Case Digest (G.R. No. 22678)
Facts:
On March 17, 1920 the spouses Buenaventura Lopez and Rosario Javelona executed a loan and mortgage with El Hogar Filipino, Sociedad Mutua de Construccion y Prestamos for P84,000 secured by pledged shares and real estate; monthly dues and interest at nine percent were stipulated and clause 10 authorized extrajudicial sale after default. After defaults beginning May 31, 1921 the association declared the loan due, sold the mortgaged lands at extrajudicial auction on June 29, 1922 (purchaser: El Hogar Filipino), the register of deeds refused registration pending litigation, and the debtors sued to annul the contract and sale and to recover interest while the association sought recovery of the loan and possession; the trial court first declared the contract void for usury, later amended portions of its decree, and both parties appealed.
Issues:
- Was the contract in Exhibit 1 usurious under Act No. 2655?
- Is clause ten of Exhibit 1, authorizing extrajudicial sale, valid and enforceable?
- May El Hogar Filipino recover the principal amount actually loaned and obtain possession of the mortgaged property?
- Are the plaintiffs entitled to recover P12,600 claimed as interest and P5,000 as attorney’s fees?
Ruling:
The Court reversed the judgment of the court below and held that the loan contract in Exhibit 1 was not usurious. The Court declared the value of the loan to be P84,000, upheld clause ten as valid, ruled that El Hogar Filipino had the right to possession of the properties purchased at the extrajudicial sale, and denied the plaintiffs’ claim to recover P12,600 or P5,000.
Ratio:
The Court construed Act No. 2655 in context and concluded the Legislature did not intend forfeiture of principal; the statute renders usurious provisions void as to stipulated interest but permits the creditor to recover the capital actually advanced. The Court also applied Act No. 1459 governing building and loan associations to hold that periodic dues were applied to the maturation of pledged shares (not ipso facto to principal), that the effective annual charges fell below the statutory maximum when averaged over the loan’s expected term, and that acceleration and penalty provisions for default are not per se usurious. Prior decisions upholding contractual power to sell extrajudicially supported the validity of clause ten.
Doctrine:
- Under Act No. 2655, usurious stipulations are void as to the agreed interest but do not, as a rule, forfeit the principal advanced.
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