1. USURY; ACT No. 2655 CONSTRUED. — The Philippine statute on the subject of usury is Act No. 2655, effective on the first day of May, 1916. It is a drastic law following in many respects the most advanced American legislation.

2. ID.; ID. — The gist of the offense of usury for this jurisdiction is in actually taking unlawful interest.

3. ID.; ID. — A corrupt intent is likewise of the essence of usurious transactions.

4. ID.; ID. — It is a delicate line which separates the non-usurious from the usurious contract. Most of the ordinary contracts, when entered into in good faith, do not come within the pale of usury.

5. ID.; ID. — The form of the contract is not conclusive. Parol evidence is admissible to show that a written document though legal in form was in fact a device to cover usury. If from a construction of the whole transaction, it becomes apparent that there exists a corrupt intent to violate the Usury Law, the court should, and will, permit no scheme, however ingenious, to becloud the crime of usury.

6. ID.; ID.; STATUTORY CONSTRUCTION. — Usury laws, ordinarily, are to be construed prospectively and not retrospectively. Nevertheless, the courts may look into prior occurrences in order to understand the particular fact which is claimed to be a violation of the law, and in order to ascertain the criminal intent.

7. ID; ID.; ID. — "When operating on the contract or the security taken, it (the statute) is not, strictly speaking, punitive in its character, and we should so construe it as to repress the great evil the legislature has in view in its enactment. But when the punishment of the person who has committed usury is sought, according to the benignant principle which pervades our jurisprudence, it should be construed in all cases of doubt and uncertainty in favor of the accused." (Metcalf v. Watkins [1834], 1 Port. [Ala], 57.)

8. ID.; ID. — A document, legal in form, purporting to be a pacto de retro, accomplished on October 25, 1916, found to be a sham document to cover usurious financial manipulation.

How a lean little debt of P100 contracted in the year 1911 grew and grew until, after the lapse of five short years, interest had made of it the fat and respectable sum of approximately P700, is the story told by this record.

The tale opens on April 29, 1911, with one, Pedro Andres, borrowing of Francisco Constantino Tan Quingco Chua, the instant defendant, the sum of P100, with interest of 24 cavanes of palay. In less than three months, or, to be exact, on the 9th of July of the same year, the debt was raised to P125, with interest of 30 cavanes of palay. Two years pass, and on June 28, 1913, it has become P226.70, secured by a pacto de retro, with the interest at 44 cavanes of palay annually. The day of reckoning came on October 17, 1915, when the debt was liquidated with the result that Andres had an obligation of P474.20, which he promised to pay on the 25th of the same month. One year later, action was brought to recover this sum and the corresponding judgment rendered therefor. Then, on October 25, 1916, Andres and Tan Quingco Chua executed a document by which Andres sold to Tan Quingco Chua under pacto de retro a certain parcel of land and a female carabao for the amount of P684.20; the period of redemption was to be five months; Andres was to hold the land during this time as lessee and as such lessee to pay a rent of 90 cavanes of palay, each cavan to weigh 44 kilos, in the month of February, 1917, and all charges during the existence of the lease. Execution on the judgment of October 25, 1916, resulted in Andres paying to the Chinaman P474, and turning over to him 98 cavanes of palay.

The outcome of these various transactions was the filing of an information by the provincial fiscal of Nueva Ecija, charging Francisco Constantino Tan Quingco Chua with the crime of usury, predicated specially on the document of October 25, 1916, above described. The trial court, the Honorable Vicente Nepomuceno, in a very able and fair decision, found that the accused had been proved guilty and sentenced him to pay a fine of P25, or to suffer subsidiary imprisonment in case of insolvency, and to pay the costs.

The taking of excessive interest for the loan of money has been regarded with abhorrence from the earliest times. Usury, as such unlawful profits were known, was prohibited by the ancient laws of the Chinese and the Hindus, by the Mosaic Law of the Jews, by the Koran, by the Athenians and by the Romans, and has been frowned upon by distinguished publicists throughout all the ages. (See for a learned historical discussion of usury, the opinion of Chancellor Kent in Dunham v. Gould [1819], 16 Johnson, 367; 8 Am. Dec., 323.) The illegality of usury is now wholly a creature of legislation.

The Philippine statute on the subject is Act No. 2655, effective on the first day of May, 1916. It is a drastic law following in many respects the most advanced American legislation. In the absence of expressed contract, the legal rate of interest is made 6 per cent per annum. The maximum rate for mortgage loans is 12 per cent per annum whether "directly or indirectly" taken or received. For loans not secured by mortgage, the maximum rate of interest is 14 per cent per annum. The whole interest paid with costs-and attorney’s fees can be recovered from the usurer. The law proclaims that, "all conveyances, mortgages, bonds, bills, notes, and other contracts or evidences of debt, and all deposits of goods or other things, whereupon or whereby there shall be reserved, secured, taken, or received, directly or indirectly, a higher rate or greater sum or value for the loan or forbearance of money, goods or credits than is hereinbefore allowed, shall be void" (Sec. 7). The law closes with punitive provisions, reading as follows:jgc:chanrobles.com.ph

"Without prejudice to the proper civil action, violations of this Act shall be subject to criminal prosecution and the guilty person shall, upon conviction, be sentenced to a fine equivalent to the total interest stipulated or to the value of the products or seed agreed upon as interest, and in case of insolvency, subsidiary imprisonment shall be imposed: Provided, That in case of corporations, associations, societies or companies the manager, administrator or gerente or the person who has charge of the management or administration of the business, shall be the one to suffer the subsidiary imprisonment provided by this Act in the case of a sentence of conviction." (Sec. 10.)

The gist of the offense of usury for this jurisdiction is in actually taking unlawful interest. A corrupt intent is likewise of the essence of usurious transactions. "To constitute usury, within the prohibition of the law, there must be an intention knowingly to contract for or take usurious interest; for if neither party intend it, but act bona fide and innocently, the law will not infer a corrupt agreement. Where, indeed, the contract, upon its very face, imports usury, as by an express reservation of more than legal interest, there is no room for the presumption; for the intent is apparent, res ipsa loquitur. But where the contract on its face is for legal interest only, there it must be proved that there was some corrupt agreement, or devise or shift, to cover usury; and that it was in the full contemplation of the parties." (United States Bank v. Waggener [1835], 9 Pet., 378.)

Two issues present themselves, namely: 1. Did the trial court commit an error in admitting evidence relating to facts which occurred prior to the going into effect of the Usury Law, and has this court followed in the same treacherous path in its narration of the evidence? 2. Did the accused violate the Usury Law by the accomplishment of what purports to be a pacto de retro, now in evidence as Exhibit B?

1. It is an elementary rule of contracts that the laws, in force at the time the contract was made, enter into and govern it. The laws on the subject existing prior to the enactment of the Usury Law would only invalidate contracts contrary to public morals and public order. Criminal prosecution would then have been unlikely. The same idea prevails as to usury statutes. Ordinarily, such laws are to be construed prospectively and not retrospectively. The reason is that if the contract is legal at its inception, it cannot be rendered illegal by any subsequent legislation for this would be tantamount to the impairment of the obligation of the contract.

From one aspect, therefore, the contention of appellant is tenable. The guilt of the accused must be proved, if at all, because of the formulation of Exhibit B on and after the passage of the Usury Law. In another aspect, however, appellant is wrong. The rule of evidence should be to permit the courts to look into prior occurrences, just as they take account of other criminal acts of an accused, in order to understand the particular fact which is claimed to be a violation of the law, and in order to ascertain the criminal intent. This is after all only applied logic, for, otherwise, as will hereafter appear, a document apparently legal on its face could not be proved to be illegal by other and separate acts, which go to demonstrate that it is merely a shift to evade the statute of usury.

2. It is indeed a delicate line which separates the non-usurious from the usurious contract. Lord Bacon in one of his essays concludes that two things are to be reconciled. "The one," he says, "that the tooth of usury be grinded that it bite not too much; the other, that there be left open the means to invite moneyed men to lend for the continuing and quickening of trade." "The statute of usury," Chancellor Kent says, "is constantly interposing its warning voice between the creditor and the debtor, even in their most secret and dangerous negotiations, and teaches a lesson of moderation to the one, and offers its protecting arms to the other.’ (Dunham v. Gould, supra.)

Most of the ordinary contracts, when entered into in good faith, do not come within the pale of usury. Any person owning property may sell it at such price and at such terms as to the time and mode of payment as he may see fit, and such a sale, if bona fide, cannot be usurious however unconscionable it may be. Lord Mansfield characteristically says: "I lay the foundation of the whole upon a man’s going to borrow under colour of buying: there the contract is usurious; but where it is a bona fide sale . . . it certainly is not." (Floyer v. Edwards, 1 Cowp., 112, 116; 98 Eng. Reprint, 995.) Rent charges, as in the document before us, may be created or transferred without regard to the usury laws as long as such forms of transaction are not used as mere covers for usurious loans. A hard bargain need not necessarily be a void bargain. (See Webb on Usury, Sec. 47.)

The form of the contract is not conclusive. The cardinal inquiry is, Did the parties resort to the transaction for the purpose of disguising usury in violation of law? The law will not permit a usurious loan to hide itself behind a legal form. Parol evidence is admissible to show that a written document though legal in form was in fact a device to cover usury. If from a construction of the whole transaction it becomes apparent that there exists a corrupt intent to violate the Usury Law, the courts should and will permit no scheme, however ingenious, to becloud the crime of usury.

Exhibit B purports to be a pacto de retro. The ninety cavanes of palay mentioned are described as rent. If, indeed, a pacto de retro, standing alone and by itself it would undoubtedly be valid, and would result in no evil consequences to the parties. This court has, however, heretofore decided, with reference to so-called pacto de retros, that parol evidence is competent and admissible in support of the allegation that the instrument in writing purporting on its face to transfer absolute title to property, or to transfer the title with a mere right of repurchase under specified conditions, was in truth and in fact given merely as a security for the repayment of a loan. (Cuyugan v. Santos [1916], 34 Phil., 100.) Likewise, the Supreme Court of Porto Rico in Monagas v. Albertucci ([1911], 17 Porto Rico, 684; 235 U.S., 81) has said of a written instrument which was claimed to be a conditional sale: "The real intention of the parties at the time the written instrument was made must govern in the interpretation given to it by the courts. This must be ascertained from the circumstances surrounding the transaction and from the language of the document itself."cralaw virtua1aw library

With these principles before us, we entertain little or no doubt that Exhibit B was not a true pacto de retro, but was a sham document to cover usurious financial manipulation. This document, framed with legal precision, was a token of a debt originally of P100, grown to be P474.20, to which in this document was added P210 as interests, to make a total of P684.20. Then on top of this latter sum was dumped 90 cavanes of palay, denominated as rent, but which in reality was interest valued at P25 for the use of P684.20 for five months.

In moving toward a conclusion, we have not forgotten the canon of construction which should govern penal statutes of this character. The rule is as stated by the Supreme Court of Alabama, namely: "When operating on the contract or the security taken, it (the statute) is not, strictly speaking, punitive in its character, and we should so construe it as to repress the great evil the legislature had in view in its enactment. But when the punishment of the person who has committed usury, is sought, according to the benignant principle which pervades our criminal jurisprudence, it should be construed in all cases of doubt and uncertainty in favor of the accused." (Metcalf v. Watkins [1834], 1 Port., 57. See generally, 39 Cyc., 876 and Webb on Usury.)

No doubt and uncertainty exists in this case. If the facts as found by the trial court are true, and we think they are, and if the law as enunciated in this decision is correct, and we think it is, then, this surely is usury, if there ever was usury. The money lenders did not alone pursue their calling in old Judea. The Shylocks have not merely strutted or skulked on the Shakesperian stage. The Philippines abound with such who exact their pound of flesh — and for these the law was intended and for these shall be enforced.

The penalty imposed being in accordance with the law, no other recourse exists but to affirm the judgment, with costs against appellant, "without prejudice to the proper civil action." So ordered.

Arellano, C.J., Torres, Carson, Araullo, Street, Avanceña and Moir, JJ., concur.