Showing posts with label Credit Transactions - Usury. Show all posts
Showing posts with label Credit Transactions - Usury. Show all posts

CREDIT TRANSACTIONS - USURY

 The United States v. Chua

G.R. No. 13708

Malcolm, J.

Doctrine: The law will not permit a usurious loan to hide itself behind a legal form.

Facts:

On April 29, 1911, Pedro Andres borrowed from Francisco Chua, the instant

defendant, the sum of P100, with interest of 24 cavanes of palay. On July 9, 1911,

the debt was raised to P125, with interest of 30 cavanes of palay. Two years later, it

has become P226.70, secured by a pacto de retro, with the interest at 44 cavanes of

palay annually. When the debt was liquidated, it came out that Andres had an

obligation of P474.20 which he promised to pay. One year later, action was brought

to recover the sum and accordingly a judgment rendered therefor.

On October 25, 1916, Andres and Chua executed a document which he sold a parcel

of land and a female carabao for the amount of P684.20 to Tan, under the pacto de

retro. Consequently, the period of redemption was to be 5 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. Thus, the Provincial Fiscal of Nueve Ecija filed an information

charging Chua with the crime under the Usury Law which as predicated specially on

the document executed on October 25, 1916 by Andres.

The trial court found that the accused had been proved guilty and sentenced him to

pay a fine of P25, or to suffer subsidiary imprisonment in case of insolvency, and to

pay the costs.

Issue:

Is Chua guilty of the crime under Usury Law pursuant to the accomplishment of what

purports to be a pacto de retro?

Ruling:

Yes. The court ruled that Exhibit B was not a true pacto de retro, but was a sham

document to cover usurious financial manipulation. The document, framed with

legal precision, was a token of a debt originally of P100, 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 P25 for the use of P684.20 for

five months.

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 UsuryLaw, the

courts should and will permit no scheme, however ingenious, to becloud the

crime of usury.



Versoza v. Bucag

G.R. No. L-8031. October 29, 1955

Labrador, J.

Doctrine: Under the Usury Law, the amount allowable as interest when the property

conveyed as security is not registered land is 14%.

Facts:

Defendants-Appellants Bucag conveyed a parcel of unirrigated land to Sps. Andres

in consideration of an amount of PHP 1620, which the former had received from the

latter by way of indebtedness. The heirs of Sps. Andres then transferred the said

land to plaintiff-appellee Versoza, for a consideration of PHP 1000, and the plaintiff

was in possession and enjoyment until the defendants took possession thereof

without the consent of the plaintiff and without returning the amount of

indebtedness.

The plaintiff then instituted this action wherein he alleged that he is entitled to the

possession of the land by virtue of the deed of conveyance. Alternatively, the

defendants alleged that said deed of conveyance is null and void as the contract is

usurious since the produce that plaintiff and his predecessors in interest received

exceeded the 6% legal interest fixed by the Usury Law.

The RTC ruled in favor of the plaintiffs as it stated that it does not subscribe to the

defendant’s claims that the transaction was usurious or contrary to good morals or

public policy. The RTC thus ordered the defendants to return the property to the

plaintiffs. On appeal, the CA certified the case to the SC since purely questions of

law were involved.

Issues:

Is the deed of conveyance between Bucag and Sps. Andres usurious?

Ruling:

No. Under the Usury Law, the amount allowable as interest when the property

conveyed as security is not registered land is 14% not 6%.

Applying such in this case, 14% of P1,620 is P226.80. Moreover, the yearly

products of the land are valued at P645.00, and of the said sum, the holder of the

property or owner thereof receives one-third or P215.00.

The contract entered into is not usurious because the value of the products

received does not exceed 14% of the money loaned.



Tolentino v. Sy Cham

G.R. No. 26085 ; August 12, 1927

Johnson, J.

Doctrine: A tenant cannot charge his landlord with a violation of the Usury Law, upon

the ground that the amount of the rent he pays, based upon the real value of the

property, amounts to a usurious rate of interest.

Facts:

Plaintiff-appellant Tolentino and a certain Manio purchased a parcel of land from

Luzon Rice Mills, Inc. to be paid on 3 installments. One of the conditions of the

contract of purchase was that if Tolentino and Manio failed to pay the balance of

any of the installments on the date agreed upon, the property bought would revert

to the original owner. Tolentino and Manio then borrowed money from herein

defendant-appellee Sy Chiam to be able to pay the 3rd installment to fulfill the

condition of the contract but was only allowed to borrow from Sy Chiang under the

condition that they should deliver to him a pacto de retro of the property. The

pacto de retro contract includes a lease on the property where Tolentino and Manio

are the lessees and has a stipulation that if they defaulted in paying 2 consecutive

months of rental then their right to repurchase the property will be automatically

terminated. Upon the maturity of the loan, Tolentino defaulted in payment so Sy

Chiang is now demanding the recovery of the land.

Tolentino alleged that the pacto de retro sale is a mortgage and not an absolute

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 only to usury.

Issue:

(1) Is the 2nd contract a contract of mortgage?

(2) Is a tenant capable of charging his landlord with a violation of the Usury

Law?

Ruling:

(1) No, the 2nd contract is not a mortage but a pacto de retro contract.

In this case, the property in question was sold as expressed by the intention

of Tolentino and Manio to 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.

(2) No, a tenant cannot charge his landlord with a violation of the Usury Law,

upon the ground that the amount of the rent he pays, based upon the real

value of the property, amounts to a usurious rate of interest.

In this case, the vendor became the tenant of the property by virtue of the

pacto de retro sale. A contract of loan differs materially from a contract of

rent because in a contract of loan, the owner of the property does not lose his

ownership but only the control over the property rented during the period of

the contract while in a contract of rent, the property still remains the property

of the lessor and their relationship is that of a landlord and a tenant.

Therefore, since the contract was one of rent in this case and not a loan as used

in Act No. 2655 or the Usury Law, it is not applicable in this case.



Manila Trading and Supply Company v. Tamaraw Plantation

Company

G.R. No. 2299. February 28, 1925

Villamor, J.

Doctrine: The interest of the price of the thing sold on credit over its cash sale price is

no interest within the purview of the Usury Law, if the sale is made in good faith and

not as mere pretext to cover a usurious loan.

Facts:

This case arose from two causes of action filed by Manila Trading & Supply Company

against Tamaraw Plantation Company. The parties have agreed that the price of the

goods sold and mortgaged in the document Exhibit A (first cause of action) was

P5,300, if paid in cash, but as said goods were purchased on credit, the cash price

was increased 5 per cent. The parties have also agreed that to the cash price of the

goods sold and mortgaged in the document Exhibit B (second cause of action) there

was added 5 percent of said amount because the goods were purchased on credit.

Both agreements also provide a penalty of 33 1/3 percent and the interest at 12 per

cent per annum from the date of the execution of the document.

The defendant paid the first six monthly installments of the goods under Exhibit A,

however, it defaulted in the payment of the remaining balance. Defendant also

initially paid P800 as payment for the goods under Exhibit B but eventually failed to

pay the remaining balance. Plaintiff sought to recover the unpaid remaining balance

of the purchase price in the manner provided for under Exhibits A & B.

Now appellant argues that the price of the sale on credit, which is 5 percent more

than the cash price, added to the 12 per cent interest stipulated by the parties,

makes the contracts of sale and mortgages in question usurious.

Issue:

Does the increase of the price of an article sold on credit upon its cash sale value

constitute sale interest within the meaning of the Usury Law?

Ruling:

No. The instant case is of a chattel mortgage given to secure payment for the

agricultural implements sold by the plaintiff to the defendant. The transaction

was carried out between the parties in good faith, and there is no proof that the

contract of sale of agricultural effects, secured by a mortgage on the same goods,

was executed as a loan of money.

This being so, the parties may freely agree upon the price of the goods sold, and

it cannot be said that the credit, greater than the cash, price, constitutes interest

within the meaning of the Usury Law. 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 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.

It is said: "On principle and authority, the owner of property, whether real or

personal, has a perfect right to name the price on which he is willing 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." 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 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."



The Bachrach Motor Company, Inc. v. Faustino Espiritu

G.R. No. L-28497. November 6, 1928.

AVANCE√ĎA, C. J.

Doctrine: Article 1152 of the civil code permits the agreement upon a penalty apart

from the interest.Should there be such agreement, penalty, does not include the

interest; and which may be demanded separately (as was held in case of Lopez vs.

Hernaez-32 phil 631), but considering that the obligation was partly performed and

making use of the power given to the court by article 1154 of the civil code, the penalty

is reduced to 10 percent of the unpaid debt.

Facts:

This is a consolidated case(Cases no. 28497 and 28948) involving two separate sale

transactions. One made in Feb. 18, 1925 (case 28498), when the defendant earlier

bought a truck on instalment from the petitioner and said truck was mortgaged

together with the two others (no. 77197 & 92744 in the the subsequent sale

transaction dated July 28, 1925. The said two of the other trucks were also purchased

(but already paid previously) from the plaintiff. The defendant failed to pay the

balance. In July 1925, defendant again purchased another truck from Bachrach. The

said truck, together with the 3 other vehicles were mortgaged to the plaintiff to

secure the remaining balance. The defendant failed to pay the balance for the latest

truck obtained.

It was agreed in both sales that 12% interest will be paid on the unpaid price, and in

case of the non-payment of the total debt at maturity, 25% shall be the penalty. The

defendant also signed a promissory note solidarily with his brother Rosario (acting as

intervenor), the sums secured by the mortgages. Rosario is alleged to be the owner

of the two white trucks no. 77197 & 92744 mortgaged.

While these two cases were pending in the lower court the mortgaged trucks were

sold by virtue of the mortgage, all of them together bringing in, after deducting the

sheriff's fees and transportation charges to Manila, the net sum of P3,269.58.

The lower court ordered the defendants and the intervenor to pay plaintiff in case

28497 the sum of P7,732.09 with interest at the rate of 12 per cent per annum from

May 1, 1926 until fully paid, and 25 per cent thereof in addition as penalty. In

case 28498, the trial court ordered the defendant and the intervenor to pay

plaintiff the sum of P4,208.28 with interest at 12 per cent per annum from

December 1, 1925 until fully paid, and 25 per cent thereon as penalty.

The appellants contend that trucks 77197 and 92744 were not mortgaged,

because, when the defendant signed the mortgage deeds these trucks were not

included in those documents, and were only put in later, without defendant's

knowledge. Appellants also alleged that on February 4, 1925, the defendant sold

his rights in said trucks Nos. 77197 and 92744 to the intervenor, and that as the

latter did not sign the mortgage deeds, such trucks cannot be considered as

mortgaged.

But there is positive proof that they were included at the time the defendant

signed these documents. Besides, there were presented two of defendant's letters

to Hidalgo, an employee of the plaintiff's written a few days before the

transaction, acquiescing in the inclusion of all his White trucks already paid for,

in the mortgage (Exhibit H-I).

Issue:

Does the plaintiff have the right to impose higher interest as penalty twice the

fixed rate by law?

Ruling:

No. Article 1152 of the civil code permits the agreement upon a penalty apart

from the interest.Should there be such agreement, penalty, does not include the

interest; and which may be demanded separately (as was held in case of Lopez vs.

Hernaez-32 phil 631), but considering that the obligation was partly performed

and making use of the power given to the court by article 1154 of the civil code,

the penalty is reduced to 10 percent of the unpaid debt.



First Metro Investment Corporation v. Este Del Sol Mountain

Reserve, Inc.

G.R. No. 141811, November 15, 2001

De Leon, Jr., J.

Doctrine: Contracts and stipulations, under any cloak or device whatever, intended to

circumvent the laws against usury shall be void. The borrower may recover in

accordance with the laws on usury.

Facts:

Petitioner FMIC granted respondent Este del Sol a loan of Seven Million Three

Hundred Eighty-Five Thousand Five Hundred Pesos (P7,385,500.00) to finance the

construction and development of the Este del Sol Mountain Reserve, a sports/resort

complex project located at Barrio Puray, Montalban, Rizal. According to the terms of

the Loan Agreement, interest per annum is sixteen (16%) based on the diminishing

balance, that in case of default, a twenty (20%) percent one-time penalty on the

amount due and such amount shall bear interest at the highest rate permitted by law

from the date of default until full payment thereof plus liquidated damage at the

rate of two (2%) percent per month compounded quarterly on the unpaid balance and

accrued interests together with all the penalties, fees, expenses or charges thereon

until the unpaid balance is fully paid, plus attorney's fees equivalent to twenty-five

(25%) percent of the sum sought to be recovered.

Respondent Este del Sol executed as provided for by the Loan Agreement, an

Underwriting Agreement whereby petitioner FMIC shall underwrite on a best-efforts

basis the public offering of One Hundred Twenty Thousand (120,000) common shares

of respondent Este del Sol's capital stock for a one-time underwriting fee of Two

Hundred Thousand Pesos (P200,000.00). In addition to the underwriting fee, the

Underwriting Agreement provided that for supervising the public offering of the

shares, respondent Este del Sol shall pay petitioner FMIC an annual supervision fee

of Two Hundred Thousand Pesos (P200,000.00) per annum for a period of four (4)

consecutive years. It also stipulated for the payment by respondent Este del Sol to

petitioner FMIC a consultancy fee of Three Hundred Thirty-Two Thousand Five

Hundred Pesos (P332,500.00) per annum for a period of four (4) consecutive

years. A Consultancy Agreement was also executed whereby respondent Este del

Sol engaged the services of petitioner FMIC for a fee as consultant to render

general consultancy services.

Failing to secure from the individual respondents, as sureties of the loan of

respondent Este del Sol by virtue of their continuing surety agreements, the

payment of the alleged deficiency balance, despite individual demands sent to

each of them, petitioner instituted a collection suit against the respondents to

collect the alleged deficiency balance. In the defense of the respondent, the

latter maintained the Underwriting and Consultancy Agreements executed

simultaneously with and as integral parts of the Loan Agreement were in reality

subterfuges resorted to by petitioner FMIC and imposed upon respondent Este del

Sol to camouflage the usurious interest being charged by petitioner FMIC.

The trial court ruled in favor of petitioner FMIC and ordered the respondents to

pay the amount due to the former. The CA reversed the decision of the trial court.

The appellate court found and declared that the fees provided for in the

Underwriting and Consultancy Agreements were mere subterfuges to camouflage

the excessively usurious interest charged by the petitioner FMIC on the loan of

respondent Este del Sol; and that the stipulated penalties, liquidated damages

and attorney's fees were "excessive, iniquitous, unconscionable and revolting to

the conscience,". Thus, The appellate court dismissed the complaint as against

the individual respondents sureties and ordered petitioner FMIC to pay or

reimburse respondent Este del Sol the amount representing the difference

between what is due to the petitioner and what is due to respondent Este del Sol.

The petitioner moved for reconsideration, but was denied. Hence, this petition.

Issue:

Are the Underwriting and Consultancy Agreements executed to conceal a usurious

loan?

Ruling:

Yes. When a contract between two (2) parties is evidenced by a written

instrument, such document is ordinarily the best evidence of the terms of the

contract. Courts only need to rely on the face of written contracts to determine

the intention of the parties. However, this rule is not without exception. Parol

evidence is admissible to show that a written document though legal in form was

in fact a device to cover usury. If from a construction of the whole transaction it

becomes apparent that there exists a corrupt intention to violate the Usury Law,

the courts should and will permit no scheme, however ingenious, to becloud the

crime of usury.

In the instant case, several facts and circumstances taken altogether show that

the Underwriting and Consultancy Agreements were simply cloaks or devices to

cover an illegal scheme employed by petitioner FMIC to conceal and collect

excessively usurious interest. Facts of the case clearly belied the contention of

petitioner FMIC that the Loan, Underwriting and Consultancy Agreements are

separate and independent transactions. The Underwriting and Consultancy

Agreements which were executed and delivered contemporaneously with the

Loan Agreement were exacted by petitioner FMIC as essential conditions for the

grant of the loan. An apparently lawful loan is usurious when it is intended that

additional compensation for the loan be disguised by an ostensibly unrelated

contract providing for payment by the borrower for the lender's services which

are of little value or which are not in fact to be rendered, such as in the instant

case.