G.R. No. 29184, October 3, 1928
AQUILINO F. PANDO, Administrator of the estate of A. F. Pando, deceased, plaintiff-appellee, vs. CARMEN KETTE, represented by her attorney-in-fact A. A. Addison, and GEORGE C. SELLNER, defendants. CARMEN KETTE, appellant.

FACTS

Carmen Kette, through her attorney-in-fact A. A. Addison, obtained a loan of P20,000 from Adolfo F. Pando. To secure the loan, she executed a mortgage on her property. The mortgage deed stipulated, among others: (1) a one-year term, extendible for another year if agreeable to the creditor; (2) monthly advance interest payments at 12% per annum within the first ten days of each month; and (3) that failure to pay the monthly interest would allow the creditor to declare the entire obligation due and foreclose the mortgage, with the debtor liable for an additional 10% of the amount due as attorney’s fees and collection costs. Eleven post-dated checks for the monthly interest were issued and deposited with a third party for monthly delivery to the creditor. Kette failed to pay the interest for August 1926, the final month of the initial term. Pando’s estate filed an action for foreclosure. Kette appealed the trial court’s judgment in favor of the estate, raising several issues.

ISSUES:
1. Whether the foreclosure action was premature due to the stipulation for a possible one-year extension and due to a pending action for annulment of the mortgage (*lis pendens*).
2. Whether the mortgage contract was void for being usurious, as it stipulated monthly advance interest payments.
3. Whether the actual loan amount was only P19,000, not P20,000 as stated in the deed.
4. Whether the defendant was in default for the August 1926 interest payment.
5. Whether the trial court erred in sentencing the defendant instead of absolving her.

RULING

The Supreme Court AFFIRMED the trial court’s judgment ordering foreclosure and payment of the debt, interest, and penalty.

1. On the Prematurity and *Lis Pendens*: The action was not premature. The right to a one-year extension was contingent upon the creditor’s consent and the debtor’s full compliance with all conditions during the first year. By defaulting on the August 1926 interest payment, Kette breached the contract, allowing the creditor to declare the debt due and forfeiting any right to an extension. The creditor’s refusal to consent to the extension was also valid. The pending annulment case did not bar the foreclosure action because they involved different causes of action (annulment vs. foreclosure).

2. On Usury: The contract was not usurious. Citing American jurisprudence (Cyc.), the Court held that taking the highest legal interest in advance on short-term loans (like this one-year loan) is permissible, especially in commercial transactions, and does not constitute usury. The practice is analogous to banking transactions.

3. On the Loan Amount: The evidence preponderated in favor of the finding that the full P20,000 was deliveredP19,000 by check and P1,000 in cash. The trial court’s finding on this factual matter was sustained.

4. On Default for August 1926 Interest: The failure to pay the interest for August 1926 within the stipulated period was a clear default, which triggered the creditor’s right to accelerate the debt and foreclose the mortgage.

5. On the Trial Court’s Judgment: Having found no merit in the appellant’s assignments of error, the Supreme Court held that the trial court did not err in rendering judgment against Carmen Kette.

DOCTRINE:
The taking of the highest legal rate of interest in advance on a short-term loan (such as one for a period of one year) does not render the contract usurious. This practice is recognized as valid, particularly in commercial transactions.