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

The Bachrach Motor Co., Inc. filed two separate collection cases against Faustino Espiritu arising from two truck sale transactions. In G.R. No. 28497, Faustino purchased a truck for P11,983.50, paid P1,000 down, and mortgaged the purchased 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 for P7,136.50, paid P500 down, and mortgaged the purchased truck along with the same two trucks (Nos. 77197 and 92744). Both contracts stipulated 12% annual interest on the unpaid balance and a 25% penalty on the total debt upon maturity. Faustino also signed promissory notes solidarily with his brother, Rosario Espiritu, for the amounts secured by the mortgages. Faustino defaulted on his payments. During the pendency of the cases, the mortgaged trucks were sold at public auction, netting P3,269.58. Rosario Espiritu intervened, claiming to be the exclusive owner of trucks Nos. 77197 and 92744 and arguing that they were not validly mortgaged since he did not sign the mortgage deeds. The trial court ruled in favor of Bachrach, ordering Faustino and Rosario to pay the deficiencies with interest and penalty.

ISSUES:
1. Whether trucks Nos. 77197 and 92744 were validly mortgaged to secure the debts despite Rosario Espiritu’s claim of exclusive ownership and non-signature on the mortgage deeds.
2. Whether the stipulated 25% penalty, in addition to 12% interest, constitutes usury.

RULING

1. Yes, the trucks were validly mortgaged. The Supreme Court found that the inclusion of trucks Nos. 77197 and 92744 in the mortgage deeds was with Faustino’s knowledge and consent, as evidenced by his prior letters. Crucially, while Rosario did not sign the mortgage deeds, he solidarily signed the promissory notes secured by those mortgages. All documents were executed simultaneously, and Rosario was aware of and consented to the inclusion of the trucks as collateral. His claim of exclusive ownership is immaterial since he bound himself personally through the promissory notes and consented to the mortgage.
2. No, the stipulation is not usurious. The Court distinguished between interest and penalty. The 12% interest alone is subject to usury laws. The 25% penalty is a separate stipulation allowed under Article 1152 of the Civil Code and is not added to the interest to determine usury. However, invoking Article 1154 of the Civil Code, which allows courts to equitably reduce excessive penalties, the Court reduced the penalty from 25% to 10% of the unpaid debt, considering the partial performance (the auction sale of the trucks).

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