Facts:

The case involves Cayetano Alburo as the plaintiff and Alfredo R. Mercado and Rosario Alburo de Mercado as the defendants. The events leading to the case began on August 15, 1916, when Rosario Alburo de Mercado executed a written acknowledgment of receiving P330 from Cayetano Alburo. This amount was in consideration for 300 sacks of corn that were to be delivered by Alburo within October 1916 at a price of P1.70 per cavan. The document also stipulated that if the delivery did not occur, Alburo would be liable for the original amount plus double that amount as interest. On October 14, 1917, a payment of P150 was made by Carmen Alburo towards the debt owed by Rosario. The plaintiff later filed a complaint against the defendants, claiming a total of P549.60, which included the unpaid balance and the value of empty sacks delivered. The defendants denied the allegations and contended that the contract was void du...

Facts:

Background of the Transaction

• On August 15, 1916, defendant Rosario Alburo de Mercado executed a written instrument acknowledging receipt of P330 from plaintiff Cayetano Alburo.
• The receipt was given in payment for 300 sacks of corn, to be delivered at the wharf in Toledo, Cebu, at a rate of P1.70 per cavan and with the sacks.
• The instrument stipulated that the corn was to be delivered by plaintiff within the month of October 1916.

Terms of the Written Contract (Exhibit A)

• The first paragraph clearly recorded that the defendant had accepted P330 from the plaintiff as payment for 300 sacks of corn.
• The contract further detailed that a subsequent delivery of the corn by the plaintiff was required to occur in October 1916.
• The second paragraph provided that if the plaintiff failed to deliver the corn as specified, he would be liable to pay an additional sum equal to the original amount (P330) plus double that amount (P660) as interest.
• The practical effect of the provision was that, in the event of non-delivery, the plaintiff would be made liable to himself for these sums, creating an unusual self-imposing penalty clause.

Subsequent Developments and Payments

• On August 25, 1916, the plaintiff delivered to Rosario Alburo de Mercado 220 empty sacks, which had an agreed value of P39.60 per sack.
• On October 14, 1917, a receipt was executed whereby Miss Carmen Alburo, on behalf of Rosario, acknowledged the receipt of P150 as partial payment.
• No further payment was made by the defendants for the sacks, leading the plaintiff to claim an outstanding amount comprising the original sum, payment for the sacks, less the P150 received.

Pleadings and Relief Sought

• Plaintiff, based on the terms of the contract, alleged that an amount of P510 was due from the defendants, and when adding P39.60 for the sacks (less the P150 received), the total claim amounted to P549.60.
• The plaintiff filed the action seeking judgment with interest from the filing date and costs.
• The defendant countered with a special defense: denying material allegations and asserting that the written contract was void for being contrary to the Usury Law (as embodied in Act No. 2655).

Procedural History

• The lower court rendered judgment in favor of the plaintiff and against each of the defendants for P549.60 with accrued interest and costs.
• On appeal, the defendants argued that the trial court erred in its construction of the contract and in upholding its validity under the Usury Law framework.

Issue:

Contract Construction and Interpretation

• Whether the written instrument (Exhibit A) should be interpreted as binding the plaintiff to deliver 300 sacks of corn in October 1916 and, conversely, imposing on him a penalty for failure to deliver.
• Whether the acknowledgment of receipt of P330 and the subsequent clause on double payment for interest (P660) should be enforced as written.

Usury and Validity of the Penal Clause

• Whether the clause imposing additional liability in case of non-delivery (effectively amounting to a penalty of P660) renders the contract usurious under sections 7 and 8 of Act No. 2655.
• Whether the contract, as a whole, should be considered void ab initio for including a provision that is in conflict with the Usury Law.

Damages and Relief Entitlement

• Whether the plaintiff is entitled to recover the full amount claimed (P549.60) or only the actual purchase price of the sacks in view of the usurious penalty clause.
• Whether a liquidated damages clause, even if originally intended, can be enforced when it translates into an indirect interest rate as high as 800% per annum.

Ruling:

• (Subscriber-Only)

Ratio:

• (Subscriber-Only)

Doctrine:

• (Subscriber-Only)