Briones v. Cammayo
REITERATIONFacts
The Antecedents: Aurelio G. Briones filed an action against Primitivo P. Cammayo, et al., to recover P1,500.00 plus damages, attorney's fees, and costs. The defendants alleged that the real estate mortgage was executed as security for a P1,200.00 loan under a usurious agreement where P300.00 was withheld as advance interest for one year. They claimed that P330.00 was paid from October 1955 to July 1956, which the plaintiff refused to acknowledge as part payment of the account but as interest for an extended term. They asserted the loan contract was usurious, void from the beginning, and constituted a violation of the Usury Law, causing them damages. They also counterclaimed for moral damages due to the plaintiff's alleged harassment in refiling the case. Procedural History: The Municipal Court of Manila rendered a summary judgment ordering the defendants to pay P1,500.00 with legal interest and P150.00 as attorney's fees. On appeal, the Court of First Instance of Manila, agreeing to a summary judgment, ordered the defendants to pay P1,180.00 with legal interest from October 16, 1962, deducting P120.00 as usurious interest and P200.00 as attorney's fees, totaling P320.00. The Petition: The defendants appealed, claiming the trial court erred in ordering them to pay the principal despite finding the loan usurious and in not dismissing the case.
Issue(s)
Whether the creditor is entitled to collect the principal amount of a usurious loan. Whether the creditor is entitled to collect interest on the principal of a usurious loan, and if so, at what rate. Whether the trial court erred in not dismissing the case entirely.
Ruling
The decision of the Court of First Instance is modified. The plaintiff-appellee may recover from the defendants-appellants the principal of the loan (P1,180.00) only, with interest thereon at the legal rate of 6% per annum from the date of the filing of the complaint. Costs to be paid by the defendants.
Ratio Decidendi
On the entitlement to collect the principal of a usurious loan: The Court reiterated the consistent jurisprudence that even if a contract of loan is declared usurious, the creditor is entitled to collect the principal amount actually loaned. This is based on the principle that the debtor should not be unjustly enriched at the expense of the creditor. The Usury Law penalizes the collection of excessive interest but does not provide for the forfeiture of the capital loaned. Article 1420 of the Civil Code further supports this by stating that in divisible contracts, if the illegal terms can be separated from the legal ones, the latter may be enforced. In a loan with usurious interest, the illegality pertains only to the interest stipulation, which is separable from the principal debt, thus allowing the principal to be recovered. On the entitlement to collect interest on the principal: The Court held that the principal debt, remaining without a stipulation for payment of interest (as the usurious stipulation is void), can be recovered by judicial action. In case of delay, the debt earns interest from the date of demand (filing of the complaint) not due to stipulation, but by virtue of the general provision of law (Article 2209, Civil Code) that in obligations to pay money, the debtor in delay must pay interest by way of damages. The legal rate of interest, as applied in this case, is 6% per annum. On the dismissal of the case: The Court found no error in the trial court's decision to order the payment of the principal and legal interest, as the Usury Law and the Civil Code, when interpreted together, do not mandate the forfeiture of the principal in favor of the debtor. The law provides for penalties against the usurious lender, including criminal prosecution and the recovery of the whole interest paid, but not the forfeiture of the principal. The case of Mulet vs. The People of the Philippines was distinguished as it involved a situation where the principal had already been paid, and the recovery was limited to usurious interest and fruits of a property sold under pacto de retro, not the principal itself.
Main Doctrine
In a contract of loan tainted with usury, the creditor is entitled to recover the principal amount loaned, plus legal interest thereon from the time of demand, but the stipulation for usurious interest is void and cannot be recovered. The principle of pari delicto does not apply to the principal of the loan, as the illegality pertains only to the interest stipulation, which is separable from the principal.