G.R. No. 47053 ; July 31, 1944
ALEJANDRA CUNANAN, petitioner, vs. FIDELA NUQUE DE LAZATIN and ANTONIO LAZATIN, respondents.

FACTS

The case originated as an action to recover lands and rents but was determined by the Court of First Instance of Pampanga to be a liquidation of a debt secured by a mortgage, not an absolute sale with an option to repurchase. The trial court rendered a judgment, later modified, ordering petitioner Alejandra Cunanan to pay respondents a sum including principal, interest, and taxes. Cunanan appealed to the Court of Appeals on the amount due. The Court of Appeals modified the judgment, calculating the debt as of September 30, 1925, to be P23,040, with interest, and after crediting payments, set the principal at P21,310 as of September 30, 1930, plus interest and compound interest. Cunanan appealed to the Supreme Court via certiorari, assigning three errors: (1) the Court of Appeals erred in declaring the debt as of September 30, 1925, to be P23,040 instead of P18,336; (2) it erred in condemning her to pay 10% interest; and (3) it erred in ordering payment of compound interest.

ISSUE

1. Whether the Court of Appeals erred in including an item of P4,704 (for unpaid rents/interest) in the debt calculation as of September 30, 1925.
2. Whether the Court of Appeals erred in imposing 10% interest per annum on the debt.
3. Whether the Court of Appeals erred in ordering payment of compound interest.

RULING

1. On the first assignment of error: The Supreme Court sustained the petitioner’s contention. The Court of Appeals erred in including the P4,704 item in the debt, as it represented supposed unpaid rents/interest as of September 30, 1925. Petitioner later presented receipts (Exhibits 101-109) proving payments aggregating P4,430 in cash and 268 cavans of palay had been made by her predecessor, Apolonio Cunanan, up to June 8, 1925. The inclusion of P4,704 was based on a mistaken belief that these rents were unpaid, as indicated in Exhibit 119 itself. Since the payments were proven, the item should be discarded. The debt as of September 30, 1925, was correctly P18,336, covering loans of P3,000, P3,336, and P12,000 (for expenses).
2. On the second assignment of error: The Supreme Court overruled the petitioner’s contention. Petitioner admitted liability for 10% interest in her answer. Her new claim that the contract was usurious (alleging effective interest of 18%) was raised for the first time in the Supreme Court and not an issue in the lower courts. The contract was not usurious, as both parties acted in good faith believing the capital amount was correct. The 10% interest rate stands.
3. On the third assignment of error: The Supreme Court modified the judgment regarding compound interest. The Court of Appeals’ order for compound interest on unpaid interest from September 30, 1930, was set aside. The Court recalculated the amounts:
– Principal as of September 30, 1925: P18,336.
– Interest at 10% per annum for five years (Sept. 30, 1925, to Sept. 30, 1930): P9,168.
– Total due as of Sept. 30, 1930: P27,504.
– Less payments of P13,250: Balance of P14,254 as of Sept. 30, 1930.
– Interest on P14,254 from Sept. 30, 1930, to Sept. 30, 1935: P7,127.
– Less interest payments of P3,200: Unpaid interest balance of P3,927.
– Total due as of Sept. 30, 1935: P18,181 (P14,254 principal + P3,927 interest).
Final Judgment: Petitioner is ordered to pay respondents P18,181, with 10% interest per annum from September 30, 1935, until fully paid. Payment must be made within 90 days from finality of judgment, after which respondents shall reconvey the mortgaged lands free of any mortgage they may have constituted. If petitioner fails to pay, the properties shall be sold at public auction, with any mortgage (e.g., to Peoples Bank) to be paid by respondents or deducted from the debt. Costs from the trial court stand; no costs in this instance.