Republic of the Philippines SUPREME COURT Manila EN BANC GR No. L-49090 February 28, 1947 THEODORA L. VDA.

DE MIRANDA AND OTHERS, plaintiffs-appellants, vs.. FELICIANO AND JOAN OF IMPERIAL IMPERIAL, defendants-appellees. D. Manuel M. Calleja and D. Ramon C. Fernandez representation of the appellants. D. Toribio P. Perez representation of appellees. BRIONES, J. : This is a matter before the war. They present the case with the Court of First Instance of Albay November 25, 1941, ie, almost on the eve of the outbreak of the Pacific War. The Court delivered its judgment on March 17, 1943. He raised the issue for this Court Supreme, under the appeal filed by the applicant on June 9, 1943. Before I could decide, the file is burned along with the other records of this Court in the conflagration of Manila for the battle of liberation. What we have, therefore, before us is a reconstituted record documents provided by counsel for appellant, namely: ( a ) copies of the appeal record (record on appeal), ( b ) copies of the brief submitted by lawyers of the appellant. The respondent has not presented any argument or if, or through your lawyer. Lawyers for both parties were duly notified of the proceedings of reconstitution by the commissioner of this Court, but the only ones who have appeared have been the appellant's attorneys, delivering copies of which mention has been made. It is alleged in the lawsuit that before November 17, 1938 the defendants conjuges, Juana Feliciano Imperial and Imperial, Imperial Elias debian the amount of P1, 000, that in consideration of this debt and to ensure your payment had yielded, in antichresis quality, the said Elias Imperial possession and enjoyment of three parcels of land paddy their propiedead, that on that date November 17, 1938, the defendants proposed to the applicant, Theodora L. Widow. De Miranda, lend them the amount of P1, 000 to rescue Elias Imperial lands, subrogation it as elias creditor rather than under the same terms and conditions of the contract entered into with the latter antichresis, that inasmuch as the plaintiff had the quantity ordered and also, the defendant is his sister in law, a widow of a brother of this, I accept the proposition, effectively giving the amount of P1, 000 to the defendants, who then returned to see the Imperial Elias to rescue farms, whereas in the case of relatives, the contract was not reduced to writing, but after having done the rescatey Imperial Elias noted at the foot of the title documents on the three parcels of land, these documents were handed in the act of redemption to the plaintiff who was then present in the company of the defendant, as evidence of the loan and the transfer of the new contract antichresis, that since the applicant was enjoying the products, receiving his involvement in crop corresponding to 1939 and 1940 at the rate of two crops a year, and the first crop of 1941, or a total of 5 crops from November 17 1938 until April 1941 that the applicant could no longer enjoy the second crop of 1941, ie corresponding to October, since the defendants resolved so appropriate since harvest and subsequent to this, that the crop harvested by the defendants in October, 1941, and which was to belong to the applicant, was 50 cavans of rice, which was trading on the market at the dig P2.50 ie a total amount of p120. Therefore, the applicant requests that, "under the first ground of action , an order requiring the defendants to accord a document of mortgage in favor of the applicant to ensure the three parcels of land mentioned above to ensure payment to the applicant of the thousand dollars paid to them by Mr. Elias Imperial on behalf of such defendants, establishing therein within three months for payment, or such time as is reasonable according to the prudent judgment of the Court and by an interest at the rate of twelve ( 12%) percent per annum, "and" under the s econd cause of action , an order requiring the

defendants to pay the plaintiff the sum of P120 as the value of the rice crop lifted parcel of land described in this application and illegally taken by these defendants, plus court costs, "and" asked, finally, any other relief just and equitable. " On the first ground of action alleging the defendants argue that the plaintiff only received the amount of P500, which added another P500 to rescue Elias Imperial grounds, and such indebtedness of P500'm more than paid for products the grounds that the applicant received five consecutive harvests, "thereby automatically extinguished the rights and obligations of the parties." Regarding the second ground of action, deny, and say the crop in October 1941 and all were collected legally belonged to them after the defendants, and that the October harvest, as in previous years, we reported as 70 cavans of palay participation. The Defendants' case, also in your reply one counterclaim alleging (1) that between the plaintiff and the defendant, Joan of Imperial, a convention was held in vitud verbal which is received from that the sum of P500 to rescue terrnos refefridos, on the understanding that the applicant would do his every product under the same terms and conditions of the previous contract with Imperial Elias, until fully paid your credit quedase such products: (2) that, in effect, the rescue was undertaken returning Elias Joan documents with a note of debt cancellation at the foot of them, but I borrow the applicant after such documents under the guise of familiar with the adjoining land, being the explanation of how the documents were to stop in the hands of the applicant holding them until the day of the hearing, (3) that, in addition to the 3 plots in question, the applicant's products enjoy a fourth plot of the defendants amounts to 10 cavans of palay in each harvest, (4) that the 4 parcels of land the applicant came to receive as participation in the five crops that picked up a total of 400 cavans of palay, and that then dig traded at P2.50 on the market, (5) that, therefore, the applicant made no less than P1, 000 with the products received by it, and deducting from such amount the defendants owed by P500, P100 more in interest at the legal rate, still remains in favor of the one balance of P400, so ask sentencing against the applicant by the latter amount. After the court viewed the matter dictate its ruling that estimated diguientes conclusively proven facts: (1) that for about 10 years prior to November 17, 1938 the defendants had Eleas owing to the amount of P1 Imperal, 000: (2) between the creditor and the debtor had held the contract antichresis accessory under which he would enjoy as effectively enjoy during that period of 10 years for all products of the 3 land that has been mention, considers himself such products as interest on borrowed money, (3) that during and enjoy the land, not a single grain of rice produced is aplicio to pay or repay the principal of the loan, (4) the November 17, 1938 the defendants received from the applicant P500, as those claims, but P1, 000, to rescue farms Imperial hands of Elias being the agreement between the parties that the applicant would be subrogated as a creditor in place of said Elias Imperial under the same terms and conditions of the contract antichresis held with this, that "after careful consideration of the evidence and all the attendant circumstances, the Court concludes and therefore also declares that the applicant pay the demandadosP1 atualmente, 000 and that the agreement between the parties was that the applicant would receive the products previously placed the 3 plots in favor of Elias antichresis Imperial, as interest on the loan until it was fully paid, "that, in effect, the applicant was receiving calmly cosehcas products in five consecutive but after harvest in April, 1941, the defendants completely dispossessed the plaintiff, appropriating all crops. From the facts stated in the judgment, as this is extracted, it is clear that the Contact, which deals antichresis on this matter is as defined in Article 1885 of the Civil Code which provides as follows: "The parties may stipulate as to compensate the interest on the debt with the fruits of the property given in antichresis. " However, the Court a quo, rather than as it should implement this article by imperative stating the facts established and proven at trial, makes the following statement: "However, despite this agreement, the claim of the defendants that the amount of the proceeds received by the applicant should apply to the payment of principal of its debt desu of less interest at the legal rate, must be sustained. " That is, the Court applies to the case not cited Article 1885 and

Article 1881 but the Civil Code which reads as follows: "For the antichresis the creditor acquires the right to the beneficial use of a property of the debtor's liability to apply to the payment of interest, if you ought to have, and then to the capital of his credit. " And the Court bases its finding on the earlier judgment of the Court of Appeals in the matter of Santa Rosa against Noble (GR No. 43769, 35 Off. Gaz., 2734, The Lawyer's Journal, Vol V, No. 23, p. 1109), presentation of Judge Jose Lopez Vito Hon. So the court a quo, after you apply the appropriate arithmetic operation products first to the payment of interest, and then to the principal of the debt, awarded to the applicant for a balance of P435.17 and orders will continue to apply to satisfy the products of the land until payment in full, or that the defendants rectify it over with interest at the rate of 6 percent per annum from 1. of May 1941. Against the judgment so rendered the applicant has filed this appeal, raising no more than questions of law, namely that the court erred in not apply to this case in all its rigor to Article 1885 of the Civil Code, that the Court could not, of a fiat, parties create arbitrarily held no contract between them, that the 1885 article specifically refers to a type of antichresis and Article and Article 1881 to another when the agreement is, as in the present case, that the products of the farm given in in antichresis be offset by interest on the debt, no part of the products should be applied to the repayment of capital, and therefore, she, the appellant is entitled to be returned to Complete your credit capital, ie the cantidada of P1, 000, but the product or interest. The Court a quo bases its ruling on two separate matters entirely analogous mentioned, especially since both come from the same region - the bicolana - and refer to a contract very common in this region, there commonly called the contract "sangla" or " garment, "and that in the Visayas where they speak the Cebuano dialect and Mindanao is called" saop "and also" pledge "at times. It seems superfluous to say that only the judgments of this Court feel jurisprudence or doctrine in this jurisdiction.However, this is not a conclusion that I started or to the Court of Appeals that covers some point of law not yet settled in our jurisprudence may serve as a legal standard to the lower courts, and that such finding or determination to rise to doctrine if, after of elcrisol tested in the analysis and judicial review, hallaramos that had merit and sufficient for consagracioncomo carat rule jurisprudence. To this end and to this end we have examined carefully all the judgment of the Court of Appeals in that case against Noble Santa Rosa, coming, as stated above, in the region bicolana same as this before us. No sign - we're now called for it, nor need we do - the interesting findings that the Court of Appeals made in that judgment, we believe, however, that the Court a quo errors when applied to this case, as there is between the two cases fundamental differences, namely: First difference : In Case the Court of Appeals usury was an "issue" a crucial point in controversy. So says this Court in its judgment: "But the defendants argue that the contract stated in the Exhibit E is usury, which raises the question of whether the Act No. 2655 known Usury Act which sets the rate of interest is permissible loans receivable, is applicable to contracts antichresis. " He does not say one way, the Court of Appeals, ruling that the Act was applicable Usuara, consequently setting the interest chargeable at the statutory rate of 6 percent, and declare practically prosecuted or as usurious contract that antichresis was. In the case we have before us the question of usury not ever aroused or allegations or inthe judgment and no judgment made no pronouncement of usury, and inasmuch as this appeal not more than Planteam issues established law by giving himself admitted without discussion and the facts contained in the sentenica, that is this review that our faculty has to adhere strictly and inflexibly to such facts, without being permitted to go beyond the radio. After all, it is not strange that the defendants have not raised any question about usury, as popr 10 years had been indebted to Elias

Imperial without, apparently, differences endeavor relationships (Elias indeed declare in favor of the view defendants), and we have seen that the applicant has done nothing but rather subrogation Elias antichresis the contract. Second difference : antichresis Clearly that is the case cited by Santa Rosa against Noble is defined in Article 1881 of the Civil Code, antichresis that "the creditor acquires the right to the beneficial use of a property of the debtor with the obligation to apply to the payment of interest, if it ought to have, and then to the capital of his credit. " Here is what the Court of Appeals said in its ruling that commented on this subject: "As to whether the same rate established by the Law on Usury should be applied when there is an express stipulation that the fruits will began with the debt interest under Article 1885, quaere: not being the case is submitted to our consideration today, having us stated that Exhibit "E" falls under over the provisions of Article 1881 of the Civil Code . "(Emphasis added.) Instead, the antichresis on that issue in the present case is defined in Article 1885, which provides that "the contracting parties may stipulate as to compensate the interest on the debt with the fruits of the property given in antichresis." Here is the strict ruling of the Court a quo on the matter: "After a careful consideration of the evidence and all the attending Circumstances, the court Concludes, and THEREFORE holds, That the plaintiff actually loaned the defendants P1, 000, and That the agreement Between the parties Was That the plaintiff would receive the products of the three parcels of land formerly Conveyed in Antichresis to Elias Imperial as interests on said loan until the same is paid . " 1 (emphasis added.) Exist, according to the court finding itself quo, that covenant that farm products to offset the interest on the debt, according to Article 1885 of the Civil Code, it is arbitrary to the court change, making for uncontrato parties that they have not entered into, or to put it more specifically, truly transforming the pact agreed on something that falls under an article of the code that was neither in the mind nor the will of the parties. Article 1255 of the Civil Code provides that "the contracting parties may establish the covenants, clauses and conditions as they see fit, provided they are not contrary to law, morals or public order." This contract excludes the fiat court. Courts may interpret the contracts, what they can not do is mold, for jarlos for parts. We agree with the Court of Appeals that the contract called "sangla" or "pledge" (on property) in Bicol, "soap" or "pledge" in Visayas and Mindanao, has really antichresis characters and therefore can considered as such.Besides the retro sale covenant, the contract is the best known and usual in our towns and rural districts - take hold of the peasant and farmer, and to improve and expand their crops, and to buy new land to increase their possessions, and to marry their children and provide them, and even sometimes to give a proper burial and the dead. And why not say it? The unfortunate passion per-game ends in some cases also in the contract to embitter the existence if normal working the ruin of the small owner. The question we now have to determine is, namely: is it automatic or ministerially antichresis applicable to the usury, as it sounds gathered from the original ruling? Certainly not. The antichresis like contract - whether under article 1881, and under Article 1885 of the Civil Code - not necessarily usurious; may be, that if usurious. But it also can be declared, not only absolutely necessary that usury is a "issue" a crucial point in the claims and litigation in the trial, so that each party has their "day in court," that is, I can defend properly and adequately, but, in addition, must be demonstrated and positively established that usury is of such proportions that, on shock the conscience, tilt the mood to believe that the contract has been used as a costume or artilugo for violate or evade the usury law. The reason for this is simple: in the antichresis there is a contingent element, random in nature. The perception of the products by the creditor, which is its main feature, is subject to various contingencies and eventualities. It may come a poor harvest, or none, and he has vented one typhoon, and because the rivers have overflowed Coming up one flood, and because a swarm of

locusts devastated crops and plantations, and because deep social upheaval have subverted peace and order preventing the plowing of the fields, et cetera, et cetera.So the antichresis not be applied automatically, ministerially, Articles 2, 3 and 8 of Law No. 2655 on usury, as these relate to the perception of a fixed amount of products: the debtor must submit the unswervingly , or its equivalent in money, whether good or bad harvest, beech or beech. The fact that sometimes in the antichresis the amount of fruit to be the liquidation, exceed the rates set by the usury law, does not make the contract usurious, because the law assumes that such excess is the dividend that collects the creditor in exchange for the premium risk contingency has paid up capital of your credit. In American jurisprudence also given to certain types of contract analogous to our "sangla" or "saop." as they demonstrate the following authorities: In view, however I, of the rule That a creditor's return need not be limited to the statutory rate when it is Affected by a contingency putting the whole of it at hazard, a contract is ordinarily not usurious under Which the creditor is to receive, in consideration of his loan or forbearance, property or services of uncertain value, even though the likely value is Greater than lawful interest, Unless the excess is so palpable as to show a corrupt intent to violate or evade the usury laws , Unless the contract is made for the purpose of Such Violation or evasion. 2 (66 CJ, 212.) Where the lender is to receive something else than money for his loan, as property or services, the value of Such profit Necessarily being uncertain, the contract is not usurious, even though the likely value is Greater than legal interest , Unless Given the consideration so is so palpably in excess of the cetain profit allowed by law as to show a corrupt intent to violate the usury laws. "February 39 Cyc. 959; Wright vs. McAlezander 11, Ala., 236; Rapier v. Gulf City Paper C. , 77 Ala., 126. (102 Southern Reporter, p. 204.) So, an agreement That instead of interest, the lender of money Should receive the rents and profits of Un certain land for a term of years, is not usurious where no intention to evade the statue is shown, and thefact That Such rents and profits happen to amount to more than lawful interests does not render the contract usurious . 3 (Webb on Usury, p. 85.) Manresa, expounding on the relative conveniences antichresis although sometimes lends itself as an instrument of usury, made the following pertinent observations: In doing so the authors of the Code, responded with great success to a need imposed by modern principles that inspire mutual laws, according to which there is any economic or legal reason to condemn the antichresis. In addition, they sought thereby to avoid damages to the debtor who, otherwise, were inevitable, as well palpably experience had shown that, despite the prohicin of laws, the covenant Anticrtico was very common in practice, because prohibitory rules were being circumvented by disguising the convention with the form or the name of retro sales pact, thus far favored the borrower, as proposed by the legislature, it caused great grief, since it can not grant the creditor the enjoyment of the fruits to be applied to the repayment of the interest or the partial payment of capital were obliged to sell property in the manner indicated, chipping of a property that could hardly be reacquired. (Manresa, Comm. The Spanish Civ Cod, Volume 12, p. 545.) The rule, then, is, or should be, the following: (a) the antichresis known in this country with the vernacular name of "sangla" or "saop" can be assessed and reported as usurious, unless usury itself arises ocmo a 'issue, "a point of contention between the parties, in accordance with the procedural rules estatuidas thereon, ( b ) and that the contract is considered and declared usury is not enough that the products of the property given antichresis to perciberse by the creditor, thus exceeding any

legal fees on interest, but it is necessary that the excess is so palpable, so disgusting and so shocking to the conscience that necessarily the feeling that the contract has been setting to hide the perverse intention to violate or evade the usury law, ( c ) no mediating these circumstances, the "sangla" or "saop" must be respected and left expeditious compliance under Article 1881 or Article 1885 of the Civil Code, second is the case, and the courts will make anything to change the terms of the antichresis, which should be the law between the parties. The present case presents some difficulties in regard to the failure to be issued. The plaintiff sought judgment and oblique to the defendants to grant in its favor a mortgage document on the three parcels of land to secure payment of the debt of P1, 000, "fixing therein within three months for the payment, or the time limit according to the preduente reasonable judgment of the Court and by an interest at the rate of 12 percent a year, or instead of, any other remedy as may be appropriate. " In our view, this would not do more than delay the final disposition and settlement of the matter to the detriment of the parties and expeditious administration of justice. Defendants having been taken possession of the plots of land for them in antichresis transferred to the plaintiffs and enjoyed its fruits from the month of October 1941 up to date, and demostratod plaintiffs by their conformity to the contract teminado Anticrtico to present demand on November 25, 1941, not to recover such parceles of land, but to demand payment of the debt with interest from that date, upon revocation of sentenciaapelada, we issued the following decision:. (1) condemns the defendants to pay the plaintiffs the sum of one thousand pesos (P1, 000), the amount of the credit of the latter, with interest at the rate of 6 percent per annum from November 25, 1941 in that the suit was filed, and court costs and must be paid that sum with interest and costs to the plaintiffs, or deposited in the Court of First Instance of Albay within three months after it officially lift the current moratorium ; (2) In default of payment, as is required in the previous paragraph, the three parcels of land on which deals with this issue will be sold by the sheriff at public auction in accordance with the law on mortgage credit collection; (3) Meanwhile not transfer the money, as ordered in this judgment, the amount due with legal interest and court costs pass as a lien (lien) preference over the three parcels of land in question. So ordered. Moran, CJ Fair, Bengzon, Padilla and Tuazon, MM., are satisfied.

Separate Opinions PARAS, J., dissenting: Although the trial court held That "the plaintiff actually loaned the defendants P1, 000, and That the agreement Between the parties Was That the plaintiff would receive the products of the three parcels of land formerly Conveyed in Antichresis to Elias Imperial interests on said loan as until the same is paid, "it nevertheless sustained, citing the decision of the Court of Appeals in the case of Santa Rosa Vs. Noble (35 Off. Gaz., 2724), "the contention of the defendants That the value of the products received by the plaintiff, after deducting therefrom interests at the legal rate, Should be applied to the principal of Their debt."

The plaintiff has appealed, does not controvert the correctness of the appraisal made by the trial court of the value of the products received by her from the lots in question: but contends That Should Have said court applied article 1885 of the Civil Code Which Provides that "May the contracting parties stipulate That the interest of the debt be set off against the fruits of the estate Given in Antichresis." In other words, it is the view of the plaintiff That the products, Regardless of Their value, Should belong to her in payment of the interest on defendant's loan of P1, 000. This is Also the view expresaron in the majority opinion. I dissent. The right of the contracting parties to Establish any PACTS, clauses, and conditions They deem Advisable May, is subject to the proviso That "they are not Contrary to law, morals, or public order." (Article 1255, Civil Code.) After the enactment of the Usury Law (Act No. 2655), que fixes the rate of interest, in the absence of express stipulation, at six per centum per annum (section 1) and provides (section 8) That "all loans under Which payment is to be made in agricultural products or seed or in any other kind of commodities Also Shall be null and void Unless Such That They provide products or seeds or other commodities Shall be appraised at the time When the obligation falls due home at the current market price, "article 1885 of the Civil Code must be Considered modified, if not repealed under the Repealing clause (section 11) of the Usury Law. In other words, any antichretic agreement, under article 1881 or article Either 1885, May now be validly enforced only in the light of the Provisions of the Usury Law. The unrestricted freedom conceded in article 1855 was good before the Government had laid down its policy Regarding interest on loans. The 1881 article punishes therefore the general rule to govern neccessarily enforced and that there is no special agreement above, and the 1885 sets the exception of that rule to the case of the pact stipulated. This is a consequence of the freedom granted to the fixing of the interest rate as legal abolished by the 1856 Act, the parties are free to set the amount and condition of such interest, may be perceived the same in money than in kind, and therefore compensated with the fruits interests. (12 Manresa, Civil Code, p. 482.) The majority argue That the Usury Law can not be applied Because the defense of usury was not set up. It Appears, however it, that, as amitted by the majority, the defendant in his answer Alleged That "the applicant did not less than P1, 000 in the products received by it, and deducting from such amount the P500 owed by the defendants, but P100 in interest at the legal rate, still remains in favor of such a balance of P400, so ask sentencing against the applicant by the latter amount. " If This allegation did not amount to a charge That the plaintiff received more than the legal interest, it was Sufficient to apprise the court and the plaintiff That it was the contention of the defendant That the plaintiff had no right to apply the products Entirely in compensation Their interest notwithstanding of the agreement, and This Issue Should be decided in the light of existing law Necessary Which it was not for the defendant to specify in his answer. Malthus We would not be digressing from the issues raised by the parties, or creating new ones, by simply adjudicating concrete cases conformably to law. . . . is clear that the courts may in each case determine the nature of the obligation and conditions attached to it, if the covenant is given for appropriate action in law. . . . (11 Manresa, Civil Code, p. 550.) The contingent character of the arrangement Contemplated by Article 1885, can not warrant its continued existence. The Usury Law, que is of later date and THEREFORE controlling, Protects borrowers and at the same time Eliminate the element of chance That May prove disadvantageous to lenders who are to be paid in agricultural products.

The judgment appealed Should be Affirmed.

Footnotes
1

"After careful consideration of the evidence and the surrounding circumstances, the Court concludes, and therefore also declares that the applicant pay the defendants currently P1, 000, and that the agreement between the parties was that the plaintiff would receive the products of the three plots given above in Imperial Elias anticresis as interest on that loan until therein is paid. "
2

"In view, however, the rule that a creditor redito should not be limited to the statutory rate when it is affected by a contingency that puts it all at risk, a contract is not usurious when the creditor ordinarily receives in consideration of your loan or largesse, property or services of doubtful value, although this is higher than the legal interest rate or, unless the excess is so palpable that demonstrates a corrupt intent to violate or evade the usury law, or unless the contract was made for the purpose of such violation or evasion"(66 CJ, 212).
3

"If the contract is for the lender to receive something other than money for your loan, that is, in kind or services value of such profit siendoel necessarily uncertain, the contract is not usurious although the value may be higher than the interest legal , unless consideration is given so palpably in excess of the gain allowed by law to be deducted and it demonstrates the vicious intention of violating usury laws. " (39 Cyc., 959; Wright vs. McAlexander 11, Ala., 236; Rapier vs. Gulf City Paper Co., 77 Wing., 126.).
4

"So, a contract where, instead of interest, the lender receives the income and gains some ground for a period of years, it is usury unless it is shown that there was intent to evade the law, and the fact that such income and gains mounted to more than legal interest rate or the contract does not usurious . " (Webb on Usury, p. 85.)