GR 42958; (October, 1936) (Digest)
G.R. No. 42958 ; October 21, 1936
C. N. HODGES, plaintiff-appellant, vs. CARLOTA SALAS and PAZ SALAS, defendants-appellees.
FACTS
The plaintiff, C.N. Hodges, filed an action to foreclose a real estate mortgage executed by the defendants, Carlota Salas and Paz Salas, to secure a loan. The defendants had granted a special power of attorney to their brother-in-law, Felix S. Yulo, to obtain a loan and mortgage their property. Acting under this authority, Yulo obtained a loan of P28,000 from Hodges on March 27, 1926, executing a promissory note and a mortgage deed with 12% annual interest payable in advance. The loan proceeds were applied as follows: P3,360 for one year’s advance interest, P8,188.29 to cancel a prior mortgage of Yulo, P2,000 for Yulo’s personal property purchase, P9,200 to cancel a mortgage on the defendants’ property, and the remainder delivered to Yulo. The defendants made various interest payments totaling P14,779.77. The trial court found the transactions usurious, held the defendants liable only for P14,451.71 of the principal, applied all payments to this principal, and ordered the plaintiff to refund the defendants P3,327.06.
ISSUE
Whether the defendants are liable for the full P28,000 loan and the stipulated interest, despite the application of part of the loan proceeds to the personal obligations of their agent, Yulo.
RULING
No. The Supreme Court modified the trial court’s decision. It held that the defendants, as principals, were liable for the full P28,000 loan obtained by their duly authorized agent, Yulo. The fact that Yulo misapplied part of the loan for his own purposes did not relieve the defendants of their obligation for the entire principal and the stipulated interest for the first year, which was validly deducted in advance. The Court computed the outstanding obligation based on the full principal and the agreed interest rate, crediting all payments made by the defendants. The case was remanded for the proper determination of the amount due, ordering the defendants to pay the balance or suffer foreclosure of the mortgage. The appellees’ motion for reconsideration was denied.
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