Philippine Trust Co. vs. Tan Siua, GR L-29736, Feb.
28, 1929
FACTS:
On May 18, 1923, The Philippine Trust Co., now referred to as the bank, gave a loan to Visayan
General Supply Co., Inc. to the extent of P40,000.
Lucio Echaus Tan Siua, on August 2, 1923, mortgaged to the bank the five parcels of land as
securities for the loan.
From the mortage, the following provisions is relevant for the current issue:
This mortgage is given as security for the payment on demand of a credit in current
accoount in the sum of forty thousand pesos (P40,000), Philippine currency, granted by
the mortgagee to the Visayan General Supply Co., Inc., together with interest on the
average daily debit balances of said current account at the rate of ten per cent (10%) per
annum, payable quarterly, all in accordance with the terms and conditions of a certain
agreement for the credit in current account entered into by and between the said Visayan
General Supply Company, Inc., under date of May 18, 1923, a copy of which said
agreement is attached hereto, marked A, and made a part hereof.
At a later date, the bank would eventually file an action to foreclose a mortgage on the five
parcels of real property.
The trial court gave judgment, declaring the defendant herein to be indebted to the bank in the
amount of P53,741.82, with interest at the rate of P10 per cent per annum, to be capitalized
monthly, also declaring the defendant to be indebted to the bank in the sum of P4,000 for
stipulated attorney's fee, with the requirement that said sums be deposited in court within three
months from the date of the judgment, in default of which the mortgaged property to be sold in
ordinary course of foreclosure; and with further provision that execution should issue against the
defendant for any balance of the aforesaid indebtedness which should not be satisfied from the
proceeds of the sale.
Tan siua appealed, saying that the trial court judgment is in error because the interest due to the
bank cannot be capitalized monthly but only quarterly as it was originally agreed upon.
On the part of the appellee it is claimed that the word "quarterly" was used in the mortgage by
manifest error and that the word "quarterly" should be read "monthly," as stated in the contract of
May 18, 1923.
ISSUE:
WON the interest is “quarterly” and not “Monthly”.
HELD:
IT IS QUARTERLY.
We are of the opinion that the position taken by the appellee on this point is correct and that the
error is manifest and apparent from the mortgage itself in relation with the principal contract.
The reasons that conduct us to this conclusion are these:
First, the mortgage was evidently given pursuant to that clause of the original contract by which
the debtor had agreed furnish security to the bank for any sum for which the debtor might
become obligated to the bank under the terms of the original agreement;
secondly, the paragraph of the mortgage in which the word "quarterly" is used explicitly states
that the terms and conditions" of the original agreement;
thirdly, the same paragraph of the mortgage makes express reference to the original agreement
for the granting of credit in current account by the bank to the debtor and said contract is
incorporated in the mortgage by reference;
fourthly, in the defeasance clause of the mortgage, which is the second of the two paragraphs
above quoted from the mortgage, the debt secured is not described as being one for the payment
of interest quarterly, but the original contract is again referred to and incorporated in the said
clause without specifying how the interest should be paid.
From this accumulation of circumstances the conclusion is irresistible that a mistake was made in
using the word "quarterly" in the mortgage as descriptive of the obligation to pay interest on the
principal debt; and inasmuch as the original contract is incorporated to give effect to the
mortgage in the sense evidently intended by the parties, that is to say, that the interest on the
principal debt must be paid in accordance with the terms of the original contract. Under the
original contract it is clear that the interest was to be debited in current account and capitalized
monthly.
Error is assigned to the action of the trial court in allowing the stipulated attorney's fee of P4,000.
In view of the fact that this fee continues less than 7 ½ per cent of the amount which the court
found to be due, we think that the stipulation was reasonable and that fee was properly
incorporated in the judgment.
