Private Development Corporation of the Philippines (PDCP) v

IAC
G.R. No. 73198 (1992)
2nd Div.
Nocon, J.

FACTS:
Private Development Corporation of the Philippines (PDCP) and Davao
Timber Corp. (DATICOR) entered into a loan agreement. PDCP lend
DATICOR US$265,000, with 11.75% interest per annum, and P2.5M with
12% interest per annum. The money will be used to establish a kiln drying
and woodworking plant in Davao Oriental.
[Kiln drying is a kind of wood]
First Mortgage
A first mortgage was executed to secure the loan by Ernesto, president of
DATICOR, in his personal calapicity and Lourdes (his sister) as 3 rd party
mortgagors.
Second Mortgage
DATICOR was to execute an Addendum to Mortgage in lieu of the 1st
mortgage. PDCP asked DATICOR to pay a service fee of 1% to cover the cost
of administering DATICORs account. The service fee was subsequently
increased to 12%
P3M was paid, but the payment was applied only to interests, service
fees and penalty charges. Thus, DATICOR still has an outstanding balance
of P10M.
When PDCP was to initiate an extra-judicial foreclosure of the two
mortgages, Ernesto filed a complaint for violation of Usury Law. DATICOR
likewise filed a complaint for the annulment of the loan contract as it is in
violation of the Usury Law.
CFI ruled for PDCP. IAC ruled for Ernesto.
ISSUE:
Whether usurious loans render the principal loan void?
RULING:
No. The law should not be interpreted to mean forfeiture of the
principal loan as that would be unjustly enriching the borrower. The unpaid
principal debt still stands and remains valid but the stipulation as to the
usurious interest is void. Consequently, the debt is to be considered without
stipulation as to the interest.