G.R. No. 32644, October 4, 1930
CU UNJIENG E HIJOS, plaintiff-appellee, vs. THE MABALACAT SUGAR CO., ET AL., defendants. THE MABALACAT SUGAR CO., appellant.

FACTS

Cu Unjieng e Hijos (plaintiff) filed an action to recover a debt of over P163,000 from Mabalacat Sugar Co. (defendant-appellant) and to foreclose the mortgage securing it. The mortgage contained an acceleration clause making the entire debt due upon failure to pay installments. The debtor defaulted on installment payments. Although the creditor later agreed to extend the payment deadline to June 30, 1929, the debtor again failed to make the interim payments and the final balance. The trial court ruled in favor of the creditor, ordering payment of the debt with 12% annual interest compounded monthly, insurance premiums, attorney’s fees, and costs. The debtor appealed, arguing the action was premature, the compounding of interest was improper, the attorney’s fees were excessive, and the trial court erred in denying a last-minute amendment to its answer.

ISSUE

1. Was the action for foreclosure prematurely filed?
2. Was the creditor entitled to charge compound interest monthly on the unpaid capital of the loan?
3. Were the stipulated attorney’s fees excessive?
4. Did the trial court abuse its discretion in denying the amendment to the answer?

RULING

1. No, the action was not premature. The acceleration clause in the mortgage was valid. The subsequent extension agreement did not abrogate this clause. The debtor’s failure to comply with the terms of the extension entitled the creditor to treat the entire debt as due and proceed with foreclosure.

2. No, the creditor was not entitled to charge compound interest monthly on the unpaid capital. The mortgage provision only required monthly payment of simple interest computed on the unpaid principal. It did not expressly stipulate for the compounding of interest. Under Article 1109 of the Civil Code and the Usury Law, compound interest requires an express agreement. In its absence, interest upon accrued interest can only be charged at 6% per annum from the time the debt is judicially claimed. The payment of a sum as “interest upon interest” (Exhibit 1) was usurious and not binding. The judgment was modified by deducting P1,136.12 from the principal debt.

3. No, the attorney’s fees were not excessive. The fees awarded (approximately 4% of the principal debt) were in accordance with the mortgage stipulation and reasonable under the circumstances.

4. No, there was no abuse of discretion. The denial of the motion to amend the answer, filed on the day of trial set as non-extendible, was within the trial court’s sound discretion.

DISPOSITIVE PORTION:
The appealed judgment was MODIFIED. The principal debt was reduced to P162,398.61, with interest at 12% per annum from May 1, 1929 (simple interest, not compounded monthly). In all other respects, the judgment was AFFIRMED. Costs against the appellant.