Hodges vs. People

A transaction documented as a sale and resale is a usurious loan where the documents and surrounding circumstances show that the parties intended a loan and the arrangement exacts interest beyond the legal rate; restitution is limited to usurious interest paid within two years before the information is filed.

C.N. Hodges was a moneylender in Iloilo who had a prior conviction for usury in criminal case No. 5899, while Lope P. Severino owned improved real property in Silay, Negros Occidental. The Usury Law, Act No. 2655, as amended, fixed the legal rate of interest and penalized charging interest beyond that limit. Hodges's prior conviction exposed him to recidivism.

On or before July 7, 1927, Lope P. Severino, then a resident of Manila, needed cash to pay an overdue mortgage debt on his father's valuable properties. He tried to obtain a P10,000 loan from C.N. Hodges in Iloilo, offering as security a first mortgage on his improved real estate in the commercial district of Silay, Negros Occidental, covered by TCT No. 6687. The property was assessed at P17,000, had a market value of P25,000 to P30,000, and was earning P300 monthly rent. Hodges initially rejected the proposition and advised Severino to discuss terms with Adolfo Abaya, a real estate broker in Iloilo who had previously transacted with Hodges.

Severino went to Abaya, who told him he might obtain the loan if he agreed to Hodges's practice of executing a deed of absolute sale over the mortgaged property while Hodges would resell the same property, plus other Hodges properties in Iloilo, for P15,025 payable within ten years with 1% monthly interest. Severino did not want to sell his property or buy other properties; he only needed a loan secured by his improved real estate. Severino was assured that the documents were merely to cover legal requirements on interest and were not to be construed according to their terms; because he urgently needed the P10,000, he acceded.

On July 7, 1927, Severino executed Exhibit A, conveying to Hodges the Silay property with improvements for P10,000. On the same date, Exhibit B was executed, whereby the Silay property purportedly sold under Exhibit A and Hodges's lots Nos. 152-B-9, 152-B-10, 152-B-11, 152-B-12, and 152-B-13 of the Iloilo Cadastral Survey, with a total area of about 1,005 square meters, were to be resold by Hodges to Severino upon payment within ten years of P15,025, with 1% monthly interest payable monthly. Severino received P10,000 from Hodges, less a 10% broker's commission to Abaya totaling P1,000, plus stamp and notarial expenses; he would pay 1% interest on the fixed P15,025 for the future resale at the end of ten years. Clause 4 of Exhibit B bound Severino to pay P15,025 within ten years from July 7, 1927, expiring July 6, 1937; Clause 5 made the sum bear 1% monthly interest and made the entire amount due upon failure to pay interest. Hodges admitted that he delivered only P10,000 to Severino as the purchase price under Exhibit A, yet Severino had to pay 1% monthly interest on P15,025 under Exhibit B. The CA found that the arrangement allowed Hodges to charge and collect interest at 18 per cent on the P10,000 loan instead of the 12 per cent fixed by law.

Severino paid monthly interest of P150.25 from the execution of Exhibit B until December 1933 and remained in possession of the Silay property. Hodges continued to administer the five Iloilo lots and collected monthly rentals from occupants of small nipa houses from July 7, 1927 to December 1933, amounting to P465. Although those rentals, together with rents from the Silay property, were credited to Severino as interest payments on the P15,025 under Exhibit B, taxes on the property, necessary expenses to keep the buildings in good condition, insurance premiums, and other expenses were charged against Severino, showing he remained the real owner despite the alleged sale.

Hodges alleged that Severino had repeatedly asked him to sell the Iloilo lots to him, but the CA found this incredible. At the time, Severino was in precarious financial condition and badly needed cash to pay his father's overdue obligations; the CA could not see why he would invest in lots in a non-important district of Iloilo valued between P3,000 and P5,000 and sacrifice his more valuable Silay property, which had a market value of about P10,000 and monthly rental of P300. The CA concluded that Severino had to execute a fictitious deed of purchase of the five lots upon Hodges's imposition in order to obtain the P10,000 loan. The CA also noted that Hodges used the same procedure in prior transactions, including those with Teresa Velasco and Marcela Juaneza Viuda de Marijana, and that in the latter case the SC had held the transaction was not a sale but a loan secured by mortgage and an instrument to evade the Usury Law.

The usurious contract Exhibit B was cancelled on December 14, 1933 by contract Exhibit 4. According to Exhibit N, Severino paid P2,000 "on account" on August 16, 1933, which the CA found represented the last usurious interest paid to and received by Hodges, corresponding to the period expiring December 14, 1933. The information was filed on December 7, 1934.

• Exhibit N as Usurious Interest: Petitioner contended that the CA erred in holding that the receipt for P2,000 dated August 16, 1933 represented the collection of usurious interest.
• Restitution of P2,000: Petitioner alleged that the CA erred in ordering him to pay the offended party P2,000 as usurious interest which he received from the latter.
• Usurious Contracts: Petitioner contended that the CA erred in holding that the contracts set out in Exhibits A and B are usurious.
• Jurisdiction: Petitioner insisted that the CFI of Iloilo had no jurisdiction to take cognizance of and decide the case because under Section 2 of Act No. 2992, which amended Section 10 of Act No. 2655, the violation imputed to him is punished with a penalty that falls within the jurisdiction of the justice of the peace.
• Citation of Precedent: Petitioner alleged that the CA erred in citing, in support of his conviction, the ruling in Hodges vs. Juaneza Viuda de Marijuana (G.R. No. 33390).
• Retroactive Effect of Act No. 3998: Petitioner argued that the CA erred in giving retroactive effect to Act No. 3998.
• Recidivism: Petitioner contended that the CA improperly applied Article 14, paragraph 9 of the Revised Penal Code by considering his former conviction as an aggravating circumstance.

• Exhibit N as Usurious Interest: Whether the CA erred in holding that the P2,000 receipt dated August 16, 1933 represented the collection of usurious interest.
• Restitution of P2,000: Whether the CA erred in ordering petitioner to return P2,000 as usurious interest instead of the amount corresponding to the two years before the filing of the information.
• Usurious Contracts: Whether the CA erred in holding that contracts Exhibits A and B were usurious.
• Jurisdiction: Whether the CFI of Iloilo had jurisdiction over the violation under Section 2 of Act No. 2992 amending Section 10 of Act No. 2655, or whether the penalty fell within the jurisdiction of the justice of the peace.
• Citation of Precedent: Whether the CA erred in citing Hodges vs. Juaneza Viuda de Marijuana (G.R. No. 33390) in support of the conviction.
• Retroactive Effect of Act No. 3998: Whether the CA erred in giving retroactive effect to Act No. 3998.
• Recidivism: Whether the CA improperly applied Article 14, paragraph 9 of the Revised Penal Code by considering petitioner's former conviction as an aggravating circumstance.

• Exhibit N as Usurious Interest: No. The CA's finding that the P2,000 receipt dated August 16, 1933 represented usurious interest was a finding of fact conclusive on the SC; the document's "on account" label did not change its character.
• Restitution of P2,000: Yes. The CA erred in ordering restitution of P2,000; under Section 6 of Act No. 2655, as amended, and People vs. Edesan, only usurious interest paid within two years before the information was filed is restorable, or approximately P1,837.50.
• Usurious Contracts: No. The CA correctly held Exhibits A and B usurious; the documents, collection of interest exceeding the authorized rate, and circumstances showed the transaction was a ruse to conceal usury.
• Jurisdiction: No. The CFI of Iloilo had jurisdiction; Section 10 of Act No. 2655, as amended by Act No. 3998, applied because the last usurious interest was charged on August 16, 1933, when Act No. 3998 was in force.
• Citation of Precedent: No. Any error in citing Hodges vs. Juaneza Viuda de Marijuana (G.R. No. 33390) is not a ground to review, modify, or reverse the decision.
• Retroactive Effect of Act No. 3998: No. Act No. 3998 was not given retroactive effect; it applied because the last violation occurred during its effectivity.
• Recidivism: No. Article 14, paragraph 9 of the Revised Penal Code supplements special penal laws, and the penalty imposed did not exceed that prescribed by Section 10 of Act No. 2655, as amended by Section 5 of Act No. 3998.

• Exhibit N as Usurious Interest: The SC held the first assigned error without merit. It accepted the CA's factual finding that the P2,000 referred to in Exhibit N, although stated as paid "on account," represented usurious interest received by Hodges and corresponding to the period up to December 14, 1933, when Exhibit B was cancelled. Because this was a finding of fact by the CA, it was conclusive and not subject to review under the Revised Administrative Code, as amended by Commonwealth Act No. 3. The SC therefore did not disturb the CA's characterization of the payment.
• Restitution of P2,000: The SC held the second assigned error well-founded. Under Section 6 of Act No. 2655, as amended by Act Nos. 3291 and 3998, and People vs. Edesan, the offended party may recover only usurious interest paid within two years before the filing of the information. The information was filed on December 7, 1934, so the recoverable period ran from December 7, 1932 to December 14, 1933. The CA's order to return P2,000 was incorrect because that was the amount in Exhibit N, not the amount received within the two-year period. The SC fixed restitution at approximately P1,837.50 at 18% per annum.
• Usurious Contracts: The SC rejected the third assigned error. The CA's finding that Exhibits A and B were usurious was supported by the documents themselves, by the collection of interest exceeding the authorized rate, and by other circumstances showing the transaction was a mere ruse to conceal usury. The SC also relied on its conclusive acceptance of the CA's factual findings. Thus the legal conclusion that the contracts were usurious stood.
• Jurisdiction: The SC rejected the fourth assigned error. Petitioner invoked Section 2 of Act No. 2992, which amended Section 10 of Act No. 2655, to argue that the penalty fell within justice of the peace jurisdiction. The SC agreed with the CA that the applicable law was Section 10 of Act No. 2655, as last amended by Act No. 3998, which took effect on December 5, 1932. The last payment of usurious interest was on August 16, 1933, when Act No. 3998 was already in force. No retroactive effect was given because the last violation occurred during its effectivity.
• Citation of Precedent: The SC rejected the fifth assigned error. Even if the CA erred in citing Hodges vs. Juaneza Viuda de Marijuana (G.R. No. 33390), an error in citation is not a ground to review, modify, or reverse the decision. The SC did not rely on the citation to overturn the conviction.
• Retroactive Effect of Act No. 3998: The SC rejected the sixth assigned error. It had already held that Act No. 3998 was applicable and that no retroactive effect was given to it. The law applied because the last violation was committed on August 16, 1933, during its effectivity.
• Recidivism: The SC rejected the seventh assigned error. Article 14, paragraph 9 of the Revised Penal Code is deemed to supplement special laws of penal character. Moreover, under Section 10 of Act No. 2655, as last amended by Section 5 of Act No. 3998, the court had jurisdiction to impose the maximum penalty fixed, and the penalty imposed did not exceed that prescribed by law.

• Disguised Usurious Loan — A transaction is judged by its real nature, not its label; documents styled as a sale and resale can be treated as a usurious loan if the parties intended a loan and the arrangement exacts interest beyond the legal rate. The SC affirmed that Exhibits A and B were a usurious loan because Hodges delivered only P10,000 while Severino paid interest on P15,025, remained in possession, bore taxes and expenses, and the documents were a ruse to conceal usury.
• Conclusiveness of CA Findings of Fact — The CA's findings of fact in appeals to the SC are conclusive and not subject to review, alteration, modification, or reversal under the Revised Administrative Code, as amended; the SC reviews only legal conclusions. The SC applied this to accept the CA's findings that the P2,000 was usurious interest and that the contracts were usurious.
• Restitution of Usurious Interest — Only usurious interest paid within two years before the filing of the information is recoverable. The SC applied Section 6 of Act No. 2655, as amended, and People vs. Edesan to reduce restitution from P2,000 to approximately P1,837.50 for the period December 7, 1932 to December 14, 1933.
• Recidivism in Special Penal Laws — Article 14, paragraph 9 of the Revised Penal Code supplements special laws of penal character, so a prior conviction for usury can be considered as an aggravating circumstance. The SC applied this to reject Hodges's challenge to the recidivism finding.
• No Retroactive Application of Act No. 3998 — Act No. 3998 applied to the last usurious interest charged on August 16, 1933 because the violation occurred during its effectivity; no retroactive application was involved. The SC used this to reject the jurisdiction and retroactivity arguments.
• Criminal Usury as Public Offense — A violation of the Usury Law is a public offense, and its settlement cannot be compromised by a private offended party. The CA applied this to reject the claim that cancellation of Exhibit B purged the usury, and the SC affirmed the judgment.

• "It has been invariably held that the findings of fact made by the Court of Appeals in cases appealed to it, are conclusive and not subject to review, alteration, modification or reversal by the Supreme Court under Title IV, Chapter IX, Section II, of the Revised Administrative Code, as amended by section 3, section 145-F, of Commonwealth Act No. 3." — The SC accepted the CA's factual findings as conclusive and limited its review to legal conclusions.
• "The violation of the Usury Law constitutes a public offense and its settlement cannot be compromised by a private offended party." — The CA rejected the argument that cancellation of Exhibit B purged the usury; the SC affirmed.
• "only, so much of the interest as was paid within two years before the filing of the information should be restored." — The CA applied People vs. Edesan to limit restitution; the SC adopted the same rule but fixed the amount at P1,837.50.
• "The finding thus made by the Court of Appeals is supported by the aforesaid documents, by the collection of interest exceeding the authorized rate, and by the other circumstances indicative that the transaction was mere ruse to conceal usury." — The SC rejected Hodges's challenge to the CA's holding that Exhibits A and B were usurious.

• People vs. Edesan, G.R. No. 38883 — Controlling precedent; followed for the rule that only usurious interest paid within two years before the filing of the information is restorable.

• Section 2, Act No. 2655, as amended by Act No. 3291 — Fixed the legal rate of interest; the SC found that the contracts charged 18% per annum on the P10,000 loan, exceeding the limit.
• Act No. 4070 — In force on the date of collection of the subsequent interest paid on August 16, 1933 under Exhibit N; the SC noted it in finding the contracts usurious.
• Section 6, Act No. 2655, as amended by Act Nos. 3291 and 3998 — Limited restitution to usurious interest paid within two years before the filing of the information; applied to reduce restitution to approximately P1,837.50.
• Section 10, Act No. 2655, as last amended by Act No. 3998 — Governed the penalty and jurisdiction; applied because the last usurious interest was charged on August 16, 1933, when Act No. 3998 was in force.
• Section 2, Act No. 2992 (amending Section 10 of Act No. 2655) — Invoked by petitioner to challenge CFI jurisdiction; the SC rejected its application.
• Article 14, paragraph 9, Revised Penal Code — Considered as supplementing special penal laws; used to justify recidivism as an aggravating circumstance.
• Title IV, Chapter IX, Section II, Revised Administrative Code, as amended by Section 3, Section 145-F, Commonwealth Act No. 3 — Made CA findings of fact conclusive on the SC; applied to accept the CA's factual findings.