You are on page 1of 4


MABALACAT SUGAR COMPANY FACTS: Mabalacat Sugar Company is indebted to Cu Injieng the total amount of P163,000.00 secured by mortgage. Mabalacat failed to pay and thus a collection suit was filed for the recovery of the debt and to foreclose the mortgaged properties as security of the said loan. Mabalacat was ordered to pay the remaining balance at a rate of 12% per annum plus a compound interest of the unpaid balance to be paid per month. This is by virtue of the stipulation of the parties in the mortgage stating that interest, to be computed upon the still unpaid capital of the loan, shall be paid monthly, at the end of each month.

CONTENTION OF THE PETITIONER The Imposed interest is in accordance with the usury law thus making it valid. CONTENTION OF THE RESPONDENT The propriety of the decision of the court imposing an interest upon interest of its indebtedness is usurious and in violation of the Usury law.

RESOLUTION OF THE SUPREME COURT The basis of the trial court imposing a compound interest is misleading. While it may be true that under the Usury law, the parties may stipulate that interest shall be compounded and rest for the computation of compound interest can certainly be made monthly, as well as quarterly, semi-annually, or annually. In the absence of express stipulation for the accumulation of compound interest, however, 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 annum. The stipulation interest, to be computed upon the still unpaid capital of the loan, shall be paid monthly, at the end of each month only means that the interest of the debt of the appellant should only be paid monthly and should not be construed with the effect of imposing compound interest. Since a compound interest has not been stipulated upon, the same cannot be awarded to the petitioner but only the 12% interest per annum as stipulated.

Note: Compound interest is an interest upon interest. When an interest in the sum of money is added to the principal, and then bears interest and become a secondary principal.

REPUBLIC OF THE PHILIPPINES vs. JOSE GRIJALDO Facts: Jose Grijaldo obtained five loans from the Bank of Taiwan, Ltd. in the total sum of P1,281.97 with interest at the rate of 6% per annum, compounded quarterly. These loans are evidenced by five promissory notes, all notes without due dates, but because the loans were due one year after they were incurred. To secure the payment of the loans the appellant executed a chattel mortgage on the standing crops on his land. Then the assets, including the loans in question, were subsequently transferred to the Republic of the Philippines which made a written extrajudicial demand upon the appellant for the payment of the account in question, but he failed to pay. The aggregate amount due as principal of the five loans in question, computed under the Ballantyne scale of values as of the time that the loans were incurred in 1943, was P889.64; and the interest due thereon at the rate of 6% per annum compounded quarterly, computed as of December 31, 1959 was P2,377.23. Contention of the plaintiff: It was error on the part of the lower court to apply the Ballantyne Scale of values in evaluating the Japanese war notes as of June 1943 when the loans were incurred, because what should be done is to evaluate the loans on the basis of the Ballantyne Scale as of the time the loans became due, and that was in June 1944. Contention of the defendant: The Ballantyne scale of values should be applied as of the time the obligation was incurred, and that was in June 1943. The sum total of the five loans obtained by the appellant from the Bank of Taiwan, Ltd. was P1,281.97 in Japanese war notes. Computed under the Ballantyne Scale of values as of June 1943, this sum of P1,281.97 in Japanese war notes in June 1943 is equivalent to P889.64 in genuine Philippine currency which was considered the aggregate amount due as principal of the five loans, and the amount of P2,377.23 as of December 31, 1959 was arrived at after computing the interest on the principal sum of P889.64 compounded quarterly from the time the obligations were incurred in 1943.

Ruling: In favor of the respondent. Hilado vs. De la Costa (G.R. No. L-150, April 30, 1949; 46 O.G. 5472) states: ... Contracts stipulating for payments presumably in Japanese war notes may be enforced in our Courts after the liberation to the extent of the just obligation of the contracting parties and, as said notes have become worthless, in order that justice may be done and the party entitled to be paid can recover their actual value in Philippine Currency, what the debtor or defendant bank should return or pay is the value of the Japanese military notes in relation to the peso in Philippine Currency obtaining on the date when and at the place where the obligation was incurred unless the parties had agreed otherwise. ... .