HERRERA vs PETROPHIL CORP.

HERRERA vs PETROPHIL CORP. 

[G.R. No. L-48349, December 29, 1986] 

CRUZ, J.

FACTS:

• On December 5, 1969, Herrera and ESSO Standard, (later substituted by Petrophil Corp.,) entered into a lease agreement, whereby the former leased to the latter a portion of his property for a period of 20yrs. subject to the condition that monthly rentals should be paid and there should be an advance payment of rentals for the first eight years of the contract, to which ESSO paid on December 31, 1969. However, ESSO deducted the amount of 101, 010.73 as interest or discount for the eight years advance rental.

• On August 20, 1970, ESSO informed Herrera that there had been a mistake in the computation of the interest and paid an additional sum of 2,182.70; thus, it was reduced to 98, 828.03.

• As such, Herrera sued ESSO for the sum of 98, 828.03, with interest, claiming  that this had been illegally deducted to him in violation of the Usury Law.

• ESSO argued that amount deducted was not usurious interest but rather a discount given to it for paying the rentals in advance. Judgment on the pleadings was rendered in favor of ESSO. Thus, the matter was elevated to the SC for only questions of law was involve.

ISSUE:  W/N the contract between the parties is one of loan or lease.

RULING:

• Contract between the parties is one of lease and not of loan. It is clearly denominated a "LEASE AGREEMENT." Nowhere in the contract is there any showing that the parties intended a loan rather than a lease. The provision for the payment of rentals in advance cannot be construed as a repayment of a loan because there was no grant or forbearance of money as to constitute an indebtedness on the part of the lessor. On the contrary, the defendant-appellee was discharging its obligation in advance by paying the eight years rentals, and it was for this advance payment that it was getting a rebate or discount.

• There is no usury in this case because no money was given by the defendant-appellee to the plaintiff-appellant, nor did it allow him to use its money already in his possession.  There was neither loan nor forbearance but a mere discount which the plaintiff-appellant allowed the defendant-appellee to deduct from the total payments because they were being made in advance for eight years. The discount was in effect a reduction of the rentals which the lessor had the right to determine, and any reduction thereof, by any amount, would not contravene the Usury Law.

• The difference between a discount and a loan or forbearance is that the former does not have to be repaid. The loan or forbearance is subject to repayment and is therefore governed by the laws on usury.

• To constitute usury, "there must be loan or forbearance; the loan must be of money or something circulating as money; it must be repayable absolutely and in all events; and something must be exacted for the use of the money in excess of and in addition to interest allowed by law." 

• It has been held that the elements of usury are (1) a loan, express or implied; (2) an understanding between the parties that the money lent shall or may be returned; that for such loan a greater rate or interest that is allowed by law shall be paid, or agreed to be paid, as the case may be; and (4) a corrupt intent to take more than the legal rate for the use of money loaned. Unless these four things concur in every transaction, it is safe to affirm that no case of usury can be declared.