G.R. No. L-3377
BONIFACIO PIMENTEL, plaintiff-appellee, vs. EUGENIO GUTIERREZ, defendant-appellant.
August 24, 1909

FACTS:
On February 27, 1905, Bonifacio Pimentel (plaintiff) filed an action in the Court of First Instance of Romblon against Eugenio Gutierrez, Leon Montaña, and Feliciano Moreno (defendants) to recover P3,000, with 10% interest per annum from March 20, 1901. This claim was based on an original contract executed on March 20, 1901.

Eugenio Gutierrez, for himself and as representative of the other defendants, admitted the original contract but alleged partial payment and the execution of a new contract on December 1, 1904. Under this alleged new contract, the defendants were to pay the balance at P30 per month, and Pimentel agreed to waive the interest stipulated in the original contract. Gutierrez admitted P2,634.44 was still due.

Pimentel, in his reply, denied entering into a new contract to accept P30 monthly payments but admitted agreeing to suspend interest from December 1, 1904. He also admitted receiving P785.36 from the defendants, which he stated he applied to the payment of interest on the original contract, as the debtors did not specify how the payments should be applied.

The lower court found that P747.03 had been paid by the defendant, which was applied to interest, and rendered judgment in favor of Pimentel against Eugenio Gutierrez for P3,366.38. The case was dismissed against Feliciano Moreno and Leon Montaña for lack of evidence. Eugenio Gutierrez appealed, raising various assignments of error concerning the application of payments, the validity of the alleged new contract, the currency of the debt, and the liability of co-defendants.

ISSUE:
1. Whether the plaintiff properly applied the payments received to the interest due, despite the debtor not specifying the application.
2. Whether a new contract was validly formed on December 1, 1904, that modified the payment terms to P30 monthly installments, beyond merely suspending interest.
3. What currency should be used for the judgment when the original contract specified “Mexican pesos” but the judgment simply referred to “pesos”?
4. Who among the original debtors is liable for the debt.

RULING:
The Supreme Court modified the lower court’s judgment and ruled as follows:

1. On Application of Payments: The Court held that when a debtor makes a payment to a creditor who holds multiple accounts against him, and the debtor does not expressly indicate to which indebtedness the payment should be applied, the creditor has the right to apply the payment to whichever debt he pleases. Since there was no proof that the defendant requested the payments be applied to the principal, Pimentel rightfully applied the P785.38 received to the interest then due. (Arts. 1172, 1173, 1174, Civil Code).

2. On the New Contract: The Court found that Pimentel did agree to relieve the defendant from paying interest from December 1, 1904. However, it implicitly upheld the lower court’s finding that any stipulation to accept monthly payments of P30 (Exhibit D) as a full modification of the debt was invalid for lack of an “obligating motive,” and thus did not constitute a valid renewal or modification of the contract’s principal terms beyond the interest suspension.

3. On Currency: The Court reiterated that in the absence of contrary explanation or proof, the word “peso” in a court’s judgment refers to the established currency of the country (Philippine peso) at the time the judgment was rendered. Even if the original contract specified “Mexican pesos,” without evidence adduced during trial to show a difference in value between Mexican and Filipino pesos, it is assumed there is no difference. Thus, the judgment in “pesos” was understood as Philippine pesos.

4. On Liability: The Court found that the original contract made the defendants liable for an aliquot part (equal share) of the debt. Since Leon Montaña or his representatives were not properly made a party to the action, no judgment could be rendered against him. Therefore, the judgment was to be rendered against Eugenio Gutierrez and Feliciano Moreno, each for a one-third part of the total amount due.

Final Calculation: The principal amount was P3,000. Interest accrued at 10% per annum from March 20, 1901, until December 1, 1904, totaling P1,109.16. From this, the P785.38 paid was deducted, leaving an unpaid interest balance of P323.78. The total amount due as of December 1, 1904, was P3,000 (principal) + P323.78 (unpaid interest) = P3,323.78.

The judgment was modified, directing Eugenio Gutierrez and Feliciano Moreno to each pay one-third of P3,323.78, with interest from February 27, 1905 (date of judicial demand), plus costs.