7/28/2019 DIGEST-CT

1/4

ANGEL WAREHOUSING VS CHELDA

FACTS:1. Plaintiff corporation filed suit in the Court of First Instance of Manila against the partnership

Chelda Enterprises and David Syjueco for recovery of alleged unpaid loans in the total amount of

P20,880.00, with legal interest from the filing of the complaint, plus attorney's fees of P5,000.00.

2. Defendants averred that they obtained four loans from plaintiff3. that plaintiff charged and deducted from the loan usurious interests4. and, consequently, plaintiff has no cause of action against defendants and should not be permitted

to recover under the law

5. plaintiff denied under oath the allegations of usury6. TC rendered a decision

a. that there remained due from defendants an unpaid principal amount of P20,287.50b. that plaintiff charged usurious interests, of which P1,048.15 had actually been deducted

in advance by plaintiff from the loan

c. said amount of P1,048.15 should therefore be deducted from the unpaid principal ofP20,287.50, leaving a balance of P19,247.351 still payable to the plaintiff

d. notwithstanding the usurious interests charged, plaintiff is not barred from collecting theprincipal of the loan or its balance of P19,247.35

e. plus P2000 as attorneys fee7. defendant APPEALED to the SC

ISSUE: whether the illegal terms as to payment of interest lrenders a nullity the legal terms as to payments

of the principal debt

HELD:

1. SC affirmed the appealed judgment2. a loan with usurious interest is not totally void only as to the interest.3. a contract of loan with usurious interest consists of principal and accessory stipulations; the

principal one is to pay the debt; the accessory stipulation is to pay interest thereon.

4. said two stipulations are divisible in the sense that the former can still stand without the latter.Article 1273, Civil Code, attests to this: "The renunciation of the principal debt shall

extinguish the accessory obligations; but the waiver of the latter shall leave the former in force. 5. Neither is there a conflict between the New Civil Code and the Usury Law.

Sec. 6, UL: any person who for a loan shall have paid a higher rate or greater sum or

value than is allowed in said law, may recover the whole interestpaid

Article 1413 states: "Interest paid in excess of the interest allowed by the usury laws may

be recovered by the debtor, with interest thereon from the date of payment."

6. Article 1413, in speaking of "interest paid in excess of the interest allowed by the usury laws"means the whole usurious interest

7. The whole stipulation as to interest is void, since payment of said interest is the cause or objectand said interest is illegal

8. to discourage stipulations on usurious interest, said stipulations are treated as wholly void, so thatthe loan becomes one without stipulation as to payment of interest. It should not, however, be

interpreted to mean forfeiture even of the principal, for this would unjustly enrich the borrower at

the expense of the lender.

9. The principal debt remaining without stipulation for payment of interest can thus be recovered byjudicial action. And in case of such demand, and the debtor incurs in delay, the debt earns interest

from the date of the demand (in this case from the filing of the complaint).

10. Such interest is not due to stipulation, for there was none, the same being void. Rather, it is due tothe general provision of law that in obligations to pay money, where the debtor incurs in delay,

he has to pay interest by way of damages (Art. 2209, Civil Code).

7/28/2019 DIGEST-CT

2/4

CU UNJIENG VS MABALACAT

FACTS:

1. action was instituted in the Court of First Instance of Pampanga by Cu Unjieng e Hijos, for thepurpose of recovering from the Mabalacat Sugar Company an indebtedness amounting to more

than P163,000, with interest, and to foreclose a mortgage given by the debtor to secure the same,as well as to recover stipulated attorney's fee and the sum of P1,206, paid by the plaintiff for

insurance upon the mortgaged property, with incidental relief.

2. Siuliong & Co., Inc., was joined as defendant, as a surety of the Mabalacat Sugar Company, andas having a third mortgage on the mortgaged property

3. Philippine National Bank was also joined by reason of its interest as second mortgagee of the landcovered by the mortgage to the plaintiff

4. Mabalacat failed to pay but Cu Unjieng extended the payment5. Cun Unjieng filed a case for the foreclosure of property and payment of attorneys fees 6. It also claimed interest over interest

ISSUE: WoN Co Unjieng is entitled to interest over interest

RULING:

1. under the second clause of the mortgage, interest should be calculated upon the indebtedness at therate of 12 per cent per annum

2. In the same clause, but in a separate paragraph, there is another provision with respect to thepayment of interest

"Interest, to be computed upon the still unpaid capital of the loan, shall be paid monthly,

at the end of each month."

3. It is well settled that, under article 1109 of the Civil Code, as well as under section 5 of the UsuryLaw (Act No. 2655), the parties may stipulate that interest shall be compounded; and rests

for the computation of compound interest can certainly be made monthly, as well as

quarterly, semiannually, or annually. But in the absence of express stipulation for theaccumulation of compound interest, no interest can be collected upon interest until the debt

is judicially claimed, and then the rate at which interest upon accrued interest must be

computed is fixed at 6 per cent per annum.

4. the language which we have quoted above does not justify the charging of interest upon interest,so far as interest on the capital is concerned. The provision quoted merely requires the debtor

to pay interest monthly at the end of each month, such interest to be computed upon the

capital of the loan not already paid. Clearly this provision does not justify the charging of

compound interest upon the interest accruing upon the capital monthly.

7/28/2019 DIGEST-CT

3/4

INVESTORS FINANCE VS AUTOWORLD

FACTS:

1. INVESTORS FINANCE CORPORATION seeks a review ofthe Decision of the Court of Appeals which ruled that the

financing firm had entered into a usurious loan transaction

with Autoworld Sales Corporation, thus entitling the latter to

reimbursement of excess interest payments amounting to

P2,586,035.44.2. Petitioner Investors Finance Corporation is a financingcompany doing business with private respondent Autoworld SalesCorporation (AUTOWORLD)

3. Anthony Que, in behalf of AUTOWORLD, applied for adirect loan with FNCB

4. However, since the Usury Law imposed an interest rateceiling at that time, FNCB informed Anthony Que that it was not

engaged in direct lending; consequently, AUTOWORLD's

request for loan was denied.

5. FNCB's Assistant Vice President informed Anthony Que thatalthough it could not grant direct loans it could extend funds to

AUTOWORLD by purchasing any of its outstanding receivables

at a discount

6. parties agreed to execute an Installment Paper Purchase("IPP") transaction to enable AUTOWORLD to acquire theadditional capital it needed

7. parties signed three (3) contracts to implement the "IPP"transaction

8. After the three (3) contracts were concluded AUTOWORLDstarted paying the monthly installments to FNCB.

9. AUTOWORLD transacted with FNCB for the second timeobtaining a loan of P3,000,000.00 with an effective interest rate

of 28% per annum

10.To secure the promissory note, AUTOWORLD mortgaged aparcel of land

11.Thereafter, AUTOWORLD began paying the installments.

12.after paying nineteen (19) monthly instalments,AUTOWORLD advised FNCB that it intended to preterminate

the two (2) transactions by paying their outstanding balances in

full

13.It then requested FNCB to provide a computation of theremaining balances

14.AUTOWORLD wrote FNCB that it disagreed with the latter'scomputation of its outstanding balances

15.FNCB replied that it would only be willing to reconcile itsaccounting records with AUTOWORLD upon payment of the

amounts demanded

16.Thus, despite its objections, AUTOWORLD reluctantly paidFNCB

17.AUTOWORLD asked FNCB for a refund of its overpayments18.parties attempted to reconcile their accounting figures but thesubsequent negotiations broke down prompting AUTOWORLD

to file an action before the Regional Trial Court to annul the

Contract to Sell, theDeed of Assignmentand theReal Estate

Mortgage

19.AUTOWORLD alleged that the aforementioned contractswere only perfected to facilitate a usurious loan and therefore

should be annulled

20.FNCB argued that the contracts dated 9 February 1981 werenot executed to hide a usurious loan. Instead, the parties entered

into a legitimate Installment Paper Purchase ("IPP") transaction,

or purchase of receivables at a discount, which FNCB could

legally engage in as a financing company. With regard to the

second transaction, the existence of a usurious interest rate had no

bearing on the P3,000,000.00 loan since at the time it was

perfected on 18 January 1982 Central Bank Circular No. 871

dated 21 July 1981 had effectively lifted the ceiling rates for loans

having a period of more than three hundred sixty-five (365) days.

FNCB also prayed for P2,000,000.00 as moral damages and

P500,000.00 as attorney's fees.

21.FNCB filed a Third-Party Complaintagainst BARRETTO22.BARRETTO countered that it could not be held liable forAUTOWORLD's alleged default in its payments since theDeed of

Assignment, together with the Contract to Selland theReal Estate

Mortgage, was simulated and perfected only to facilitate a

usurious loan

23.Regional Trial Court of Makati ruled in favor of FNCBdeclaring that the parties voluntarily and knowingly executed a

legitimate "IPP" transaction or the discounting of receivables.

AUTOWORLD was not entitled to any reimbursement since itwas unable to prove the existence of a usurious loan

24.Court of Appeals modified the decision of the trial cour tand concluded that the "IPP" transaction was merely a scheme

employed by the parties to disguise a usurious loan

25.However, with regard to the second transaction, the appellatecourt ruled that at the time it was executed the ceiling rates

imposed by the Usury Law had already been lifted thus

allowing the parties to stipulate any rate of interest

26.appellate court deleted the award of P50,000.00 as attorney'sfees in favor of FNCB explaining that the filing of the complaint

against FNCB was exercised in good faith.

27.Hence, this petition of FNCBISSUE: whether the three (3) contracts all dated 9 February 1981

were executed to implement a legitimate Installment Paper

Purchase ("IPP") transaction or merely to conceal a usurious loan.

RULING:

1. assailed Decision of the Court of Appeals declaring the 9February 1981 transaction as a usurious loan is AFFIRMED

2. subject to the MODIFICATION that petitioner InvestorsFinance Corporation is ordered to pay private respondent

Autoworld Sales Corporation the amount of P3,921,217.78

representing the entire usurious interest it paid on the 9 February

1981 loan, as well as P50,000 00 as attorney's fees and the costs

3. Generally, the courts only need to rely on the face of writtencontracts to determine the intention of the parties

4. However, the law will not permit a usurious loan to hide itselfbehind a legal form. Parol evidence is admissible to show that a

written document though legal in form was in fact a device to

cover usury. If from a construction of the whole transaction it

becomes apparent that there exists a corrupt intention to violate

the Usury Law, the courts should and will permit no scheme,

however ingenious, to becloud the crime of usury."

5. although the three (3) contracts seemingly show at face valuethat petitioner only entered into a legitimate discounting of

receivables, the circumstances cited prove that the P6,980,000.00

was really a usurious loan extended to AUTOWORLD.

6. Sec. 7 of the Usury LawProvided, finally, That nothing herein contained shall be

construed to prevent the purchase by an innocent purchaser of a

negotiable mercantile paper, usurious or otherwise, for valuable

consideration before maturity, when there has been no intention

on the part of said purchaser to evade the provisions of the Act

and said purchase was not a part of the original usurious

transaction. In any case however, the maker of said note shall

have the right to recover from said original holder the whole

interest paid by him thereon and, in any case of litigation, also the

costs and such attorney's fees as may be allowed by the court.

7. Indeed, the Usury Law recognizes the legitimate purchase ofnegotiable mercantile paper by innocent purchasers.

8. In the case at bar, the attending factors surrounding theexecution of the three (3) contracts on 9 February 1981 clearly

establish that the parties intended to transact a usurious loan.

These contracts should therefore be declared void

9. In usurious loans, the creditor can always recover the principaldebt.

35However, the stipulation on the interest is considered void

thus allowing the debtor to claim the whole interest paid.

http://www.lawphil.net/judjuris/juri2000/sep2000/gr_128990_2000.html#fnt35http://www.lawphil.net/judjuris/juri2000/sep2000/gr_128990_2000.html#fnt35http://www.lawphil.net/judjuris/juri2000/sep2000/gr_128990_2000.html#fnt35http://www.lawphil.net/judjuris/juri2000/sep2000/gr_128990_2000.html#fnt35

7/28/2019 DIGEST-CT

4/4

SOLANGON VS SALAZAR

FACTS:1. the plaintiffs-appellants executed a deed or real estate mortgage in which they mortgaged a parcel of land

situated in Sta. Maria, Bulacan, in favor of the defendant-appellee, to secure payment of a loan of

P60,000.00 payable within a period of four (4) months, with interest thereon at the rate of 6% per month

2. the plaintiffs-appellants executed a deed of real estate mortgage in which they mortgaged the same parcelof land to the defendant-appellee, to secure payment of a loan of P136,512.00, payable within a period of

one (1) year, with interest thereon at the legal rate

3. the plaintiffs-appellants executed a deed of real estate mortgage in which they mortgaged the same parcelof land in favor of defendant-appellee, to secure payment of a loan in the amount of P230,000.00 payable

within a period of four (4) months, with interest thereon at the legal rate

4. This action was initiated by the plaintiffs-appellants to prevent the foreclosure of the mortgaged property.They alleged that they obtained only one loan form the defendant-appellee, and that was for the amount

of P60,000.00, the payment of which was secured by the first of the above-mentioned mortgages.

5. subsequent mortgages were merely continuations of the first one, which is null and void because itprovided for unconscionable rate of interest

6. the defendant-appellee assured them that he will not foreclose the mortgage as long as they pay thestipulated interest

7. They have already paid the defendant-appellee P78,000.00 and tendered P47,000.00 more, but the latter hasinitiated foreclosure proceedings for their alleged failure to pay the loan P230,000.00 plus interest. 1wph

8. On the other hand, the defendant-appellee Jose Avelino Salazar claimed that the above-describedmortgages were executed to secure three separate loans of P60,000.00 P136,512.00 and P230,000.00, and

that the first two loans were paid, but the last one was not. He denied having represented that he will not

foreclose the mortgage as long as the plaintiffs-appellants pay interest."

ISSUE: whether or not the stipulated rate of interest at 72% per annum or 6% per month is usurious

RULING:

1. since the Usury Law had been repealed by Central Bank Circular No. 905 there is no more maximumrate of interest and the rate will just depend on the mutual agreement of the parties

2. but factual circumstances of the present case require the application of a different jurisprudential instruction3. While the Usury Law ceiling on interest rates was lifted by C.B. Circular No. 905, nothing in the said

circular grants lenders carte blancheauthority to raise interest rates to levels which will eitherenslave their borrowers or lead to a hemorrhaging of their assets.

4. The Usury Law has been legally non-existent in our jurisdiction. Interest can now be charged as lenderand borrower may agree upon.

5. Nevertheless, the interest at 6% per month, or 72% per annum, stipulated upon by the parties in thepromissory note iniquitous or unconscionable, and hence, contrary to morals (contra bonos mores),

if not against the law. The stipulation is void. The courts shall reduce equitably liquidated damages,

whether intended as an indemnity or a penalty if they are iniquitous or unconscionable."

6. In the case at bench, petitioners stand on a worse situation. They are required to pay the stipulatedinterest rate of6% per month or72% per annum which is definitely outrageous and inordinate. Surely, it is

more consonant with justice that the said interest rate be reduced equitably. An interest of 12% per

annum is deemed fair and reasonable.