G.R. No. L-822; September 30, 1949
POTENCIANO ILUSORIO and SILVERIO R. VIOLA, plaintiffs-appellants, vs. FERNANDO BUSUEGO, defendant-appellee.

FACTS

On May 3, 1943, plaintiff Silverio R. Viola obtained a loan of P35,000 from defendant Fernando Busuego, secured by a mortgage on fifteen parcels of land. The deed of mortgage stipulated that the principal was repayable within three years with 8% annual interest payable in advance. A critical clause (paragraph 4) bound the mortgagor, “if the mortgagee so desires, not to redeem the mortgaged properties, during the continuance of this mortgage.” Subsequently, Viola sold five mortgaged parcels to Potenciano Ilusorio, who assumed the obligation. On April 27 and July 5, 1944, Ilusorio tendered payment of the full debt plus all interest up to May 3, 1946. Busuego refused, invoking paragraph 4. The plaintiffs deposited the money in court and filed an action to compel acceptance.

ISSUE

Whether the mortgagor has the right to prepay the loan and redeem the mortgage before the expiration of the three-year term without the mortgagee’s consent.

RULING

No. The Supreme Court affirmed the lower court’s dismissal of the complaint. The Court reconciled paragraphs 3 and 4 of the mortgage deed, holding that the debt was payable at the expiration of three years, but could be paid earlier only if the mortgagee consented. To interpret the deed as allowing the mortgagor an unconditional right to prepay would render the restrictive clause in paragraph 4 ineffectual. The construction adopted gives effect to both provisions. The dissenting opinion argued that prepayment with full interest for the entire term should be allowed, as it satisfies the creditor’s interest earnings and gives effect to both clauses, but this view did not prevail.

AI Generated by Armztrong.