octaviano.'
From the denial by the Court of Appeals of their motion for reconsideration the Heirs of Juan Valdez and
Pacita Valdez, on September 8, 1977, filed with the Supreme Court a petition for review, docketed as
G.R. No. L-46872, entitled, Heirs of Juan Valdez and Pacita Valdez vs. Court of Appeals, Vicar, Heirs of
Egmidio Octaviano and Annable O. Valdez.

On January 13, 1978, the Supreme Court denied in a minute resolution both petitions (of VICAR on the
one hand and the Heirs of Juan Valdez and Pacita Valdez on the other) for lack of merit. Upon the finality
of both Supreme Court resolutions in G.R. No. L-46832 and G.R. No. L- 46872, the Heirs of Octaviano
filed with the then Court of First Instance of Baguio, Branch II, a Motion For Execution of Judgment
praying that the Heirs of Octaviano be placed in possession of Lot 3. The Court, presided over by Hon.
Salvador J. Valdez, on December 7, 1978, denied the motion on the ground that the Court of Appeals
decision in CA-G.R. No. 38870 did not grant the Heirs of Octaviano any affirmative relief.

On February 7, 1979, the Heirs of Octaviano filed with the Court of Appeals a petitioner for certiorari and
mandamus, docketed as CA-G.R. No. 08890-R, entitled Heirs of Egmidio Octaviano vs. Hon. Salvador J.
Valdez, Jr. and Vicar. In its decision dated May 16, 1979, the Court of Appeals dismissed the petition.

It was at that stage that the instant cases were filed. The Heirs of Egmidio Octaviano filed Civil Case No.
3607 (419) on July 24, 1979, for recovery of possession of Lot 3; and the Heirs of Juan Valdez filed Civil
Case No. 3655 (429) on September 24, 1979, likewise for recovery of possession of Lot 2 (Decision, pp.
199-201, Orig. Rec.).

In Civil Case No. 3607 (419) trial was held. The plaintiffs Heirs of Egmidio Octaviano presented one (1)
witness, Fructuoso Valdez, who testified on the alleged ownership of the land in question (Lot 3) by their
predecessor-in-interest, Egmidio Octaviano (Exh. C ); his written demand (Exh. B—B-4 ) to defendant
Vicar for the return of the land to them; and the reasonable rentals for the use of the land at P10,000.00
per month. On the other hand, defendant Vicar presented the Register of Deeds for the Province of
Benguet, Atty. Nicanor Sison, who testified that the land in question is not covered by any title in the
name of Egmidio Octaviano or any of the plaintiffs (Exh. 8). The defendant dispensed with the testimony
of Mons.William Brasseur when the plaintiffs admitted that the witness if called to the witness stand,
would testify that defendant Vicar has been in possession of Lot 3, for seventy-five (75) years
continuously and peacefully and has constructed permanent structures thereon.

In Civil Case No. 3655, the parties admitting that the material facts are not in dispute, submitted the case
on the sole issue of whether or not the decisions of the Court of Appeals and the Supreme Court touching
on the ownership of Lot 2, which in effect declared the plaintiffs the owners of the land constituteres
judicata.

In these two cases , the plaintiffs arque that the defendant Vicar is barred from setting up the defense of
ownership and/or long and continuous possession of the two lots in question since this is barred by prior
judgment of the Court of Appeals in CA-G.R. No. 038830-R under the principle of res judicata. Plaintiffs
contend that the question of possession and ownership have already been determined by the Court of
Appeals (Exh. C, Decision, CA-G.R. No. 038830-R) and affirmed by the Supreme Court (Exh. 1, Minute
Resolution of the Supreme Court). On his part, defendant Vicar maintains that the principle of res
judicata would not prevent them from litigating the issues of long possession and ownership because the
dispositive portion of the prior judgment in CA-G.R. No. 038830-R merely dismissed their application for
registration and titling of lots 2 and 3. Defendant Vicar contends that only the dispositive portion of the
decision, and not its body, is the controlling pronouncement of the Court of Appeals. 2

The alleged errors committed by respondent Court of Appeals according to petitioner are as follows:

1. ERROR IN APPLYING LAW OF THE CASE AND RES JUDICATA;

2. ERROR IN FINDING THAT THE TRIAL COURT RULED THAT LOTS 2 AND 3 WERE
ACQUIRED BY PURCHASE BUT WITHOUT DOCUMENTARY EVIDENCE PRESENTED;

3. ERROR IN FINDING THAT PETITIONERS' CLAIM IT PURCHASED LOTS 2 AND 3 FROM


VALDEZ AND OCTAVIANO WAS AN IMPLIED ADMISSION THAT THE FORMER OWNERS
WERE VALDEZ AND OCTAVIANO;

4. ERROR IN FINDING THAT IT WAS PREDECESSORS OF PRIVATE RESPONDENTS WHO


WERE IN POSSESSION OF LOTS 2 AND 3 AT LEAST FROM 1906, AND NOT PETITIONER;

5. ERROR IN FINDING THAT VALDEZ AND OCTAVIANO HAD FREE PATENT APPLICATIONS
AND THE PREDECESSORS OF PRIVATE RESPONDENTS ALREADY HAD FREE PATENT
APPLICATIONS SINCE 1906;

6. ERROR IN FINDING THAT PETITIONER DECLARED LOTS 2 AND 3 ONLY IN 1951 AND
JUST TITLE IS A PRIME NECESSITY UNDER ARTICLE 1134 IN RELATION TO ART. 1129 OF
THE CIVIL CODE FOR ORDINARY ACQUISITIVE PRESCRIPTION OF 10 YEARS;

7. ERROR IN FINDING THAT THE DECISION OF THE COURT OF APPEALS IN CA G.R. NO.
038830 WAS AFFIRMED BY THE SUPREME COURT;

8. ERROR IN FINDING THAT THE DECISION IN CA G.R. NO. 038830 TOUCHED ON


OWNERSHIP OF LOTS 2 AND 3 AND THAT PRIVATE RESPONDENTS AND THEIR
PREDECESSORS WERE IN POSSESSION OF LOTS 2 AND 3 UNDER A CLAIM OF OWNERSHIP
IN GOOD FAITH FROM 1906 TO 1951;

9. ERROR IN FINDING THAT PETITIONER HAD BEEN IN POSSESSION OF LOTS 2 AND 3


MERELY AS BAILEE BOR ROWER) IN COMMODATUM, A GRATUITOUS LOAN FOR USE;

10. ERROR IN FINDING THAT PETITIONER IS A POSSESSOR AND BUILDER IN GOOD FAITH
WITHOUT RIGHTS OF RETENTION AND REIMBURSEMENT AND IS BARRED BY THE
FINALITY AND CONCLUSIVENESS OF THE DECISION IN CA G.R. NO. 038830. 3

The petition is bereft of merit.

Petitioner questions the ruling of respondent Court of Appeals in CA-G.R. Nos. 05148 and 05149, when
it clearly held that it was in agreement with the findings of the trial court that the Decision of the Court of
Appeals dated May 4,1977 in CA-G.R. No. 38830-R, on the question of ownership of Lots 2 and 3,
declared that the said Court of Appeals Decision CA-G.R. No. 38830-R) did not positively declare private
respondents as owners of the land, neither was it declared that they were not owners of the land, but it
held that the predecessors of private respondents were possessors of Lots 2 and 3, with claim of
ownership in good faith from 1906 to 1951. Petitioner was in possession as borrower in commodatum up
to 1951, when it repudiated the trust by declaring the properties in its name for taxation purposes. When
petitioner applied for registration of Lots 2 and 3 in 1962, it had been in possession in concept of owner
only for eleven years. Ordinary acquisitive prescription requires possession for ten years, but always with
just title. Extraordinary acquisitive prescription requires 30 years. 4

On the above findings of facts supported by evidence and evaluated by the Court of Appeals in CA-G.R.
No. 38830-R, affirmed by this Court, We see no error in respondent appellate court's ruling that said
findings are res judicata between the parties. They can no longer be altered by presentation of evidence
because those issues were resolved with finality a long time ago. To ignore the principle of res
judicata would be to open the door to endless litigations by continuous determination of issues without
end.

An examination of the Court of Appeals Decision dated May 4, 1977, First Division 5 in CA-G.R. No.
38830-R, shows that it reversed the trial court's Decision 6 finding petitioner to be entitled to register the
lands in question under its ownership, on its evaluation of evidence and conclusion of facts.

The Court of Appeals found that petitioner did not meet the requirement of 30 years possession for
acquisitive prescription over Lots 2 and 3. Neither did it satisfy the requirement of 10 years possession for
ordinary acquisitive prescription because of the absence of just title. The appellate court did not believe
the findings of the trial court that Lot 2 was acquired from Juan Valdez by purchase and Lot 3 was
acquired also by purchase from Egmidio Octaviano by petitioner Vicar because there was absolutely no
documentary evidence to support the same and the alleged purchases were never mentioned in the
application for registration.

By the very admission of petitioner Vicar, Lots 2 and 3 were owned by Valdez and Octaviano. Both
Valdez and Octaviano had Free Patent Application for those lots since 1906. The predecessors of private
respondents, not petitioner Vicar, were in possession of the questioned lots since 1906.

There is evidence that petitioner Vicar occupied Lots 1 and 4, which are not in question, but not Lots 2
and 3, because the buildings standing thereon were only constructed after liberation in 1945. Petitioner
Vicar only declared Lots 2 and 3 for taxation purposes in 1951. The improvements oil Lots 1, 2, 3, 4 were
paid for by the Bishop but said Bishop was appointed only in 1947, the church was constructed only in
1951 and the new convent only 2 years before the trial in 1963.

When petitioner Vicar was notified of the oppositor's claims, the parish priest offered to buy the lot from
Fructuoso Valdez. Lots 2 and 3 were surveyed by request of petitioner Vicar only in 1962.

Private respondents were able to prove that their predecessors' house was borrowed by petitioner Vicar
after the church and the convent were destroyed. They never asked for the return of the house, but when
they allowed its free use, they became bailors incommodatum and the petitioner the bailee. The bailees'
failure to return the subject matter of commodatum to the bailor did not mean adverse possession on the
part of the borrower. The bailee held in trust the property subject matter of commodatum. The adverse
claim of petitioner came only in 1951 when it declared the lots for taxation purposes. The action of
petitioner Vicar by such adverse claim could not ripen into title by way of ordinary acquisitive
prescription because of the absence of just title.
The Court of Appeals found that the predecessors-in-interest and private respondents were possessors
under claim of ownership in good faith from 1906; that petitioner Vicar was only a bailee
in commodatum; and that the adverse claim and repudiation of trust came only in 1951.

We find no reason to disregard or reverse the ruling of the Court of Appeals in CA-G.R. No. 38830-R. Its
findings of fact have become incontestible. This Court declined to review said decision, thereby in effect,
affirming it. It has become final and executory a long time ago.

Respondent appellate court did not commit any reversible error, much less grave abuse of discretion,
when it held that the Decision of the Court of Appeals in CA-G.R. No. 38830-R is governing, under the
principle of res judicata, hence the rule, in the present cases CA-G.R. No. 05148 and CA-G.R. No. 05149.
The facts as supported by evidence established in that decision may no longer be altered.

WHEREFORE AND BY REASON OF THE FOREGOING, this petition is DENIED for lack of merit,
the Decision dated Aug. 31, 1987 in CA-G.R. Nos. 05148 and 05149, by respondent Court of Appeals is
AFFIRMED, with costs against petitioner.

SO ORDERED.

Secretary of DPWH vs HeracleoCase Digest GR 179334 Apr 21 2015

Facts:

 Spouses “Heracleo” are the co-owners of a land which is among theprivate properties traversed by
MacArthur Highway in Bulacan, agovernment project undertaken sometime in 1940. The taking was
takenwithout the requisite expropriation proceedings and without their consent.In 1994, Heracleo
demanded the payment of the fair market value of theproperty. The DPWH offered to pay 0.70 centavos
per sqm., asrecommended by the appraiser committee of Bulacan. Unsatisfied,Heracleo filed a complaint
for recovery of possession with damages.Favorable decisions were rendered by the RTC and the CA, with
valuationof P 1,500 per sqm and 6% interest per annum from the time of filing ofthe until full payment.
The SC Division reversed the CA ruling and heldthat computation should be based at the time the
property was taken in1940, which is 0.70 per sqm. But because of the contrasting opinions ofthe members
of the Division and transcendental importance of the issue,the case was referred to the En Banc for
resolution.

Issue 1

: W/N the taking of private property without due process should benullifiedNo. The government’s failure
to initiate the necessary expropriationproceedings prior to actual taking cannot simply invalidate the
State’sexercise of its eminent domain power, given that the property subject ofexpropriation is
indubitably devoted for public use, and public policyimposes upon the public utility the obligation to
continue its services to thepublic. To hastily nullify said expropriation in the guise of lack of dueprocess
would certainly diminish or weaken one of the State’s inherentpowers, the ultimate objective of which is
to serve the greater good.Thus, the non-filing of the case for expropriation will not necessarily leadto the
return of the property to the landowner. What is left to the landowneris the right of compensation.

Issue 2

: W/N compensation is based on the market value of the propertyat the time of takingYes. While it may
appear inequitable to the private owners to receive anoutdated valuation, the long-established rule is that
the fair equivalent of aproperty should be computed not at the time of payment, but at the time oftaking.
This is because the purpose of ‘just compensation’ is not to rewardthe owner for the property taken but to
compensate him for the loss

thereof. The owner should be compensated only for what he actuallyloses, and what he loses is the actual
value of the property at the time it istaken.

Issue 3

: W/N the principle of equity should be applied in this caseNo. The Court must adhere to the doctrine that
its first and fundamentalduty is the application of the law according to its express terms,interpretation
being called for only when such literal application isimpossible. To entertain other formula for
computing just compensation,contrary to those established by law and jurisprudence, would openvarying
interpretation of economic policies – a matter which this Court hasno competence to take cognizance
of. Equity and equitable principlesonly come into full play when a gap exists in the law and
jurisprudence.

TOLENTINO(plaintiff-apellant) v GONZALES SY CHIAM (defendant-


appellee)G.R. No. 26085 August 12, 1927

FACTS:1.Before Nov 28, 1922, Severino Tolentino and Potenciana Manio purchasedLuzon Rice Mills,


Inc., parcel of land in Tarlac for P25,000.00 to be paid inthree installments.a.First installment is P2,000
due on or before May 2, 1921b.Second installment is P8,000 due on or before May 31, 1921c.Third
installment of P15,000 at 12% interest due on or before Nov 30,1922One of the

conditions

of the contract of purchase was that if Tolentino andManio failed to pay the balance of any of the
installments on the date agreedupon, the property bought would revert to the original owner. The first and
second installments were paid but the balance was paid on Dec1, 19222.On Nov 7, 1922, a representative
of vendor of said property wrote Manio ,notifying her that if the balance of said indebtedness was not
paid, theywould recover the property with damages for non compliance with thecondition of the contract
of purchase.3.Tolentino and Manio borrowed money from Benito Gonzales Sy Chiam tosatisfy their
indebtedness to the vendor.4.Gonzales agreed to loan the P17,500 upon condition that they execute
anddeliver to him a pacto de retro of the property.5.The contract includes a contract of lease on the
property whereby the lesseesas vendors apparently bind themselves to pay rent at the rate of P375
permonth and whereby "Default in the payment of the rent agreed for
twoconsecutive months will terminate this lease and will forfeit our right of repurchase, as though the
term had expired
naturally"6.Upon maturation of loan, Tolentino defaulted payment and Gonzalesdemanded recovery of
land. Tolentino’s argument: that the pacto de retro sale is a mortgage and not anabsolute sale and that the
rental price paid during the period of the existence of the right to repurchase, or the sum of P375 per
month, based upon the value of the property, amounted to usury.ISSUE: WoN the contract in question is
a mortgageHELD: No.RATIO: The contract is a

pacto de retro

and not a mortgage. There is not a word, aphrase, a sentence or a paragraph in the entire record, which
justifies this courtin holding that the said contract of 

 pacto de retro is a mortgage and not a salewith the right to repurchase.

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.

PADILLA, J.:

Facts: 

On 20 December 1984, the herein petitioner filed a complaint against the private respondent Herminia
Patinio and one John Doe before the Regional Trial Court of Pasay City, 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 became due, notwithstanding demands.

In her answer, Herminia Patinio admitted having obtained loans from the petitioner but claimed that the
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 gross violation of the Usury Law. Wherefore she
prayed that she be reimbursed the usurious interests charged and paid. She also asked for damages,
attorneys fee and costs of suit.

After trial court on 3 September 1986, the trial court rendered Judgment, as follows:WHEREFORE,
judgment is hereby rendered dismissing plaintiff’s complaint for lack of merit.

The petitioner filed a petition for certiorari before the Court of Appeals, to annul RTC Order of 8 October
1986.The appellate court, however, as aforestated, dismissed the petition in a Decision dated 28
November 1986. The petitioner filed a motion for reconsideration of the decision, but his motion was
denied in a Resolution dated 5 March 1987.

Issues:

Whether or not defendant defense claim for being charged usuriously is correct?

Held: 

Article 1413. Interest in excess of the interest allowed by the usury laws may be recovered by the debtor,
with interest thereon from the date of the payments.

This Court has ruled in one case, that with the promulgation of Central Bank Circular No. 905, series of
1982, usury has become “legally inexistent” as the lender and the borrower can agree on any interest that
may be charged on the loan. This Circular was also given retroactive effect. But, whether or not this
Circular should also be given retroactive effect and applied in this case is yet to be determined by the
appellate court at the proper time.

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 respondent and considered the excess amount
usurious, without apparently considering the lawful interest that may be collected on said loans.

Only usurious interests may be reimbursed.

US vs Tan Teng Case Digest

 0

Facts:

The sister of Oliva Pacomio (7-year old girl) discovered that the latter was suffering from a venereal
disease known as gonorrhea. Oliva related to her sister that in the morning of the 15th of September 1910,
after she took a bath, Chinaman Tan Teng followed her into her room and asked her for some face
powder, which she gave him; that after using some of the face powder upon his private parts he threw her
upon the floor, placing his private parts upon hers, and remained in that position for some little time. 

The sister at once put on foot an investigation to find the Chinaman. A number of Chinamen were
collected together. Oliva was called upon to identify the one who had abused her. Tan Teng was not
present at first. Later he arrived and Oliva identified him at once as the one who had attempted to violate
her.

Upon this information Tan Teng was arrested and taken to the police station and stripped of his clothing
and examined. The policeman who examined the defendant swore that his body bore every sign of the
fact that he was suffering from the venereal disease known as gonorrhea. The policeman took a portion of
the substance emitting from the body of the defendant and turned it over to the Bureau of Science for the
purpose of having a scientific analysis made of the same. The result of the examination showed that the
defendant was suffering from gonorrhea.
During the trial, the defendant contended that the result of the scientific examination made by the Bureau
of Science of the substance taken from his body, at or about the time he was arrested, was not admissible
in evidence as proof of the fact that he was suffering from gonorrhea. That to admit such evidence was to
compel the defendant to testify against himself. 

The trial court found Tan Teng guilty of the crime of rape.

Issue:

Whether the substance taken from Tan Teng, which indicates that he has gonorrhea, cannot be used as
evidence against Tan Teng on the ground that it is violative of the constitutional injunction against self-
incrimination.

Held:

The prohibition contained in section 5 of the Philippine Bill that a person shall not be compelled to be a
witness against himself, is simply a prohibition against legal process to extract from the defendant's own
lips, against his will, an admission of his guilt. The main purpose of the provision of the Philippine Bill is
to prohibit compulsory oral examination of prisoners before trial, or upon trial, for the purpose of
extorting unwilling confessions or declarations implicating them in the commission of a crime.

The doctrine contended for by appellant would prohibit courts from looking at the fact of a defendant
even, for the purpose of disclosing his identity. Such an application of the prohibition under discussion
certainly could not be permitted. Such an inspection of the bodily features by the court or by witnesses,
can not violate the privilege granted under the Philippine Bill, because it does not call upon the accused as
a witness — it does not call upon the defendant for his testimonial responsibility. The evidence obtained
in this way from the accused, is not testimony but his body itself.

The accused was not compelled to make any admission or answer any questions, and the mere fact that an
object found upon his body was examined seems no more to infringe the rule invoked than would the
introduction of stolen property taken from the person of a thief. (US vs Tan Teng, G.R. No. 7081,
September 7, 1912) 

G.R. No. L-8031

LABRADOR, J.:

On November 1, 1926, the defendants herein, Pedro Bucag and Bibiano Bucag, their sister, Irene Bucag,
and their mother, Ambrocia Malenab, conveyed a certain parcel of land (unirrigated) situated in
Angadanan, Isabela, to the spouses Faustino Andres and Petra Abara, in consideration of an amount of
P1,620, which the former had received from the latter by way of indebtedness. The pertinent parts of the
deed of conveyance are as follows:

"Declaramos que hemos tomado prestados, ademas, de dichos esposo P140.00, montando con esto, por
tanto, todo el dinero recibido de elloss por nosotros incluyendo 1os P700.00 tomados por el difunto
Hermenegildo Bucag a MIL SEIS CIENTOS VIENTO PESOS (P1620.00), y convenimos, coma asi lo
habia prometido el difunto Hermenegildo Bucag que nuestro referido terreno quedara en poder de
Faustino Andres y Petra Abara para que lo cultivan de tabaco y maiz, o lo manden cultivar, si asi lo
desean, sin que ellos tangan que pagarnos conon o alquiler del terreno, en consideracion a que no les
pagamos tampoco intereses del dinero que les hemos tomado en prestamo."

"Declaramos tambien que , en cuanto tengamos dinero con que rescatar el referido terreno, o para
devolverles en los años venideros a Faustino Andres y Petra Abara los P1620.00 con que hemos
hipotecado el terreno, dichos esposos deberan devolvernos el terreno, despues de recibir de nosotros la
citada cantidad de P1620.00."

xxxxxx

"Prometemos que mientras no hayomos de vuelto la referidad cantidad, no podremos caltivarlo ni quitarlo
del poder do los mencionados esposos, ni podremos venderlo, a menos de que antes paguemos el dinero
mencionado en este documento, con que hepotecamos el arriba mencionado terreno." (Traduccion del
Exhibito "A").

According to the stipulation of facts entered into by the parties, the land produces 60 bales of tobacco, 20
measures (tancales) of corn and 40 cavans of peanuts, valued at P8.00 per bale, P8.00 per measure
(tancal) and P5.00 per cavan, respectively. According to 1ocal custom, one-third of the products is the
share of the owner or possessor of land in the produce.

The heirs of Faustino Andres and Petra Abara tranferred the land to Victorino Verzosa, plaintiff herein, in
1948, in consideration of the sum of Pl,000, and plaintiff was in possession and enjoyment thereof from
then until November 29, 1950, when the defendants took possession without the consent of the plaintiff
and without returning the amount of indebtedness. The defendants are two of the signers of the original
deed of conveyance, Exhibit A.

The present action was instituted on January 24, 1951. The plaintiff alleges that he is entitled to the
possession of the land by virtue of deeds of conveyance, Exhibit A and Exhibit B. The defendants in
answer allege that the deed of conveyance, Exhibit A, by virtue of which plaintiff's predecessors in
interest were in possession of the property, is null and void us the contract contained the rein is usurious,
and that their (defendants) original indebtedness has been sufficiently paid from the products of the land
during the time that it was in the possession of the plaintiff and his predecessors in interest. The parties
submitted the case for decision upon a stipulation of facts, .the most important of which have been set
forth above. The trial court held that the claim of the defendants that the indebtedness has already been
paid from the products of the laid so as to make the contract one of antichresis is not justified by the
evidence, and that neither was the transaction usurious or contrary to good morals or public policy. It
further held that defendants could not recover the property without first paying the amount of the
indebtedness. The trial court, therefore, ordered the defendants to return the possession of the land to the
plaintiff, and for their wrongful possession of the property, the defendants were also ordered to pay to the
plaintiff the sum of P200.00 as liquidated damages and P200.00 every year from November 29, 1950 until
the possession of the land in returned. Against this decision, an appeal was prosecuted in the Court of
Appeals, which, however, certified the case to us on the ground that only questions of law are involved.

The principal contentions of the appellants are: that the contract Exhibit A is usurious and, therefore,
void; that the trial court erred in not declaring that the contract (Exhibit A) is antichretic in character, and
that the appellants have fully paid the amount of indebtedness and in ordering them to return the
possession of the property to the plaintiff and the payment to him of damages.

A careful study of the contract Exhibit A discloses the existence of three provisions which are indicative
of the contract as one mortgage and not of antichresis. In the first place, it is agreed that the full amount of
the indebtedness of P1,620 must be returned to the lenders before the borrowers could demand the return
of the property. This is contrary to an antichretic contract wherein the products of the land should be
applied to the interest and then to the principal. In the second place, the contracting parties used the term
mortgage (hipoteca) in various parts of the contract, thus: (1) "con que hemos hipotecado el terreno," (2)
"El terreno que hipotecamos and (3) "con que hipotecamos el arriba mencionado terreno." In the third
place, the parties agreed that the lenders are not to pay rentals on the property in consideration of the fact
that the borrowers do not pay interest on the land which they obtained as a loan.

A similar case has already been decided by this Court, the case of Salcedo vs. Celestial, 66 Phil. 372. In
said case the court found that one deed called the agreement "contract of mortgage and another "contract
of antichresis"; that it is not stipulated that the net produce of the property shall be first applied to the
payment of the interest, if any, and afterwards to that of the principal; that the property is security for the
payment of the loan and the fruits thereof, assigned to the lender by way of compensation for their
sacrifice in lending money. It was held that the contract was a mortgage because it contains the essential
requisites of a mortgage enumerated in Article 1857 of the old Civil Code.

The most important claim of the defendants-appellants in this appeal is that the produce that the plaintiff
and his predecessors in interest received exceeded the 6% legal interest fixed by the Usury Law. The
appellant makes a mistake in assuming that an interest above the legal interest is usurious. Under the
Usury Law, the amount allowable as interest when the property conveyed as security is not registered
land is 14% not 6% (Sec. 3, Act No. 2655, as amended by C.A. 399). 14% of P1,620 is P226.80. Under
the stipulation of facts, the yearly products of the land are valued at P645.00 and of this sum the holder of
the property or owner thereof receives one-third or P215.00. The contract, therefore, cannot be considered
as usurious because the value of the products received does not exceed 14% of the money loaned.

But even if the value of the actual selling price of one-third exceeded the 14% interest provided for by
law, the excess the case at bar would not be palpable as to show a corrupt intent to violate and evade the
Usury Law. This principle was established by us in the case of Toquera, et. al., vs. Villegas, et al.,40 O.G.
No. 15, p. 10, wherein we said

"In view, however, of the rule that a creditor's return need not be limited to the statutory rate when it is
affected by a contingency putting whole of it at hazard, a contract is ordinarily not usurious under which
the creditor is to receive, consideration of his loan or forbearance, property or services of uncertain value,
even though probable value is greater than lawful interest unless the excess is so palpable as to show a
corrupt intent to violate and evade the usury laws, or unless the contract is made for the purpose of such
violation or evasion.' (66 C.J., 212)"

'So an agreement that instead, of interest the lender of money would receive the rents and profits of
certain land for a term of years, is not usurious where no intention to evade the statute is shown; and the
fact that such rents and profits happen to amount to more than lawful interest does not render the contract
usurious.' (Webb on Usury, p. 85)."

The judgment appealed from is hereby affirmed in toto, with costs against the defendants-appellants.

HERRERA VS. PETRO PHIL CORP146 SCRA 385Contract between the parties is one of lease and not
of loan. It is clearly denominated a"LEASEAGREEMENT." Nowhere in the contract is there any
showing that the parties intended a loanrather than a lease. The provision for the payment of rentals in
advance cannot beconstrued as are payment of a loan because there was no grant or forbearance ofmoney
as to constitute indebtedness on the part of the lessor. On the contrary, thedefendant-appellee was
discharging its obligation in advance by paying the eight yearsrentals and it was for this advance payment
that it was getting a rebate or discount.There is no usury in this case because no money was given by the
defendant-appelleeto the plaintiff-appellant, nor did it allow him to use its money already in
hispossession. There was neither loan nor forbearance but a mere discount which theplaintiff-appellant
allowed the defendant-appellee to deduct from the total payments becausethey were being made in
advance for eight years. The discount was in effect a reduction of the rentalswhich the lessor had the right
to determine, and any reduction thereof, by any amount, would notcontravene the Usury Law

G.R. No. 181881, October 18, 2011BRICCIO "Ricky" A. POLLO, vs.

CHAIRPERSON KARINA CONSTANTINO-DAVID, et. al.FACTS:

On January 3, 2007 an unsigned letter-complaint addressed to respondent alleged that the chief of the

Mamamayan muna hindi mamaya na


” division of the CSC has been lawyering for accused gov’t

employees having a pending cases in the CSC.Chairperson David immediately formed a team and issued
a memo directing them to conduct aninvestigation and to back up all the files in the computers found in
the

Mamamayan Muna

 and Legaldivisions. The team backed up all the files from the computers of said divisions, which
included thecomputer of Pollo,

who was the OIC of the “Mamamayan muna” program of the

 CSC.

The team obtained from petitioner’s personal files

 around 40-42 drafts of legal pleadings or documentswhich were for and on behalf of parties facing
charges as respondents in administrative cases pendingbefore the CSC or other tribunals giving rise to the
inference that petitioner was aiding and advancinginterests adverse to the interest of the CSC as agency of
the government tasked to discipline misfeasanceand malfeasance in the government service. And since
these these draft pleadings were obtained fromthe computer assigned to and under the direct control and
disposition of Pollo, it invariably raises thepresumption that he was the one responsible or had a hand in
their drafting or preparation.The CSC charged petitioner with Dishonesty, Grave Misconduct, Conduct
Prejudicial to the Best Interestof the Service and Violation of the Code of Conduct and Ethical Standards
for Public Officials andEmployees. The CSC subsequently issued a resolution finding petitioner guilty of
the charges against himand dismissed him from the service. The CA dismissed the petition for certiorari
after finding no graveabuse of discretion committed by respondents and denied his motion for
reconsideration. Thus, theappeal.

ISSUE:

 Whethe

r or not the search conducted on petitioner’s

office computer and the copying of hispersonal files without his knowledge and consent constituted a
violation of his constitutional right toprivacy.

RULING:

The SC held that the search on petitioner’s offic

e computer and the copying of his personal files wereboth LAWFUL and DID NOT VIOLATE
his constitutional right to privacy.The right to privacy has been accorded recognition in this jurisdiction as
a facet of the right protected bythe guarantee against unreasonable search and seizure under Section 2,
Article III of the 1987Constitution, which provides:

Sec. 2. The right of the people to be secure in their persons, houses, papers, and effects
againstunreasonable searches and seizures of whatever nature and for any purpose shall be inviolable, and
nosearch warrant or warrant of arrest shall issue except upon probable cause to be determined
personallyby the judge after examination under oath or affirmation of the complainant and the witnesses
he may produce, and particularly describing the place to be searched and the persons or things to be
seized.

The constitutional guarantee is not a prohibition of all searches and seizures but only of
"unreasonable"searches and seizures.

123 Phil. 773

BAUTISTA ANGELO, J.:

Plaintiff filed before the Municipal Court of Manila a complaint based on a conditional sale of one G. P.
Television Set, Model 21, Console 1960, Serial No. 652548, under the condition that the price would be
P3,440.00, the down payment P884.00, and it would be paid in monthly installments of P142.00 each for
18 months. Defendant only paid the amount of P1,442.00, leaving a balance of P1,988.00, which he failed
to pay since March, 1961, for which reason plaintiff prayed that if said balance is not paid, the property
be returned to plaintiff.

Defendant denied owing said balance of P1,988.00 for he contends that what he bought from plaintiff was
a Philco Television Set, Model 21, with a value of P1,700.00, payable within 90 days, but that it was
destroyed by plaintiff's technicians and so it was replaced with a G. E. set on a cash basis, payable within
90 days, the advance payment made on the original set to be credited ton the second set. It was agreed
that the true market value of the G. E. set would be P1,500.00 but defendant made plaintiff sign a deed of
sale for P3,440.00 thereby adding more than 150% to the original price. It is alleged that plaintiff in effect
entered into a usurious transaction under the guise of a contract of sale.

Apparently, the case was elevated to the court of first instance because of the question of law involved.

The allegation of usury made by defendant in his answer was not denied under oath by plaintiff and so the
court a quo considered said allegation as admitted under Section 1, Rule 9 of the Rules of Court. Hence,
the court a quo considered the transaction null and void and on that basis dismissed the complaint.
Plaintiff brought this case on appeal directly before this court when its motion for reconsideration was
denied on the plea that the same merely involves questions of law.

Plaintiff in its complaint alleges that the transaction between the parties was a conditional sale the terms
thereof having been specified therein. Defendant in his answer admits that what he originally bought from
plaintiff was one Philco Television Set, Model 21, Console 1960, the terms of payment having been
specified in the contract of sale. Defendant admits that he failed to pay the purchase price within the term
of 90 days agreed upon.

It appears, therefore, that the transaction that took place between the parties was a conditional sale based
on an installment plan, and not a loan, so that the alleged increase in the price of the article sold cannot be
considered as a mere pretext to cover a usurious loan. It has been held that "The increase of the price is
not interest within the purview of the Usury Law, if the sale is made in good faith and not a mere pretext
to cover a usurious loan" (Manila Trading & Supply Co. vs. Tamaraw Plantation Co., 47 Phil., 513). And
elaborating on said case, this Court said:

"* * * The increase of the price, when the sale is on credit, serves not only to cover the expenses generally
entailed by such transactions on credit, but also to encourage cash sales, so useful to commerce. It is up to
the purchaser to decide which price he prefers in making the purchase. If he prefers to purchase for cash,
he obtains a 5 per cent reduction of 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 the property, whether real or
personal, has a perfect right to name the price on which he is willing to sell, and to refuse to accede to any
other. He may offer to sell at a designated price for cash or at a much higher price on credit, and a credit
sale will not constitute usury however great the difference between the two prices, unless the buying and
selling was a mere pretense.' And in 39 Cyc., p. 927, it is also established that: 'A vendor may well fix
upon his property one price for cash and another for credit, and the mere fact that the credit price exceeds
the cost price by a greater percentage than is permitted by the usury laws 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 such a
transaction is not a loan, and not usurious.'"

Defendant's contention that the failure of plaintiff to specifically deny under oath the allegation of usury
in his answer constitutes an implied admission of usury is untenable. If it is alleged that defendant entered
into a contract of loan with plaintiff in which the latter collected a usurious interest there is need to deny
the transaction under oath, and if no oath is taken the only thing admitted is the allegation that the interest
is usurious and not that the contract entered into is a loan. The nature of the transaction is not admitted.
The fact that what is alleged is that the transaction was a loan under the guise of a conditional contract of
sale and that by increasing its price by 150% the consideration became usurious, such is not deemed
admitted by the mere failure to deny the answer under oath. This transaction must still be proven before
usury can be invoked in the light of the following ruling of this Court:

"It may, of course, be held in general that only that for which the law requires an oath is deemed admitted,
should no oath be taken. If it is alleged in the complaint that the defendant, whether an individual or a
corporation, has entered into a contract of loan with the plaintiff, there is no need for a sworn answer. But
if it be added that on this loan the defendant has collected usurious interest, that is, interest in excess of
the rate fixed by the law, then there is need of an oath. In that case, if no oath is taken to the answer, the
only thing admitted is the allegation that the interest charged is usurious, not that the contract entered into
is a loan, which is something that must be proved independently of the admission, especially when, as in
the one in question, this allegation is disputed.

"The intervenor Hilarion Soriano not only alleges that the plaintiff charged, and that he paid him, usurious
interest, but also that the contract they made, under the guise of a sale subject to repurchase, according to
its terms, was in reality a contract of loan wherein usurious interest was stipulated and collected. He
should therefore have shown by competent evidence that that contract was really a loan. But, not only is
there not a scintilla of evidence to this effect, but, on the contrary, the evidence of record, which is the
contract itself, shows conclusively that it was a sale subject to repurchase. Wherefore, as the plaintiff and
the intervenor did not enter into a contract of loan by virtue of which usurious interest could be collected,
and as the contract entered into between them was a sale upon which usurious interest could not be
collected, the admission established by the law that such interest was in fact collected, does not exist. The
law cannot presume an absurdity. In order that this admission of the collection of usurious interest may be
invoked, it is necessary first to establish the contract by virtue of which such interest could be collected."
(Lo Bun Chay vs. Paulino, 54 Phil., 144, 147-148).

The contract entered into between the parties being a conditional sale, the increase in price over the cash
price cannot be considered interest, and so the dismissal of the case by the court a quo is not justified.

Wherefore, the decision appealed from is reversed. The case is remanded to the lower court for further
proceedings, without pronouncement as to costs.

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