People v. Mulet
REITERATIONFacts
The Antecedents: Alejandra Rubillos and Espectacion Rubillos obtained a loan of P550 from Miguel Mulet, secured by a deed of mortgage where P1,375 was stated as the capital, representing the actual loan plus P825 in interest over 5 years at 30% per annum. The debtors made partial payments totaling P278.27 on account of interest. They later paid the principal of P550, with Mulet promising to condone the unpaid interest. However, Mulet demanded P546.73 as the balance of the usurious interest. To settle this, the debtors executed a deed of sale with pacto de retro in favor of Mulet for a parcel of land in October 1933, in substitution of the original mortgage which was cancelled. From 1933 to 1936, Mulet received P480 as his share of the produce from the land. Procedural History: Mulet was prosecuted on November 18, 1936, for violating the Usury Law. He was convicted by the trial court, and the Court of Appeals affirmed the judgment. The appellate court ordered Mulet to return P373.27 to the offended parties, representing interests received in excess of what the law allows. The Petition: The instant petition for certiorari was filed by Miguel Mulet, assailing the portion of the Court of Appeals' decision ordering him to return P373.27. Mulet argued that the amount in question was paid more than two years prior to the filing of the complaint, thus the prescriptive period under Section 6 of the Usury Law had expired.
Issue(s)
Whether the prescriptive period under Section 6 of the Usury Law bars the return of usurious interest paid more than two years prior to the filing of the complaint. Whether the deed of sale with pacto de retro, executed in consideration of unpaid usurious interest, is void and what remedies are available to the parties.
Ruling
The Supreme Court modified the decision of the Court of Appeals. It ordered Miguel Mulet to return P480, instead of P373.27, to the offended parties. The judgment, as modified, was affirmed.
Ratio Decidendi
On Issue 1: The Court found that the amount of P480, representing the value of the produce from the land sold under pacto de retro, was not usurious interest on the loan itself but the consideration for the deed of sale. This consideration was based on the unpaid balance of the usurious interest (P546.73), which made the contract of sale with pacto de retro illicit and void. Therefore, the issue of prescription under the Usury Law regarding the return of usurious interest was distinguished from the recovery of what was given under a void contract. The Court applied the principles governing void contracts, which are not subject to the same prescriptive periods as claims for usurious interest under the Usury Law. On Issue 2: The Court held that the deed of sale with pacto de retro, executed in October 1933, was void because its consideration was the unpaid balance of usurious interest (P546.73). According to Article 1275 of the Civil Code, contracts with an illicit consideration are void. Furthermore, Article 1305, in conjunction with Article 1303 of the Civil Code, states that when the nullity of a contract arises from the illegality of the consideration, which itself constitutes a crime or is contrary to law, the guilty party is subject to criminal proceedings, while the innocent party may recover whatever has been given, including the fruits thereof. The Court determined that the P480 received by Mulet as produce from the land was part of what was given under the void contract and thus recoverable by the debtors as the innocent parties.
Main Doctrine
A contract of sale with pacto de retro, executed in substitution of a void mortgage due to usurious interest as consideration, is itself void. The party who provided the consideration, despite being the debtor, is considered the innocent party in relation to the void sale, and may recover the fruits (value of produce) received by the other party, who is subject to criminal proceedings for violating the Usury Law.