Gui Jong & Co. v. Rivera
REITERATIONFacts
The Antecedents: On March 25, 1920, defendants Jose Rivera and Regina Avellar executed a mortgage to plaintiff Gui Jong & Co. to secure a P8,000 loan with 12% annual interest. The mortgage covered sugar cane planted for the 1920-1921 agricultural years, estimated to yield 2,500 piculs of sugar, ten carabaos, and half a parcel of agricultural land. The mortgage stipulated that the mortgagor would consign 2,500 piculs of sugar and sell all harvested sugar up to P8,000 to the mortgagee at P1.50 less than the Iloilo market price per picul. Transportation and internal revenue expenses were for the mortgagor's account. A P500 penalty for attorney's fees was stipulated for breach of conditions. The mortgage was duly recorded. Procedural History: Plaintiff Gui Jong & Co. filed an action for breach of the mortgage conditions. The complaint alleged that between March 25, 1920, and April 15, 1921, plaintiff furnished defendants various sums and merchandise totaling P18,166.79 with 12% interest. Defendants delivered only 866.20 piculs of sugar, valued at P6,265.92, leaving a balance of P11,900.87 due, plus 12% interest from April 15, 1921, and P500 for attorney's fees. Defendants, in their answer, denied the allegations and raised the special defense that the contracts were usurious, exceeding the legal interest rate and not providing for the crops to be taken at market value. They prayed for dismissal, declaration of nullity, and damages. The trial court found the loan usurious except for P3,500 and rendered judgment for that amount with interest, absolving Regina Avellar and denying attorney's fees. Plaintiff appealed. The Petition: Plaintiff appealed the trial court's decision, arguing that the court erred in awarding only P3,500 instead of P11,900.87, in not allowing attorney's fees, and in considering the P1.50 per picul deduction as usurious interest. Plaintiff also contended the judgment was contrary to evidence and law.
Issue(s)
Whether the trial court erred in awarding only P3,500 instead of P11,900.87. Whether the plaintiff is entitled to recover attorney's fees. Whether the P1.50 per picul deduction for sugar sales constituted usurious interest. Whether the judgment of the lower court was contrary to the weight of the evidence and law.
Ruling
The Supreme Court reversed the decision of the trial court. It ruled that the plaintiff is entitled to recover the principal amount owed by the defendant Jose Rivera. Judgment was rendered in favor of the plaintiff against Jose Rivera for P10,506.53, with specified interest, and ordered the attached property to be sold to satisfy the judgment. Attorney's fees were denied.
Ratio Decidendi
On the amount awarded: The Court found that the mortgage, which included a stipulation for the sale of sugar at P1.50 less than the market price in addition to 12% annual interest, constituted a usurious transaction. However, applying the principle established in prior cases, a usurious loan is void only as to the interest, not the principal. The debtor cannot benefit from their breach of contract by claiming release from the debt. The Court calculated the principal amount due, exclusive of interest, to be P10,506.53, after deducting the value of the sugar delivered from the total amount loaned. Therefore, the plaintiff was entitled to recover this principal amount. On attorney's fees: The Court denied the plaintiff's claim for attorney's fees. While the mortgage stipulated P500 for attorney's fees in case of breach, the Court's final judgment did not explicitly grant this amount, focusing instead on the recovery of the principal and interest. On the P1.50 per picul deduction: The Court agreed with the trial court that the stipulation requiring the mortgagor to sell sugar to the mortgagee at P1.50 less than the market price, in addition to the 12% annual interest, rendered the transaction usurious. This deduction, combined with the interest, represented an additional profit for the creditor beyond the legal rate, which was not supported by any provision in the mortgage for commission or expenses. It was considered one of the inducements for the loan. On the judgment being contrary to evidence and law: The Court found that the defendant Jose Rivera admitted receiving the loan amount but sought to avoid liability due to the usurious nature of the transaction. The Court held that this position was untenable. By breaching the contract and failing to deliver the agreed-upon amount of sugar, the defendant could not rely on the usurious nature of the contract to escape liability for the principal amount justly owed. The Court cited Aguilar v. Rubiato and Gonzalez Vila, and Delgado v. Alonso Duque Valgona, which established that while usurious loans are void as to interest, the principal must still be repaid.
Main Doctrine
A usurious loan is void as to the interest, but the debtor cannot keep the principal received without liability for its repayment. The creditor may sue for the recovery of the principal loaned, even if the transaction is usurious.