G.R. No. 27436 , December 24, 1927
JOSE DE LA VINA Y CRUZ, plaintiff-appellee, vs. SING JUCO, defendant-appellant.

FACTS

On August 6, 1919, Jose de la Vina (plaintiff), Yu Sinlay, and Sing Juco (defendant) entered into a contract. Through his attorney-in-fact, de la Vina sold to Yu Sinlay the entire sugar harvest (estimated at 8,000 piculs) from his hacienda for the 1919-1920 crop year at P19 per picul. In consideration, Yu Sinlay (whose rights were later transferred to Sing Juco) advanced P120,000 to de la Vina. The contract stipulated that if the value of the sugar delivered was insufficient to cover the advance and 12% annual interest, the unpaid balance would continue to bear 12% interest, compounded annually, and must be paid within two years from liquidation (June 30, 1920). As security, de la Vina mortgaged a parcel of land.

De la Vina delivered only 4,319.13 piculs of sugar in 1920, leaving a substantial debt. On October 4, 1921, the parties executed a statement of account showing de la Vina owed Sing Juco P103,572.11, with 12% annual interest. De la Vina failed to pay. Almost four years later, on September 24, 1925, de la Vina filed a complaint seeking to annul the contract and mortgage, claiming the 12% compounded interest was usurious and the mortgage was an invalid pactum commissorium. He also sought P60,000 in damages. Sing Juco counterclaimed for payment of the debt.

The trial court ruled in favor of de la Vina, declaring the contract void for usury, cancelling the mortgage, and awarding him P60,000 in damages. It dismissed Sing Juco’s counterclaim. Sing Juco appealed.

ISSUE

1. Whether the contract, particularly the stipulation for 12% annual interest compounded annually on the unpaid balance, is usurious and therefore void.
2. Whether the plaintiff’s action is barred by laches or prescription.
3. Whether the defendant is entitled to a 2% commission on the sugar sales and an additional 2% on the outstanding debt.

RULING

The Supreme Court REVERSED the trial court’s decision.

1. The contract is not usurious. The Usury Law (Act No. 2655) then in force permitted parties to agree in writing on any rate of interest. The stipulated 12% per annum was lawful. The compounding of interest (capitalizing accrued interest annually to form part of the principal for subsequent interest calculation) was also expressly allowed by the contract and was not prohibited by law. Therefore, the contract was valid and binding.

2. The plaintiff’s action is barred by laches. The Court found that the plaintiff, by his own admission, understood the terms of the contract from the beginning. Despite this, he accepted the P120,000 advance, delivered part of the sugar, executed a statement of account acknowledging the debt in 1921, and took no action to contest the interest for nearly four years. His long inaction, while enjoying the benefits of the contract, constituted laches, estopping him from challenging its validity.

3. The defendant’s claims for additional commissions are not meritorious. The defendant was entitled to a 2% commission on the sugar sold in 1920, but this was presumably included or waived in the 1921 statement of account. His claim for an additional 2% “commission” on the outstanding debt (allegedly for forbearance) was void, as adding it to the already maximum 12% interest would constitute usury.

DISPOSITIVE PORTION:
The judgment in favor of Jose de la Vina is reversed. The judgment on Sing Juco’s counterclaim is modified. Sing Juco is awarded judgment against Jose de la Vina for P103,572.11, with interest at 12% per annum from October 4, 1921, compounded annually every June 30 until paid. De la Vina is ordered to pay this amount into court within six months from the return of the record. Upon default, the mortgaged property shall be sold to satisfy the debt and costs. De la Vina shall pay the costs of both instances.