Lopez, June Karla P.

Topic: Simple Loan

The Bachrach Motor Co., Inc., v. Faustino Espiritu

G.R. No. L-28497 and L-28498 | November 6, 1928
Avanceña, C. J.
FACTS:
1. This is a consolidated case (Cases no. 28497 and 28948) involving two separate sale
transactions. In connection with case 28497, on July 28, 1925 the defendant Faustino Espiritu
purchased of the plaintiff corporation a two-ton White truck for P11,983.50, paying P1,000 down
to apply on account of this price, and obligating himself to pay the remaining P10,983.50 within
the periods agreed upon. To secure the payment of this sum, the defendants mortgaged the said
truck purchased and, besides, three others, two of which are numbered 77197 and 92744
respectively, and all of the White make (Exhibit A). These two trucks had been purchased from
the same plaintiff and were fully paid for by the defendant and his brother Rosario Espiritu. The
defendant failed to pay P10,477.82 of the price secured by this mortgage.

In connection with case 28498, it appears that on February 18, 1925 the defendant bought
a one-ton White truck of the plaintiff corporation for the sum of P7,136.50, and after having
deducted the P500 cash payment and the 12 per cent annual interest on the unpaid principal,
obligated himself to make payment of this sum within the periods agreed upon. To secure this
payment the defendant mortgaged to the plaintiff corporation the said truck purchased and two
others, numbered 77197 and 92744, respectively, the same that were mortgaged in the purchase
of the other truck referred to in the other case. The defendant failed to pay P4,208.28 of this sum.

2. It was agreed in both sales that 12% interest will be paid on the unpaid price, and in case of
the non-payment of the total debt at maturity, 25% shall be the penalty. The defendant also signed
a promissory note solidarily with his brother Rosario (acting as intervenor), the sums secured by
the mortgages. Rosario is alleged to be the owner of the two white trucks no. 77197 & 92744
mortgaged.

3. While these two cases were pending in the lower court the mortgaged trucks were sold by
virtue of the mortgage, all of them together bringing in, after deducting the sheriff's fees and
transportation charges to Manila, the net sum of P3,269.58.

4. The lower court ordered the defendants and the intervenor to pay plaintiff in case 28497
the sum of P7,732.09 with interest at the rate of 12 per cent per annum from May 1, 1926 until
fully paid, and 25 per cent thereof in addition as penalty. In case 28498, the trial court ordered the
defendant and the intervenor to pay plaintiff the sum of P4,208.28 with interest at 12 per cent per
annum from December 1, 1925 until fully paid, and 25 per cent thereon as penalty.

ISSUE:

Whether or not the 25% penalty upon the debt in addition to the 25% p.a. is usurious.

HELD:
Lopez, June Karla P. Topic: Simple Loan

No, Article 1152 of the Civil Code permits the agreement upon a penalty apart from the
interest. Should there be such an agreement, the penalty, as was held in the case of Lopez vs.
Hernaez (32 Phil., 631), does not include the interest, and which may be demanded separately.
According to this, the penalty is not to be added to the interest for the determination of whether
the interest exceeds the rate fixed by the law, since said rate was fixed only for the interest. But
considering that the obligation was partly performed and making use of the power given to the
court by article 1154 of the Civil Code, this penalty is reduced to 10 per cent of the unpaid debt.
The penalty is however reduced from 25 % upon the sum owed, the defendants need pay only
10 % thereon as penalty.