Bachrach Motor v. Espiritu
REITERATIONFacts
The Antecedents: In G.R. No. 28497, Faustino Espiritu purchased a two-ton White truck for P11,983.50, paying P1,000 down and obligating himself to pay the balance of P10,983.50, secured by a mortgage on the purchased truck and three others (Nos. 77197 and 92744). Faustino failed to pay P10,477.82 of this sum. In G.R. No. 28498, Faustino purchased a one-ton White truck for P7,136.50, with a balance of P4,208.28 after cash payment and interest. This was also secured by a mortgage on the purchased truck and two others (Nos. 77197 and 92744), which were the same trucks mortgaged in the first case. In both sales, a 12% annual interest was agreed upon, and a 25% penalty in case of non-payment. Faustino also signed promissory notes solidarily with his brother, Rosario Espiritu, for the sums secured by the mortgages. Rosario Espiritu intervened, claiming exclusive ownership of trucks Nos. 77197 and 92744. The mortgaged trucks were sold, yielding a net sum of P3,269.58. Procedural History: The lower court ordered the defendants and intervenor to pay the plaintiff in G.R. No. 28497 the sum of P7,732.09 with 12% interest and a 25% penalty. In G.R. No. 28498, the court ordered payment of P4,208.28 with 12% interest and a 25% penalty. The Petition: The defendants and intervenor appealed the decision.
Issue(s)
Whether trucks Nos. 77197 and 92744 were validly included in the mortgage deeds. Whether the intervenor, Rosario Espiritu, is bound by the promissory notes and mortgages despite not signing the mortgage deeds. Whether the 25% penalty clause, in addition to 12% interest, constitutes usury. Whether the intervenor's claim of ownership over trucks Nos. 77197 and 92744 is valid.
Ruling
The Supreme Court affirmed the judgment of the lower court with a modification reducing the penalty from 25% to 10% of the unpaid debt. The Court found that the mortgaged trucks were validly included and that the intervenor was bound by the promissory notes and mortgages. The penalty clause was deemed permissible, and the claim of usury was dismissed.
Ratio Decidendi
On the validity of the mortgage inclusion: The Court found positive proof that trucks Nos. 77197 and 92744 were included in the mortgage deeds at the time of signing. This was supported by the defendant's own letters (Exhibits H-I) acquiescing to the inclusion of all his White trucks in the mortgage. The appellants' contention that these trucks were added later without the defendant's knowledge was thus rejected. On the intervenor's liability: Although Rosario Espiritu did not sign the mortgage deeds, he signed the promissory notes (Exhibits B and D) solidarily with Faustino Espiritu, which were secured by these mortgages. The Court found that all instruments were executed simultaneously, and Rosario Espiritu was aware of and consented to the inclusion of trucks Nos. 77197 and 92744 in the mortgages. The Court also found, through signature comparison, that the signatures on the promissory notes were indeed Rosario Espiritu's, despite his claim of being elsewhere. Therefore, he was bound by the obligations. On the penalty clause and usury: The Court held that Article 1152 of the Civil Code permits the agreement upon a penalty apart from the interest. The penalty does not include the interest and may be demanded separately. Therefore, the penalty is not added to the interest for the purpose of determining usury. The contention that the contract was usurious was dismissed. On the intervenor's claim of ownership: The Court found it immaterial whether Rosario Espiritu was the exclusive owner of trucks Nos. 77197 and 92744. Since he signed the promissory notes and consented to the mortgage of these trucks, he was bound by the mortgage deeds and the resulting obligations. His claim of exclusive ownership did not absolve him from his solidary liability.
Main Doctrine
A penalty clause agreed upon in a contract, in addition to interest, is permissible under Article 1152 of the Civil Code and does not, by itself, render the contract usurious. However, the Court may reduce the penalty stipulated if the obligation was partly performed, pursuant to Article 1154 of the Civil Code.