G.R. No. 19209 . November 27, 1922.
CAYETANO ALBURO, plaintiff-appellee, vs. ALFREDO R. MERCADO and ROSARIO ALBURO DE MERCADO, defendants-appellants.

FACTS

On August 15, 1916, defendant Rosario Alburo de Mercado executed a document acknowledging receipt of P330 from plaintiff Cayetano Alburo as payment for 300 sacks of corn to be delivered by the plaintiff himself in October 1916. The document further stated that if the plaintiff failed to deliver the corn, he would be liable to pay P330 plus double that amount (P660) as “interest due.” The plaintiff also delivered sacks valued at P39.60. Only P150 was later paid on the account. The plaintiff sued to recover the balance, treating the document as an obligation of the defendants to deliver corn or pay the penalty. The defendants contended the contract was void for being usurious.

ISSUE

Whether the written contract (Exhibit A) is valid and enforceable.

RULING

No. The Supreme Court reversed the lower court’s judgment. The contract, as written, is usurious and void under the Usury Law (Act No. 2655). The clause imposing a penalty of P660 for the failure to deliver corn within about two and a half months constituted an unconscionable rate of interest. The Court held that no court should enforce such a contract. However, based on equitable considerations and the fact that the defendants received and retained the P330 and the sacks, the Court ordered the defendants to return the principal sum received, minus the payment made, plus the value of the sacks. Judgment was entered for the plaintiff in the amount of P219.60 (P330 + P39.60 – P150) with legal interest.