G.R. No. 33320, October 4, 1930
SALVADOR RIVERO, plaintiff-appellee, vs. INOCENTE RABE, defendant-appellant.

FACTS

On April 9, 1919, Inocente Rabe obtained a loan of P1,000 from Salvador Rivero, payable within one year. The loan was secured by a mortgage on four parcels of registered land. The mortgage deed stipulated that the loan would earn “interest at the rate fixed by Act No. 2655.” After Rabe’s death, his heirs offered to pay interest at 10% per annum, but Rivero (and later his widow) demanded 12%. The trial court ordered the payment of the loan with 10% annual interest from April 9, 1919, plus attorney’s fees and costs. Rabe’s estate appealed, contending that the applicable interest rate should only be 6% per annum under Act No. 2655, and that the award of attorney’s fees was erroneous.

ISSUE

1. What is the applicable rate of interest on the loan6% or 10% per annumgiven the stipulation “interest at the rate fixed by Act No. 2655”?
2. Was the award of attorney’s fees proper?

RULING

1. The applicable interest rate is 10% per annum.
– Act No. 2655 (the Usury Law) provides in Section 1 that the legal rate of interest, in the absence of an express contract, is 6% per annum. Section 2 sets a maximum rate of 12% per annum for loans secured by a mortgage on registered real estate.
– The mortgage deed referred to “the rate fixed by Act No. 2655.” Interpreting this ambiguous stipulation under Article 1286 of the Civil Code (words should be understood in accordance with the nature and object of the contract), the Court held that since the loan was secured by a mortgage on registered land, the parties must have intended the rate under Section 2, which governs such transactions.
– Applying Article 1288 of the Civil Code (obscure terms are construed against the party who caused the obscurity), the ambiguity is construed against Rabe, who executed the deed.
– The subsequent conduct of Rabe and his heirsoffering to pay 10% interestsupports the interpretation that the agreed rate was within the 12% maximum under Section 2, not the 6% legal rate under Section 1. Thus, the trial court correctly imposed 10% interest.

2. The award of attorney’s fees is reasonable and justified.
– The mortgage contract provided for attorney’s fees in case of litigation. The amount of P150 was deemed reasonable considering the sum involved and the legal services rendered in both instances.

DISPOSITION: The decision of the trial court is AFFIRMED. Costs against the appellant.

DISSENTING OPINION (Street and Ostrand, JJ.):
The interest rate should be 6% per annum. The phrase “fixed by Act No. 2655” refers to the legal rate in Section 1, not the maximum rate in Section 2. The 12% rate is merely a ceiling, not a “fixed” rate. If the parties intended the maximum rate, they should have expressly stated so.