Sanchez v. Buenviaje
REITERATIONFacts
The Antecedents: Alejo Sanchez sued Teodoro Sanchez and Leonor Santilles in the Municipal Court of Bato, Camarines Sur, for the recovery of P2,000.00, which was promised to be paid in two promissory notes. These notes also contained stipulations for interest at the rate of 10% per month. Procedural History: The Municipal Court ordered Teodoro Sanchez to pay Alejo Sanchez P2,000.00 plus interest at the legal rate from the filing of the complaint. Teodoro appealed to the Court of First Instance of Camarines Sur, which affirmed the lower court's judgment with modification as to costs, ordering the defendant to pay the indebtedness of P2,000.00 plus interest at the legal rate from the filing of the complaint to actual payment, and to pay double the costs. The Petition: Teodoro Sanchez filed a petition for review, claiming that in a loan with usurious interest, both the loan and the usurious interest are void. Alejo Sanchez died during the pendency of the case, and his children, who were impleaded as respondents, failed to file a comment.
Issue(s)
Whether in a loan with usurious interest, both the loan and the usurious interest are void. Whether the principal obligation is forfeited in a usurious loan.
Ruling
The Court dismissed the petition for lack of merit, finding the judgment sought to be reviewed to be in accordance with law. The dispositive portion states: "WHEREFORE, finding the judgment sought to be reviewed to be in accordance with law, the petition is hereby dismissed for lack of merit with costs against the petitioner."
Ratio Decidendi
On the issue of whether both the loan and the usurious interest are void: The Court held that it is well-settled that the Usury Law does not deprive the lender of the right to recover the money actually loaned, even in cases where the interest collected is usurious. The law, as it stands, does not provide for the forfeiture of the capital in favor of the debtor in a usurious contract. While there was an opinion in Briones vs. Cammayo that both the loan and usurious interest are void, eight other justices maintained that only the usurious interest is void, but not the principal obligation. This latter view prevails. On the issue of forfeiture of the principal obligation: The Court reiterated the principle that the principal is not forfeited in a usurious loan. The debtor cannot unjustly enrich himself by keeping the principal received as a loan. The creditor has the right to recover the principal loaned, although not the stipulated usurious interest. This rule has been consistently applied in jurisprudence, including cases like Go Chioco vs. Martinez and Sajo v. Gustilo, and was not modified by subsequent Civil Code articles or Presidential Decrees concerning interest rates.
Main Doctrine
In usurious contracts, only the usurious interest is void, not the principal obligation. The lender can still recover the principal amount loaned.