G.R. No. L-13708; January 29, 1919
THE UNITED STATES, plaintiff-appellee, vs. FRANCISCO CONSTANTINO TAN QUINGCO CHUA, defendant-appellant.

FACTS:
The defendant, Francisco Constantino Tan Quingco Chua, was charged with the crime of usury. The case stemmed from a series of transactions beginning in 1911 when Pedro Andres borrowed P100 from the defendant, with interest payable in palay. Over several years, through repeated renewals and increases, this debt ballooned. By October 1916, after a judgment was rendered against Andres for P474.20, the parties executed a document (Exhibit B) purporting to be a pacto de retro sale. Under this document, Andres “sold” a parcel of land and a carabao to the defendant for P684.20 (the P474.20 debt plus P210 interest), with a five-month redemption period. As part of the agreement, Andres remained on the land as a “lessee” obligated to deliver 90 cavanes of palay as “rent.” The prosecution alleged that this entire transaction, particularly Exhibit B, was a device to conceal a usurious loan. The trial court convicted the defendant of usury.

ISSUE:
Did the accused violate the Usury Law (Act No. 2655) by executing the pacto de retro agreement (Exhibit B), which was in reality a shift to cover the taking of excessive interest?

RULING:
Yes, the Supreme Court affirmed the conviction. The Court held that while the Usury Law, which took effect in 1916, generally operates prospectively, evidence of transactions prior to its enactment is admissible to demonstrate the intent behind a subsequent contract and to show that it was merely a device to evade the law. The Court ruled that the form of a contract is not conclusive. Parol evidence is admissible to prove that a document legal on its face, such as a pacto de retro sale with a leaseback, is in fact a cover for a usurious loan. Examining the entire transaction, the Court found that Exhibit B was not a bona fide sale but a sham designed to disguise the payment of unlawful interest. The P684.20 “sale price” included the principal and accumulated interest, and the 90 cavanes of palay labeled as “rent” was, in reality, additional interest for the use of the money during the redemption period. This constituted usury under Act No. 2655. The Court emphasized that the law will not permit any scheme, however ingenious, to conceal the crime of usury. The penalty imposed by the trial court was affirmed.