GR 18002; (July, 1922) (Digest)
G.R. No. 18002 ; July 10, 1922
THE GOVERNMENT OF THE PHILIPPINE ISLANDS, plaintiff-appellee, vs. ERNEST ARNOLD SCHENKEL and CRISTINA M. GONZALES, defendant-appellants.
FACTS
The Government of the Philippine Islands filed an action to recover a mortgage credit from the defendants, Ernest Arnold Schenkel and Cristina M. Gonzales. The defendants filed a demurrer to the complaint, arguing it did not describe the mortgaged property, but the trial court overruled it. After trial, the court ordered the defendants to pay the plaintiff the net amount of P50,840.23. The defendants appealed, assigning errors including the overruling of the demurrer and the alleged invalidity of the promissory note for violating the usury law (Section 14 of Act No. 1865 , the Agricultural Bank Act). The promissory note was for P30,000 with 8% annual interest payable semi-annually, and it stipulated interest on overdue interest installments.
ISSUE
1. Whether the trial court erred in overruling the demurrer to the complaint for lack of description of the mortgaged property.
2. Whether the promissory note is void for stipulating interest on overdue interest, thereby allegedly exacting more than the 10% per annum interest limit under Act No. 1865 .
RULING
1. No, the trial court did not err in overruling the demurrer. Although the complaint itself did not describe the mortgaged property, the mortgage deed was incorporated into the complaint by reference. Since the deed properly described the lands, that description is considered part of the complaint.
2. No, the promissory note is not void. The stipulation for interest on overdue interest installments does not violate the usury law. The interest due, once payable, becomes a new and separate debt by agreement of the parties. The interest charged on this new debt (the overdue interest) cannot be attributed to the original principal loan of P30,000 for the purpose of computing the 10% annual limit. Such an agreement is lawful and is implicitly authorized by Act No. 2665. The judgment of the trial court was affirmed.
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