Hodges v. Salas 63 Phil 567

33. HODGES V.
SALAS 63 PHIL 567
FACTS:
On September 2, 1923, the defendants executed a power of attorney in favor of their brother-in-law Felix S.
Yulo to enable him to obtain a loan and secure it with a mortgage on the real property described in transfer
certificate of title No. 3335. The power of attorney was registered in the registry of deeds of the Province of
Occidental Negros and the pertinent clauses thereof read as follows:
Acting under said power of attorney, Felix S. Yulo obtained a loan of P28,000 from the plaintiff, binding his
principals jointly and severally, to pay it within ten (10) years, together with interest thereon at 12 per cent per
annum payable annually in advance, to which effect he signed a promissory note for said amount and executed
a deed of mortgage of the real property described in transfer certificate of title No. 3335 and the improvements
thereon consisting in concrete buildings. It was stated in the deed that in case the defendants failed to pay the
stipulated interest and the taxes on the real property mortgaged and if the plaintiff were compelled to bring an
action to recover his credit, said defendants would be obliged to pay 10 per cent more on the unpaid capital, as
fees for the plaintiff's attorneys. The mortgage so constituted was registered in the registry of deeds of the
Province of Occidental Negros and noted on the back of the transfer certificate of title.
The defendants failed to pay at maturity the interest stipulated which should have been paid one year in
advance. All the sums paid by them on account of accrued interest up to March 27, 1934, on which the
complaint was filed.
ISSUE:
FIRST ISSUE: WON THE CASE IS ONLY A PERSONAL ACTION (BECAUSE ONLY ORAL
EVIDENCE WAS OFFERED)- NO
Section 284 of the Code of Civil Procedure requires the contents of a writing to be proven by the writing itself,
except
in cases therein specified. Section 313, No. 6, provides that official or public documents must be proven by
presenting the original or a copy certified by the legal keeper thereof.
According to this, the plaintiff was obliged to present the original or a certified copy of the mortgage deed
showing the
registration thereof, as well as the owner's transfer certificate of title. Both would have been the best evidence to
prove the registration of the mortgage and the notation thereof on the back of the title.
Had the defendants objected to the oral evidence offered, there is no doubt that it would have been rejected as
incompetent. But it is universally accepted that when secondary or incompetent evidence is presented and
accepted without any objection on the part of the other party, the latter is bound thereby and the court is obliged
to grant it, the probatory value it deserves.
SECOND ISSUE: WON THE LOAN AND MORTGAGE WERE USURIOUS AND ILLEGAL- NO
We have examined Exhibits 8 to 17 of the defendants, which are the evidence offered to establish the fact that
compound interest had been charged, and we have, without any difficulty, arrived at the conclusion that the
plaintiff has really charged said unauthorized and unstipulated interest.
If there is any doubt on this fact, it is dispelled by Exhibit 10, in the handwriting of the plaintiff himself,
wherein it appears that the sum of P33.60 was charged by him on account of interest on unpaid interest.
But the fact of charging illegal interest that may be charged, does not make the loan or the mortgage usurious
because the transactions took place subsequent to the execution of said contracts and the latter do not appear to
be void a initio Said interest should be applied first to the payment of the stipulated and unpaid interest and,
later, to that of the capital.
Section 5 of Act No. 2655, as amended by section 3 of Act No.3291, expressly permit a creditor to charge in
advance interest corresponding to not more than one year, whatever the duration of the loan. What is prohibited
is the charging in advance of interest for more than one year. Section 6 reiterates said rule in exempting a
creditor found guilty of usury from the obligation to return the interest and commissions collected by him in
advance, provided said interest and commissions are not for a period of more than one year and the rate of
interest does not exceed the maximum limit fixed by law.
THIRD ISSUE: WON THE ACTION FOR THE USURY IS BARRED BY STATUTE OF
LIMITATIONS- YES, BUT HE FAILED TO ALLEGE IT
It is true that according to the evidence more than two years have already elapsed from the time the defendants
paid and the plaintiff received the usurious interest to the registration of the cross-complaint, but the plaintiff
cannot successfully invoke the defense of prescription because he failed to allege it in his reply to the cross-
complaint.
In order that prescription may constitute a valid defense and it may be considered on appeal, it must be
specifically pleaded in the answer and proven with the same degree of certainty with which an essential
allegation in a civil action is established. Otherwise it will not be taken into consideration, much less if it is
alleged for the first time on appeal.
FOURTH ISSUE: WON ATTORNEY'S FEES SHOULD BE PAID- YES
The plaintiff violated the Usury Law in charging compound interest notwithstanding the fact that it has not been
so stipulated and that adding these sums to the stipulated interest the average exceeds the maximum rate of
interest that may be charged for the loan which has been the subject matter of the transaction. This violation
falls under the precept of section 6 of the Usury Law and the plaintiff is obliged to pay the fees of the attorney
for the defendants.
FIFTH ISSUE (AGENCY RELEVANT): WON DEFENDANTS RATIFIED ALL THE OBLIGATIONS
CONTRACTED BY THEIR ATTY-IN-FACTAND WHAT IS THE LATTER'S SCOPE OF
AUTHORITY-NO; ONLY LIMITED
The terms of the power of atty are limited; the agent was thereby authorized only to borrow any amount of
money which he deemed necessary. There is nothing, however, to convert the money obtained by him to his
personal use.
With respect to a power of attorney of special character, it cannot be interpreted as also authorizing the agent to
dispose of the money as he pleased, particularly when it does not appear that such was the intention of the
principals, and in applying part of the funds to pay his personal obligations, he exceeded his authority (art.
1714, Civil Code; Bank of the Philippine Islands vs. De Coster, 47 Phil., 594 and 49 Phil., 574).
In the case like the present one, it should be understood that the agent was obliged to turn over the money to the
principals or, at least, place it at their disposal.
The plaintiff contends that the agent's act of employing part of the loan to pay his personal debts was ratified by
the
defendants in their letter to him dated August 21, 1927 (Exhibit E). This court has carefully read the contents of
said document and has found nothing implying ratification or approval of the agent's act. In it the defendants
confined themselves to stating that they would notify their agent of the maturity of the obligation contracted by
him. They saidnothing about whether or not their agent was authorized to use the funds obtained by him in the
payment of his personal obligations.
Of the loan of P28,000, the agent applied the sum of P10,188.29 to the payment of his personal debt to the
plaintiff. The balance of P17,811.71 constitutes the capital which the defendants are obliged to pay by virtue of
the power conferred upon their agent and the mortgage deed.

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33. HODGES V.

SALAS 63 PHIL 567

FOURTH ISSUE: WON ATTORNEY'S FEES SHOULD BE PAID- YES

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