CASE #1:

[G.R. No. L-25704. April 24, 1968.]

ANGEL JOSE WAREHOUSING CO., INC., Plaintiff-Appellee, v. CHELDA

ENTERPRISES and DAVID SYJUECO, Defendants-Appellants.

Burgos and Sarte for Appellants.

Luis Ma. Guerrero for Appellee.

SYLLABUS

1. CONTRACTS; LOANS; CONTRACT WITH USURIOUS INTEREST; LOAN IS VALID BUT

USURIOUS INTEREST VOID. — A contract of loan with usurious interest is valid as to
the loan but void as to the usurious interest (Lopez v. El Hogar Filipino, 47 Phil., 249).

2. ID.; ID.; ID.; DIVISIBLE CONTRACT;. VOID TERM. — In case of a divisible contract,
if the illegal terms can be separated from the legal ones, the latter may be enforced. In
simple loan with stipulation of usurious interest, the prestation of the debtor to pay the
principal debt, which is the cause of the contract (Article 1350, Civil Code), is not
illegal. The illegality lies only as to the prestation to pay the stipulated interest; hence,
being separable, the latter only should be deemed void, since it is the only one that is
illegal.

3. ID.; ID.; ID.; ID.; ARTICLE 1413 OF THE NEW CIVIL CODE CONSTRUED. — Article
1413, in speaking of "interest paid in excess of the interest allowed by the usury laws"
means the whole usurious interest; that is, in a loan of P1,000 with interest of 20% per
annum or P200 for one year, if the borrower pays said P200, the whole P200 is the
usurious interest, not just that part thereof in excess of the interest allowed by law. It
is in this case that the law does not allow division. The whole stipulation as to interest is
void, since payment of said interest is the cause or object and said interest is illegal.
The only change effected, therefore, by Article 1413, New Civil Code, is not to provide
for the recovery of the interest paid in excess of that allowed by law, which the Usury
Law already provided for, but to add that the same can be recovered "with interest
thereon from the date of payment." cralaw virtua1aw library

4. ID.; ID.; RECOVERY OF PRINCIPAL; REMEDY OF CREDITOR. — The principal debt

remaining with stipulation for payment of interest can thus be recovered by judicial
action. And in case of such demand, and the debtor incurs in delay, the debt earns
interest from the date of the demand (in this case from the filing of the complaint).
Such interest is not due to stipulation, for there was none, the same being void. Rather,
it is due to the general provision of law that in obligations to pay money, where the
debtor incurs in delay, he has to pay interest by way of damages (Art. 2209, Civil Code)
The court a quo therefore, did not err in ordering defendants to pay the principal debt
with interest thereon at the legal rate, from the date of filing of the complaint.

5. ATTORNEY’S FEES; WHEN AWARD RECOVERABLE. — The rule as to attorney’s fees is

that the same are not recoverable, in the absence of stipulation. Several exceptions to
this rule are provided (Art. 2208, Civil Code). Unless shown to fall under an exception,
the act of plaintiff in engaging counsel’s services due to refusal of defendants to pay his
demand, does not justify award of attorney’s fees (Estate of Buan v. Camaganacan, L-
21569, Feb. 28, 1966).

DECISION

BENGZON, J.P., J.:

Plaintiff corporation filed suit in the Court of First Instance of Manila on May 29, 1964
against the partnership Chelda Enterprises and David Syjueco, its capitalist partner, for
recovery of alleged unpaid loans in the total amount of P20,880.00, with legal interest
from the filing of the complaint, plus attorney’s fees of P5,000.00. Alleging that post
dated checks issued by defendants to pay said account were dishonored, that
defendants’ industrial partner, Chellaram I. Mohinani, had left the country, and that
defendants have removed or disposed of their property, or are about to do so, with
intent to defraud their creditors, preliminary attachment was also sought.

Answering, defendants averred that they obtained four loans from plaintiff in the total
amount of P26,500.00, of which P5,620.00 had been paid, leaving a balance of
P20,880.00; that plaintiff charged and deducted from the loan usurious interest
thereon, at rates of 2% and 2.5% per month, and, consequently, plaintiff has no cause
of action against defendants and should not be permitted to recover under the law. A
counterclaim for P2,000.00 attorney’s fees was interposed.

Plaintiff filed on June 25, 1964 an answer to the counterclaim, specifically denying
under oath the allegations of usury.

After trial, decision was rendered on November 10, 1965. The court found that there
remained due from defendants an unpaid principal amount of P20,287.50; that plaintiff
charged usurious interests, of which P1,048.15 had actually been deducted in advance
by plaintiff from the loan; that said amount of P1,048.15 should therefore be deducted
from the unpaid principal of P20,287.50, leaving a balance of P19,247.35 1 still payable
to the plaintiff. Said court held that notwithstanding the usurious interest charged,
plaintiff is not barred from collecting the principal of the loan or its balance of
P19,247.35. Accordingly, it stated in the dispositive portion of the decision, thus:jgc:chanrobles.com.ph

"WHEREFORE, judgment is hereby rendered ordering the defendant partnership to pay

to the plaintiff the amount of P19,247.35, with legal interest thereon from May 29,
1964 until paid, plus an additional sum of P2,000.00 as damages for attorney’s fee;
and, in case the assets of defendant partnership be insufficient to satisfy this judgment
in full, ordering the defendant David Syjueco to pay to the plaintiff one-half (1/2) of the
unsatisfied portion of this judgment.

With costs against the defendants." cralaw virtua1aw library

Appealing directly to Us, defendants raise two questions of law: (1) In a loan with
usurious interest, may the creditor recover the principal of the loan? (2) Should
attorney’s fees be awarded in plaintiff’s favor?

To refute the lower court’s decision which is based on the doctrine laid down by this
Court in Lopez v. El Hogar Filipino, 47 Phil. 249, holding that a contract of loan with
usurious interest is valid as to the loan but void as to the usurious interest, appellants
argue that in light of the New Civil Code provisions said doctrine no longer applies. In
support thereof, they cite the case decided by the Court of Appeals in Sebastian v.
Bautista, 58 O.G. No. 15, p. 3146.

The Sebastian case was an action for recovery of a parcel of land. The Court of First
Instance therein decided in plaintiff’s favor, on the ground that the so-called sale with
pacto de retro of said land was in fact only an equitable mortgage. In affirming the trial
court, the writer of the opinion of the Court of Appeals went further to state the view
that the loan secured by said mortgage was usurious in nature, and, thus, totally void.
Such reasoning of the latter, however, was not concurred in by the other members of
the Court, who concurred in the result and voted for affirmance on the grounds stated
by the trial court. Furthermore, the affirmance of the existence of equitable mortgage
necessarily implies the existence of a valid contract of loan, because the former is an
accessory contract to the latter.

Great reliance is made by appellants on Art. 1411 of the New Civil Code which states: jgc:chanrobles.com.ph

"ART. 1411. When the nullity proceeds from the illegality of the cause or object of the
contract, and the act constitutes a criminal offense, both parties being in pari delicto,
they shall have no action against each other, and both shall be prosecuted. Moreover,
the provisions of the Penal Code relative to the disposal of effects or instruments of a
crime shall be applicable to the things or the price of the contract.

"This rule shall be applicable when only one of the parties is guilty; but the innocent
one may claim what he has given, and shall not be bound to comply with his promise."
virtua1aw library
cralaw

Since, according to the appellants, a usurious loan is void due to illegality of cause or
object the rule of pari delicto expressed in Article 1411, supra, applies, so that neither
party can bring action against each other. Said rule, however, appellants add, is
modified as to the borrower, by express provision of the law (Art. 1413, New Civil
Code), allowing the borrower to recover interest paid in excess of the interest allowed
by the usury law. As to the lender, no exception is made to the rule; hence, he cannot
recover on the contract. So — they continue — the New Civil Code provisions must be
upheld as against the Usury Law, under which a loan with usurious interest is not totally
void, because of Article 1961 of the New Civil Code, that: "Usurious contracts shall be
governed by the Usury Law and other special laws, so far as they are not inconsistent
with this Code." (Emphasis supplied).

We do not agree with such reasoning. Article 1411 of the New Civil Code is not new; it
is the same as Article 1305 of the Old Civil Code. Therefore, said provision is no warrant
for departing from previous interpretation that, as provided in the Usury Law (Act No.
2655, as amended), a loan with usurious interest is not totally void but void only as to
the interest.

True, as stated in Article 1411 of the New Civil Code, the rule of pari delicto applies
where a contract’s nullity proceeds from illegality of the cause or object of said
contract.

However, appellants fail to consider that a contract of loan with usurious interest
consists of principal and accessory stipulations; the principal one is to pay the debt; the
accessory stipulation is to pay interest thereon. 2

And said two stipulations are divisible in the sense that the former can still stand
without the latter. Article 1273, Civil Code, attests to this: "The renunciation of the
principal debt shall extinguish the accessory obligations; but the waiver of the latter
shall leave the former in force."cralaw virtua1aw library

The question therefore to resolve is whether the illegal terms as to payment of interest
likewise renders a nullity the legal terms as to payments of the principal debt. Article
1420 of the New Civil Code provides in this regard: "In case of a divisible contract, if
the illegal terms can be separated from the legal ones, the latter may be enforced." cralaw virtua1aw library

In simple loan with stipulation of usurious interest, the prestation of the debtor to pay
the principal debt, which is the cause of the contract (Article 1350, Civil Code), is not
illegal. The illegality lies only as to the prestation to pay the stipulated interest; hence,
being separable, the latter only should be deemed void, since it is the only one that is
illegal.

Neither is there a conflict between the New Civil Code and the Usury Law. Under the
latter, in Sec. 6, any person who for a loan shall have paid a higher rate or greater sum
or value than is allowed in said law, may recover the whole interest paid. The New Civil
Code, in Article 1413 states: "Interest paid in excess of the interest allowed by the
usury laws may be recovered by the debtor, with interest thereon from the date of
payment." Article 1413, in speaking of "interest paid in excess of the interest allowed
by the usury laws" means the whole usurious interest; that is, in a loan of P1,000, with
interest of 20% per annum or P200 for one year, if the borrower pays said P200, the
whole P200 is the usurious interest, not just that part thereof in excess of the interest
allowed by law. It is in this case that the law does not allow division. The whole
stipulation as to interest is void, since payment of said interest is the cause or object
and said interest is illegal. The only change effected, therefore, by Article 1413, New
Civil Code, is not to provide for the recovery of the interest paid in excess of that
allowed by law, which the Usury law already provided for, but to add that the same can
be recovered "with interest thereon from the date of payment." cralaw virtua1aw library

The foregoing interpretation is reached with the philosophy of usury legislation in mind;
to discourage stipulations on usurious interest, said stipulations are treated as wholly
void, so that the loan becomes one without stipulation as to payment of interest. It
should not, however, be interpreted to mean forfeiture even of the principal, for this
would unjustly enrich the borrower at the expense of the lender. Furthermore, penal
sanctions are available against a usurious lender, as a further deterrence to usury.

The principal debt remaining without stipulation for payment of interest can thus be
recovered by judicial action. And in case of such demand, and the debtor incurs in
delay, the debt earns interest from the date of the demand (in this case from the filing
of the complaint). Such interest is not due to stipulation, for there was none, the same
being void. Rather, it is due to the general provision of law that in obligations to pay
money, where the debtor incurs in delay, he has to pay interest by way of damages
(Art. 2209, Civil Code). The court a quo therefore, did not err in ordering defendants to
pay the principal debt with interest thereon at the legal rate, from the date of filing of
the complaint.

As regards, however, the attorney’s fees, the court a quo stated no basis for its award,
beyond saying that as a result of defendants’ refusal to pay the amount of P19,247.35
notwithstanding repeated demands, plaintiff was obliged to retain the services of
counsel. The rule as to attorney’s fees is that the same are not recoverable, in the
absence of stipulation. Several exceptions to this rule are provided (Art. 2208, Civil
Code). Unless shown to fall under an exception, the act of plaintiff in engaging counsel’s
services due to refusal of defendants to pay his demand, does not justify award of
attorney’s fees (Estate of Buan v. Camaganacan, L-21569, Feb. 28, 1966). Defendants,
moreover, had reason to resist the claim, since there was yet no definite ruling of this
Court on the point of law involved herein in light of the New Civil Code. Said award
should therefore be deleted.

WHEREFORE, with the modification that the award of attorney’s fees in plaintiff’s favor
is deleted therefrom, and the correction of the clerical error as to the principal still
recoverable from P19,247.35 to P19,239.35, the appealed judgment is hereby affirmed.
No costs.

SO ORDERED.

CASE #2:

G.R. No. L-23559 October 4, 1971

AURELIO G. BRIONES, plaintiff-appellee,
vs.
PRIMITIVO P. CAMMAYO, ET AL., defendants-appellants.

Carlos J. Antiporda for plaintiff-appellee.

Manuel A. Cammayo for defendants-appellants.

DIZON, J.:

On February 22, 1962, Aurelio G. Briones filed an action in the Municipal Court of Manila against
Primitivo, Nicasio, Pedro, Hilario and Artemio, all surnamed Cammayo, to recover from them, jointly
and severally, the amount of P1,500.00, plus damages, attorney's fees and costs of suit. The
defendants answered the complaint with specific denials and the following special defenses and
compulsory counterclaim:
 ...;

By way of —

SPECIAL DEFENSES

Defendants allege:

4. Defendants executed the real estate mortgage, Annex "A" of the complaint, as
security for the loan of P1,200.00 given to defendant Primitivo P. Cammayo upon the
usurious agreement that defendant pays to the plaintiff and that the plaintiff reserve
and secure, as in fact plaintiff reserved and secured himself, out of the alleged loan
of P1,500.00 as interest the sum of P300.00 for one year;

5. That although the mortgage contract, Annex "A" was executed for securing the
payment of P1,500.00 for a period of one year, without interest, the truth and the real
fact is that plaintiff delivered to the defendant Primitivo P. Cammayo only the sum of
P1,200.00 and withheld the sum of P300.00 which was intended as advance interest
for one year;

6. That on account of said loan of P1,200.00, defendant Primitivo P. Cammayo paid

to the plaintiff during the period from October 1955 to July 1956 the total sum of
P330.00 which plaintiff, illegally and unlawfully refuse to acknowledge as part
payment of the account but as in interest of the said loan for an extension of another
term of one year;

7. That said contract of loan entered into between plaintiff and defendant Primitivo P.
Cammayo is a usurious contract and is contrary to law, morals, good customs, public
order or public policy and is, therefore, in existent and void from the beginning (Art.
1407 Civil Code);

And as —

COMPULSORY COUNTERCLAIM

Defendants replead all their allegations in the preceding paragraphs;

8. That plaintiff, by taking and receiving interest in excess of that allowed by law, with
full intention to violate the law, at the expense of the defendants, committed a
flagrant violation of Act 2655, otherwise known as the Usury Law, causing the
defendants damages and attorney's fees, the amount of which will be proven at the
trial;

9. That this is the second time this same case is filed before this court, the first
having been previously filed and docketed in this court as Civil Case No. 75845
(Branch VII) and the same was dismissed by the Court of First Instance of Manila on
July 13, 1961 in Civil Case No. 43121 (Branch XVII) and for repeatedly bringing this
case to the court, harassing and persecuting defendants in that manner, defendants
have suffered mental anguish and anxiety for which they should be compensated for
moral damages.
On September 7, 1962, Briones filed an unverified reply in which he merely denied the allegations of
the counterclaim. Thereupon the defendants moved for the rendition of a summary judgment on the
ground that, upon the record, there was no genuine issue of fact between the parties. The Municipal
Court granted the motion and rendered judgment sentencing the defendants to pay the plaintiff the
sum of P1,500.00, with interests thereon at the legal rate from February 22, 1962, plus the sum of
P150.00 as attorney's fees. From this judgment, the defendants appealed to the Court of First
Instance of Manila where, according to the appealed decision, "defendant has asked for summary
judgment and plaintiff has agreed to the same." (Record on Appeal p. 21). Having found the motion
for summary judgment to be in order, the court then, proceeded to render judgment as follows:

Judgment is, therefore, rendered, ordering Defendant to pay plaintiff the sum of
P1,180.00 with interest thereon at the legal rate from October 16, 1962 until fully
paid. This judgment represents Defendant's debt of P1,500.00 less usurious interest
of P120.00 and the additional sum of P200.00 as attorney's fees or a total deduction
of P320.00. Plaintiff shall pay the costs.

In the present appeal defendants claim that the trial court erred in sentencing them to pay the
principal of the loan notwithstanding its finding that the same was tainted with usury, and erred
likewise in not dismissing the case.

It is not now disputed that the contract of loan in question was tainted with usury. The only questions
to be resolved, therefore, are firstly, whether the creditor is entitled to collect from the debtor the
amount representing the principal obligation; secondly, in the affirmative, if he is entitled to collect
interests thereon, and if so, at what rate.

The Usury Law penalizes any person or corporation who, for any loan or renewal thereof or
forbearance, shall collect or receive a higher rate or greater sum or value than is allowed by law, and
provides further that, in such case, the debtor may recover the whole interest, commissions,
premiums, penalties and surcharges paid or delivered, with costs and attorney's fees, in an
appropriate action against his creditor, within two (2) years after such payment or delivery (Section
6, Act 2655, as amended by Acts 3291 and 3998).

Construing the above provision, We held in Go Chioco vs. Martinez, 45 Phil. 256 that even if the
contract of loan is declared usurious the creditor is entitled to collect the money actually loaned and
the legal interest due thereon.

In Gui Jong & Co. vs. Rivera, et al., 45 Phil. 778, this Court likewise declared that, in any event, the
debtor in a usurious contract of loan should pay the creditor the amount which he justly owes him
citing in support of this ruling its previous decisions in Go Chioco Supra, Aguilar vs. Rubiato, et al.,
40 Phil. 570, and Delgado vs. Duque Valgona, 44 Phil. 739.

In all the above cited cases it was recognized and held that under Act 2655 a usurious contract is
void; that the creditor had no right of action to recover the interest in excess of the lawful rate; but
that this did not mean that the debtor may keep the principal received by him as loan — thus unjustly
enriching himself to the damage of the creditor.

Then in Lopez and Javelona vs. El Hogar Filipino, 47 249, We also held that the standing
jurisprudence of this Court on the question under consideration was clearly to the effect that the
Usury Law, by its letter and spirit, did not deprive the lender of his right to recover from the borrower
the money actually loaned to and enjoyed by the latter. This Court went further to say that the Usury
Law did not provide for the forfeiture of the capital in favor of the debtor in usurious contracts, and
that while the forfeiture might appear to be convenient as a drastic measure to eradicate the evil of
usury, the legal question involved should not be resolved on the basis of convenience.

Other cases upholding the same principle are Palileo vs. Cosio, 97 Phil. 919 and Pascua vs. Perez,
L-19554, January 31, 1964, 10 SCRA 199, 200-202. In the latter We expressly held that when a
contract is found to be tainted with usury "the only right of the respondent (creditor) ... was merely to
collect the amount of the loan, plus interest due thereon."

The view has been expressed, however, that the ruling thus consistently adhered to should now be
abandoned because Article 1957 of the new Civil Code — a subsequent law — provides that
contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws
against usury, shall be void, and that in such cases "the power may recover in accordance with the
laws on usury." From this the conclusion is drawn that the whole contract is void and that, therefore,
the creditor has no right to recover — not even his capital.

The meaning and scope of our ruling in the cases mentioned heretofore is clearly stated, and the
view referred to in the preceding paragraph is adequately answered, in Angel Jose, etc. vs. Chelda
Enterprises, et al. (L-25704, April 24, 1968). On the question of whether a creditor in a usurious
contract may or may not recover the principal of the loan, and, in the affirmative, whether or not he
may also recover interest thereon at the legal rate, We said the following:

... .

The court found that there remained due from defendants an unpaid principal amount
of P20,287.50; that plaintiff charged usurious interests, of which P1,048.15 had
actually been deducted in advance by plaintiff from the loan; that said amount of
P1,048.15 should therefore be deducted from the unpaid principal of P20,287.50,
leaving a balance of P19,247.35 still payable to the plaintiff. Said court held that
notwithstanding the usurious interests charged, plaintiff is not barred from collecting
the principal of the loan or its balance of P19,247.35. Accordingly, it stated in the
dispositive portion of the decision, thus:

WHEREFORE, judgment is hereby rendered, ordering the defendant partnership to

pay to the plaintiff the amount of P19,247.35, with legal interest thereon from May 29,
1964 until paid, plus an additional sum of P2,000.00 as damages for attorney's fee;
and, in case the assets of defendant partnership be insufficient to satisfy this
judgment in full, ordering the defendant David Syjueco to pay to the plaintiff one-half
(½) of the unsatisfied portion of this judgment.

With costs against the defendants.

Appealing directly to Us, defendants raise two questions of law: (1) In a loan with
usurious interest, may the creditor recover the principal of the loan? (2) Should
attorney's fees be awarded in plaintiff's favor?

Great reliance is made by appellants on Art. 1411 of the New Civil Code which
states:

ART. 1411. When the nullity proceeds from the illegality of the cause or object of the
contract, and the act constitutes a criminal offense, both parties being in pari delicto,
they shall have no action against each other, and both shall be prosecuted.
Moreover, the provisions of the Penal Code relative to the disposal of effects or
instruments of a crime shall be applicable to the things or the price of the contract.

This rule shall be applicable when only one of the parties is guilty; but the innocent
one may claim what he has given, and shall not be bound to comply with his
promise.

Since, according to the appellants, a usurious loan is void due to illegality of cause or
object, the rule of pari delicto expressed in Article 1411, supra, applies, so that
neither party can bring action against each other. Said rule, however, appellants add,
is modified as to the borrower, by express provision of the law (Art. 1413, New Civil
Code), allowing the borrower to recover interest paid in excess of the interest allowed
by the Usury Law. As to the lender, no exception is made to the rule; hence, he
cannot recover on the contract. So — they continue — the New Civil Code provisions
must be upheld as against the Usury Law, under which a loan with usurious interest
is not totally void, because of Article 1961 of the New Civil Code, that: "Usurious
contracts shall be governed by the Usury Law and other special laws, so far as they
are not inconsistent with this Code. (Emphasis ours.) .

We do not agree with such reasoning, Article 1411 of the New Civil Code is not new;
it is the same as Article 1305 of the Old Civil Code. Therefore, said provision is no
warrant for departing from previous interpretation that, as provided in the Usury Law
(Act No. 2655, as amended), a loan with usurious interest is not totally void only as to
the interest.

True, as stated in Article 1411 of the New Civil Code, the rule of pari delicto applies
where a contract's nullity proceeds from illegality of the cause or object of said
contract.

However, appellants fail to consider that a contract of loan with usurious interest
consists of principal and accessory stipulations; the principal one is to pay the debt;
the accessory stipulation is to pay interest thereon.

And said two stipulations are divisible in the sense that the former can still stand
without the latter. Article 1273, Civil Code, attests to this: "The renunciation of the
principal debt shall extinguish the accessory obligations; but the waiver of the latter
shall leave the former in force."

The question therefore to resolve is whether the illegal terms as to payment of

interest likewise renders a nullity the legal terms as to payments of the principal debt.
Article 1420 of the New Civil Code provides in this regard: "In case of a divisible
contract, if the illegal terms can be separated from the legal ones, the latter may be
enforced."

In simple loan with stipulation of usurious interest, the prestation of the debtor to pay
the principal debt, which is the cause of the contract (Article 1350, Civil Code), is not
illegal. The illegality lies only as to the prestation to pay the stipulated interest; hence,
being separable, the latter only should be deemed void, since it is the only one that is
illegal.

Neither is there a conflict between the New Civil Code and the Usury Law. Under the
latter, in Sec. 6, any person who for a loan shall have paid a higher rate or greater
 sum or value than is allowed in said law, may recover the whole interest paid. The
New Civil Code, in Article 1413 states: "Interest paid in excess of the interest allowed
by the usury laws may be recovered by the debtor, with interest thereon from the
date of payment." Article 1413, in speaking of "interest paid in excess of the interest
allowed by the usury laws" means the whole usurious interest; that is, in a loan of
P1,000, with interest of 20% per annum or P200 for one year, if the borrower pays
said P200, the whole P200 is the usurious interest, not just that part thereof in
excess of the interest allowed by law. It is in this case that the law does not allow
division. The whole stipulation as to interest is void, since payment of said interest is
illegal. The only change effected, therefore, by Article 1413, New Civil Code, is not to
provide for the recovery of the interest paid in excess of that allowed by law, which
the Usury Law already provided for, but to add that the same can be recovered "with
interest thereon from the date of payment."

The foregoing interpretation is reached with the philosophy of usury legislation in

mind; to discourage stipulations on usurious interest, said stipulations are treated as
wholly void, so that the loan becomes one without stipulation as to payment of
interest. It should not, however, be interpreted to mean forfeiture even of the
principal, for this would unjustly enrich the borrower at the expense of the lender.
Furthermore, penal sanctions are available against a usurious lender, as a further
deterrence to usury.

The principal debt remaining without stipulation for payment of interest can thus be
recovered by judicial action. And in case of such demand, and the debtor incurs in
delay, the debt earns interest from the date of the demand (in this case from the filing
of the complaint). Such interest is not due to stipulation, for there was none, the
same being void. Rather, it is due to the general provision of law that in obligations to
pay money, where the debtor incurs in delay, he has to pay interest by way of
damages (Art. 2209, Civil Code). The court a quo therefore, did not err in ordering
defendants to pay the principal debt with interest thereon at the legal rate, from the
date of filing of the complaint.

In answer to the contention that the forfeiture of the principal of the usurious loan is necessary to
punish the usurer, We say this: Under the Usury Law there is already provision for adequate
punishment for the usurer namely, criminal prosecution where, if convicted, he may be sentence to
pay a fine of not less than P50 nor more than P500, or imprisonment of not less than 30 days nor
more than one year, or both, in the discretion of the court. He may further be sentenced to return the
entire sum received as interest, with subsidiary imprisonment in case of non-payment thereof. lt is, of
course, to be assumed that this last penalty may be imposed only if the return of the entire sum
received as interest had not yet been the subject of judgment in a civil action involving the usurious
contract of load.

In arriving at the above conclusion We also considered our decision in Mulet vs. The People of the
Philippines (73 Phil. p. 60), but found that the same does not apply to the present case. The facts
therein involved were as follows:

On July 25, 1929, Alejandra Rubillos and Espectacion Rubillos secured from
petitioner Miguel Mulet a loan of P550, payable within 5 years at 30 per cent interest
per annum. In the deed of mortgage executed by the Rubillos as a security; the sum
of P1,375 was made to appear as the capital of the loan. This amount obviously
represented the actual loan of P550 and the total interest of P825 computed at 30
per cent per annum for 5 years. Within four years of following the execution of the
 mortgage, the debtors made partial payments aggregating P278.27, on account of
interest. Thereafter, the debtors paid the whole capital of P550, due to petitioner's
promise to condone the unpaid interest upon payment of such capital. But to their
surprise, petitioner informed them that they were still indebted in the sum of P546.73
which represented the balance of the usurious interest. And in consideration of this
amount, petitioner pressed upon the debtors to execute in October, 1933, in his
favor, a deed of sale with pacto de retro of a parcel of land, in substitution of the
original mortgage which was cancelled. From the date of the execution of the new
deed up to 1936, petitioner received, as his share of the products of the land, the
total sum of P480. Prosecuted on November 18, 1936, for the violation of the Usury
Law, petitioner was convicted by the trial court, and on appeal, the judgment was
affirmed by the Court of Appeals. The instant petition for certiorari is directed at that
portion of the decision of the appellate court ordering petitioner to return to the
offended parties the sum of P373.27, representing interests received by him in
excess of that allowed by law.

It was Mulet's claim that, as the amount of P373.27 had been paid more than two years prior to the
filing of the complaint for usury against him, its return could no longer be ordered in accordance with
the prescriptive period provided therefor in Section 6 of the Usury Law. Said amount was made up of
the usurious interest amounting to P278.27 paid to Mulet, in cash, and the sum of P480.00 paid to
him in kind, from the total of which two amounts 14% interest allowed by law — amounting to
P385.85 — was deducted. Our decision was that Mulet should return the amount of P480.00 which
represented the value of the produce of the land sold to him under pacto de retro which, with the
unpaid balance of the usurious interest, was the consideration of the transaction — meaning
the pacto de retro sale. This Court then said:

... . This last amount is not usurious interest on the capital of the loan but the value of
the produce of the land sold to petitioner under pacto de retro with the unpaid
balance of the usurious interest (P546.73) as the consideration of the transaction.
This consideration, because contrary to law, is illicit, and the contract which results
therefrom, null and void. (Art. 1275, Civil Code). And, under the provisions of article
1305, in connection with article 1303, of the Civil Code, when the nullity of a contract
arises from the illegality of the consideration which in itself constitutes a felony, the
guilty party shall be subject to criminal proceeding while the innocent party may
recover whatever he has given, including the fruits thereof. (emphasis supplied).

It is clear, therefore, that in the Mulet case, the principal of the obligation had been fully paid by the
debtor to the creditor; that the latter was not sentenced to pay it back to the former, and that what
this Court declared recoverable by the debtor were only the usurious interest paid as well as the
fruits of the property sold under pacto de retro.

IN VIEW OF THE FOREGOING, the decision, appealed from is modified in the sense that appellee
may recover from appellant the principal of the loan (P1,180.00) only, with interest thereon at the
legal rate of 6% per annum from the date of the filing of the complaint. With costs.

Makalintal, Zaldivar, Teehankee, Villamor and Makasiar, JJ., concur.

 
Separate Opinions

 
CASTRO, J., dissenting:

Beyond the area of debate is the principle that in a contract of loan of a sum of money, the cause,
with respect to the lender, is generally the borrower's prestation to return the same amount. It is my
view, however, that in a contract which is tainted with usury, that is, with a stipulation (whether
written or unwritten) to pay usurious interest, the prestation to pay such interest is an integral part of
the cause of the contract.  It is also the controlling cause, for a usurer lends his money not just to
1

have it returned but indeed, to acquire in coordinate gain. Article l957, which is a new provision in
the Civil Code, provides as follows: "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." This article which declares the contract itself — next merely the
stipulation interest — void, necessarily regards the prestation to pay usurious interest as an integral
part of the cause, making it illegal.

Undoubtedly, the motive of the usurer is his desire to acquire inordinate gain; this motive becomes
an integral and controlling part of the cause because its realization can be achieved only by
compliance by the borrower with the stipulated prestation to pay usurious interest.

The law never proscribes a contract merely because of the immoral motive of a contracting party, for
the reason that it does not concern itself with motive but only with cause.  An exception is where
2

such motive becomes an integral part of the cause, like the stipulated usurious interest in a contract
of loan.

While the old law, according to El Hogar,  considered the usurious loan valid as to the loan and void
3

as to the usurious interest, the new law, in article 1957 of the new Civil Code, declares the usurious
loan void as to the loan and void as to the usurious interest. What is the reason for the new law? In
my view, it is none other than its intention to regard the usurious interest as an integral part of the
cause, thus, making it illegal; otherwise, the new law would be devoid of reason. Any interpretation
that divests the new law of reason, that declares the usurious contract void and in the same breath
permits recovery of the principal of the loan — which was the same result under the old law, as well
as under El Hogar that considered the usurious contract valid as to the loan — renders article 1957
of the new Civil Code meaningless, and pointless.

The prestation to pay usurious interest being an integral and controlling part and the cause, making
it illegal and the contract of loan void, article 1411 of the new Civil Code should be applied. This
article provides:

When the nullity proceeds from the illegality of the cause or object of the contract,
and the act constitutes a criminal offense, both parties being in pari-delicto, they shall
have no action against each other, and both shall be prosecuted. Moreover, the
provisions of the Penal Code relative to the disposal of effects or instrument of a
crime shall be applicable to the things or the price of the contract.

This rule shall be applicable when only one of the parties is guilty; but the innocent
one may claim what he has given, and shall not be bound to comply with his
promise.
An exception is, however, provided in the second sentence of article 1957 which states: "The
borrower may recover in accordance with the laws on usury." "As an exception to the general rule in
article 1411, the debtor is allowed in accordance with the Usury Law to recover the amount he has
paid, as usurious interest. Thus, article 1413 explicitly authorizes that "Interest paid in excess of the
interest allowed by the usury laws may be recovered by the debtor, with interest thereon from the
date of payment." But the lender is not allowed to recover the principal, because no such exception
is made; hence, he falls within the general rule stated in article 1411.

In Mulet vs. People,  the Supreme Court, in effect, reconsidered its opinion in El Hogar. In Mulet, the
4

plaintiff extended a usurious loan to Rebillos. When the debtor failed to pay the whole usurious
arrest, the creditor, in consideration of the said unpaid interests made the debtor execute a pacto de
retro sale of certain properties to him. He then sought to be exempt from returning the value of the
produce of the lands so transferred. Mr. Justice Moran, speaking for the Supreme Court, said:

... We are of the opinion that the petitioner should be ordered to return ... the
amount ... of P480.00. This last amount is not usurious interest on the capital of the
loan but the value of the produce of the land sold to petitioner under pacto de retro,
with the unpaid balance of the usurious interest as the consideration, because
contrary to law, is illicit, and the contract which results therefrom, null and void.

If the unpaid usurious interests as the consideration of the pacto de retro sale render

such sale null and void, a fortiori, the usurious interest as consideration of the
contract of loan, also renders such loan null and void.

In Asturias, et al. vs. Court of Appeals,  the Supreme Court, speaking through Mr. Justice Jesus
5

Barrera, stressed that "A contract designed to hide a usurious agreement not only violates the law
but contravenes public policy. Such a contract can not be countenanced and is therefore illegal and
void from its inception."

The ruling in El Hogar that a usurious loan was valid as to the principal but void as to the usurious
interest was based upon the laws then in force, namely, the old Civil Code and the Usury Law, both
of which did not contain any specific explicit provision proscribing the contract itself. I am fully
persuaded that in drafting Chapter 2, Title XI of Book IV of the new Civil Code, the Code
Commission knew of the majority opinion in El Hogar, took note of it, and, to offset any doubt
concerning the intention of the Commission to overrule El Hogar, formulated articles 1957 and 1961.
And it is of great significance to me that when the Commission formulated article 1957, knowing that
under El Hogar the usurer may recover the principal of the loan, it omitted affirmance of the right of
the lender to recover the principal, and instead emphasized that "the borrower may recover in
accordance with the laws on usury."

Concepcion, C.J., and Fernando, J., concur..

BARREDO, J., concurring:

I concur.

I believe that this decision expresses the fair and just intent of our usury laws and sufficiently
effectuates the public policy that should be pursued in usury.

I consider usury to be unchristian and inhuman, particularly because it thrives best in the misery of
people by taking advantage of them when they are precisely in urgent need of money to save
themselves from a tight situation. Usury has always been considered as a scourge everywhere in
the world since the time of the Holy Scriptures. All these notwithstanding, I do not believe in
condoning the whole indebtedness of a person who borrows money, only because he has been
made to agree, directly or indirectly, to pay more interest than that authorized by law. It is my
considered view that what the law prescribes and declares null and void is not the lending of money,
but only the collection of excessive interest. There is nothing morally wrong in allowing a money-
lender to get back the money he has loaned because, after all, the borrower has used the same for
his own needs, and it is only fair that he should not be enriched at the expense of another. And this,
to my mind, is obvious from the language of Article 1957 of the Civil Code which provides that:

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. (n)

Properly construed, the phrase "contracts and stipulations" in this provision does not contemplate
the totality of the contract of loan but only the portion thereof that is "intended to circumvent the laws
against usury," and that necessarily is no more than any term, "cloak or device" which results in the
collection of interest in excess of the rate allowed by law. In fact, the same provision expressly
provides that inspite of the nullity it ordains, "the borrower may recover in accordance with the laws
on usury." In other words, instead of leaving the consequences of the declared nullity to be in
accordance with general principles, the article itself spells out in black and white what should be
done with the proceeds of the proscribed act, and it says that the special laws on usury shall be
followed in that respect.

To the same effect is Article 1961 of the Civil Code. lt provides that:

Usurious contracts shall be governed by the Usury Law and other special laws, so far as they are
not inconsistent with this Code. (n)

And I see no point of collision between the Civil Code and the Usury Law for the simple reason that
even before Art. 1957 declared usurious contracts and transactions null and void, Section 7 of the
Usury Law already provided thus:

All covenants and stipulations, constrained in conveyances, mortgages, bonds, bills,

notes, and other contracts or evidences of debts, and all deposits of goods or other
things, whereupon or whereby there shall be stipulated, charged, demanded,
reserved, secured, taken, or received, directly or indirectly, a higher rate or greater
sum or value for the loan or renewal thereof or forbearance of money, goods, or
credits than is hereinbefore allowed, shall be void: Provided, however, That no
merely clerical error in the computation of interest, made without intent to evade any
of the provisions of this Act, shall render a contract void: And provided, further, That
nothing herein contained shall be construed to prevent the purchase by an innocent
purchaser of a negotiable mercantile paper, usurious or otherwise, for valuable
consideration before maturity, when there has been no intent on the part of said
purchaser to evade the provisions of this Act and said purchase was not a part of the
original usurious transaction. In any case, however, the maker of said note shall have
the right to recover from said original holder the whole interest paid by him thereon
and, in case of litigation, also the costs and such attorney's fees as may be allowed
by the court.

In this connection, it is to be noted that Section 6 of the Usury Law provides:

 Any person or corporation who, for any such loan or renewal thereof or forbearance,
shall have paid or delivered a higher rate or greater sum or value than is
hereinbefore allowed to be taken or received, may recover the whole interest,
commissions, premiums penalties and surcharges paid or delivered with costs and
attorney's fees in such sum as may be allowed by the court in an action against the
person or corporation who took or received them if such action is brought within two
years after such payment or delivery: Provided, however, That the creditor shall not
be obliged to return the interest, commissions and premiums for a period of not more
than one year collected by him in advance when the debtor shall have paid the
obligation before it is due, provided such interest, and commissions and premiums
do not exceed the rates fixed in this Act.

As a matter of fact, then, even as the Civil Code yields to the Usury Law in Articles 1957 and 1413,
in reality there is no conflict between their corresponding provisions. To say that because these laws
specify only the remedies in favor of the borrower, they impliedly deny to the lender any remedy to
recover the principal of the loan is, I submit, a non sequitur. It appears to me more logical to
construe the provisions allowing the borrower to recover all the interest he has paid, as Article 1413
of the Civil Code and Section 6 of the Usury Law have been construed together to mean in Angel
Jose v. Chelda Enterprises, cited in the main opinion, as indicating that the borrower may not
recover from the lender the amount he has paid as payment of his principal debt, and conversely,
that the lender may collect the same if it has not been paid by the borrower.

In brief, my point is that while it is true that Article 1957 of the Civil Code declares that all usurious
contracts and stipulations are void, this is nothing new, for such has been the law even under the
Usury Law before the Civil Code went into effect, and, moreover, it is evident that the Civil Code
itself yields to the Usury Law when it comes to the question of how much of the loan and interests
paid by the borrower may be recovered by him, and the Usury Law is clear that he may recover only
all the interests, including, of course, the legal part thereof, with legal interest from the date of judicial
demand, without maintaining that he can also recover the principal he has already paid to the lender.

Separate Opinions

CASTRO, J., dissenting:

Beyond the area of debate is the principle that in a contract of loan of a sum of money, the cause,
with respect to the lender, is generally the borrower's prestation to return the same amount. It is my
view, however, that in a contract which is tainted with usury, that is, with a stipulation (whether
written or unwritten) to pay usurious interest, the prestation to pay such interest is an integral part of
the cause of the contract.  It is also the controlling cause, for a usurer lends his money not just to
1

have it returned but indeed, to acquire in coordinate gain. Article l957, which is a new provision in
the Civil Code, provides as follows: "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." This article which declares the contract itself — next merely the
stipulation interest — void, necessarily regards the prestation to pay usurious interest as an integral
part of the cause, making it illegal.
Undoubtedly, the motive of the usurer is his desire to acquire inordinate gain; this motive becomes
an integral and controlling part of the cause because its realization can be achieved only by
compliance by the borrower with the stipulated prestation to pay usurious interest.

The law never proscribes a contract merely because of the immoral motive of a contracting party, for
the reason that it does not concern itself with motive but only with cause.  An exception is where
2

such motive becomes an integral part of the cause, like the stipulated usurious interest in a contract
of loan.

While the old law, according to El Hogar,  considered the usurious loan valid as to the loan and void
3

as to the usurious interest, the new law, in article 1957 of the new Civil Code, declares the usurious
loan void as to the loan and void as to the usurious interest. What is the reason for the new law? In
my view, it is none other than its intention to regard the usurious interest as an integral part of the
cause, thus, making it illegal; otherwise, the new law would be devoid of reason. Any interpretation
that divests the new law of reason, that declares the usurious contract void and in the same breath
permits recovery of the principal of the loan — which was the same result under the old law, as well
as under El Hogar that considered the usurious contract valid as to the loan — renders article 1957
of the new Civil Code meaningless, and pointless.

The prestation to pay usurious interest being an integral and controlling part and the cause, making
it illegal and the contract of loan void, article 1411 of the new Civil Code should be applied. This
article provides:

When the nullity proceeds from the illegality of the cause or object of the contract,
and the act constitutes a criminal offense, both parties being in pari-delicto, they
shall have no action against each other, and both shall be prosecuted. Moreover, the
provisions of the Penal Code relative to the disposal of effects or instrument of a
crime shall be applicable to the things or the price of the contract.

This rule shall be applicable when only one of the parties is guilty; but the innocent
one may claim what he has given, and shall not be bound to comply with his
promise.

An exception is, however, provided in the second sentence of article 1957 which states: "The
borrower may recover in accordance with the laws on usury." As an exception to the general rule in
article 1411, the debtor is allowed in accordance with the Usury Law to recover the amount he has
paid, as usurious interest. Thus, article 1413 explicitly authorizes that "Interest paid in excess of the
interest allowed by the usury laws may be recovered by the debtor, with interest thereon from the
date of payment." But the lender is not allowed to recover the principal, because no such exception
is made; hence, he falls within the general rule stated in article 1411.

In Mulet vs. People,  the Supreme Court, in effect, reconsidered its opinion in El Hogar. In Mulet, the
4

plaintiff extended a usurious loan to Rebillos. When the debtor failed to pay the whole usurious
arrest, the creditor, in consideration of the said unpaid interests made the debtor execute a pacto de
retro sale of certain properties to him. He then sought to be exempt from returning the value of the
produce of the lands so transferred. Mr. Justice Moran, speaking for the Supreme Court, said:

... We are of the opinion that the petitioner should be ordered to return ... the
amount ... of P480.00. This last amount is not usurious interest on the capital of the
loan but the value of the produce of the land sold to petitioner under pacto de retro,
with the unpaid balance of the usurious interest as the consideration, because
contrary to law, is illicit, and the contract which results therefrom, null and void.
 If the unpaid usurious interests as the consideration of the pacto de retro sale render
such sale null and void, a fortiori, the usurious interest as consideration of the
contract of loan, also renders such loan null and void.

In Asturias, et al. vs. Court of Appeals,  the Supreme Court, speaking through Mr. Justice Jesus
5

Barrera, stressed that "A contract designed to hide a usurious agreement not only violates the law
but contravenes public policy. Such a contract can not be countenanced and is therefore illegal and
void from its inception."

The ruling in El Hogar that a usurious loan was valid as to the principal but void as to the usurious
interest was based upon the laws then in force, namely, the old Civil Code and the Usury Law, both
of which did not contain any specific explicit provision proscribing the contract itself. I am fully
persuaded that in drafting Chapter 2, Title XI of Book IV of the new Civil Code, the Code
Commission knew of the majority opinion in El Hogar, took note of it, and, to offset any doubt
concerning the intention of the Commission to overrule El Hogar, formulated articles 1957 and 1961.
And it is of great significance to me that when the Commission formulated article 1957, knowing that
under El Hogar the usurer may recover the principal of the loan, it omitted affirmance of the right of
the lender to recover the principal, and instead emphasized that "the borrower may recover in
accordance with the laws on usury."

Concepcion, C.J., and Fernando, J., concur.

BARREDO, J., concurring:

I concur.

I believe that this decision expresses the fair and just intent of our usury laws and sufficiently
effectuates the public policy that should be pursued in usury.

I consider usury to be unchristian and inhuman, particularly because it thrives best in the misery of
people by taking advantage of them when they are precisely in urgent need of money to save
themselves from a tight situation. Usury has always been considered as a scourge everywhere in
the world since the time of the Holy Scriptures. All these notwithstanding, I do not believe in
condoning the whole indebtedness of a person who borrows money, only because he has been
made to agree, directly or indirectly, to pay more interest than that authorized by law. It is my
considered view that what the law prescribes and declares null and void is not the lending of money,
but only the collection of excessive interest. There is nothing morally wrong in allowing a money-
lender to get back the money he has loaned because, after all, the borrower has used the same for
his own needs, and it is only fair that he should not be enriched at the expense of another. And this,
to my mind, is obvious from the language of Article 1957 of the Civil Code which provides that:

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. (n)

Properly construed, the phrase "contracts and stipulations" in this provision does not contemplate
the totality of the contract of loan but only the portion thereof that is "intended to circumvent the laws
against usury," and that necessarily is no more than any term, "cloak or device" which results in the
collection of interest in excess of the rate allowed by law. In fact, the same provision expressly
provides that inspite of the nullity it ordains, "the borrower may recover in accordance with the laws
on usury." In other words, instead of leaving the consequences of the declared nullity to be in
accordance with general principles, the article itself spells out in black and white what should be
done with the proceeds of the proscribed act, and it says that the special laws on usury shall be
followed in that respect.

To the same effect is Article 1961 of the Civil Code. lt provides that:

Usurious contracts shall be governed by the Usury Law and other special laws, so far as they are
not inconsistent with this Code. (n)

And I see no point of collision between the Civil Code and the Usury Law for the simple reason that
even before Art. 1957 declared usurious contracts and transactions null and void, Section 7 of the
Usury Law already provided thus:

All covenants and stipulations, constrained in conveyances, mortgages, bonds, bills,

notes, and other contracts or evidences of debts, and all deposits of goods or other
things, whereupon or whereby there shall be stipulated, charged, demanded,
reserved, secured, taken, or received, directly or indirectly, a higher rate or greater
sum or value for the loan or renewal thereof or forbearance of money, goods, or
credits than is hereinbefore allowed, shall be void: Provided, however, That no
merely clerical error in the computation of interest, made without intent to evade any
of the provisions of this Act, shall render a contract void: And provided, further, That
nothing herein contained shall be construed to prevent the purchase by an innocent
purchaser of a negotiable mercantile paper, usurious or otherwise, for valuable
consideration before maturity, when there has been no intent on the part of said
purchaser to evade the provisions of this Act and said purchase was not a part of the
original usurious transaction. In any case, however, the maker of said note shall have
the right to recover from said original holder the whole interest paid by him thereon
and, in case of litigation, also the costs and such attorney's fees as may be allowed
by the court.

In this connection, it is to be noted that Section 6 of the Usury Law provides:

Any person or corporation who, for any such loan or renewal thereof or forbearance,
shall have paid or delivered a higher rate or greater sum or value than is
hereinbefore allowed to be taken or received, may recover the whole interest,
commissions, premiums penalties and surcharges paid or delivered with costs and
attorney's fees in such sum as may be allowed by the court in an action against the
person or corporation who took or received them if such action is brought within two
years after such payment or delivery: Provided, however, That the creditor shall not
be obliged to return the interest, commissions and premiums for a period of not more
than one year collected by him in advance when the debtor shall have paid the
obligation before it is due, provided such interest, and commissions and premiums
do not exceed the rates fixed in this Act.

As a matter of fact, then, even as the Civil Code yields to the Usury Law in Articles 1957 and 1413,
in reality there is no conflict between their corresponding provisions. To say that because these laws
specify only the remedies in favor of the borrower, they impliedly deny to the lender any remedy to
recover the principal of the loan is, I submit, a non sequitur. It appears to me more logical to
construe the provisions allowing the borrower to recover all the interest he has paid, as Article 1413
of the Civil Code and Section 6 of the Usury Law have been construed together to mean in Angel
Jose v. Chelda Enterprises, cited in the main opinion, as indicating that the borrower may not
recover from the lender the amount he has paid as payment of his principal debt, and conversely,
that the lender may collect the same if it has not been paid by the borrower.
In brief, my point is that while it is true that Article 1957 of the Civil Code declares that all usurious
contracts and stipulations are void, this is nothing new, for such has been the law even under the
Usury Law before the Civil Code went into effect, and, moreover, it is evident that the Civil Code
itself yields to the Usury Law when it comes to the question of how much of the loan and interests
paid by the borrower may be recovered by him, and the Usury Law is clear that he may recover only
all the interests, including, of course, the legal part thereof, with legal interest from the date of judicial
demand, without maintaining that he can also recover the principal he has already paid to the lender.

CASE #3:

G.R. No. L-9421            July 24, 1915

L.L. HILL, plaintiff-appellant,
vs.
MAXIMINA CH. VELOSO, ET AL., defendants-appellees.

Martin M. Levering for appellant.

P.E. del Rosario for appellee.

ARELLANO, C.J.:

On December 30, 1910, Maximina Ch. Veloso, the wife of Manuel M. Tio Cuana, and Domingo
Franco, the first named with the consent of her husband, executed and signed a document of the
following tenor:

For value of the goods we have received in La Cooperativa Filipina we promise to pay jointly and
severally to Michael & Co., S. en C., or its order, in the municipality of Cebu, the sum of six
thousand three hundred and nineteen pesos and thirty-three centavos (6,319.33), in the manner
hereinafter set forth, with interest on such part of said principal as may remain unpaid at the end of
each month at the rate of one and a half per cent per month until the principal shall have been
completely paid. The said sum of six thousand three hundred and nineteen pesos and thirty-three
centavos (P6,319.33) shall be paid at the rate of five hundred pesos (P500) monthly on or before the
15th day of each month, and the interest shall also be paid monthly. In case said monthly payments
are not made in the manner that we have promised hereinabove, then all the unpaid principal shall
become immediately demandable, at the option of the owner of this promissory note. In case suit be
brought for the collection of the amount of this promissory note or any part thereof, we bind
ourselves jointly and severally to pay an additional and reasonable sum as fees of the plaintiff's
attorney in said suit.

(Sgd.) MAXIMINA CH. VELOSO.

DOMINGO FRANCO.

I consent to my wife, Maximina Ch. Veloso, signing the foregoing document.

(SGD.) MANUEL M. TIO CUANA.

Cebu, P.I., December 30, 1910.

This promissory note was indorsed to L.L. Hill on January 12, 1911. The following indorsement
appears on the back:
 JANUARY 12, 1911.

Pay to the order of L.L. Hill.

E. MICHAEL, S. en C .
By E. MICHAEL, Gerente.

Two thousand pesos have been paid on this note — that is, four installments of P500 each on
February 10, March 16, April 16, and May 22, 1911, respectively.

On July 5, 1911, L.L. Hill brought the present suit to recover the following sums: P4,319.33, with
interest thereon at the rate of 1 ½ per cent per month from July 1, 1911, until said sum should be
entirely paid; P473.18 as interest on the principal of said note from December 30 to June 30, 1911;
P1,000 as fees for plaintiff's attorney in this suit and for the costs of the proceedings against the
defendants, Maximina Ch. Veloso and Manuel Martinez Tio Cuana.

Defendants, in answer to the complaint, alleged as a special defense that "about the middle of
December, 1910, the deceased Domingo Franco, who was their son-in-law, had stated to them that
attorney Martin M. Levering, in his capacity as guardian of the minor children of Potenciano Chiong
Velos, had suggested to the said Franco the necessity of the defendants' executing in Levering's
behalf a document in which it should be set forth that the defendants would pay to Levering, in his
capacity of guardian of said minors, the sum of P8,000 which defendants had borrowed from
Damasa Ricablanca, the former guardian of these minors, in view of the fact that the court had
removed this latter from office and appointed said attorney in her stead; that, by reason of this
statement by Levering to Franco, and having, as they did have, confidence in said decedent,
Domingo Franco, on account of his being a member of their family, defendants were willing to
execute in behalf of the said attorney, Levering, a document that should be set forth the sum owed
by them to the wards represented by Levering; that, consequently, said Domingo Franco had
defendants said paper would be filled out inside his office by recording on the sheet the obligation
contracted by them in behalf of said wards; that defendants did in fact sign the said paper for the
purpose indicated, and, up to the death of said Domingo Franco, which occurred in May of the
present year (1911) confided in his good faith and in the belief that the paper which they had signed
had been duly filled out with the obligation contracted by them in behalf of said wards and had been
delivered to attorney Martin M. Levering as guardian of said minors, but that after the said Franco
died they learned that at no time had he ever delivered to said attorney any document whatever
signed by defendants; that they believed that the paper which said deceased had them sign for the
alleged purpose aforementioned was filled out with a totally different obligation from that which they
had been made to believe would be set forth therein. Defendants therefore alleged that, as they had
had no transaction whatever with Michael & Co., S. en C., nor with the plaintiff, and as they had not
received any kind of goods whatever from said firm, and it appearing that they, together with the
deceased Domingo Franco, seemingly signed the promissory note, plaintiff's Exhibit A, all these
reasons induced them to believe, and they so alleged, that the said deceased, without their consent,
utilized the aforementioned paper for the execution of said promissory note. Defendants further
alleged that at no time did they intended to execute any promissory note in behalf of Michael & Co.,
S. en C.; that it was false that Michael & Co. delivered goods to them in La Cooperativa Filipina; and
that, of their own free will, they did not execute any document whatever in behalf of the creditor
mentioned in said promissory note."

Evidence was adduced by the parties, after which the Court of First Instance of Cebu, who tried the
case, rendered judgment absolving defendants from the complaint, with their costs.

Plaintiff appealed, and his appeal having been heard and the evidence reviewed, it appears:
That the trial court sustained defendants' special defense in all its parts, making it the principal
ground for his judgment, to wit, that defendants' signatures on the promissory note were obtained by
means of the fraud alleged in their answer to the complaint and that defendants at the trial explicitly
acknowledged their signatures. The defendant Maximina Ch. Veloso testified that her son-in-law,
Domingo Franco, had her sign the document in blank; that when she did so contained no writing;
and that if he made her sign it, and if she did sign it, it was because Franco had told her that
Levering compelled her to execute a document in his behalf "for the minor children of Damasa
Ricablanca," her sister-in-law and widow of Potenciano Ch. Veloso, who had deposited with her
P8,000 belonging to her minor children to whom witness acknowledged herself to be indebted in the
said sum of P8,000.

Assuming this to be true, by the recognition of the signature of this promissory note, the document
became completely effective, unless there be proof of some exception permitted by law. Were there
such an exception, the maker was the person obliged to proved it and, in the present case, that
person is the defendant; and the latter has presented absolutely no proof of the mistake by reason of
which she says she signed the promissory note, nor of the fraud or deceit she charges to her son-in-
law, Domingo Franco, now deceased. Far from it, something else was shown to have been proven
by her own testimony and acts. On her being cross-questioned as to whether it was true that, as she
says, she signed the promissory note in blank thinking that she was signing an obligation in behalf of
Levering as guardian of the estate belonging to the minor children of her deceased brother, she
replied that it was, that she had been told by the said Domingo Franco that it was such an obligation,
and so she was willing to sign it, because "it was really a debt."

From this testimony of Maximina Ch. Veloso and from her written answer, it appears that in
December, 1910, she signed in blank the promissory note now in question; that she signed it in the
belief that the obligation which it would contain would be that of acknowledging her debt of P8,000 in
favor of the minor children of Damasa Ricablanca and of paying it to Levering, who at that time was
the guardian of then said minors; that for this reason, in her written answer of August 4, 1911, she
set up that special defense of error and deceit, when she saw that the obligation contained in the
document signed in blank was a promissory note made out to Michael & Co. for P6,319 and some
centavos.

It appears that Levering, as guardian of the minor children of Damasa Ricablanca, commenced
proceedings on November 1, 1911, to recover the P8,000 owed by the defendant Maximina Ch.
Veloso, and that the latter, on January 15, 1912, answered the complaint stating that her debt was
owing to Damasa Ricablanca herself in her own right, but not her capacity of guardian of her minor
children. (Record, pp. 34 and 36.)

If she said this in 1912, it cannot be maintained that in 1910, on being required to recognize and pay
the debt of P8,000, she consented to sign a document in blank recognizing the debt and binding
herself to pay it to Levering as the then guardian of the minor children of Damasa Ricablanca. What
would have been natural and logical is that then, as in 1912, she would have refused to execute said
obligation in writing in favor of Levering, as she did reject it on January 18, 1912, since she did not
consider herself to be in debt to the minors, but to their mother.

This being shown by the record, the allegation of that other fact, entirely contradicted at trial by the
same person, cannot be considered as proof of the error and deceit alleged in this action.

It is likewise proven in this case that during the trial, after the defendant Veloso had acknowledged
the debt owing the minors represented by Levering, she was cross-questioned as to why she had
denied it in 1912 when she was sued for its payment; she replied that possibly demand had been
made upon her for payment, but that she did not remember, and on being cross-questioned as to
whether she remembered that judgment had been rendered against her, she replied that she did and
that she had been informed of it by her own attorney.

This is the only thing in the record which may be opposed to the truth and presumption of truly
offered by the contents of a document freely and willingly signed.

This is not proof, much less preponderant proof, that can outweigh the contents of the promissory
note that is the basis of the complaint; on the contrary, it is conclusive proof of the falsity of the other
cause of debt alleged in the special defense.

But even granted that no such proofs existed in the case; even granted that it was proven at trial that
Domingo Franco acted in the manner stated in the answer and in the defendant Maximina Ch.
Veloso's testimony, yet even so, the deceit and error alleged could not annul the consent of the
contracting parties to the promissory note, nor exempt this defendant from the obligation incurred.
The deceit, in order that it may annul the consent, must be that which the law defines as a cause.
"There is deceit when by words or insidious machinations on the part of one of the contracting
parties, the other is induced to execute a contract which without them he would not have made."
(Civ. Code, art. 1269.)

Domingo Franco is not one of the contracting parties who may have deceitfully induced
the other contracting party, Michael & Co., to execute the contract. The one and the other
contracting parties, to whom the law refers, are the active and the passive subjects of the obligation,
the party of the first part and the part of the second part who execute the contract. The active subject
and party of the first part of the promissory note in question is Michael & Co., and the passive
subject and the party of the second part are Maximina Ch. Veloso and Domingo Franco; two, or be
they more, who are one single subject, one single party. Domingo Franco is not one contracting
party with regard to Maximina Ch. Veloso as the other contracting party. They both are but one
single contracting party in contractual relation with, or as against, Michael & Co. Domingo Franco,
like any other person who might have been able to to induce Maximina Ch. Veloso to act in the
manner she is said to have done, under the influence of deceit, would be, for this purpose, but a
third person. There would then not be deceit on the part of the one of the contracting parties
exercised upon the other contracting party, but deceit practiced by a third person.

"In accordance with the text of the Code, which coincides with that of other foreign codes, deceit by
a third person does not in general annul consent, and in support of this opinion it is alleged that, in
such a case, the two contracting parties act in good faith, (on the hypothesis set forth, Michael &
Co., and Maximina Ch. Veloso); that there is no reason for making one of the parties suffer for the
consequences of the act of a third person in whom the other contracting party may have reposed an
imprudent confidence. Notwithstanding these reasons, the deceit caused by a third person may
produce effects and, in some cases, bring about the nullification of the contract. This will happen
when the third person causes the deceit in connivance with, or at least with the knowledge, without
protest, of the favored contracting party: the most probable suppositions, in which the latter cannot
be considered exempt from the responsibility. Moreover, and even without the attendance of that
circumstance, the deceit caused by a third person might lead the contracting party upon whom it was
practiced into error, and as such, though it be not deceit, may vitiate consent. In any case, this deceit
may give rise to more or less extensive and serious responsibility on the part of the third person, and
a corresponding right of action for the contracting party prejudiced" (in the present hypothesis,
Maximina Ch. Veloso against Domingo Franco). (8 Manresa, 659, 2d Ed.)

With respect to the true cause of the debt or cause of the contract, it is not necessary to set forth any
consideration whatever, because, as the deceit and error alleged cannot be estimated, it is of no
importance whether the La Cooperativa Filipina, whose goods were the cause of the debt,
exclusively belonged to one or the other of the debtors, the obligation of debt and payment being
joint. But if any consideration with respect to this error alleged on appeal were necessary, it would be
that the evidence against the finding contained in the judgment appealed from is very conclusive.
Isabelo Alburo, a witness for the defense and manager of La Cooperativa Filipina, testified that the
goods furnished by Michael were received in the store La Cooperativa Filipina; that he signed the
bills for collection; that the bill-heads bore the printed legend "La Cooperativa Filipina de Maximina
Ch. Veloso;" and that all the forms, books and accounts were printed in the same manner. The
municipal treasurer exhibited the registry books and testified that the license for that establishment
was issued in the name of Maximina Ch. Veloso, and the appellee herself testified that she was
aware that it was conducted in her name.

The third assignment of error should be considered like the foregoing two. The statement is in all
respects inadmissible that the promissory note in question is absolutely null and void, not merely
annulable, and that is such cases the Supreme Court has decided that no rights can be acquired by
a person who obtains a promissory note by indorsement, in support of which averment the decisions
in the cases of Palma vs. Cañizares (1 Phil. Rep., 602) and Lichauco vs. Martinez (6 Phil. Rep.,
594) are cited.

In neither of these decisions is such a doctrine set up The syllabus in the first case says: "A
promissory note which represents a gambling debt and is therefore unenforceable in the hands of
the payee, obtains no greater validity in the hands of an assignee in the absence of showing that the
debtor has consented to and approved of the assignment."

And that of the second case:" Money lost at a prohibited game cannot be recovered, though the
loser deliver to the winner his note for the amount lost.

An assignee of such note who took it after it became due has no more rights than assignor.

Both of these decisions deal with a promissory note for a sum of money lost at a prohibited game;
and, in the case at bar, we have not to do with a promissory note of this nature. "The promissory
note in question — says the trial court — was indorsed to L.L. Hill on January 12, 1911. The note
had then already become due, although the date specified in the note for the payment of the first
amount of P500 of the principal had not yet arrived." (Bill of ex., p. 13.).

If the date for the payment of the first amount of P500 had not yet arrived, it follows that the note had
not yet fallen due, because it could have no other due date than that of the first installment, and this
fact was finally recognized by the court in another order wherein he says: "It appears that the court
erred in that part of his order where he held that the promissory note in question fell due on the date
of its conveyance by indorsement to L.L. Hill." (Bill of ex., p. 16.)

So that, neither by reason of the indorsement, nor by reason of its object, is the promissory note null,
or annulable, and the aforecited decisions are absolutely inapplicable to the case at bar.

The absolution of the defendants from the complaint being unsupported by any grounds of fact or
law, it devolves upon this court to set forth the conclusions of fact and law on which this decision
rests.

The defendants' signatures on the promissory note herein concerned were identified at the trial.

These signatures were written and the obligation was contracted, without error or deceit.
There is no evidence whatever that Michael & Co. threatened to bring suit against Domingo Franco
unless Maximina Ch. Veloso signed with Domingo Franco a promissory note for the said sum.

The facts constituting the consideration for the contract contained in the promissory note are fully
proven (though proof was not necessary, as a presumption of law, not destroyed by any evidence
whatever to the contrary, lies in its favor), because it has been fully proven that the goods, the
consideration for the debt, were received in the La Cooperativa Filipina. It was likely fully proven that
the La Cooperativa Filipina belonged to the defendant, with or without Domingo Franco having a
share therein, and that the goods came from Michael & Co.

There is nothing to support the finding that the sale of the goods by Michael & Co. was a sale to
Domingo Franco only. There is no proof whatever that Levering, as the guardian of the minor
children of Potenciano Veloso, had required Maximina Veloso in December, 1910, to sign a
document recognizing her debt to said minors, nor that Domingo Franco acted, for this purpose, as
the defendants' attorney and adviser. With regard to the defendants' debt of P8,000 to the minor
children of Potenciano Veloso and Damasa Ricablanca, the instrument attesting this debt, executed
by the defendants in favor of Damasa Ricablanca was who then the guardian of said minors, had
already existed since June 30, 1907, and appears on page 34 of the record.

The facts alleged in the special defense can not in any wise be held to be proven, as above
demonstrated in our examination of the parol evidence adduced in this case, and, besides, because
of this other consideration: If, as stated in the special defense, "Domingo Franco, who was a son-in-
law of the defendants, had told them that attorney Martin M. Levering, in his capacity as guardian of
the minor children of Potenciano Ch. Veloso, had suggested to Franco the necessity of
the defendants' executing an instrument setting out that they would pay to the said Attorney Martin
M. Levering, in his capacity of guardian of said minors, the sum of P8,000 which defendants had
borrowed from Damasa Ricablanca, the former guardian of said minors;" and if, as held by the trial
court in his judgment, Domingo Franco had then acted as defendants' attorney and adviser, there is
nothing in the record to show why Domingo Franco had to sign such an instrument attesting a debt
to the minors, as the principal obligor, when the creditor required no one but the defendants to sign
such a document; nor was it shown why, on such a supposition, Manuel Martinez did not have to
sign the instrument except merely to authorize his wife, by his permission as her husband, to sign it,
when in the special defense it is admitted that the document in question contains an
acknowledgment of the debt of P8,000 "which the defendants had borrowed from Damasa
Ricablanca."

The alleged error Cannot be sustained. There is no other signed document than the promissory note
presented with the intention, on its being signed, of securing the payment of the goods sold to the La
Cooperativa Filipina.

That is what the document says, and its contents must be accepted, pursuant to section 297 of Act
No. 190 (Code of Civil Procedure).

The remainder of the principal owing, P4,319.33, must be paid. Payment must also be made of the
covenanted interest at the rate of 1½ per cent per month from July 1, 1911, until the whole of the
said sum be completely paid; and, finally the P1,000 stipulated in the contract as fees for the
plaintiff's attorney in this case must be paid.

With respect to the P473.18, interest on the principal of said promissory note from December 30,
1910, to June 30, 1911, this amount cannot be recovered, because, in conformity with article 1110 of
the Civil Code, a receipt from the creditor for the principal, that contains no stipulation regarding
interest, extinguishes the obligation of the debtor with regard thereot; and the receipts issued by the
International Bank show that no reservation whatever was made with respect to the interest on the
P2,000 paid on account.

The judgment appealed from is reversed. Twenty days after notification of this decision, let judgment
be entered against the defendant Maximina Ch. Veloso ordering the payment of P4,319, with the
stipulated interest thereon at the rate of 1½ per cent per month from July 1, 1911, and of P1,000 as
attorney's fees, with costs of first instance, without special finding as to the costs of this second
instance, it is so ordered.

Torres, Johnson, Carson, Trent, and Araullo, JJ., concur.

CASE #4:

G.R. No. L-1867             April 8, 1950

CARMEN DE LA PAZ VDA. DE ONGSIAKO, petitioner,

vs.
TEODORICO GAMBOA and PANTALEON GAMBOA ET AL., respondents.

Jose Dacquel and Florencio Florendo for petitioner.

TORRES, J.:

The question raised primarily in this appeal by certiorari is as to whether or not contracts of tenancy,
entered into by petitioner and respondents prior to the date when Republic Act No. 34 became
effective, are governed by the provisions thereof and not by the provisions of Act No. 4054 and
Commonwealth Act No. 178, which were in force when those contracts were signed.

At first blush, it would seem that the above query should be answered in the negative, on the ground
that, as contended by counsel for petitioner, the application of the provisions of Republic Act No. 34
— which amended those of Act No. 4054 as amended by Commonwealth Act No. 178 — (a) "clearly
and palpably impair the obligation of contracts which is prohibited by the Constitution"; and (b) give
said Republic Act No. 34 a retroactive effect, which would also "be contrary to section 10 of Bill of
Rights of the Constitution."

It appears that during the period of June to July, 1946, pursuant to the provisions of section 8 of Act
No. 4054, as amended by Commonwealth Act No. 178, petitioner and respondents entered into
tenancy contracts, which, among other things, provided for a 50-50 division of the crop, under a
stipulation of the effect that the petitioner-land-owner would exclusively shoulder the planting
expenses which shall not be more than ten planters for every hectare, the wages for each planter to
be determined at the prevailing rate generally charged in the community, and that in return, the
tenant shall solely defray the harvesting expenses (Translation of Tenancy Contracts, Annex B).

A short time thereafter, that is, on September 30, 1946, Republic Act No. 34 was approved by the
Congress of the Philippines, and on November 12, 1946, by Proclamation No. 14, the President of
the Philippines made effective the provisions of said Act No. 4054, known as "The Philippine Rice
Share Tenancy Act," as amended by said Republic Act No. 34, "to be in full force and effect
throughout the Philippines."

During the liquidation of the palay crop for the agricultural year 1946-1947, the herein respondents-
tenants sought the application of the provisions of the new law on the crop division, by filing the
corresponding complaints with the Tenancy Law Enforcement Division, on the ground that in the
harvest of present agricultural year (1946-1947), they could not agree on: (a) the liquidation of the
crop; (b) the division thereof; (c) the apportionment of their expenses; and (d) the settlement of their
accounts.

The Tenancy Law Enforcement Division, after going over the facts and the question involved, found
that, although according to the contracts between respondents and petitioner, it was stipulated that
the division of the crop would be on the 50-50 basis, in the light of the provisions of section 7(a) of
Republic Act No. 34, such stipulations is against public policy, and therefore, the crop division should
be on the 55-45 basis in favor of the tenants, as provided in the amendatory law.

The ruling of the Tenancy Law Enforcement Division was appealed to the Court of Industrial
Relations, which, in its decision (Annex D), sustained the findings and conclusion of the Tenancy
Law Enforcement Division of the Department of Justice, and ruled that the division of the share of
the tenants and landlord should be on the basis of 55-45, respectively. The court further found that
inasmuch as the stipulation made in paragraph 12 of the tenancy contracts, to the effect that the
respondents herein, not being against public policy, the law or the morals, said division would be
"from the net produce, after deducting the seedlings and threshing expenses."

Unlike the indifferent attitude shown by the Spanish Government in the Philippines towards the fate
of the laboring class — whether they were tillers of the land or earning their wages in a factory —
even prior to the adoption of our Constitution, the Philippine Government, under the American
regime, had, from time to time, shown its deep concern over the well-being of the wage earners. Our
statute books are witness to that fact; they contained legislation enacted and intended to ameliorate
the conditions of the laboring man. The administration, under the leadership of Manuel L. Quezon,
became social justice minded, and implementing his strong advocacy of social justice, the framers of
our Constitution, in section 5 of Article II of our fundamental law, adopted the principle that "the
promotion of social justice to insure the well-being and economic security of all the people should be
the concern of the State." Since then, the government has always been, by fast strides, drawing near
its goal — the amelioration, the well-being of the conditions of the working man.

The legislation which particularly concerns the relations between landowner and tenant, has been
the object of constant attention on the part of the government, as shown in the various laws that
have been successively enacted for that purpose, and which, under those circumstances, may be
considered as having the nature of remedial legislation. That Republic Act No. 34 was enacted on
that basis, is clearly shown in the recommendation of the President for the passage of House Bill No.
582, which became Republic Act No. 34. It says:

This bill seeks to amend the Rice Share Tenancy Act in such a way to make the division of
the crops more equitable to the tenants . . . . The bill embodies the principal
recommendations of the President of the Philippines, as outlined in the message send by His
Excellency to Congress. . . . The principal feature of this bill is to increase the participation of
the tenants in the production of the land that he is cultivating. This participation is further
increased as the productivity of the land decreases.

Contrary to the contention of counsel, Republic Act No. 34 is, therefore, not an ex post facto law, for
it is well-known that the prohibition of ex post facto laws applies only to criminal or penal, and not to
civil matters.

It is well established that the constitutional prohibition of the passage of ex post facto laws
applies only to criminal or penal matters, and not to laws which concern civil matters or
proceedings generally, or which affect or regulate civil or private rights. Nor does such
 constitutional prohibition apply to laws affecting civil remedies. The prohibition can not be
evaded by giving a civil form to provisions and are in effect criminal as in the guise of
prescribing qualifications for holding office or praticing certain callings. (Ex parte Garland, 4
Wallace 33, 18 Law. ed., 366; Cummings vs. Missouri, 4 Wallace, 277, 18 Law. ed., 356.)
(16 C.J.S., pp. 889-891.)

Neither said Act impairs the obligation of contracts in violation of paragraph 10, section 1 of Article III
of the Constitution. Corpus Juris Secundum, summarizing the interpretations given by the American
courts, says that constitutional provisions against impairing the obligation of contracts do not prevent
the same from being subject to legislation enacted by the State in the proper exercise of its police
power. Thus, at pages 701, 702, Vol. 16, it says:

The prohibition contained in constitutional provisions against impairing the obligation of

contracts is not an absolute one and it is not to be read with literal exactness like a
mathematical formula. Such provision are restricted to contracts which respect property, or
some object or value, and confer rights which may be asserted in a court of justice, and have
no application to statute relating to public subjects within the domain of the general
legislation powers of the State, and involving the public rights and welfare of the entire
community affected by it. They do not prevent a proper exercise by the State of its police
powers. By enacting regulations reasonably necessary to secure the health, safety, morals,
comfort, or general welfare of the community, even the contracts may thereby be affected;
for such matter can not be placed by contract beyond the power of the State to regulate and
control them.

Furthermore, it is very manifest that when our lawmaking body was considering House Bill No. 582,
it undoubtedly had in mind the circumstances and conditions surrounding the relations between
landlord and tenant. It therefore, could not have failed to take notice of the existence of contracts
which stipulated a division of the crop on the 50-50 basis, and had the Congress intended to except
those contracts from the operation of the new law (Republic Act No. 34), doubtless, it would have
done so by inserting therein the corresponding provision; but on the contrary, it expressly provided
therein that a stipulation whereby "the tenant shall receive less than 55 per cent of the net
produce ...," is against public policy, which is equivalent to a declaration by the Congress that a
stipulation in a contract that the division of the crop shall be on the 50-50 basis, is against public
policy.

In People vs. Pomar (46 Phil. 440) and in Philippine National Bank vs. Vda. e Hijos de Angel
Jose (63 Phil., 814), this court, citing article 1255 of the Civil Code, says that the rule in this
jurisdiction is that the contracting parties may establish any agreements, terms, and conditions they
deem advisable, "provided they are not contrary to laws, morals or public policy"; and while we have
searched in vain for a concrete definition of the term "public policy," in its treatise on the law of
contracts, in dealing with agreements against public policy, American Jurisprudence gives a
summary of the doctrines laid down by the American courts on this matter. It says —

xxx     xxx     xxx

It is a general rule that agreements against public policy are illegal and void. Under the
principles relating to the doctrine of public policy, as applied to the law of contracts, courts of
justice will not recognize or uphold any transaction which, in its object, operation, or
tendency, is calculated to be prejudicial to the public welfare, to sound morality, or to civic
honesty. The test is whether the parties have stipulated for something inhibited by the law or
inimical to, or inconsistent with, the public welfare. An agreement is against public policy if it
is injurious to the interests of the public, contravenes some established interest of society,
 violates some public statute, is against good morals, tends to interfere with the public welfare
or safety, or, as it is sometimes put, if it is at war with the interests of society and is in conflict
with the morals of the time. An agreement either to do anything which, or not to do anything
the omission of which, is in any degree clearly injurious to the public and an agreement of
such nature that it cannot be carried into execution without reaching beyond the parties and
exercising an injurious influence over the community at large are against public policy. There
are many things which the law does not prohibit, in the sense of attaching penalties, but
which are so mischievous in their nature and tendency that on grounds of public policy they
cannot be admitted as the subject of a valid contract. The question whether a contract is
against public policy depends upon its purpose and tendency, and not upon the fact that no
harm results from it. In other words, all agreements the purpose of which is to create a
situation which tends to operate to the detriment of the public interest are against public
policy and void, whether in the particular case the purpose of the agreement is or is not
effectuated. For a particular undertaking to be against public policy actual injury need not be
shown; it is enough if the potentialities for harm are present. Where the precise question as
to whether or not a particular agreement is against public policy has not been determined,
analogous cases involving the same general principle may be looked to by the courts in
arriving at a satisfactory conclusion." (12 Am. Jur., pp. 662-664.)

It would thus appear that, while it is the inherent and inalienable right of every man to have the
utmost liberty of contracting, and agreements voluntarily and fairly made will be held valid and
enforced in the courts, the general right to contract is subject to the limitation that the agreement
must not be in violation of the Constitution, the statute or some rule of law (12 Am. Jur., pp. 641-
642).

Finally, Sutherland, in his well-known Treatise on Statutory Construction, says:

The intent of a statute is the law. If a statute is valid it is to have effect according to the
purpose and intent of the lawmaker. The intent is the vital part, the essence of the law, and
the primary rule of construction is to ascertain and give effect to the intent. The intention of
the legislature in enacting a law is the law itself, and must be enforced when ascertained,
although it may not be consistent with the strict letter of the statute. Courts will not follow the
letter of a statute when it leads away from the true intent and purpose of the legislature and
to conclusions inconsistent with the general purpose of the act. Intent is the spirit which gives
life to a legislative enactment. In construing statutes the proper course is to start out and
follow the true intent of the legislature and to adopt that sense which harmonizes best with
the context and promotes in the fullest manner the apparent policy and objects of the
legislature. (Vol. II, Sutherland, Statutory Construction, pp. 693-695.)

The above disposes of the first error assigned by the petitioner in her brief..

As regards the second error, it appears that counsel for petitioner, in making the corresponding
assignment, admits that the finding of the Court of Industrial Relations, that the sum of P25 should
be the contribution of the petitioner for planting and cultivation expenses for every hectare of land
planted, is based "on the preponderance of evidence." Rule 44 of the Rules of Court, governing the
procedure to be followed in appeals from an award, order of decision of the Court of Industrial
Relations to the Supreme Court, provides that "only questions of law, which must be distinctly set
forth, may be raised in the petition" for certiorari from an award, order or decision of the Court of
Industrial Relations (section 1 and 2; section 14 of Commonwealth Act No. 103). This Court is not,
therefore, empowered to look into the correctness of the findings of fact in an award, order or
decision of the Court of Industrial Relations.
With the denial of the petition, the decision of the Court of Industrial Relations is hereby affirmed,
with costs.

Moran, C.J., Ozaeta, Pablo, Tuason, and Montemayor, JJ., concur.

CRIMINAL LAW

CASE #1:

SEARCH FOR CASE DIGEST

CASE #2:

[G.R. No. 2785. August 23, 1906. ]

THE UNITED STATES, Plaintiff-Appellee, v. JOSE CATAJAY, Defendant-

Appellant.

G. E. Campbell, for Appellant.

Solicitor-General Araneta, for Appellee.

SYLLABUS

1. PUBLIC SANDAL. — Article 441 of the Penal Code construed. Held, That it is an
essential element of the crime defined and penalized therein that the acts complained
of resulted in a grave public scandal.

DECISION

CARSON, J. :

The trial court found be accused guilty of the crime of public scandal in violation of the
provisions of article 441 of Penal Code.

It appears, however, that the acts complained of were committed at night, in a private
house, and at a time when no one was present except the accused, the mistress of the
house, and one servant, and we are of opinion that these circumstances do not
constitute that degree of publicity which is an essential element of the crime defined
and penalized in article 441 of the Penal Code. (Decision of the supreme court of Spain,
April 13, 1885.)

The correct construction of this article well stated by Viada in his commentary on article
457 of the Penal Code of Spain, which exactly corresponds with the article in question.

"Constituyen el delito acqui previsto todos aquellos actos contrarios al pudor y a las
buenas costumbres que, por su publicidad, han podido ser objeto de escandalo publico
para las personas que accidentalmente los han presenciado. Aunque no lo diga el
articulo, es evidente que es condicion precisa para que exista este delito que la ofensa
al pudor y a las buenas costumbre sea publica: si la ofensa no tuviese este caracter, es
claro que ya no habria de producir el grave escandalo ni la transcendencia que requiere
el articulo, y por lo tanto, ya no quedaria sujeta a la sancion del mismo, sino a la mas
benigna del No. 2 del articulo 586, que castiga como reos de una simple falta contra el
orden publicio, con la pena de arresto de uno a diez dias y multa de 5 a 50 pesetas, a
los que con cualquier clase de actos ofendieren la moral y las buenas costumbre sin
cometer delito. Cuando el hecho, pues, ofensivo al pudor se cometa publicamente,
debera apreciarse como delito, puesto que esta misma publicidad es la que produce el
grave escandalo que en el se castiga: en otro caso, la disposicion citada del articulo 586
es la que debera aplicarse." (Viada comentarios al Codigo Penal de 1870, cuarta
edicion, tomo 3, pag. 130.)

There can be no doubt that the accused committed the offense defined and penalized in
No. 2 of the article 571 of the Penal Code, which corresponds with the above-mentioned
number 2 of article 586 of the Penal Code of Spain, and provides that a penalty of from
one of ten days’ arrest and a fine of from 15 to 125 pesetas shall be imposed upon —

"2. Those who, by exhibiting prints or engravings, or by means of other acts, shall
offend against good morals and custom without committing a crime." cralaw virtua1aw library

Since this is a lesser offense that the one charged in the complaint, and is included
therein, we find him guilt of a violation of the provisions of the said article and,
reversing the sentence of the trial court, we impose upon the accused, Jose Catajay,
the penalty of the ten days’ imprisonment (arresto), and the payment of a fine of 125
pesetas, and the costs of the trial in both instances. After the expiration of ten days
from the date of final judgment let the cause be remanded to the lower court for proper
procedure. So ordered.

Arellano, C.J., Mapa, Willard, and Tracey, JJ., concur.

Separate Opinions

TORRES, J., dissenting: chanrob1es virtual 1aw library

Granting that the facts of the case have been proved and not being possible to convict
the accused of the crime of attempted rape, or at least of that of "abusos deshonestos,"
as defined in article 439 of the Penal Code, owing to the improper qualification set forth
in the complaint, in the judgment of the undersigned, and taking into consideration the
fact that the act offended against good morals and customs, public and private, and not
only the companion of the injured party in the house but also her neighbors were
informed and had notice of the act, because the attempt was publicity made, therefore,
I am of opinion that the judgment appealed from should be affirmed, with the costs
against the accused.

CASE #3:
G.R. No. L-5115      November 29, 1909

THE UNITED STATES, plaintiff-appellee,

vs.
MANUEL SAMANIEGO and JUANA BENEDICTO DE PEREZ, defendants-appellants.

Joaquin Rodriguez Serra, for appellants.

Office of the Solicitor-General Harvey, for appellee.

MORELAND, J.:

On the 20th day of December, 1907, the following information was presented to the Court of First
Instance of the city of Manila against the defendants in this case:

That on or about 25th day of November, 1907, in the city of Manila, Philippine Islands, the
said Manuel Samaniego did then and there willfully, unlawfully, and feloniously lie with and
have the sexual intercourse with the said accused, Juana Benedicto de Perez, who was then
and there, as the said accused, a married woman and the lawfully wedded wife of Jose
Perez, being then and there a married woman and the lawfully wedded wife of the said Jose
Perez Siguenza, did then and there willfully, unlawfully, and feloniously lie with and have
sexual intercourse with the said accused, Manuel Samaniego.

The defendants were arrested under the said information and were confined in Bilibid, the said
Samaniego on the 21st day of December, 1907, and the said Juana Benedicto de Perez on the 26th
of the same month. after the arrest of the said defendants, Juana Benedicto de Perez, at the
instance of the prosecuting attorney, was examined by three physicians for the purpose of
determining her mental condition. On the 27th day of December, 1907, the doctors made their report
to the Court of First Instance, expressing the opinion that the said Juana Benedicto de Perez was
mentally deranged. On the 7th day of January, 1908, the defendants were tried on the charge of
adultery, as presented in said information, and, after the introduction of the proofs attorney and the
trial court believed that the evidence was insufficient to warrant the conviction of either of the
defendants, and they were both accordingly acquitted of that charge. In the judgment acquitting the
defendants the court included permission to the prosecuting attorney to file against either or both of
the said defendants a new information charging them with the crime defined in article 441 of the
Penal Code. On the 8th day of January, 1908, pursuant to such permission, the prosecuting attorney
presented against both of the defendants an information charging them with the crime mentioned in
said article, as follows:

That on and for many weeks prior to the 27th day of November, 1907, in the city of Manila,
Philippine Islands. the said Juana Juana Benedicto De Perez was a married woman, and
that the said Manuel Samaniego knew that she was married and united in the bonds of
matrimony with and was the legitimate consort of Jose Perez Siguenza; that during the
period of time above expressed the said Manuel Samaniego and Juana Benedicto de Perez,
willfully, illegally, and criminally and scandalously, without having any matrimonial tie
between them, habitually appeared together in public places and frequented together places
of recreation, suspicious places, vacant houses, and houses of bad repute, in the daytime as
well as in the nighttime; and lewdly and indecently went to the bed together in the house of
the husband of the said Juana Benedicto de Perez during the late hours of the night,
dressed only in their night clothes, and in decorously, indecently, and immodestly embraced
 each other and caressed each other in the presence of the family, children, and servants of
the said husband of Juana Benedicto de Perez; all with public scandal and with scandal to
the community, and with shame and humiliation to the husband and family of the said Juana
Benedicto de Perez.

After the presentation of this information, it appearing that the proofs under the charge therein
contained would be the same as were those under the charge in the information first herein set forth,
the prosecuting attorney and the attorneys for the defendants agreed to submit and did submit the
case to the court for final determination upon the proofs already taken in the trial on the charge of
February, 1908, the trial court rendered a decision in which he found the defendants guilty of the
crime charged, condemning the defendant Samaniego to the penalty of arresto mayor in its
maximum degree and the ordering the defendant Juana Benedicto de Perez confined in an asylum
for the insane until the further order of the court. On the same day the defendants excepted to said
decision and made a motion for a new trial. On the 12th day of February said court, upon its own
motion, and, so far as appears of record, without notice to or consent of the defendants or their
attorneys made an order reopening said case "for the purpose only, " as expressed in the order, " of
receiving evidence as to the publicity of the acts charged in the complaint." On the 15th day of April,
following, additional evidence was taken in the case and used by the court as the basis for a further
judgment in the action. This was done over the objections and exception of defendant's attorneys.
On the 18th day of April the courts rendered a decision affirming the judgment rendered by him on
the 5th day of February in the same case. In the same decision he denied defendant's motion for a
new trial.

The witnesses for the prosecution during the trial of the defendants on the charge made in the first
information, viz, that of adultery, were Jose Perez, the husband of Juana Benedicto de Perez, three
of his children, and his cochero. The husband testified that Juana, after having lived with him for
more than twenty years, and having borne him more than five children, expressed the desire to
separate from him on account of the physical abuse and ill treatment which she had received and
was receiving at his hands. He testified further that he himself desired to terminate his marital
relations with her and that he wanted a divorce; and, as a preliminary step to that end, we obtained
her arrest at the hands of the police, who, at his request, conducted her in a patrol wagon publicly
through the streets of the city of Manila to an asylum for the insane, where she was detained and
imprisoned against her will. He declared further that the reason why he thus humiliated and
disgraced her and deprived her of her liberty was his ardent desire to save her soul; that, in ordering
her arrest and reclusion, he was acting under the advice and counsel of various lawyers and
doctors. He further testified that, after her arrest, she many times implored him to give her back her
liberty and permit her to return to her family; and that, during one of such supplications, she admitted
to him that the defendant Samaniego was her friend, but, at the same time, denied that he had ever
taken advantage of that friendship in any way whatever.

In attempting to prove the adultery alleged in the information, the prosecution presented as
witnesses the persons above mentioned, viz Caridad Perez, daughter of the defendant Juana;
Rafael Perez, a student of medicine, 18 years of age, son of the defendant Juana; Concepcion
Perez, 12 years of age, daughter of the defendant Juana; together with the cochero of the family, all
of whom lived with the accused, Juana, and her husband at No. 257 Calle Nozaleda, Manila.

According to the testimony of these witnesses, the kitchen and the toilet of the house, no,. 257
Nozalada, are situated on the ground floor. Here slept the cochero in a bed called by the family a
bench. This was the only bed in the lower part of the house which could possibly be used for any
purpose. lawphil.net
On the night if the 6th of November, 1907, the accused, Juana Benedicto de Perez, accompanied by
her daughters, attended a dance given by a friend. The other accused, Samaniego, was also
present. Juana and her daughters returned home late at night. There were then present in the house
the accused, Juana Benedicto de Perez; her three daughters, Caridad, Rosario, and Conchita, and a
friend of Conchita; her son Rafael; a younger son, Manolo; and the cochero. When the mother and
the daughters who and attended the dance with her were preparing for bed, Conchita discovered
that there was a stranger in the lower part of the house and by her cries brought the household to
the spot. She declares in her testimony that when she first saw the stranger he was near
the cochero's bed and while she was watching the movements of the stranger, her mother went
below and appeared to be talking with him; that not for a moment did she lose sight of her mother
during all the occurrence.

The cochero testified that the stranger was Samaniego and that he came first to the cochero's bed
and talked with him a while, but afterwards the cochero went to asleep, and later, on hearing the
cries of Conchita, he saw Samaniego trying to conceal himself in the kitchen and also observed that
the caused, Juana Benedicto de Perez, was going up and down the stairs.

The married daughter, Caridad, who, it appears, was not at the dance, testified that, when Conchita
informed the family that a stranger was in the lower part of the house, she awoke her brother Rafael,
who accompanied her below, where they found the defendant Samaniego, dressed only in his
drawers; that she gave him a blow in the face and ordered him immediately to quit the house; that he
asked her pardon and requested permission to put on his clothes; that permission to do so was
refused and she and her brother ejected him from the house by force and later the cochero handed
him his clothes over the wall.

Caridad also testified that Samaniego was once at the house and talked with her mother though the
window from the street, and on that occasion her mother delivered to him a pawn ticket; that once
when she and her mother were in a carromata on the streets the defendant approached them and
spoke to her mother. The testimony of Rafael shows that one morning, as he was returning from the
hospital in Quiapo, he saw the defendant Samaniego on foot near the carromata of his mother in the
Botanical Garden talking to her.

Luisa Avesilla testified that the accused, Juana Benedicto de Perez, pais the board of Samaniego for
three months in a restaurant where she was cashier, and that on one occasion Juana ate with
Samaniego in the restaurant. On that occasion she was accompanied by her grandson.

The cochero testified that he frequently had as passengers in the carromata the two defendants;
that on one occasion he had waited for them while they went to a house in Calle Cervantes, and on
another occasion they had gone into a house on Calle Malacañang, the witness supposing that the
house was unoccupied because the accused, Juana, had told him that she was looking for a house
to rent; that the witness at no time observed anything improper in the conduct or deportment of the
two defendants. There is no proof whatever that these were places of bad repute or that any of them
were unoccupied.

Upon the proofs above stated, which are all of the proofs adduced in the trial on the charge of
adultery and are the same proofs upon which the defendants were acquitted of that charge, the
prosecuting attorney recommended that the defendants be convicted of the crime defined in article
441 of the Penal Code, of which they stood charged, and the court thereupon convicted them
thereof.

The acts complained of lack many of the elements essential to bring them within the purview of the
article of the Penal Code invoked by the prosecution. Every act that was in anywise public fails
entirely of those qualities which offend modesty and good morals by "grievous scandal or enormity."
The occurrence at the residence on the night of the 6th of November did not have that publicity
which is required by the article of the Penal Code referred to (U. S. vs. Catajay, 6 Phil. Rep., 398;
supreme court of Spain, April 13, 1885, December 14, 1903, and January 27, 1908; Viada, vol. 3, p.
130.)

The evidence introduced on the reopening adds nothing to the case already made by the
prosecution. The case was reopened for a particular purpose and the evidence to be introduced, if
any, was restricted to a particular condition, viz, the "publicity or non-publicity of the acts charged in
the complaint." On the reopening, evidence was presented by the prosecution in relation to the
alleged occurrence between the defendants in Plaza Palacio. Concerning this incident testimony had
already been given on the trial by the witness Rafael Perez. Testimony was also given on the
reopening by the same witness as to an occurrence between the defendants one morning in the
Botanical Garden. In relation to this same event he had already given this testimony on the trial. His
evidence as to these two events given on the reopening of the case is wholly inconsistent with, if not
absolutely contradictory of, his testimony in relation to the same events given on the trial. Such
testimony can have no weight.

The other testimony given on the reopening by this witness and the testimony of the witness
Amadeo Pacheco can have no bearing or weight in the decision of this case because such
testimony relates to the acts and relations between the defendants which are not "charged in the
complaint" and concerning which no evidence whatever had been offered on the trial.

In the judgment of this court the evidence fails to show the defendants guilty of the crime charged.

The judgments of conviction of the trial court is, therefore, reversed, the defendants acquitted and
their discharge from custody ordered.

Arellano, C. J., Torres, Johnson and Carson, JJ., concur.