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Philippine Supreme Court Jurisprudence > Year 2015 > April 2015 Decisions > G.R. No. 194642, April 06, 2015 - NUNELON R.
MARQUEZ, Petitioner, v. ELISAN CREDIT CORPORATION, Respondents.:

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Search G.R. No. 194642, April 06, 2015 - NUNELON R. MARQUEZ, Petitioner, v. ELISAN CREDIT CORPORATION,
Respondents.

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SECOND DIVISION

G.R. No. 194642, April 06, 2015

NUNELON R. MARQUEZ, Petitioner, v. ELISAN CREDIT CORPORATION, Respondents.

DECISION

BRION, J.:

We resolve the present petition for review on certiorari1 assailing the May 17, 2010 decision2 and the November 25,
2010 resolution3 of the Court of Appeals (CA) in CA-G.R. SP No. 102144.4 redarclaw

The Factual Antecedents

On December 16, 1991, Nunelon R. Marquez (petitioner) obtained a (first loan) from Elisan Credit Corporation
(respondent) for fifty-three thousand pesos (Php 53,000.00) payable in one-hundred eighty (180) days.5 redarclaw

The petitioner signed a promissory note which provided that it is payable in weekly installments and subject to twenty-six
percent (26%) annual interest. In case of non-payment, the petitioner agreed to pay ten percent (10%) monthly penalty
based on the total amount unpaid and another twenty-five percent (25%) of such amount for attorney's fees exclusive of
costs, and judicial and extrajudicial expenses.6redarclaw

To further secure payment of the loan, the petitioner executed a chattel mortgage7 over a motor vehicle. The contract of
chattel mortgage provided among others, that the motor vehicle shall stand as a security for the first loan and "all other
obligations of every kind already incurred or which may hereafter be incurred."8
DebtKollect Company, Inc. redarclaw

Both the petitioner and respondent acknowledged the full payment of the first loan.9 redarclaw

Subsequently, the petitioner obtained another loan (second loan) from the respondent for fifty-five thousand pesos
(P55,000.00) evidenced by a promissory note10 and a cash voucher11 both dated June 15, 1992.

The promissory note covering the second loan contained exactly the same terms and conditions as the first promissory
note.

When the second loan matured on December 15, 1992, the petitioner had only paid twenty-nine thousand nine hundred
sixty pesos (P29,960.00), leaving an unpaid balance of twenty five thousand forty pesos (P25,040.00).12 redarclaw

Due to liquidity problems, the petitioner asked the respondent if he could pay in daily installments (daily payments) until
the second loan is paid. The respondent granted the petitioner's request. Thus, as of September 1994 or twenty-one
(21) months after the second loan's maturity, the petitioner had already paid a total of fifty-six thousand four-hundred
forty pesos (P56,440.00), an amount greater than the principal.13 redarclaw

Despite the receipt of more than the amount of the principal, the respondent filed a complaint for judicial foreclosure of
the chattel mortgage because the petitioner allegedly failed to settle the balance of the second loan despite demand.14 redarclaw

The respondent further alleged that pursuant to the terms of the promissory note, the petitioner's failure to fully pay upon
ChanRobles Intellectual Property Division maturity triggered the imposition of the ten percent (10%) monthly penalty and twenty-five percent (25%) attorney's fees.

The respondent prayed that the petitioner be ordered to pay the balance of the second loan plus accrued penalties and

April-2015 Jurisprudence
G.R.No. 212092, April 08, 2015 - PEOPLES GENERAL
INSURANCE CORP. (FORMERLY: PEOPLE'S TRANS-EAST ASIA
INSURANCE CORP.), Petitioner, v. COL. FELIX MATEO A.
RUNES, Respondent.
A.C. No. 5116, April 13, 2015 - DAVAO IMPORT
DISTRIBUTORS, INC., Complainant, v. ATTY. JOHNNY
LANDERO, Respondent.
G.R. No. 176114, April 08, 2015 - GRACE SAN DIEGO Y
TRINIDAD, Petitioner, v. THE HONORABLE COURT OF
APPEALS, Respondent.
G.R.No. 212092, April 08, 2015 - PEOPLES GENERAL
INSURANCE CORP. (FORMERLY: PEOPLE'S TRANS-EAST ASIA
INSURANCE CORP.), Petitioner, v. COL. FELIX MATEO A.
RUNES, Respondent.
A.C. No. 5116, April 13, 2015 - DAVAO IMPORT
DISTRIBUTORS, INC., Complainant, v. ATTY. JOHNNY
LANDERO, Respondent.
G.R. No. 193169, April 06, 2015 - ROGELIO ROQUE,
Petitioner, v. PEOPLE OF THE PHILIPPINES, Respondent.
G.R. No. 176114, April 08, 2015 - GRACE SAN DIEGO Y
TRINIDAD, Petitioner, v. THE HONORABLE COURT OF
APPEALS, Respondent.
G.R. No. 209741, April 15, 2015 - SOCIAL SECURITY
COMMISSION, Petitioner, v. EDNA A. AZOTE, Respondent.
G.R. No. 185664, April 08, 2015 - ANGELES P. BALINGHASAY,
RENATO M. BERNABE, ALODIA L. DEL ROSARIO, CATALINA T.
FUNTILA, TERESITA L. GAYANILO, RUSTICO A. JIMENEZ,
ARCELI P. JO, ESMERALDA D. MEDINA, CECILIA S.
MONTALBAN, VIRGILIO R. OBLEPIAS, CARMENCITA R.
PARRE�O, EMMA L. REYES, REYNALDO L. SAVET, SERAPIO P.
TACCAD, VICENTE I. VALDEZ, SALVACION F. VILLAMORA, AND
DIONISIA M. VILLAREAL, Petitioners, v. CECILIA CASTILLO,
OSCAR DEL ROSARIO, ARTURO S. FLORES, XERXES
NAVARRO, MARIA ANTONIA A. TEMPLO AND MEDICAL
CENTER PARA�AQUE, INC., Respondent.
G.R. No. 203804, April 15, 2015 - DARIO A. CARCEDO
(SUBSTITUTED BY HIS WIFE PRISCILLA DELA CRUZ-
CARCEDO), Petitioner, v. MAINE MARINE PHILIPPINES, INC.
AND/OR MISUGA KAJUN CO., LTD., AND/OR MA. CORAZON
GEUSE-SONGCUYA, Respondent.
G.R. No. 198543, April 15, 2015 - REPUBLIC OF THE
PHILIPPINES, Petitioner, v. CESAR C. PASICOLAN AND
GREGORIO C. PASICOLAN, Respondent.
G.R. No. 204646, April 15, 2015 - SMART COMMUNICATIONS,
INC., NAPOLEON L. NAZARENO, AND RICARDO P. ISLA,*
Petitioners, v. JOSE LENI Z. SOLIDUM, Respondent.
G.R. No. 195203 [Formerly UDK No. 14435], April 20, 2015 -
ANTONIO PAGARIGAN, Petitioner, v. ANGELITA YAGUE AND
SHIRLEY ASUNCION, Respondent.
G.R. No. 194702, April 20, 2015 - SAN LORENZO RUIZ
BUILDERS AND DEVELOPERS GROUP, INC. AND OSCAR
VIOLAGO, Petitioners, v. MA. CRISTINA F. BAYANG,
Respondent.
G.R. No. 216098, April 21, 2015 - BISHOP BRODERICK S.
PABILLO, DD, PABLO R. MANALASTAS, JR., PHD, MARIA
CORAZON AKOL, CONCEPCION B. REGALADO, HECTOR A.
BARRIOS, LEO Y. QUERUBIN, AUGUSTO C. LAGMAN, FELIX P.
MUGA, II, PHD, ATTY. GREGORIO T. FABROS, EVITA L.
JIMENEZ, AND JAIME DL CARO, PHD, Petitioners, v.
COMMISSION ON ELECTIONS, EN BANC, REPRESENTED BY
ACTING CHAIRPERSON CHRISTIAN ROBERT S. LIM, AND
SMARTMATIC-TIM CORPORATION, REPRESENTED BY
SMARTMATIC ASIA-PACIFIC PRESIDENT CESAR FLORES,
interest.15
redarclaw
Before the petitioner could file an answer, the respondent applied for the issuance of a writ of replevin. The MTC issued
the writ and by virtue of which, the motor vehicle covered by the chattel mortgage was seized from the petitioner and
delivered to the respondent.16 redarclaw
Trial on the merits thereafter ensued.
The MTC Ruling17
The MTC found for the petitioner and held that the second loan was fully extinguished as of September 1994.
It held that when an obligee accepts the performance or payment of an obligation, knowing its incompleteness or
irregularity and without expressing any protest or objection, the obligation is deemed fully complied with.18 The MTC
noted that the respondent accepted the daily payments made by the petitioner without protest. The second loan having
been fully extinguished, the MTC ruled that respondent's claim for interests and penalties plus the alleged unpaid portion
of the principal is without legal basis.
The MTC ordered: LawlibraryofCRAlaw
1. "the plaintiff Elisan Credit Corporation to return/deliver the seized motor vehicle with Plate No.
UV-TDF-193 to the possession of the defendant and in the event its delivery is no longer
possible, to pay the defendant the amount of P30,000.00 corresponding to the value of the said
vehicle;"
2. "the bonding company People's Trans-East Asia Insurance Corporation to pay the defendant
the amounts of P20,000.00 and P5,000.00 representing the damages and attorney's fees under
P.T.E.A.LC Bond No. JCL (13)-00984;"
3. "the plaintiff is likewise directed to surrender to the defendant the originals of the documents
evidencing indebtedness in this case so as to prevent further use of the same in another
proceeding."
The RTC Ruling19
Except for the MTC's order directed to the bonding company, the RTC initially affirmed the ruling of the MTC.
Acting on the respondent's motion for reconsideration, the RTC reversed itself. Citing Article 1253 of the Civil Code, it
held that "if the debt produces interest, payment of the principal shall not be deemed to have been made until the
interests have been covered." It also sustained the contention of the respondent that the chattel mortgage was revived
when the petitioner executed the promissory note covering the second loan.
The RTC ordered:
LawlibraryofCRAlaw
1. "the defendant to pay the plaintiff the following: a) P25,040.00, plus interest thereon at the rate
of 26% per annum and penalties of 10% per month thereon from due date of the second
promissory note until fully paid, b) 25% of the defendant's outstanding obligation as and for
attorney's fees, c) costs of this suit;"
2. "the foreclosure of the chattel mortgage dated December 16, 1991 and the sale of the
mortgaged property at a public auction, with the proceeds thereof to be applied as and in
payment of the amounts awarded in a and b above."
The CA Ruling20
The CA affirmed the RTC's ruling with modification.
The CA observed that the disparity in the amount loaned and the amount paid by the petitioner supports the
respondent's view that the daily payments were properly applied first for the payment of interests and not for the
principal.
According to the CA, if the respondent truly condoned the payment of interests as claimed by the petitioner, the latter did
not have to pay an amount in excess of the principal. The CA believed the petitioner knew his payments were first
applied to the interests due.
The CA held that Article 1253 of the Civil Code is clear that if debt produces interest, payment of the principal shall not
be deemed made until the interests have been covered. It ruled that even if the official receipts issued by the respondent
did not mention that the payments were for the interests, the omission is irrelevant as it is deemed by law to be for the
payment of interests first, if any, and then for the payment of the principal amount.
The CA, however, reduced the monthly penalty from ten percent (10%) to two percent (2%) pursuant to Article 1229 of
the Civil Code which gives the courts the power to decrease the penalty when the principal obligation has been partly or
irregularly complied with by the debtor.
The dispositive portion of the CA decision provides: LawlibraryofCRAlaw
"WHEREFORE, premises considered, the Petition is hereby DENIED for lack of merit. The Order dated
07 May 2007 of the Regional Trial Court, Branch 222, Quezon City is hereby AFFIRMED with
MODIFICATION that the penalty charge should only be two (2%) per month until fully paid."
The CA denied the petitioner's Motion for Reconsideration dated May 17, 2010 on November 25, 2010 for failing to raise
new matters. Hence, this present petition.
The Petition
The petitioner seeks the reversal of the CA's decision and resolution. He argues that he has fully paid his obligation.
Thus, the respondent has no right to foreclose the chattel mortgage.
The petitioner insists that his daily payments should be deemed to have been credited against the principal, as the
official receipts issued by the respondent were silent with respect to the payment of interest and penalties. He cites
Article 1176 of the Civil Code which ordains that [t]he receipt of the principal by the creditor without reservation with
respect to the interest, shall give rise to the presumption that the interest has been paid. The petitioner invokes Article
1235 of the Civil Code which states that "[w]hen the obligee accepts the performance of an obligation, knowing its
incompleteness or irregularity, and without expressing any protest or objection, the obligation is deemed fully complied
with."
The petitioner denies having stipulated upon and consented to the twenty-six per cent (26%) per annum interest charge,
ten percent (10%) monthly penalty and twenty-five percent (25%) attorney's fees. According to the petitioner, he signed
the promissory note in blank.
The petitioner likewise disclaims receiving any demand letter from the respondent for the alleged balance of the second
loan after he had paid fifty-six thousand four-hundred forty pesos (Php56,440.00) as of September 1994, and further
argues that the chattel mortgage could not cover the second loan as it was annulled and voided upon full payment of the
first loan.
The Respondent's Case21
The respondent claims that the daily payments were properly credited against the interest and not against the principal
because the petitioner incurred delay in the full payment of the second loan.
Respondents.; G.R. NO. 216562 - INTEGRATED BAR OF THE
PHILIPPINES, Petitioner, v. COMMISSION ON ELECTIONS,
REPRESENTED BY ITS ACTING CHAIRPERSON ROBERT S.
LIM, AND SMARTMATIC-TIM CORPORATION, Respondent.
G.R. No. 196592, April 06, 2015 - SPOUSES JUVY MARA�O
AND MARIA LUISA G. MARA�O, Petitioners, v. PRYCE GASES,
INCORPORATED, Respondent.
G.R. No. 198012, April 22, 2015 - PEOPLE OF THE
PHILIPPINES, Plaintiff-Appellee, v. ANGEL MATEO Y JACINTO
AND VICENTA LAPIZ Y MEDINA, Accused-Appellants.
G.R. No. 202708, April 13, 2015 - PEOPLE OF THE
PHILIPPINES, Plaintiff-Appellee, v. VICTORIANO VILLAR @ BOY,
Accused-Appellant.
G.R. No. 203993, April 20, 2015 - PRISCILO B. PAZ, Petitioner,
v. NEW INTERNATIONAL ENVIRONMENTAL UNIVERSALITY,
INC., Respondent.
G.R. No. 190112, April 22, 2015 - PRIMO CO, SR., EDGARDO
CRUZ, FE LANNY L. ALEGADO, JESTER B. ONGCHUAN,
JOSEPH ONGCHUAN AND LUCIANNE CHAM, Petitioners, v.
THE PHILIPPINE CANINE CLUB, INC., Respondent.
G.R. No. 172637, April 22, 2015 - OFFICE OF THE
OMBUDSMAN-VISA YAS AND EMILY ROSE KO LIM CHAO,
Petitioners, v. MARY ANN T. CASTRO, Respondent.
G.R. No. 208163, April 20, 2015 - ROQUE B. BENITEZ AND
SANTA FE LABOR UNION-FEDERATION OF FREE WORKERS,
Petitioners, v. SANTA FE MOVING AND RELOCATION
SERVICES/VEDIT KURANGIL, Respondent.
A.C. No. 7250 [Formerly CBD Case No. 05-1448], April 20,
2015 - ATTY. RICARDO M. ESPINA, Complainant, v. ATTY.
JESUS G. CHAVEZ, Respondent.
G.R. No. 207328, April 20, 2015 - WILHELMSEN-SMITH BELL
MANNING/WILHELMSEN SHIP MANAGEMENT, LTD./FAUSTO R.
PREYSLER, JR., Petitioners, v. ALLAN SUAREZ, Respondent.
G.R. No. 164594, April 22, 2015 - MICHAEL SEBASTIAN,
Petitioner, v. ANNABEL LAGMAY NG, REPRESENTED BY HER
ATTORNEY-IN-FACT, ANGELITA LAGMAY, Respondent.
G.R. No. 197712, April 20, 2015 - NONITO IMBO Y GAMORES,
Petitioner, v. PEOPLE OF THE PHILIPPINES, Respondent.
G.R. No. 191667, April 22, 2015 - LAND BANK OF THE
PHILIPPINES, Petitioner, v. EDUARDO M. CACAYURAN,
Respondent, MUNICIPALITY OF AGOO, LA UNION, Intervenor.
G.R. No. 198465, April 22, 2015 - LITEX GLASS AND
ALUMINUM SUPPLY AND/OR RONALD ONG-SITCO, Petitioners,
v. DOMINADOR B. SANCHEZ, Respondent.
G.R. Nos. 173148, April 06, 2015 - ELSA DEGAYO, Petitioner,
v. CECILIA MAGBANUA-DINGLASAN, JOHNNY DINGLASAN,
ASUNCION MAGBANUA-PORRAS, MARIANO PASCUALITO
AND AMADO JR., ALL SURNAMED MAGBANUA, Respondent.
G.R. No. 194061, April 20, 2015 - EMELIE L. BESAGA,
Petitioner, v. SPOUSES FELIPE ACOSTA AND LUZVIMINDA
ACOSTA AND DIGNA MATALANG COCHING, Respondent.
G.R. No. 183587, April 20, 2015 - LEXBER, INC., Petitioner, v.
CAESAR M. AND CONCHITA B. DALMAN, Respondent.
G.R. No. 193101, April 20, 2015 - NICANOR CERIOLA,
Petitioner, v. NAESS SHIPPING PHILIPPINES, INC., MIGUEL
OCA AND/OR KUWAIT OIL TANKER, Respondent.
G.R. No. 198356, April 20, 2015 - ESPERANZA SUPAPO AND
THE HEIRS OF ROMEO SUPAPO, NAMELY: ESPERANZA, REX
EDWARD, RONALD TROY, ROMEO, JR., SHEILA LORENCE, ALL
SURNAMED SUPAPO, AND SHERYL FORTUNE SUPAPO-
SANDIGAN, Petitioners, v. SPOUSES ROBERTO AND SUSAN
DE JESUS, MACARIO BERNARDO, AND THOSE PERSONS
CLAIMING RIGHTS UNDER THEM, Respondent.
G.R. No. 206540, April 20, 2015 - ALICE G. AFRICA,
Petitioner, v. INSURANCE SAVINGS AND INVESTMENT
AGENCY, INC. (ISIA) REPRESENTED BY ITS PRESIDENT, DELIA
DE BORJA; ACTING REGISTER OF DEEDS, LAS PINAS CITY,
ATTY. ABRAHAM N. VERMUDEZ, Respondents.
G.R. No. 196357, April 20, 2015 - THE HEIRS OF THE LATE
DELFIN DELA CRUZ, REPRESENTED BY HIS SPOUSE,
CARMELITA DELA CRUZ, Petitioners, v. PHILIPPINE
TRANSMARINE CARRIERS, INC., REPRESENTED BY MR.
CARLOS C. SALINAS AND/OR TECTO BELGIUM N.V.,
Respondent.
G.R. No. 204171, April 15, 2015 - OFFICE OF THE
OMBUDSMAN, Petitioner, v. WILFREDO B. AGUSTINO, RUDY G.
CANASTILLO, EDWARD G. CANASTILLO, CECIL C. CALIGAN,
Respondent.
G.R. No. 206020, April 14, 2015 - 1-UNITED TRANSPORT
KOALISYON (1-UTAK), Petitioner, v. COMMISSION ON
ELECTIONS, Respondent.
G.R. No. 174202, April 07, 2015 - DYNAMIC BUILDERS &
CONSTRUCTION CO. (PHIL.), INC., Petitioner, v. HON. RICARDO
P. PRESBITERO, JR., MAYOR AND HEAD OF PROCURING UNIT
OF THE MUNICIPALITY OF VALLADOLID, NEGROS
OCCIDENTAL; BIDS AND AWARDS COMMITTEE, MUNICIPALITY
OF VALLADOLID, NEGROS OCCIDENTAL; AND HENRY L.
JORDAN AND/OR HLJ CONSTRUCTION AND ENTERPRISE,
Respondents.
G.R. No. 208062, April 07, 2015 - SOCIAL WEATHER
STATIONS, INC. AND PULSE ASIA, INC., Petitioners, v.
COMMISSION ON ELECTIONS, Respondent.
A.M. No. RTJ-14-2402 (Formerly OCA IPI No. 12-3910-RTJ),
April 15, 2015 - JOSEFINA M. ONGCUANGCO TRADING
CORPORATION, REPRESENTED BY JOSEFINA M.
ONGCUANGCO, Complainant, v. JUDGE RENATO D. PINLAC,
It argues that pursuant to the terms and conditions of the promissory note, the interest and penalties became due and
demandable when the petitioner failed to pay in full upon maturity. The respondent relies on Article 1253 of the Civil
Code which provides that if the debt produces interest, payment of the principal shall not be deemed to have been made
until the interests have been covered.
The respondent likewise maintains that the chattel mortgage could validly secure the second loan invoking its provision
which provided that it covers "obligations...which may hereafter be incurred."
Issues
The petitioner raises the following issues for our resolution: LawlibraryofCRAlaw
I. "WHETHER THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING THE
DECISION OF THE REGIONAL TRIAL COURT ORDERING THE PETITIONER TO PAY THE
RESPONDENT THE AMOUNT OF PHP24,040.00 PLUS INTEREST AND PENALTY FROM
DUE DATE UNTIL FULLY PAID; AND
II. "WHETHER THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING THE
DECISION OF THE REGIONAL TRIAL COURT ORDERING THE FORECLOSURE AND SALE
OF THE MORTGAGED PROPERTY."22
In simpler terms, did the respondent act lawfully when it credited the daily payments against the interest instead of the
principal? Could the chattel mortgage cover the second loan?
The Court's Ruling
We find the petition partly meritorious.
We rule that: (1) the respondent acted pursuant to law and jurisprudence when it credited the daily payments against the
interest instead of the principal; and (2) the chattel mortgage could not cover the second loan.
Rebuttable presumptions; Article 1176 vis-a-vis Article 1253
There is a need to analyze and harmonize Article 1176 and Article 1253 of the Civil Code to determine whether the daily
payments made after the second loan's maturity should be credited against the interest or against the principal.
Article 1176 provides that:
LawlibraryofCRAlaw
"The receipt of the principal by the creditor, without reservation with respect to the interest, shall
give rise to the presumption that said interest has been paid.
xxx."
On the other hand, Article 1253 states: LawlibraryofCRAlaw
"If the debt produces interest, payment of the principal shall not be deemed to have been made
until the interests have been covered."
The above provisions appear to be contradictory but they in fact support, and are in conformity with, each other. Both
provisions are also presumptions and, as such, lose their legal efficacy in the face of proof or evidence to the contrary.
Thus, the settlement of the first issue depends on which of these presumptions prevails under the given facts of the
case.
There are two undisputed facts crucial in resolving the first issue: (1) the petitioner failed to pay the full amount of the
second loan upon maturity; and (2) the second loan was subject to interest, and in case of default, to penalty and
attorney's fees.
But before proceeding any further, we first tackle the petitioner's denial of the genuineness and due execution of the
second promissory note. He denies that he stipulated upon and consented to the interest, penalty and attorney's fees
because he purportedly signed the promissory note in blank.23 redarclaw
This allegation deserves scant consideration. It is self-serving and unsupported by evidence.
As aptly observed by the RTC and the CA, the promissory notes securing the first and second loan contained exactly the
same terms and conditions. They were mirror-image of each other except for the date and amount of principal Thus, we
see sufficient basis to believe that the petitioner knew or was aware of such terms and conditions even assuming that
the entries on the interest and penalty charges were in blank when he signed the promissory note.
Moreover, we find it significant that the petitioner does not deny the genuineness and due execution of the first
promissory note. Only when he failed to pay the second loan did he impugn the validity of the interest, penalty and
attorney's fees. The CA and the RTC also noted that the petitioner is a schooled individual, an engineer by profession,
who, because of these credentials, will not just sign a document in blank without appreciating the import of his action.24 redarclaw
These considerations strongly militate against the petitioner's claim that he did not consent to and stipulated on the
interest and penalty charges of the second loan. Thus, he did not only fail to fully pay the second loan upon maturity; the
loan was also subject to interest, penalty and attorney's fees.
Article 1176 in relation to Article 1253
Article 1176 falls under Chapter I (Nature and Effect of Obligations) while Article 1253 falls under Subsection I
(Application of Payments), Chapter IV (Extinguishment of Obligations) of Book IV (Obligations and Contracts) of the
Civil Code.
The structuring of these provisions, properly taken into account, means that Article 1176 should be treated as a general
presumption subject to the more specific presumption under Article 1253. Article 1176 is relevant on questions pertaining
to the effects and nature of obligations in general, while Article 1253 is specifically pertinent on questions involving
application of payments and extinguishment of obligations.
A textual analysis of the above provisions yields the results we discuss at length below: LawlibraryofCRAlaw
The presumption under Article 1176 does not resolve the question of whether the amount received by the creditor is a
payment for the principal or interest. Under this article the amount received by the creditor is the payment for the
principal, but a doubt arises on whether or not the interest is waived because the creditor accepts the payment for the
principal without reservation with respect to the interest. Article 1176 resolves this doubt by presuming that the creditor
waives the payment of interest because he accepts payment for the principal without any reservation.
On the other hand, the presumption under Article 1253 resolves doubts involving payment of interest-bearing debts. It is
a given under this Article that the debt produces interest. The doubt pertains to the application of payment; the
uncertainty is on whether the amount received by the creditor is payment for the principal or the interest. Article 1253
resolves this doubt by providing a hierarchy: payments shall first be applied to the interest; payment shall then be
applied to the principal only after the interest has been fully-paid.
Correlating the two provisions, the rule under Article 1253 that payments shall first be applied to the interest and not to
the principal shall govern if two facts exist: (1) the debt produces interest (e.g., the payment of interest is expressly
stipulated) and (2) the principal remains unpaid.
The exception is a situation covered under Article 1176, i.e., when the creditor waives payment of the interest despite
the presence of (1) and (2) above. In such case, the payments shall obviously be credited to the principal.
Since the doubt in the present case pertains to the application of the daily payments, Article 1253 shall apply. Only when
REGIONAL TRIAL COURT, BRANCH 57, SAN CARLOS CITY,
PANGASINAN, Respondent.
G.R. No. 211833, April 07, 2015 - FERDINAND R.
VILLANUEVA, PRESIDING JUDGE, MCTC, COMPOSTELA-NEW
BATAAN, COMPOSTELA VALLEY PROVINCE, Petitioner, v.
JUDICIAL AND BAR COUNCIL, Respondent.
G. R. No. 171601, April 08, 2015 - SPOUSES BONIFACIO AND
LUCIA PARAS, Petitioners, v. KIMWA CONSTRUCTION AND
DEVELOPMENT CORPORATION, Respondent.
G.R. Nos. 194339-41, April 20, 2015 - TERESITA A. CIRON,
Petitioner, v. MA. MERCEDITAS N. GUTIERREZ, IN HER
OFFICIAL CAPACITY AS OMBUDSMAN, FLORIZA A. BRIONES
AND TERESITA P. BUTARDO- TACATA, IN THEIR OFFICIAL
CAPACITIES AS GRAFT INVESTIGATION & PROSECUTION
OFFICER II OF THE OFFICE OF THE OMBUDSMAN, NONNA O.
BELTRAN, 2nd ASSISTANT CITY PROSECUTOR, RAUL E.
CONTRERAS, CITY PROSECUTOR, BOTH OF NATIONAL
PROSECUTION OFFICE, IRIGA CITY, AND SANTIAGO D.
ORTEGA, JR., Respondent.
G.R. No. 213214, April 20, 2015 - PEOPLE OF THE
PHILIPPINES, Plaintiff-Appellee, v. EUGENE SAMUYA, Accused-
Appellant.
G.R. No. 213216, April 20, 2015 - PEOPLE OF THE
PHILIPPINES, Plaintiff-Appellee, v. RICKY ARGUTA ALIAS
"JOEL" AND WILSON CAHIPE ALIAS "SIWIT," Accused-
Appellants.
A.C. No. 10303, April 22, 2015 - JOY A. GIMENO,
Complainant, v. ATTY. PAUL CENTILLAS ZAIDE, Respondent.
G.R. No. 203530, April 13, 2015 - LUZON DEVELOPMENT
BANK, TOMAS CLEMENTE, JR., AND OSCAR RAMIREZ,
Petitioners, v. ERLINDA KRISHNAN, Respondent.
A.M. No. RTJ-12-2325 (Formerly A.M. No. 12-7-132-RTC), April
14, 2015 - OFFICE OF THE COURT ADMINISTRATOR,
Complainant, v. JUDGE ALAN L. FLORES, PRESIDING JUDGE,
REGIONAL TRIAL COURT, BRANCH 7, TUBOD, LANAO DEL
NORTE AND FORMER ACTING PRESIDING JUDGE, REGIONAL
TRIAL COURT, BRANCH 21, KAPATAGAN, LANAO DEL NORTE,
Respondent.; A.M. No. RTJ-15-2419 (FORMERLY A.M. OCA IPI
No. 11-3649-RTJ) - PROSECUTOR DIOSDADO D. CABRERA,
Complainant, v. JUDGE ALAN L. FLORES, PRESIDING JUDGE,
REGIONAL TRIAL COURT, BRANCH 7, TUBOD, LANAO DEL
NORTE AND FORMER ACTING PRESIDING JUDGE, REGIONAL
TRIAL COURT, BRANCH 21, KAPATAGAN, LANAO DEL NORTE,
Respondent.
G.R. No. 189649, April 20, 2015 - ADORACION CAROLINO
(SPOUSE AND IN SUBSTITUTION OF THE DECEASED
JEREMIAS A. CAROLINO), Petitioner, v. GEN. GENEROSO
SENGA, AS CHIEF OF STAFF OF THE ARMED FORCES OF THE
PHILIPPINES (AFP); BRIG. GEN. FERNANDO ZABAT, AS CHIEF
OF THE AFP FINANCE CENTER; COMMO. REYNALDO BASILIO,
AS CHIEF OF THE AFP-GHQ MANAGEMENT AND FISCAL
OFFICE; AND COMMO. EMILIO MARAYAG, PENSION AND
GRATUITY OFFICER, PENSION AND GRATUITY MANAGEMENT
CENTER, AFP FINANCE CENTER, Respondent.
G.R. No. 183641, April 22, 2015 - BENJAMIN GUERRERO,
Petitioner, v. DIRECTOR, LAND MANAGEMENT BUREAU,
FLORANTE EDWARD R. BENITEZ, PROJECT EVALUATION
OFFICER III, LEGAL DIVISION; AND HEIRS OF MARCELO
BUSTAMANTE, REPRESENTED BY CORA Z. BUSTAMANTE,
Respondent.
G.R. No. 205188, April 22, 2015 - REPUBLIC OF THE
PHILIPPINES, REPRESENTED BY HONORABLE LOURDES M.
TRASMONTE IN HER CAPACITY AS UNDERSECRETARY OF
THE DEPARTMENT OF LABOR AND EMPLOYMENT, AND
AHONORABLE JENNIFER JARDIN-MANALILI, IN HER
CAPACITY AS THEN PHILIPPINE OVERSEAS EMPLOYMENT
ADMINISTRATOR, Petitioner, v. HUMANLINK MANPOWER
CONSULTANTS, INC. (FORMERLY MHY NEW RECRUITMENT
INTERNATIONAL, INC.), Respondent.
G.R. No. 182805, April 22, 2015 - HEIRS OF SERAPIO
MABBORANG: LAURIANO MABBORANG, DOMINGO
MABBORANG, ENCARNACION MABBORANG, FELIX
MABBORANG, FAUSTINA MABBORANG, ELIAS MABBORANG,
ALBERTA MABBORANG; HEIRS OF REGINO MABBORANG:
JOSE MABBORANG, DIONICIA MABBORANG, SOTERA
MABBORANG, MARIANO MABBORANG; HEIRS OF SUSANA
MABBORANG: CECILIA UBINA-OCAB AND CANDIDA U.
TAGUIGA; SEGUNDA MABBORANG; HEIRS OF VICTORINO
MABBORANG: JUAN MABBORANG, JR., SERVANDO
MABBORANG; AND HEIRS OF VICENTE MABBORANG:
MARIANO MABBORANG, MARTIN MABBORANG, LUZ
MABBORANG-CARILLO, Petitioners, v. HERMOGENES
MABBORANG AND BENJAMIN MABBORANG, Respondent.
A.M. No. P-12-3092 (Formerly A.M. No. 12-7-54-MTC), April 14,
2015 - OFFICE OF THE COURT ADMINISTRATOR, Complainant,
v. REMEDIOS R. VIESCA, CLERK OF COURT II, MUNICIPAL
TRIAL COURT OF SAN ANTONIO, NUEVA ECIJA, Respondent.
G.R. Nos. 211933 & 211960, April 15, 2015 - ROBERTA S.
SALDARIEGA, Petitioner, v. HON. ELVIRA D.C. PANGANIBAN,
PRESIDING JUDGE, BRANCH 227, REGIONAL TRIAL COURT,
NATIONAL CAPITAL REGION, QUEZON CITY AND PEOPLE OF
THE PHILIPPINES, Respondent.
G.R. No. 179334, April 21, 2015 - SECRETARY OF THE
DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS AND
DISTRICT ENGINEER CELESTINO R. CONTRERAS, Petitioners,
v. SPOUSES HERACLEO AND RAMONA TECSON, Respondents.
G.R. No. 201146, April 15, 2015 - PEOPLE OF THE
PHILIPPINES, Appellee, v. MICHAEL ROS Y ORTEGA, RODOLFO
JUSTO, JR. Y CALIFLORES, AND DAVID NAVARRO Y MINAS,
Appellants.
A.C. No. 9868 [formerly CBD Case No. 05-1617], April 22,
2015 - ATTY. ALFREDO L. VILLAMOR, JR., Complainant, v.
ATTYS. E. HANS A. SANTOS AND AGNES H. MARANAN,
Respondents.
there is a waiver of interest shall Article 1176 become relevant.
Under this analysis, we rule that the respondent properly credited the daily payments to the interest and not to the
principal because: (1) the debt produces interest, i.e., the promissory note securing the second loan provided for
payment of interest; (2) a portion of the second loan remained unpaid upon maturity; and (3) the respondent did not
waive the payment of interest.
There was no waiver of interest
The fact that the official receipts did not indicate whether the payments were made for the principal or the interest does
not prove that the respondent waived the interest.
We reiterate that the petitioner made the daily payments after the second loan had already matured and a portion of the
principal remained unpaid. As stipulated, the principal is subject to 26% annual interest.
All these show that the petitioner was already in default of the principal when he started making the daily payments. The
stipulations providing for the 10% monthly penalty and the additional 25% attorney's fees on the unpaid amount also
became effective as a result of the petitioner's failure to pay in full upon maturity.
In other words, the so-called interest for default25 (as distinguished from the stipulated monetary interest of 26% per
annum) in the form of the 10% monthly penalty accrued and became due and demandable. Thus, when the petitioner
started making the daily payments, two types of interest were at the same time accruing, the 26% stipulated monetary
interest and the interest for default in the form of the 10% monthly penalty.
Article 1253 covers both types of interest. As noted by learned civilist, Arturo M. Tolentino, no distinction should be made
because the law makes no such distinction. He explained: LawlibraryofCRAlaw
"Furthermore, the interest for default arises because of non-performance by the debtor, and to allow
him to apply payment to the capital without first satisfying such interest, would be to place him
in a better position than a debtor who has not incurred in delay. The delay should worsen, not
improve, the position of a debtor."26 [Emphasis supplied.]
The petitioner failed to specify which of the two types of interest the respondent allegedly waived. The respondent
waived neither.
In Swagman Hotels and Travel Inc. v. Court of Appeals,27 we applied Article 1253 of the Civil Code in resolving whether
the debtor has waived the payments of interest when he issued receipts describing the payments as "capital repayment."
We held that,
"Under Article 1253 of the Civil Code, if the debt produces interest, payment of the principal shall not be
deemed to have been made until the interest has been covered. In this case, the private respondent
would not have signed the receipts describing the payments made by the petitioner as "capital
repayment" if the obligation to pay the interest was still subsisting.
"There was therefore a novation of the terms of the three promissory notes in that the interest was
waived..."28 [Emphasis supplied.]
The same ruling was made in an older case29 where the creditor issued a receipt which specifically identified the
payment as referring to the principal. We held that the interest allegedly due cannot be recovered, in conformity with
Article 1110 of the Old Civil Code, a receipt from the creditor for the principal, that contains no stipulation regarding
interest, extinguishes the obligation of the debtor with regard thereto when the receipt issued by the creditor showed that
no reservation whatever was made with respect to the interest.
In both of these cases, it was clearly established that the creditors accepted the payment of the principal. The creditors
were deemed to have waived the payment of interest because they issued receipts expressly referring to the payment of
the principal without any reservation with respect to the interest. As a result, the interests due were deemed waived. It
was immaterial whether the creditors intended to waive the interest or not. The law presumed such waiver because the
creditors accepted the payment of the principal without reservation with respect to the interest.
In the present case, it was not proven that the respondent accepted the payment of the principal. The silence of the
receipts on whether the daily payments were credited against the unpaid balance of the principal or the accrued interest
does not mean that the respondent waived the payment of interest. There is no presumption of waiver of interest without
any evidence showing that the respondent accepted the daily installments as payments for the principal.
Ideally, the respondent could have been more specific by indicating on the receipts that the daily payments were being
credited against the interest. Its failure to do so, however, should not be taken against it. The respondent had the right to
credit the daily payments against the interest applying Article 1253.
It bears stressing that the petitioner was already in default. Under the promissory note, the petitioner waived demand in
case of non-payment upon due date.30 The stipulated interest and interest for default have both accrued. The only
logical result, following Article 1253 of the Civil Code, is that the daily payments were first applied against either or both
the stipulated interest and interest for default.
Moreover, Article 1253 is viewed as having an obligatory character and not merely suppletory. It cannot be dispensed
with except by mutual agreement. The creditor may oppose an application of payment made by the debtor contrary to
this rule.31 redarclaw
In any case, the promissory note provided that "interest not paid when due shall be added to, and become part of the
principal and shall likewise bear interest at the same rate, compounded monthly."32 redarclaw
Hence, even if we assume that the daily payments were applied against the principal, the principal had also increased by
the amount of unpaid interest and the interest on such unpaid interest. Even under this assumption, it is doubtful whether
the petitioner had indeed fully paid the second loan.
Excessive interest, penalty and attorney's fees
Notwithstanding the foregoing, we find the stipulated rates of interest, penalty and attorney's fees to be exorbitant,
iniquitous, unconscionable and excessive. The courts can and should reduce such astronomical rates as reason and
equity demand.
Article 1229 of the Civil Code provides: LawlibraryofCRAlaw
"The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly
complied with by the debtor. Even if there has been no performance, the penalty may also be reduced
by the courts if it is iniquitous or unconscionable."
Article 2227 of the Civil Code ordains:LawlibraryofCRAlaw
"Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they
are iniquitous or unconscionable.
More importantly, Article 1306 of the Civil Code is emphatic: LawlibraryofCRAlaw
"The contracting parties may establish such stipulations, clauses, terms and conditions as they may
deem convenient, provided they are not contrary to law, morals, good customs, public order, or public
policy."
Thus, stipulations imposing excessive rates of interest and penalty are void for being contrary to morals, if not against
the law.33redarclaw

G.R. No. 200465, April 20, 2015 - JOCELYN ASISTIO Y
CONSINO, Petitioner, v. PEOPLE OF THE PHILIPPINES AND
MONICA NEALIGA, Respondent.
G.R. Nos. 192698-99, April 22, 2015 - RAYMUNDO E.
ZAPANTA, Petitioner, v. PEOPLE OF THE PHILIPPINES,
Respondent.
G.R. No. 197597, April 08, 2015 - IN THE MATTER OF THE
PETITION FOR HABEAS CORPUS OF DATUKAN MALANG
SALIBO, DATUKAN MALANG SALIBO, Petitioner, v. WARDEN,
QUEZON CITY JAIL ANNEX, BJMP BUILDING, CAMP BAGONG
DIWA, TAGUIG CITY AND ALL OTHER PERSONS ACTING ON
HIS BEHALF AND/OR HAVING CUSTODY OF DATUKAN
MALANG SALIBO, Respondents.
G.R. No. 159611, April 22, 2015 - HEIRS OF ANTERO SOLIVA,
Petitioner, v. SEVERINO, JOEL, GRACE, CENON, JR., RENATO,
EDUARDO, HILARIO, ALL SURNAMED SOLIVA, ROGELIO V.
ROLEDA, AND SANVIC ENTERPRISES, INC., REPRESENTED
BY ITS MANAGER, SANTOS PORAQUE, Respondents.
G.R. No. 212381, April 22, 2015 - REYNALDO M. JACOMILLE,
Petitioner, v. HON. JOSEPH EMILIO A. ABAYA, IN HIS CAPACITY
AS SECRETARY OF TRANSPORTATION AND
COMMUNICATIONS (DOTC); ATTY. ALFONSO V. TAN, JR., IN HIS
CAPACITY AS ASSISTANT SECRETARY OF THE LAND
TRANSPORTATION OFFICE (LTO); HON. FLORENCIO ABAD, IN
HIS CAPACITY AS SECRETARY OF BUDGET AND
MANAGEMENT (DBM); HON. ARSENIO M. BALISACAN, IN HIS
CAPACITY AS DIRECTOR GENERAL OF THE NATIONAL
ECONOMIC AND DEVELOPMENT AUTHORITY (NEDA); HON.
MARIA GRACIA M. PULIDO TAN, IN HER CAPACITY AS
CHAIRPERSON OF THE COMMISSION ON AUDIT (COA) AND
POWER PLATES DEVELOPMENT CONCEPTS, INC.,/J.
KNIERIEM B.V. GOES (JKG) (JOINT VENTURE) REPRESENTED
BY ITS MANAGING DIRECTOR, CHRISTIAN S. CALALANG,
Respondents.
G.R. No. 202331, April 22, 2015 - THE PROVINCIAL
GOVERNMENT OF AURORA, Petitioner, v. HILARIO M. MARCO,
Respondents.
G.R. No. 197562, April 20, 2015 - AURORA ENGSON
FRANSDILLA, Petitioner, v. PEOPLE OF THE PHILIPPINES,
Respondent.
G.R. No. 180771, April 21, 2015 - RESIDENT MARINE
MAMMALS OF THE PROTECTED SEASCAPE TANON STRAIT,
E.G., TOOTHED WHALES, DOLPHINS, PORPOISES, AND
OTHER CETACEAN SPECIES, JOINED IN AND REPRESENTED
HEREIN BY HUMAN BEINGS GLORIA ESTENZO RAMOS AND
ROSE-LIZA EISMA-OSORIO, IN THEIR CAPACITY AS LEGAL
GUARDIANS OF THE LESSER LIFE-FORMS AND AS
RESPONSIBLE STEWARDS OF GOD'S CREATIONS, Petitioners,
v. SECRETARY ANGELO REYES, IN HIS CAPACITY AS
SECRETARY OF THE DEPARTMENT OF ENERGY (DOE),
SECRETARY JOSE L. ATIENZA, IN HIS CAPACITY AS
SECRETARY OF THE DEPARTMENT OF ENVIRONMENT AND
NATURAL RESOURCES (DENR), LEONARDO R. SIBBALUCA,
DENR REGIONAL DIRECTOR-REGION VII AND IN HIS
CAPACITY AS CHAIRPERSON OF THE TANON STRAIT
PROTECTED SEASCAPE MANAGEMENT BOARD, BUREAU OF
FISHERIES AND AQUATIC RESOURCES (BFAR), DIRECTOR
MALCOLM I. SARMIENTO, JR., BFAR REGIONAL DIRECTOR
FOR REGION VII ANDRES M. BOJOS, JAPAN PETROLEUM
EXPLORATION CO., LTD. (JAPEX), AS REPRESENTED BY ITS
PHILIPPINE AGENT, SUPPLY OILFIELD SERVICES, INC.,
Respondents.; G.R. No. 181527 - CENTRAL VISAYAS
FISHERFOLK DEVELOPMENT CENTER (FIDEC), CERILO D.
ENGARCIAL, RAMON YANONG, FRANCISCO LABID, IN THEIR
PERSONAL CAPACITY AND AS REPRESENTATIVES OF THE
SUBSISTENCE FISHERFOLKS OF THE MUNICIPALITIES OF
ALOGUINSAN AND PINAMUNGAJAN, CEBU, AND THEIR
FAMILIES, AND THE PRESENT AND FUTURE GENERATIONS OF
FILIPINOS WHOSE RIGHTS ARE SIMILARLY AFFECTED,
Petitioners, v. SECRETARY ANGELO REYES, IN HIS CAPACITY
AS SECRETARY OF THE DEPARTMENT OF ENERGY (DOE),
JOSE L. ATIENZA, IN HIS CAPACITY AS SECRETARY OF THE
DEPARTMENT OF ENVIRONMENT AND NATURAL RESOURCES
(DENR), LEONARDO R. SIBBALUCA, IN HIS CAPACITY AS
DENR REGIONAL DIRECTOR-REGION VII AND AS
CHAIRPERSON OF THE TA�ON STRAIT PROTECTED
SEASCAPE MANAGEMENT BOARD, ALAN ARRANGUEZ, IN HIS
CAPACITY AS DIRECTOR ENVIRONMENTAL MANAGEMENT
BUREAU-REGION VII, DOE REGIONAL DIRECTOR FOR REGION
VIII1 ANTONIO LABIOS, JAPAN PETROLEUM EXPLORATION
CO., LTD. (JAPEX), AS REPRESENTED BY ITS PHILIPPINE
AGENT, SUPPLY OILFIELD SERVICES, INC., Respondent.
G.R. No. 202950, April 06, 2015 - BALTAZAR IBOT, Petitioner,
v. HEIRS OF FRANCISCO TAYCO, REPRESENTED BY FLORA
TAYCO, WILLY TAYCO AND MERLYN T. BULANTE,
Respondents.
G.R. No. 187013, April 22, 2015 - SPOUSES MAGDALINO AND
CLEOFE BADILLA, Petitioners, v. FE BRAGAT, Respondent.
G.R. No. 194642, April 06, 2015 - NUNELON R. MARQUEZ,
Petitioner, v. ELISAN CREDIT CORPORATION, Respondents.
A.M. No. 07-11-14-SC, April 14, 2015 - RE: LETTER OF
ERLINDA ILUSORIO-BILDNER, POTC, PHILCOMSAT,
REQUESTING INVESTIGATION OF CERTAIN MEMBERS OF THE
JUDICIARY
G.R. No. 209331, April 24, 2015 - DEPARTMENT OF FINANCE,
REPRESENTED BY HON. CESAR V. PURISIMA IN HIS OFFICIAL
CAPACITY AS SECRETARY, AND THE BUREAU OF CUSTOMS,
REPRESENTED BY HON. ROZZANO RUFINO B. BIAZON, IN HIS
OFFICIAL CAPACITY AS COMMISSIONER OF CUSTOMS,
Petitioners, v. HON. MARINO M. DELA CRUZ, JR., IN HIS
CAPACITY AS EXECUTIVE JUDGE, REGIONAL TRIAL COURT,
MANILA, HON. FELICITAS O. LARON-CACANINDIN, IN HER
CAPACITY AS PRESIDING JUDGE, REGIONAL TRIAL COURT,
MANILA, BRANCH 17, RONNIE C. SILVESTRE, EDWARD P.
DELA CUESTA, ROGEL C. GATCHALIAN, IMELDA D.CRUZ,
LILIBETH S. SANDAG, RAYMOND P. VENTURA, MA. LIZA S.
TORRES, ARNEL C. ALCARAZ, MA. LOURDES V. MANGAOANG,
FRANCIS AGUSTIN Y. ERPE, CARLOS T. SO, MARIETTA D.
Further, we have repeatedly held that while Central Bank Circular No. 905-82, which took effect on January 1, 1983,
effectively removed the ceiling on interest rates for both secured and unsecured loans, regardless of maturity, nothing in
the said circular could possibly be read as granting carte blanche authority to lenders to raise interest rates to levels that
would be unduly burdensome, to the point of oppression on their borrowers.34 redarclaw
In exercising this power to determine what is iniquitous and unconscionable, courts must consider the circumstances of
each case since what may be iniquitous and unconscionable in one may be totally just and equitable in another.35 redarclaw
In the recent case of MCMP Construction Corp. v. Monark Equipment Corp.,36
we reduced the interest rate of twenty-
four percent (24%) per annum to twelve percent (12%) per annum; the penalty and collection charge of three percent
(3%) per month, or thirty-six percent (36%) per annum, to six percent (6%) per annum; and the amount of attorney's fees
from twenty-five percent (25%) of the total amount due to five percent (5%).
Applying the foregoing principles, we hereby reduce the stipulated rates as follows: the interest of twenty-six percent
(26%) per annum is reduced to two percent (2%) per annum; the penalty charge of ten percent (10%) per month, or one-
hundred twenty percent (120%) per annum is reduced to two percent (2%) per annum; and the amount of attorney's fees
from twenty-five percent (25%) of the total amount due to two percent (2%) of the total amount due.
We believe the markedly reduced rates are reasonable, equitable and just under the circumstances.
It is not entirely the petitioner's fault that he honestly, albeit wrongly, believed that the second loan had been fully paid.
The respondent is partly to blame for issuing receipts not indicating that the daily payments were being applied against
the interest.
Moreover, the reduction of the rates is justified in the context of its computation period. In Trade & Investment Dev't
Corp. of the Phil. v. Roblett Industrial Construction Corp.,37 we equitably reduced the interest rate because the case was
decided with finality sixteen years after the filing of the complaint. We noted that the amount of the loan swelled to a
considerably disproportionate sum, far exceeding the principal debt.
It is the same in the present case where the complaint was filed almost twenty-years ago.38 redarclaw
The Chattel Mortgage could not cover the second loan.
The chattel mortgage could not validly cover the second loan. The order for foreclosure was without legal and factual
basis.
In Acme Shoe, Rubber and Plastic Corp. v. Court of Appeals,39 the debtor executed a chattel mortgage, which had a
provision to this effect: LawlibraryofCRAlaw
"In case the MORTGAGOR executes subsequent promissory note or notes either as a renewal of the
former note, as an extension thereof, or as a new loan, or is given any other kind of accommodations
such as overdrafts, letters of credit, acceptances and bills of exchange, releases of import shipments on
Trust Receipts, etc., this mortgage shall also stand as security for the payment of the said promissory
note or notes and/or accommodations without the necessity of executing a new contract and this
mortgage shall have the same force and effect as if the said promissory note or notes and/or
accommodations were existing on the date thereof."40 [Emphasis supplied.]
In due time, the debtor settled the loan covered by the chattel mortgage. Subsequently, the debtor again borrowed from
the creditor. Due to financial constraints, the subsequent loan was not settled at maturity.
On the issue whether the chattel mortgage could be foreclosed due to the debtor's failure to settle the subsequent loan,
we held that,
"[c]ontracts of security are either personal or real, x x x In contracts of real security, such as a pledge, a
mortgage or an antichresis, that fulfillment is secured by an encumbrance of property � in pledge, the
placing of movable property in the possession of the creditor; in chattel mortgage, by the execution of
the corresponding deed substantially in the form prescribed by law; x x x � upon the essential condition
that if the principal obligation becomes due and the debtor defaults, then the property encumbered can
be alienated for the payment of the obligation, but that should the obligation be duly paid, then the
contract is automatically extinguished proceeding from the accessory character of the
agreement. As the law so puts it, once the obligation is complied with, then the contract of
security becomes, ipso facto, null and void."41 redarclaw
While a pledge, real estate mortgage, or antichresis may exceptionally secure after-incurred obligations
so long as these future debts are accurately described, a chattel mortgage, however, can only cover
obligations existing at the time the mortgage is constituted. Although a promise expressed in a
chattel mortgage to include debts that are yet to be contracted can be a binding commitment
that can be compelled upon, the security itself, however, does not come into existence or arise
until after a chattel mortgage agreement covering the newly contracted debt is executed either
by concluding a fresh chattel mortgage or by amending the old contract conformably with the
form prescribed by the Chattel Mortgage Law. Refusal on the part of the borrower to execute the
agreement so as to cover the after-incurred obligation can constitute an act of default on the part of the
borrower of the financing agreement whereon the promise is written but, of course, the remedy of
foreclosure can only cover the debts extant at the time of constitution and during the life of the chattel
mortgage sought to be foreclosed."42 [Emphasis supplied.]
We noted that the Chattel Mortgage Law43 requires the parties to the contract to attach an affidavit of good faith and
execute an oath that -
" x x x (the) mortgage is made for the purpose of securing the obligation specified in the conditions
thereof, and for no other purposes, and that the same is a just and valid obligation, and one not
entered into for the purposes of fraud."44
It is obvious therefore that the debt referred in the law is a current, not an obligation that is yet merely
contemplated.45
"x x x in consideration of the credit accommodation granted by the MORTGAGEE to the
MORTGAGOR(S) in the amount of FIFTY-THREE THOUSAND ONLY PESOS (P53,000.00) xxx and all
other obligations of every kind already incurred or which may hereafter be incurred, for or
accommodation of the MORTGAGOR(S), as well as the faithful performance of the terms and
conditions of this mortgage x x x."46 [Emphasis supplied.]
The only obligation specified in the chattel mortgage contract was the first loan which the petitioner later fully paid. By
virtue of Section 3 of the Chattel Mortgage Law,47 the payment of the obligation automatically rendered the chattel
mortgage terminated; the chattel mortgage had ceased to exist upon full payment of the first loan. Being merely an
accessory in nature, it cannot exist independently of the principal obligation.
The parties did not execute a fresh chattel mortgage nor did they amend the chattel mortgage to comply with the Chattel
Mortgage Law which requires that the obligation must be specified in the affidavit of good faith. Simply put, there no
longer was any chattel mortgage that could cover the second loan upon full payment of the first loan. The order to
foreclose the motor vehicle therefore had no legal basis.
WHEREFORE, in view of the foregoing findings and legal premises, we PARTIALLY GRANT the petition. We MODIFY
the May 17, 2010 Decision and the November 25, 2010 Resolution of the Court of Appeals in CA G.R. SP No. 102144.
ACCORDINGLY, petitioner Nunelon R. Marquez is ORDERED to pay: LawlibraryofCRAlaw
1. Twenty-five thousand forty pesos (P25,040.00) representing the amount of the unpaid balance of the second
loan;chanRoblesvirtualLawlibrary
ZAMORANOS, CARMELITA M. TALUSAN,1 AREFILES H.
CARREON,2 AND ROMALINO G. VALDEZ, Respondents. 2. Interest of two percent (2%) per annum on the unpaid balance to be computed from December 15, 199248 until
full payment;
3. Penalty of two percent (2%) per annum on the unpaid balance to be computed from December 15, 1992; chanRoblesvirtualLawlibrary

4. Attorney's Fees of two percent (2%) of the total amount to be recovered.

The total amount to be recovered shall further be subject to the legal interest rate of six percent (6 %) per annum from
the finality of this Decision until fully paid.49 redarclaw

Respondent Elisan Credit Corporation, on the other hand, is ORDERED to return/deliver the seized motor vehicle with
Plate No. UV-TDF-193, subject of the chattel mortgage, to the possession of the petitioner; in the event its delivery is no
longer possible, to pay the petitioner the amount of P30,000.00 corresponding to the value of the said vehicle.

No pronouncement as to costs.

SO ORDERED. cralawlawlibrary

Carpio, (Chairperson), Del Castillo, Mendoza, and Leonen, JJ., concur.

Endnotes:

1Rollo, pp. 10-30. The petition is filed under Rule 45 of the Rules of Court.

2Id. at 32-42. Penned by Associate Justice Rodil V. Zalameda and concurred in by Associate Justice
Mario L. Guarifia III and Associate Justice Apolinario D. Bruselas, Jr.

3Id. at 44-45. Penned by Associate Justice Rodil V. Zalameda and concurred in by Associate Justice
Mario L. Guarifia III and Associate Justice Apolinario D. Bruselas, Jr.

4The CA affirmed the May 7, 2007 order of the Regional Trial Court (RTC) Branch 222 - Quezon City,
which reversed and set aside the February 20, 2004 decision of the Metropolitan Trial Court (MTC),
Branch 43 - Quezon City.
5Supra note 1, at 2.

6Rollo, p.79.

7 Id. at 81. The chattel mortgage was duly registered in the Office of the Registry of Deeds in
Novaliches, Quezon City.

8Supra note 1, at 12. Emphasis supplied.

9Rollo, pp. 12, 168.
10 Id. at 82.

11 Id. at 83.

12 Id. at 13, 169.

13 Id. at 14, 168.
14 Id. at 71-77.

15 Id. at 171.
16Supra note 2, at 34.
17Rollo, pp. 57-61.

18 Id. at 60. Article 1235, Civil Code.

19 Id. at 62-70.

20Supra note 2.

21Rollo, pp. 164-172.

22Supra note 1, at 19.

23Supra note 1, at 13.

24Supra note 2, at 39.

25 ARTURO M. TOLENTINO, CIVIL CODE OF THE PHILIPPINES Vol. IV, 313 (1960).

26 Id.

27 495 Phil. 161 (2005).

28 Id. at 175. Emphasis supplied.

29Hill v. Veloso, 31 Phil. 160 (1915).

30Supra note 10.

31Supra note 25, citing Manresa.

32Supra note 10.

33Planters Development Bank v. Spouses Lopez, G.R. No. 186332, October 23, 2013, 708 SCRA 481,
citing Imperial v. Jaucian, 471 Phil. 484, 494-495 (2004); and Castro v. Tan, G.R. No. 168940,
November 24, 2009, 605 SCRA 231, 237-238.

34Macalinao v. Bank of the Philippine Islands, G.R. No. 175490, September 17, 2009, 600 SCRA 67,
76-78, citing Imperial v. Jaucian, G.R. 149004, April 14, 2004, 427 SCRA 517, Tongoy v. Court of
Appeals, No. L-45645, June 28, 1983, 123 SCRA 99.

35 Id.

36 G.R. No. 201001, November 10, 2014.

37 523 Phil. 362, 367 (2006), cited in Planters Development Bank v. Spouses Lopez, supra note 33.
 38Supra note 14. The complaint was filed on August 16, 1995.

39 329 Phil 531 (1996).

40 Id. at 536.

41 Id. at 538-539.
42 Id. at 539.

43 Act 1508 as amended dated July 2, 1906.

44Supra note 39, at p. 540.

45 Id.

46Supra note 7.

47Sec. 3. Chattel mortgage defined. � A chattel mortgage is a conditional sale of personal property as
security for the payment of a debt, or the performance of some other obligation specified therein, the
condition being that the sale shall be void upon the seller paying to the purchaser a sum of money or
doing some other act named. If the condition is performed according to its terms the mortgage
and sale immediately become void, and the mortgagee is thereby divested of his title. [Emphasis
supplied.]
48 The maturity date of the second loan.

49 Section 1 of BSP Circular No. 799 dated July 1, 2013.

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