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Digested (Usury Law)

Digested (Usury Law)

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Published by: Rizza Castro on Aug 20, 2013
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L-21440) Facts: Plaintiff filed before the Municipal Court of Manila a complaint based on a conditional sale of one G.E. Television Set, Model 21, Console 1960, Serial No. 652548, under the condition that the price would be P3,440.00, the down payment P894.00, and it would be paid in monthly installments of P142.00 each for eighteen (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 ninety (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 ninety (90) days, the advance payment on the original set to be credited on 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. Issue: Whether or not the contract entered into by the parties is a conditional sale or a loan with usurious interest. Held: 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). 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.

SANCHEZ, vs. BUENVIAJE, Facts: On August 25, 1976, Alejo Sanchez sued Teodoro Sanchez and Leonor Santilles in the Municipal Court of Bato, Camarines Sur, for the recovery of P2,000.00 which the latter had promised to pay in two notes. Said notes also contained stipulations for interest at the rate of 10% per month The Municipal Court rendered judgment ordering Teodoro Sanchez only to pay to Alejo Sanchez P2,000.00 plus interest thereon at the legal rate from the filing of the complaint. In his petition for review, Teodoro claims that in a loan with usurious interest both the loan and the usurious interest are void. Alejo was required to comment on the petition but it appears that he died sometime in the latter part of 1980 and the early part of 1981. (Rollo, p. 42.) Accordingly, his children were impleaded as respondents and required to file comment which they failed to do despite notice to them. Issue: Whether or not the principal amount in a usurious loan is also void. Ruling: It is now well-settled that: "the Usury Law (Act No. 2655), by its letter and spirit, does not deprive the lender of his right to recover of the borrower the money actually loaned this only in the case that the interest collected is usurious. The law, as it is now, does not provide for the forfeiture of the capital in favor of the debtor in usurious contract.

as attorney's fees.242. By the terms of the note and the mortgage.242.69 made due and payable May 29. In August. of which P10. consent and approval of the heirs of the deceased. March 25.VICENTE E. known as lot 44-B subdivision of lot No. as administrator. 17652. consisting of 1. Based upon that letter. 2130 of the cadastral survey of the City of Manila. Elser at the agreed price of P74. No. the plaintiff. Elser wrote the plaintiff another letter in which he said: The balance to a term of sixty (60) days after the sale.000.000 was paid at the time of the purchase. was the sole owner of a parcel of land. 1922. After some negotiations. Elser would pay the further sum of P5. To secure the payment of the note and on the same day. 1922. G. widow of Mendiola. this suit was commenced to foreclose the mortgage and have the property sold. during that period of sixty (60) days. 1922.000) pesos to be paid upon the execution of the deed of sale. and founded upon an order of the probate court. L-21280 Facts: At the time of her death. and on July 5. 1922. the probate court made an order authorizing and approving the sale of the property. the administrator sold the land in question to the defendant Henry W.844. and duly qualified as such. but whatever rent to be derived from said property during said period to redound to the benefit of the estate.60 square meters. Elser made his note to the plaintiff. 1921.242. . REYES vs. and by and with the knowledge. and The balance to a term of sixty (60) days after the sale. for the balance of P64. 1922. upon the same property. Elser executed to the administrator a first and voluntary mortgage on the premises. after her death. and at all times since he has been and is now such administrator. Vicente E. ELSER. 44 of block No. March 22.69 was to bear interest at the rate of 12 per cent per annum from maturity until final payment. together with the buildings and improvements thereon. but whatever rent to be derived from said property during said period to redound to the benefit of the estate. the P64. Reyes. which is more fully described in transfer certificate of title No. For failure to pay the note at maturity. Felipa Alonso y de Mesa.R. It is understood that the said mortgage will carry no interest during that period of sixty (60) days. It was further provided that in case of a suit or action to collect the note and enforce the mortgage. Elser wrote the plaintiff as follows: I have the honor to advise you that the said property is now sold to the undersigned under the following conditions: The sum of ten thousand (P10.69. same to be recorded on regular mortgage. which was duly registered. 1922. was appointed as administrator of her estate. same to be recorded on regular mortgage. It is understood that the said mortgage will carry no interest. and on March 29. upon the same property. HENRY W. issued by the register of deeds of Manila on June 22.

Issue: Whether or not the contract is a load with usurious interest. for short) from petitioner BANCO FILIPINO in the sum of Forty-one Thousand Three Hundred (P41. . 494 of the Monetary Board was not the "law" contemplated by the parties. 494 was issued by the Central Bank. L-46591) July 28. the date when CIRCULAR No. The maximum rate of interest. and that. petitioner Banco Filipino cannot rely thereon to raise the interest on the borrower's loan from 12% to 17% per annum because Circular No. premiums. or by financial intermediaries authorized to engage in quasi-banking functions shall be nineteen percent (19%) per annum. in which he modified his proposition of March 22d. by banking institutions. 494 issued on January 2. 493. It is very apparent that neither the plaintiff nor Elser ever contemplated the making of an usurious contract. No. payable and to be amortized within fifteen (15) years at twelve (12%) per cent interest annually. and for such reason is affirmed. The Escalation Clause is based upon Central Bank CIRCULAR No. Hence. loans or renewals thereof shall continue to be governed by the Usury Law. nor should said Circular be held as applicable to loans secured by registered real estate in the absence of any such specific indication and in contravention of the policy behind the Usury Law. Held: The Court rules that while an escalation clause like the one in question can ordinarily be held valid. including commissions. hereby affirmed in so far as it orders petitioner Banco Filipino to desist from enforcing the increased rate of interest on petitioner's loan. with costs in favor of the plaintiff and against the appellant.00) Pesos.R. reading as follows: I/We hereby authorize Banco Filipino to correspondingly increase the interest rate stipulated in this contract without advance notice to me/us in the event law should be enacted increasing the lawful rates of interest that may be charged on this particular kind of loan. neither of them ever thought or understood that it was. clause C of the mortgage in question was founded on Elser's own proposition. as administrator. fees and other charges on loans with maturity of more than seven hundred thirty (730) days. at the time it was made. as amended. 1976. Held: Clause C in the mortgage is a literal copy of Elser's letter to the plaintiff of March 25th. respondent Florante del Valle (the BORROWER) obtained a loan secured by a 1 real estate mortgage (the LOAN. The judgment appealed from is. and was authorized and approved by the probate court. Stamped on the promissory note evidencing the loan is an Escalation Clause. the pertinent portion of which reads: 3. Except as provided in this Circular and Circular No. There is no merit in the claim that it was an usurious transaction. 1976. and upon that question the judgment of the lower court is in accord with the actual facts and the intention of the parties. It was a sale as distinguished from a loan. including thrift banks and rural banks. 1975. In other words. 1987 Facts: On May 20. (G.300. BANCO FILIPINO SAVINGS and MORTGAGE BANK vs HON. nevertheless. MIGUEL NAVARRO." Issue: Whether or not the escalation clause which relied upon by Banco Filipino to increase the interest can be justified in Circular 494. the LOAN still had more than 730 days to run by January 2. xxx xxx xxx 7. therefore.

1978 over two (2) parcels of land being utilized as the site of its development project with an area of approximately One Million Twenty-Eight Thousand and Twenty-Nine (1. De Vera. Jr. b. among them. 141811 Facts: It appears that on January 31. Interest on the loan was pegged at sixteen (16%) percent per annum based on the diminishing balance. Ladores. respondent Este del Sol executed several 7 documents as security for payment. . Simultaneous with the execution of and in accordance with the terms of the Underwriting Agreement. Alberto M. 1978. In case of default. Sese.00) per annum for a period of four (4) consecutive years.000) common shares of respondent Este del Sol's capital stock for a one-time underwriting fee of Two Hundred Thousand Pesos (P200. fees. Issues: a. No. The Underwriting Agreement 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. Whether or not Circular No.00) per annum for a period of four (4) consecutive years.029) square meters and particularly described in TCT Nos. 905 amend the Usury law. Rocio A.000. an Underwriting Agreement on January 31.00) each.500. Whether or not the contract entered into by the 2 parties is the best evidence of the terms of the contract.00) to finance the construction and development of the Este del Sol Mountain Reserve. expenses or charges thereon until the unpaid balance is fully paid. inclusive of all improvements. The loan was payable in thirty-six (36) equal and consecutive monthly amortizations to commence at the beginning of the thirteenth month from the date of the first release in accordance with 5 the Schedule of Amortization.FIRST METRO INVESTMENT CORPORATION vs ESTE DEL SOL MOUNTAIN RESERVE.. Asuncion. a sports/resort complex project 4 located at Barrio Puray. Alexander G. Rizal. 1978 whereby respondent Este del Sol engaged the services of petitioner FMIC for a fee as consultant to render general 9 consultancy services. which in no case shall be less than Twenty Thousand Pesos 6 (P20.000.000. the proceeds of the loan were to be released on staggered basis. and (b) individual Continuing Suretyship agreements by co-respondents Valentin S.00) if the services of a lawyer were hired. Jr.028. (a) a Real Estate Mortgage dated January 31. equipment.000. plus attorney's fees equivalent to twenty-five (25%) percent of the sum sought to be recovered. Under the terms of the Loan Agreement. an acceleration clause was. all dated February 2. Montalban. N-24332 and N-24356 of the Register of Deeds of Rizal. to guarantee the payment of all the obligations of respondent Este del Sol up to the aggregate sum of Seven Million Five Hundred Thousand Pesos 8 (P7. Vicente M. as provided for by the Loan Agreement. INC. furnishings and furnitures existing thereon. petitioner FMIC granted respondent Este del Sol a loan of Seven Million Three Hundred Eighty-Five Thousand Five Hundred Pesos (P7. GR. a Consultancy Agreement was also executed on January 31. Manuel Q.500. respondent Este del Sol shall pay petitioner FMIC an annual supervision fee of Two Hundred Thousand Pesos (P200. De Vega.500. Salientes. In accordance with the terms of the Loan Agreement. In addition to the underwriting fee. 1978 whereby petitioner FMIC shall underwrite on a best-efforts basis the public offering of One Hundred Twenty Thousand (120.385. the Underwriting Agreement provided that for supervising the public offering of the shares. 1978.00). provided and the amount due was made subject to a twenty (20%) percent one-time penalty on the amount due and such amount shall bear interest at the highest rate permitted by law from the date of default until full payment thereof plus liquidated damages at the rate of two (2%) percent per month compounded quarterly on the unpaid balance and accrued interests together with all the penalties. Daez. Ma. and Felipe B. among others. Respondent Este del Sol also executed. as well as all the machineries.

the entire obligation does not become void because of an agreement for usurious interest. while the Usury Law was in full force and effect. . Civil Code). being separable. Thus. since it is the only one that is illegal. that is. 905 which took effect on January 1. such document is ordinarily the best evidence of the terms of the contract. In usurious loans. the latter only should be deemed void. when a contract between two (2) parties is evidenced by a written instrument. regardless of maturity. It is an elementary rule of 20 contracts that the laws. 1978. the courts should and will permit no scheme. The illegality lies only as to the prestation to pay the stipulated interest. Inc. there is no merit to petitioner FMIC's contention that Central Bank Circular No. this rule is not without exception. v. Parol evidence is admissible to show that a written document though legal in form was in fact a device to cover usury. consequently. in force at the time the contract was made and entered into. 45 rather than voluntarily. Only a law can repeal another law. More significantly. Central Bank Circular No. and should not. since the payment is deemed to have been made under restraint. If from a construction of the whole transaction it becomes apparent that there exists a corrupt intention to violate the Usury Law.Held: First. be presumed. The illegality of usury is wholly the creature of legislation.. With respect to the debtor. retroactive 23 application of a Central Bank Circular cannot. Second. Thus. However. is not illegal. the nullity of the stipulation on the usurious interest does not affect the lender's right to receive back the principal amount of the loan. 1983 and removed the ceiling on interest rates for secured and unsecured loans. The form of the contract is not conclusive for the law will not permit a usurious loan to hide itself behind a legal form. as in the case at bar. Courts only need to rely on the face of written 24 contracts to determine the intention of the parties. the prestation of the debtor to pay the principal debt. Chelda 44 Enterprises where this Court held: In simple loan with stipulation of usurious interest. govern it. the unpaid principal debt still stands and remains valid but the stipulation as to the usurious 43 interest is void. A 22 Central Bank Circular cannot repeal a law. the debt is to be considered without stipulation as to the interest . to becloud the crime of usury. hence. should be applied retroactively to a contract executed on January 31. however 25 ingenious. 905 did not repeal nor in any way amend the Usury Law but 21 simply suspended the latter's effectivity. which is the cause of the contract (Article 1350. The reason for this rule was adequately explained in the case of Angel Jose Warehousing Co. the amount paid as interest under a usurious agreement is recoverable by him.

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