G.R. No. 28497 & 28498, November 6, 1928
THE BACHRACH MOTOR CO., INC., plaintiff-appellee, vs. FAUSTINO ESPIRITU, defendant-appellant, and ROSARIO ESPIRITU, intervenor-appellant.

FACTS

Two consolidated cases arose from separate sale transactions between Bachrach Motor Co. (plaintiff) and Faustino Espiritu (defendant). In G.R. No. 28497 , Faustino purchased a truck, paying a down payment and mortgaging the new truck along with three other White trucks (Nos. 77197 and 92744 included) to secure the balance. In G.R. No. 28498 , Faustino purchased another truck, similarly mortgaging it and the same two trucks (Nos. 77197 and 92744) as security. Both contracts stipulated 12% annual interest on the unpaid balance and a 25% penalty on the total debt upon default. Faustino also signed promissory notes solidarily with his brother, Rosario Espiritu (intervenor), for the sums secured by the mortgages. Faustino defaulted. During the pendency of the cases, the mortgaged trucks were sold at auction, netting P3,269.58. The trial court held Faustino and Rosario liable for the deficiencies. Rosario intervened, claiming exclusive ownership of trucks Nos. 77197 and 92744 and denying he signed the promissory notes or consented to their mortgage. The appellants also contested the 25% penalty as usurious when combined with the 12% interest.

ISSUES:
1. Whether trucks Nos. 77197 and 92744 were validly mortgaged to secure the debts.
2. Whether the intervenor, Rosario Espiritu, is solidarily liable under the promissory notes.
3. Whether the stipulation for 12% interest plus a 25% penalty constitutes usury.

RULING

1. Yes, the trucks were validly mortgaged. The Supreme Court found positive evidence, including prior letters from Faustino, that the trucks were included in the mortgage deeds at the time of signing. The claim that they were inserted later without consent was unsubstantiated.
2. Yes, Rosario Espiritu is solidarily liable. The Court found that Rosario signed the promissory notes (Exhibits B and D) which were executed simultaneously with the mortgage deeds and secured by the same trucks. Witness testimony and signature comparison supported this finding. His awareness and consent to the mortgage of the trucks, regardless of his claim of exclusive ownership, rendered him liable. His alibi for not being in Manila on the date of signing was not conclusive.
3. No, the stipulation is not usurious. The Court distinguished between interest and penalty. Under Article 1152 of the Civil Code, a penalty may be stipulated separately from interest. The legal rate of interest applies only to the interest component, not to the penalty. Therefore, combining them does not automatically constitute usury. However, invoking Article 1154 of the Civil Code, which allows courts to reduce excessive penalties, the Supreme Court equitably reduced the penalty from 25% to 10% of the unpaid debt, considering the partial performance (the auction sale).

DISPOSITIVE PORTION:
The appealed judgment was AFFIRMED with the MODIFICATION that the penalty is reduced to 10% of the unpaid sums. No costs.