Villaruel v. Alvayda
REITERATIONFacts
The Antecedents: Plaintiff Isidro S. Villaruel filed a complaint against defendants Albina Alvayda and Buenaventura Vicencio on two causes of action. The first was for the collection of a mortgage credit of P46,000 plus P2,500 for expenses of litigation and attorney's fees. The second was for the recovery of P500, allegedly borrowed by the defendants from Messrs. Ledesma Brothers for the plaintiff's account. Procedural History: The defendants admitted the execution of the mortgage deeds and payments made but alleged usury, claiming the plaintiff collected 24% interest. They counterclaimed for the return of P13,872 collected as interest. The trial court ordered the defendants to pay P44,642.93 with 12% interest, P2,500 for attorney's fees, and P550 for the second cause of action. The counterclaim and cross-complaint were dismissed. The defendants appealed, arguing the contract was usurious and the return of interest should have been ordered. The Petition: The appellants contended that the trial court erred in not holding the contract usurious and in not ordering the return of interest paid.
Issue(s)
Whether the contract entered into between the plaintiff and the defendants is usurious. Whether the plaintiff collected double interest upon the principal sum. Whether the defendants are entitled to the return of interest paid or to damages for expenses of litigation and attorney's fees.
Ruling
The Supreme Court affirmed the decision of the trial court, holding that the contract was not usurious and that the plaintiff did not collect double interest. The defendants were ordered to pay the amounts adjudged by the lower court, with costs against the appellants.
Ratio Decidendi
On the issue of usury and double interest: The Court found the appellants' contention that the plaintiff collected double interest to be groundless. The initial P30,000 principal in Exhibit A included 12% interest for one year (P3,600). Subsequent amounts, including P6,000 received in August 1920, were added to the principal. When the mortgage was renewed in Exhibit B for P46,000, the calculation included interest at 12% on the capitalized sums from May 1921 to May 1922, which was P4,905.01. This capitalization of accrued interest into a new principal was not considered illegal. The Court cited Government of the Philippine Islands vs. Schenkel and Gonzales (43 Phil., 616) for the principle that due interest, by agreement of the parties, constitutes a new principal, and its earnings are not considered as accruing upon the original debt. On the issue of Exhibit 1: The Court dismissed the appellants' reliance on Exhibit 1, a document dated May 31, 1921, purportedly acknowledging P5,520 as interest on P46,000. The Court noted that the defendant Vicencio, who prepared Exhibit F (a liquidation document) on July 31, 1921, two months after Exhibit 1, failed to include this significant sum. This omission cast doubt on the validity and relevance of Exhibit 1 as proof of usury or double interest collection. On the issue of attorney's fees and expenses of litigation: The Court found that the trial court's findings were supported by the evidence. The P2,500 fixed as attorney's fees and expenses of litigation in clause C of Exhibit B was deemed a valid stipulation for the costs of foreclosure proceedings, should they be instituted. The trial court's decision to uphold this stipulation and dismiss the counterclaim for the return of interest was affirmed.
Main Doctrine
Interest due constitutes a new principal by agreement of the parties, and the interest it earns should not be considered as accruing upon the original debt.