Facts:

Mabalacat was indebted to Hijos, with mortgage and interest. Hijos now seeks payment. He
imposed compounded interest charges in estimating the amount of indebtedness.
Argument:
Hijos: In the mortgage, there had been a stipulation that, Interest, to be computed upon the still
unpaid capital of the loan, shall be paid monthly, at the end of each month. Thus, this justifies
the imposition of compounded interest charges.

Issue: WON the imposition of compounded interest charges is justified.

Held:

No. The provision in the mortgage quoted by Hijos merely requires the debtor to pay interest
monthly at the end of each month, such interest to be computed upon the capital of the loan not
already paid.
In the absence of express stipulation for the accumulation of compound interest, no interest can
be collected upon interest until the debt is judicially claimed, and then the rate at which interest
upon accrued interest must be computed is fixed at 6 per cent per annum.
**************
Where interest is improperly charged, at an unlawful rate, the mere voluntary payment of it to the
creditor by the debtor is not binding. Such payment, in the case before us, was usurious, being in
excess of 12 per cent which is allowed to be charged, under section 2 of the Usury Law, when a
debt is secured by mortgage upon real property.

The first point assigned as error has relation to the question whether the action was prematurely
stated
non-compliance on the part of the mortgage debtor with any of the obligations assumed in virtue
of this contract will cause the entire debt to become due and give occasion for the foreclosure of
the mortgage.
the mortgage creditor, Cu Unjieng e Hijos, agreed to extend the time for payment of the
mortgage indebtedness until June 30, 1929

The second error is directed to the propriety of the interest charges made by the plaintiff in
estimating the amount of the indebtedness.
It is well settled that, under article 1109 of the Civil Code, as well as under section 5 of the
Usury Law (Act No. 2655), the parties may stipulate that interest shall be compounded; and rests
for the computation of compound interest can certainly be made monthly, as well as quarterly,
semiannually, or annually. But in the absence of express stipulation for the accumulation of
compound interest, no interest can be collected upon interest until the debt is judicially claimed
In the present case, however, the language which we have quoted above does not justify the
charging of interest upon interest, so far as interest on the capital is concerned. The provision
quoted merely requires the debtor to pay interest monthly at the end of each month, such interest
to be computed upon the capital of the loan not already paid. Clearly this provision does not
justify the charging of compound interest upon the interest accruing upon the capital monthly.
But the exhibit referred to is merely a receipt showing that the sum of P256.28 was, on March
19, 1928, paid by the debtor to the plaintiff as interest upon interest. But where interest is
improperly charged, at an unlawful rate, the mere voluntary payment of it to the creditor by the
debtor is not binding.
it follows that the appealed judgment must be modified by deducting the sum of P1,136.12 from
the principal debt, so that the amount of said indebtedness shall be P162,398.61, with interest at
12 per cent per annum

lawphil.net

G.R. No. L-32644

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-32644

October 4, 1930

CU UNJIENG E HIJOS, plaintiff-appelle,

vs.

THE MABALACAT SUGAR CO., ET AL., defendants.

THE MABALACAT SUGAR CO., appellant.
Romeo Mercado for appellant.
Araneta and Zaragoza for plaintiff-appellee.
Duran and Lim for defendant-appellee Siuliong and Co.
STREET, J.:
This action was instituted in the Court of First Instance of Pampanga by Cu Unjieng e Hijos, for
the purpose of recovering from the Mabalacat Sugar Company an indebtedness amounting to
more than P163,00, with interest, and to foreclose a mortgage given by the debtor to secure the
same, as well as to recover stipulated attorney's fee and the sum of P1,206, paid by the plaintiff
for insurance upon the mortgaged property, with incidental relief. In the complaint Siuliong &
Co., Inc., was joined as defendant, as a surety of the Mabalacat Sugar Company, and as having a
third mortgage on the mortgaged property. The Philippine National Bank was also joined by
reason of its interest as second mortgagee of the land covered by the mortgage to the plaintiff.
After the cause had been brought to issue by the answers of the several defendants, the cause was
heard and judgment rendered, the dispositive portion of the decision being as follows:
Por las consideraciones expuestas, el Juzgado condena a The Mabalacat Sugar
Company a pagar a la demandante la suma de P163,534.73, con sus intereses de
12 por ciento al ano, compuestos mensualmente desde el 1. de mayo de 1929.
Tambien se le condena a pagar a dicha demandante la suma de P2,412 por las
primas de seguros abonadas por esta, con sus intereses de 12 por ciento al ano,
compuestos tambien mensualmente desde el 15 de mayo de 1928, mas la de
P7,500 por honorarios de abogados y las costas del juicio. Y si esta deuda no se
pagare dentro del plazo de tres meses, se ejecutaran los bienes hipotecados de
acuerdo con la ley.
Si del producto de la venta hubiese algun remanente, este se destinara al pago del
credito del Banco Nacional, o sea de P32,704.69, con sus intereses de 9 por ciento
al ano desde el 7 de junio de 1929, sin perjuicio de la orden de ejecucion que
pudiera expedirse en el asundo No. 26435 del Juzgado de Primera Instancia de
Manila.
Se condena ademas a The Mabalacat Sugar Company al pago de la suma de
P3,205.78 reclamada por Siuliong & Co., con sus intereses de 9 por ciento al ano
desde el 29 de julio de 1926 hasta su completo pago, ordenandola que rinda
cuentas del azucar por ella producido y pague la comision correspondiente bajo la
base de 5 por ciento de su valor, descontandose, desde luego, las cantidades ya
pagadas.
Se absuelve de la demanda de Cu Unjieng e Hijos a Siuliong & Co., Inc.1awph!
l.net

From this judgment the defendant, the Mabalacat Sugar Company, appealed.
The first point assigned as error has relation to the question whether the action was
prematurely stated. In this connection we note that the mortgage executed by the Mabalacat
Sugar Company contains, in paragraph 5, a provision to the effect that non-compliance on the
part of the mortgage debtor with any of the obligations assumed in virtue of this contract will
cause the entire debt to become due and give occasion for the foreclosure of the mortgage.
The debtor party failed to comply with the obligation, imposed upon it in the mortgage, to pay
the mortgage debt in the stipulated installments at the time specified in the contract. It results that
the creditor was justified in treating the entire mortgage debt as having been accelerated by such
failure of the debtor in paying the installments.
It appears, however, that on or about October 20, 1928, the mortgage creditor, Cu Unjieng e
Hijos, agreed to extend the time for payment of the mortgage indebtedness until June 30,
1929, with certain interim payments to be made upon specified dates prior to the contemplated
final liquidation of the whole indebtedness. But the debtor party failed to make the interim
payments due on February 25, 1929, March 25, 1929, and April 25, 1929, and failed altogether to
pay the balance due, according to the terms of this extension, on June 30, 1929. Notwithstanding
the failure of the debtor to comply with the terms of this extension, it is insisted for the appellant
that this agreement for the extension of the time of payment had the effect of abrogating the
stipulation of the original contract with respect to the acceleration of the maturity of the
debt by non-compliance with the terms of the mortgage. As the trial court pointed out, this
contention is untenable. The agreement to extend the time of payment was voluntary and without
consideration so far as the creditor is concerned; and the failure of the debtor to comply with the
terms of the extension justified the creditor in treating it as of no effect. The first error is
therefore without merit.
The second error is directed to the propriety of the interest charges made by the plaintiff in
estimating the amount of the indebtedness. In this connection we note that, under the second
clause of the mortgage, interest should be calculated upon the indebtedness at the rate of 12 per
cent per annum. In the same clause, but in a separate paragraph, there is another provision with
respect to the payment of interest expressed in Spanish in the following words:
Los intereses seran pagados mensualmente a fin de cada mes, computados
teniendo en cuenta el capital del prestamo aun no pagado.
Translated into English this provision reads substantially as follows: "Interest, to be computed
upon the still unpaid capital of the loan, shall be paid monthly, at the end of each month."
It is well settled that, under article 1109 of the Civil Code, as well as under section 5 of the
Usury Law (Act No. 2655), the parties may stipulate that interest shall be compounded; and rests
for the computation of compound interest can certainly be made monthly, as well as quarterly,
semiannually, or annually. But in the absence of express stipulation for the accumulation of
compound interest, no interest can be collected upon interest until the debt is judicially claimed,
and then the rate at which interest upon accrued interest must be computed is fixed at 6 per cent
per annum.

In the present case, however, the language which we have quoted above does not justify the
charging of interest upon interest, so far as interest on the capital is concerned. The provision
quoted merely requires the debtor to pay interest monthly at the end of each month, such interest
to be computed upon the capital of the loan not already paid. Clearly this provision does not
justify the charging of compound interest upon the interest accruing upon the capital monthly. It
is true that in subsections (a), (b) and (c) of article IV of the mortgage, it is stipulated that the
interest can be thus computed upon sums which the creditor would have to pay out (a) to
maintain insurance upon the mortgaged property, (b) to pay the land tax upon the same property,
and (c) upon disbursements that might be made by the mortgagee to maintain the property in
good condition. But the chief thing is that interest cannot be thus accumulated on unpaid interest
accruing upon the capital of the debt.
The trial court was of the opinion that interest could be so charged, because of the Exhibit 1 of
the Mabalacat Sugar Company, which the court considered as an interpretation by the parties to
the contract and a recognition by the debtor of the propriety of compounding the interest earned
by the capital. But the exhibit referred to is merely a receipt showing that the sum of P256.28
was, on March 19, 1928, paid by the debtor to the plaintiff as interest upon interest. But where
interest is improperly charged, at an unlawful rate, the mere voluntary payment of it to the
creditor by the debtor is not binding. Such payment, in the case before us, was usurious, being
in excess of 12 per cent which is allowed to be charged, under section 2 of the Usury Law, when
a debt is secured by mortgage upon real property. The Exhibit 1 therefore adds no support to the
contention of the plaintiff that interest upon interest can be accumulated in the manner adopter by
the creditor in this case. The point here ruled is in exact conformity with the decision of this
court in Bachrach Garage and Taxicab Co. vs. Golingco (39 Phil., 192), where this court held that
interest cannot be allowed in the absence of stipulation, or in default thereof, except when the
debt is judicially claimed; and when the debt is judicially claimed, the interest upon the interest
can only be computed at the rate of 6 per cent per annum.
It results that the appellant's second assignment of error is well taken, and the compound interest
must be eliminated from the judgment. With respect to the amount improperly charged, we
accept the estimate submitted by the president and manager of the Mabalacat Sugar Company,
who says that the amount improperly included in the computation made by the plaintiff's
bookkeeper is P879.84, in addition to the amount of P256.28 covered by Exhibit 1 of the
Mabalacat Sugar Company. But the plaintiff creditor had the right to charge interest, in the
manner adopted by it, upon insurance premiums which it had paid out; and if any discrepancy of
importance is discoverable by the plaintiff in the result here reached, it will be at liberty to
submit a revised computation in this court, upon motion for reconsideration, wherein interest
shall be computed in accordance with this opinion, that is to say, that no accumulation of interest
will be permitted at monthly intervals, as regards the capital of the debt, but such unpaid interest
shall draw interest at the rate of 6 per cent from the date of the institution of the action.
In the third assignment of error the appellant complains, as excessive, of the attorney's fees
allowed by the court in accordance with stipulation in the mortgage. The allowance made on the
principal debt was around 4 per cent, and about the same upon the fee allowed to the bank.
Under the circumstances we think the debtor has no just cause for complaint upon this score.

The fourth assignment of error complains of the failure of the trial court to permit an amendment
to be filed by the debtor to its answer, the application therefore having been made on the day
when the cause had been set for trial, with notice that the period was non-extendible. The point
was a matter in the discretion of the court, and no abuse of discretion is shown.
From what has been stated, it follows that the appealed judgment must be modified by deducting
the sum of P1,136.12 from the principal debt, so that the amount of said indebtedness shall be
P162,398.61, with interest at 12 per cent per annum, from May 1, 1929. In other respects the
judgment will be affirmed, and it is so ordered, with cost against the appellant.
Avancea, C.J., Malcolm, Villamor, Ostrand, Johns, Romualdez and Villa-Real, JJ., concur.
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