G.R. No. 47069 - Mulet vs. People

On July 25, 1929, Alexandra Rubillos and Espectacion Rubillos secured from petitioner Miguel Mulet a loan of P550, payable within five years.
The mortgage deed executed by the Rubillos indicated a sum of P1,375 as the capital of the loan, which was a composite of the actual principal (P550) and total interest (P825) computed at 30% per annum for five years.

Within four years from the execution of the mortgage, debtors made partial cash payments aggregating P278.27 on account of interest.
Thereafter, under petitioner’s promise to condone the unpaid interest upon the full payment of the principal, the debtors discharged the entire capital amount of P550.

Despite the payment of the principal, petitioner informed the debtors that a balance of P546.73 remained due, representing the unpaid usurious interest.
In October 1933, in view of this outstanding amount, petitioner pressed the debtors to execute a deed of sale with pacto de retro in his favor. This transaction substituted the original mortgage (which was subsequently cancelled) with a new agreement involving a parcel of land.
From the execution of the new deed until 1936, petitioner received the produce of the land amounting to P480, representing his share.

On November 18, 1936, petitioner was prosecuted for violating the Usury Law and was convicted by the trial court.
The Court of Appeals affirmed the trial court’s decision.
A key part of the appellate decision ordered that petitioner must return to the offended parties an amount of P373.27, representing the usurious interest received in excess of what was legally permissible.

Petitioner contended that the sum of P373.27, which was computed by adding the cash interest of P278.27 and the produce interest of P480, then deducting the 14% interest allowed by law (amounting to P385), should not be returned because it had been paid more than two years prior to filing the complaint — invoking the prescriptive period under Section 6 of the Usury Law.
Despite this contention, the Court’s focus turned to the nature of the produce received and the characterization of the transaction.

Whether the petitioner should be ordered to refund the excess usurious interest received.

Whether the computed amount of P373.27 correctly represents the excess interest or if an alternative computation is more proper.
Whether the timing of the refund claim falls within the prescriptive period provided by Section 6 of the Usury Law.

Whether the produce of the land (valued at P480) received under the pacto de retro constitutes usurious interest on the capital loan.

The issue of determining if such produce is an offshoot of the original agreement or a distinct element subject to a separate legal analysis.

The legal consequences arising from the illicit or contrary-to-law consideration embodied in the deed of sale with pacto de retro.

Whether the contract, as a whole, becomes null and void due to the incorporation of an illegal interest element, as provided under Article 1275 of the Civil Code.