People v. Danial
REITERATIONFacts
The Antecedents: The case involves a petition for certiorari to set aside an order of respondent Judge Macapanton Abbas of the Court of First Instance of Sulu. The order sustained the defense's objection to the introduction of parol evidence by the prosecution in a criminal case for violation of the Usury Law against Datu Mohammad Danial. The prosecution sought to prove that a document entitled "Deed of Sale of Real Property with Right to Repurchase" was, in reality, a contract of loan secured by a mortgage, tainted with usury. Procedural History: The amended information alleged that Datu Mohammad Danial made a loan of P3,000 to spouses Asaali Gani and Indah Atung Gani, secured by a pacto de retro sale of a portion of their building. It was claimed that the accused made it appear the amount was P5,500 to cover up usurious interest, with P2,500 representing interest for five months at P500 per month. The prosecution intended to present parol evidence to show the true nature of the transaction. During the trial, the defense objected to a question asking why the document was called a deed of sale if the real contract was a loan, citing the rule against admitting evidence other than the contents of the written contract. The respondent judge sustained the objection, later issuing an order definitively disallowing parol evidence on the ground that it would open doors to fraud and allow defaulting mortgagors to harass creditors. The Petition: The People of the Philippines, through the Solicitor General, filed this petition for certiorari, arguing that the respondent judge gravely abused his discretion in sustaining the objection and disallowing parol evidence.
Issue(s)
Whether the respondent Judge committed grave abuse of discretion in sustaining the objection to the introduction of parol evidence intended to prove that a deed of sale with pacto de retro was actually a usurious loan.
Ruling
The petition is granted, and the order complained of is set aside. The respondent Judge is directed to allow the question and permit the prosecution to introduce parol evidence to prove the allegations of the information.
Ratio Decidendi
On Issue 1: The Supreme Court held that the form of a contract is not conclusive when it is used as a device to cover usury. Applying the doctrine in Cuyugan v. Santos, the Court emphasized that a court of equity will treat a deed, absolute in form, as a mortgage when it is executed as security for a loan. The Court must look beyond the terms of the instrument to the real transaction to give effect to the actual agreement of the parties. Furthermore, in U.S. v. Constantino Tan Quingco Chua, it was established that no scheme, however ingenious, should be permitted to becloud the crime of usury. If courts were prohibited from looking beyond the face of a document, it would be nearly impossible to prove usurious transactions hidden behind cleverly prepared pacto de retro contracts. In this case, the property's assessed value (P18,000 for half) was significantly higher than the alleged sale price of P5,500, suggesting the transaction was not a bona fide sale. Thus, parol evidence is essential and admissible to determine if the amount received by the borrower was only P3,000 and if the remaining P2,500 was indeed illegal interest.
Main Doctrine
Parol evidence is admissible to prove that a written instrument, apparently absolute, is in fact a security for a loan tainted with usury, especially when the attendant circumstances indicate that the transaction could not have been a sale.