Lopez Vs El Hogar

[No. 22678.
January 12, 1925]
BUENAVENTUEA LOPEZ and

ROSARIO JAVELONA,
plaintiffs and appellants, vs. EL
HOGAR FILIPINO, Sociedad
Mutua de Construcción y
Préstamos, def endant and
appellant; and REGISTRAR
OF DEEDS OF OCCIDENTAL
NEGROS, defendant and
appellee.
1. USURY; ACT No. 2655; RECOVERY OF PRINCIPAL.—
The Usury Law, Act No. 2655, by its letter and spirit, does
not deprive the lender of his right to recover of the
borrower the money he may have actually loaned him,
supposing that the interest charged is usurious. The law
now in force contains no provision for the forfeiture of the
principal in favor of the debtor in usurious contracts. (Gui
Jong & Co. vs. Rivera and Avellar, 45 Phil., 778; Aguilar
vs. Rubiato and Gonzalez Vila, 40 Phil.,
250
250 PHILIPPINE REPORTS ANNOTATED
Lopez and Javelona vs. El Hogar Filipino
570; Delgado vs. Alonso Duque Valgona, 44 Phil., 739; Go

Chioco vs. Martinez, 45 Phil., 256; Hodges vs. Gelbolinga,
R. G. No. 21760, promulgated August 8, 1924, not
reported.)
2. ID.; ID.; STATUTORY CONSTRUCTION.—The intention

of the legislature must be ascertained, not from the
consideration of a single word or a particular phrase of the
law, but from the context of the whole law or from a portion
thereof, as compared with the whole. (25 R. C. L., 1007 and
cases cited.)
3. ID.; ID.; "VOID" AND "VOIDABLE."—The words "void"

and "voidable" are not often used with exact discrimination;
indeed in some books there is great want of precision in the
use of them, and much confusion has resulted from the
looseness in the use of these words. The terms have
frequently been used indiscriminately and what is merely
voidable is frequently called void. So often has the word
"void" been used in the sense of voidable that it may be said
to have almost lost its primary meaning; so that when it is
found in a statute or judicial opinion, it is ordinarily
necessary to resort to the context in order to determine
precisely what meaning is to be given to it. Indeed it is said
that the term "void" is oftener used to point out what may
be avoided than to indicate a nullity. (40 Cyc., 214-216.)
4. ID. ; ID. ; ID. ; MEANING OF THE WORD "VOID" IN

ACT No. 2655.— The lawmaker, in using the word "void,"
in the Usury Law, Act No. 2655, did not intend complete
nullity, but merely a nullity with respect to the agreed
interest.
5. ID.; ID.; RATES OF INTEREST; LOANS WITH

SECURITY.—All loans secured by mortgage upon real
property, whether for agricultural purposes, industrial or
commercial, or for the construction or acquisition of urban
properties cannot earn more than 12 per cent interest per
annum, in accordance with the general rule established in
section 2 of the said law; but building and loan associations
may charge up to 18 per cent, in accordance with the
exception contained in said section.
6. ID.; ID.; CORPORATION LAW; BUILDING AND LOAN

ASSOCIATIONS; THEIR METHOD OF OPERATION.—
Section 182 of the Corporation Law not having been
repealed by Act No. 2655 or any other act, all building and
loan associations must comply with the provisions of said
section, and therefore any loan they may make must be
secured by a first mortgage on real property, and, in
addition, by a pledge to the association of shares of stock
thereof whose matured value is at least equal to the amount
loaned.
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VOL. 47, JANUARY 12, 1925 251

7. ID.; ID.; ID.; ID.; DUES; LOANS; APPLICATION OF

PAYMENTS.—As any loan that a building and loan
association may make must, under the Corporation Law, be
secured by a mortgage on real property and, in addition, by
a pledge of shares of stock of the association issued to the
borrower, and as, according to the mandatory provision of
the same law, monthly dues must be paid on said shares, the
monthly payments which the borrower makes cannot be
applied to the amortization of the loan, until the total value
of the shares is paid up, unless the amount he pays every
month exceeds the monthly due, where the excess may then
be applied to the reduction of the loan, or unless the parties
shall have stipulated that the borrower may apply said
payments to the principal of the loan in such amount as may
have been fixed by mutual agreement.
8. ID. ; ID. ; ID. ; ID. ; DUAL JURIDICAL RELATION.—

Where a loan is made to one who subscribes for a number
of shares of the capital stock only for the purpose of
obtaining the loan, and therefore said shares are not paid up
at the time the loan is granted, said borrower occupies a
dual juridical relation with the association, to wit, that of
borrower and shareholder at the same time, being debtor in
the former capacity for the total amount of the loan, and
also debtor in the latter for the whole value of the shares, so
long as they are not totally paid. (9 Corpus Juris, pp. 597
and 978.)
9. ID. ; ID. ; ID. ; ID. ; BASIS OF THE RATE FIXED BY

LAW AS TO AMOUNT.—The 18 per cent fixed by section
2 of Act No. 2655 as the maximum rate of interest that may
be collected by building and loan associations, must be
understood to refer only to the amount loaned, as otherwise
it might be construed to authorize the collection of 18 per
cent per year upon premiums, 18 per cent upon fines, and
18 per cent upon interest. It is unimportant that the rate of
monthly fines should exceed 18 per cent per annum because
what should not exceed 18 per cent per annum is the sum
total of the three items,—"fines," "interest," and
"premiums." If this is so, it is evident that the 18 per cent
does not refer to the monthly dues, but to the amount of the
loan. Thus, if the interest which the borrower agrees to pay
is 9 per cent per annum of the principal loaned, and the fine
he will have to pay, should he fail to pay said interest, is 36
per cent per annum thereof, it results that the fine is 36 per
cent of the 9 per cent of the loan given, that is, 36
hundredths for each 9 hundredths of the principal, in other
words, is 3.24 per cent of the principal, which, added
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to the 9 per cent interest, gives 12.24 per cent, which is

much lower than the 18 per cent fixed by the law.
10. ID. ; ID.; ID.; ID.; BASIS OF RATE AS TO TIME.—Act

No. 2655 limits the amount that may be charged for the use
of money in proportion to the amount of the loan and the
length of the time of its use. In accordance with the present
day practice the first element is based upon 100 units and is
termed per centum, while the second is based upon one year
and is denoted by the phrase per annum. The prohibition is
against collecting in excess of the rate of many units per
centum per annum, but there is nothing in the law fixing the
proportional part that may be collected each year. Twenty
pesos paid for the use of one hundred pesos in two years is
equivalent to 10 per cent per annum, as evident as ten pesos
is the payment for the use of the same amount for one year.
Where the same interest is not paid each year, justice
requires that the average interest be taken by dividing the
sum total of the interest of all the years by the number of
years so as to obtain a right figure for comparison.
11. ID.; ID.; ID.; ID.; COLLECTION OF INTEREST IN

ADVANCE.—In the case of loans running several years the
exaction of a part of the interest in advance for the full
period of the loan has been held not to .render the loan
usurious; but where a loan is to run for several years, it has
been held that to deduct in advance the highest rate of
interest for the entire period of the loan would constitute
usury. It would certainly seem that the exaction of the
interest in advance for the entire period of a loan which was
to run for a long time would render the transaction usurious
where such exaction would absorb so much of the principal
as to leave to the borrower very little of the amount agreed
on to be loaned. (29 Am. & Eng. Encyc. of Law, 492.)
ID.; ID.; ID.; ID.; PENALTIES.—The test of usury in a
12.
contract is whether it would, if performed, result in
securing a greater rate of profit on the subject-matter than is
allowed by law. Where a borrower has agreed to pay a rate
of interest not forbidden by law, but has stipulated that, in
the event of his not making payment at the time specified,
the obligation shall bear a higher rate of interest, either
from default or from the date of its execution, or that some
specific sum shall be paid in addition to the principal and
interest contracted for, the increased rate is generally
regarded as a penalty and not within the usury laws. (27 R.
C. L., 232.)
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13. ID. ; ID. ; ID. ; ID. ; DISCOUNTS.—It is usurious and

even immoral to charge interest upon an amount when in
fact the borrower has received another smaller; but where
the borrower obtains a loan of a certain amount, receiving
in cash another smaller, and making the lender use the
balance in the payment of certain debts and expenses which
said lender is under the legal obligation to pay, it would also
be an injustice to the lender to hold that the borrower does
not owe but said smaller amount, and that the loan is
usurious on account of interest having been charged upon
an amount that the borrower has not received.
14. ID. ; ID.; ID.; ID.; STIPULATION OF EXCESSIVE

INTEREST; EFFECT OF.—The right to recover interest
and attorney's fees given by section 6 of Act No. 2655 is
not a natural consequence following the stipulation of
excessive interest, but springs from the actual and real
payment of said interest. If a person makes a note,
promising to return the principal plus 20 per cent interest,
but actually pays 10 per cent only, the note may be void
under section 7, but the debtor cannot recover in whole or
in part the 10 per cent by him paid, because the right to
recover interest, according to section 6, is granted only to
"any person or corporation who, for any such loan or
forbearance, shall have paid or delivered a higher rate or
greater sum or value than is hereinbefore allowed to be
taken or received."
15. ID.; ID.; ID.; ID.; POWER OF CREDITOR TO SELL
MORTGAGED PROPERTY.—A stipulation in a mortgage
of real property authorizing the mortgagee, upon default of
the mortgagor in the payment of the mortgage debt and
after publication for three successive weeks in a paper of
general circulation, to expose the property to public sale,
and allowing the mortgagee to become a bidder at such
sale, is valid. (El Hogar Filipino vs. Paredes, 45 Phil., 178;
Descals vs. Handelsman, R. G. No. 22422,. promulgated
September 30, 1924, not reported.)
16. ID.; ID.; ID.; ID.; DETERMINATION OF CHARACTER

OF LOAN.—If after adding all the amounts collected by
the lender by reason of the loan, the sum appears to be a
percentage of the principal loan, that does not exceed the
rate fixed by the Usury Law, Act No. 2655, the transaction
cannot be held usurious.
17. ID.; ID.; ID.; ID.; ID.; AMOUNTS NOT TO BE

INCLUDED IN DETERMINATION.—In making such
determination there should not be taken into account the
amounts employed by the association in the payment f or
the account of the borrower, of debts and expenses which
the borrower was under the legal obligation to pay,
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nor those that the borrower has paid to said association in

his capacity as shareholder, such as the entrance fees
authorized by the Corporation Law, and the monthly dues
upon the shares for which he may have subscribed.
18. CORPORATION LAW; BUILDING AND LOAN

ASSOCIATIONS; NATURE OF THEIR LOANS.—The
law now in force does not limit the power of building and
loan associations to make loans, to those the object of
which is the building or acquisition of homes.
APPEAL from a judgment of the Court of First Instance of

Occidental Negros.
The facts are stated in the opinion of the court.

Jose P. Melencio, Hilado &, Hilado, and Francisco, Lualhati &
Lopez for plaintiffs and appellants.
W. H. Lawrence, Montinola & Hontiveros, Antonio Sanz, and Fisher,

DeWitt, Perkins & Brady for defendant and appellant.
No appearance for appellee.
VILLAMOR, J.:
This litigation arose out of a loan of P84,000 which the defendant El

Hogar Filipino had made to the spouses Buenaventura Lopez and
Rosario Javelona on March 17, 1920. Beginning May 31, 1921, the
debtors failed to make the monthly payments stipulated in the
contract; wherefore, the board of directors of El Hogar Filipino, at
the expiration of the three months of delinquency provided for in
clause 9 of the document, Exhibit 1, copied hereinafter, declared the
loan due and payable.
The mortgaged properties were sold publicly in an extrajudicial sale

and were purchased by El Hogar Filipino. The debtors filed a
complaint, praying: (a) For the annulment of the contract evidenced
by Exhibit 1, as being usurious; (b) for the annulment of the
extrajudicial sale of the mortgaged properties, as well as the
cancellation of all registrations, annotations or recordations of the
same and of the certificates of title that may have been
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VOL. 47, JANUARY 12, 1925 255
issued in that connection by the register of deeds; (c) for the return
of all the interest and fines paid by them; (d) for reasonable
attorney's fees; and (e) for any other equitable remedy and costs.
For answer to this complaint, the defendant El Hogar Filipino set up

two cross-complaints, praying for the reasons stated: (a) That the
plaintiffs' complaint be dismissed with costs; (b) that El Hogar
Filipino be placed in possession of the properties in litigation; (c) as
ancillary remedy, that the plaintiffs be ordered to pay into the court
within not less than three months the amount of P87,505.53,
Philippine currency, plus the agreed 'interest at 9 % per annum from
June 29, 1922, and the costs in accordance with section 256 of the
Code of Civil Procedure, as amended by Act No. 2640 of the
Legislature, failing which, that all the mortgaged properties, with all
their improvements, choses in action, and natural and civil fruits
pending or accrued at the date of the maturity of the obligation, that
is, on June 29, 1922, be sold in order to pay the creditor El Hogar
Filipino; and (d) that El Hogar Filipino be granted any other remedy
that may be just and equitable.
On account of its importance on the decision of this case, the

contract of loan and mortgage, Exhibit 1, is copied verbatim as
follows:
"MORTGAGE
"This indenture made and entered into at the City of Manila, P. I.,
between El Hogar Filipino, Sociedad Mutua de Construcción y
Préstamos (The Philippine Mutual Home Building and Loan
Association), a corporation domiciled in the City of Manila, P. I.
(hereinafter referred to as the 'association ), represented herein by its
president, Francisco Ortigas, by virtue of the powers conferred upon
him by the by-laws of the association and the resolution of the board
of directors, adopted on the 22d day of January and on the 1st day of
February, 1920, party of the
256
first part, and the spouses Buenaventura Lopez (husband) and

Rosario Javelona (wife), property owners, of age, and residents of
Iloilo, Iloilo, P. I. (hereinafter referred to as 'the debtors'), parties of
the second part.
"WlTNESSETH:
"That the spouses Buenaventura Lopez and Rosario Javelona,
availing themselves of the rights conferred upon them by the by-
laws as shareholders of the association and being the absolute
owners of the real estate hereinafter described, have made
application to the board of directors of the association for a loan,
which has been granted, subject to the following conditions:
"First. The association hereby grants unto the spouses Buenaventura

Lopez and Rosario Javelona a loan of eightyfour thousand pesos
(P84,000), Philippine currency, being the face value of the four
hundred twenty (420) shares of common Class A stock of the
association subscribed for by the debtors.
"Second. The debtors acknowledge having received the said sum of
eighty-four thousand pesos (P84,000), which they promise to repay
as follows:
"They will pay to the treasurer of the association monthly, on or before the
5th day of every month, the sum of one peso (P1) for each share of Class A
stock subscribed for by them until the surrender or cash value of said stock,
as determined by the by-laws and regulations of the association now in
force, shall equal the said sum of eighty-four thousand pesos (P84,000), the
amount of the loan by them received from the association, or such lesser
sum as the principal loan shall have been reduced to by reason of payments
made by the debtors in reduction thereof in accordance with the conditions
of paragraph three hereof; and as soon as the surrender value of said stock
shall equal the sum owed by reason of the loan herein granted said stock
shall be surrendered and cancelled and
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VOL. 47, JANUARY 12, 1925 257
the value thereof applied by the association to the payment of the amount
owed by the debtors on said loan, and the president of the association shall
execute in favor of the debtors the necessary instruments of cancellation of
the mortgage hereinaf ter created, the expenses of said cancellation to be
charged against the debtors.
"Third. It is agreed that the debtors may make partial payments in

reduction of this loan provided such payments shall not be less than
two hundred pesos (P200), or any multiple thereof; all payments
made hereunder shall be applied to the reduction of the principal of
this loan on the last day of the month in which the same shall be
paid and the stipulated interest shall be proportionately reduced from
and after said date.
"Fourth. The debtors agree that during the. time they shall be
indebted to the association, by reason of the aforesaid loan, they will
pay interest at the rate of 9 per cent per annum, f rom the 15th day of
March, 1920, said interest being payable monthly in advance at the
offices of the association in the City of Manila and at the same time
that the installments on the 420 shares of Class A stock by them
subscribed for are payable.
"Fifth. In the event of the failure of the debtors to pay the

installments when due, as well as the interest stipulated herein, on or
before the 5th day of each month, commencing March, 1920, the
debtors agree to pay to the association, by way of fine for
delinquency, the sum of three centavos for every peso they may fail
to pay, and a like sum for each month, or fraction thereof, which
shall elapse until the amount of their delinquencies shall have been
satisfied.
"Sixth. Notwithstanding the personal responsibility which shall arise

from the failure of the debtors to perform their obligations under this
agreement, the debtors guarantee the repayment of the loan herein
granted, and the payment of the agreed monthly installments on the
420 shares of stock subscribed for by them, as well as the
258
payment of the stipulated interest and fines, and to that end they
hereby execute a first mortgage upon their real property which is
described as follows:
(Description of property)
"Seventh. As additional security for the performance of the
obligations herein contained, the debtors pledge to the association
the 420 shares of Class A stock of the association by them
subscribed for of the face value of eighty-four thousand pesos
(P84,000).
"Eighth. The debtors hereby grant unto the manager of the

association, whoever he may be, an irrevocable power of attorney, in
case they should fail for three successive months to pay their agreed
monthly installments upon the stock subscribed for by them, as well
as the agreed interest, to collect and receive the rents and profits of
the mortgaged property and to apply them, or such part thereof as
may be necessary to the payment of the delinquent monthly
installments; it being understood that, should the manager of the
association exercise the power here granted, he shall return to the
debtors any balance remaining in his hands after the payment of all
delinquencies specified in this paragraph.
"Ninth. It is agreed that should the debtors fail, for three consecutive
months, to pay the monthly installments on the stock by them
subscribed for, together with the stipulated interest on this loan, and
to perform any of their other obligations contained in the second,
fourth, fifth, eleventh, twelfth, thirteenth, sixteenth, seventeenth, and
twenty-first paragraphs of this agreement, they shall lose the benefit
of the period granted to them in this agreement within which to
repay to the association the loan herein granted them and said loan
shall then become due and payable, at the election of the association,
and the association may proceed to enforce its rights with respect to
all of the securities given by the debtors.
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VOL. 47, JANUARY 12, 1925 259
"Tenth. The debtors hereby grant unto the manager of the

association, whoever he may be, full and irrevocable power of
attorney in order that, in the event that the debt herein created shall
remain unpaid because of the failure of the debtors to fulfill any of
the obligations required of them in the second, fourth, fifth, eleventh,
twelfth, thirteenth, sixteenth, seventeenth, and twenty-first
paragraphs * * * of this agreement, the association having, by
resolution of its board of directors, previously determined to
exercise its right to declare the loan due and payable, and
publication of notices for three consecutive weeks in a newspaper of
general circulation in this city having been made, he (said manager)
may proceed to sell at public auction, without court proceedings, in
the presence of any notary public or auctioneer selected by the board
of directors, the real property herein mortgaged, he being also
authorized, under irrevocable power of attorney, to execute all
necessary instruments of sale in favor of the highest bidder at the
sale; it being understood, nevertheless, that said instruments of sale
shall not issue until 30 days, from the date of sale, shall have
expired; it being understood, further, that if within said thirty days,
from the date of sale, the debtors shall pay to the association the
entire debt owed by them on said date, including interest and costs
of sale, less the surrender value of their shares of stock, said sale
shall be of no effect and the agent of the association shall execute a
cancellation of the mortgage herein created, the expenses of said
cancellation to be paid by the debtors.
"Eleventh. The debtors agree not to sell or mortgage the property

hereby mortgaged without the consent of the association in writing,
signed by the president or other person acting in his stead.
"Twelfth. The debtors shall insure the buildings, now erected on the
mortgaged premises, against fire in such company and for such sum
as the association may deem
260
proper, the policies to be delivered to the association duly indorsed

by the debtors, it being expressly agreed that in case of loss the
association, through its manager, whoever he may be, shall be
authorized to collect the insurance money from the insurance
company to be applied on the debt unless, by agreement with the
debtors, it shall be applied to the reconstruction of the building; it
being further understood that if the debtors shall fail to insure the
property, the association may effect the insurance in whatever
company or companies it sees fit, charging the cost thereof to the
debtors who agree to reimburse the association immediately for all
sums expended by it in insuring the property, together with interest
thereon at the rate of 15 per cent per annum from the date of such
payment and until the same shall be repaid by the debtors.
"Thirteenth. It is stipulated that the debtors shall not create any

incumbrance upon the mortgaged property in favor of third persons
or make any lease thereof which might be recordable nor make any
agreement in which rent for more than one month in advance is
payable without first having obtained the written consent of the
association; it being understood that a breach of this covenant shall
cause the debt herein created to become immediately due and
payable and the association to be authorized to proceed at once to
enforce payment thereof in the manner specified in paragraph ten
hereof.
"Fourteenth. In the event that the association shall sell the

mortgaged property for any of the causes specified in this agreement
and the proceeds of such sale shall exceed the total amount owed by
the debtors to the association for any and all causes, after deducting
the surrender value of their shares of stock, such excess shall be
returned to the debtors within 15 days from the date of the execution
of the deed of conveyance in favor of the highest bidder at the sale.
"Fifteenth. It is expressly agreed that the association may bid at any

sale of the mortgaged property and in
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the event the bid of the association shall be higher than that of any
other bidder taking part in the sale, the manager of the association,
whoever he may be, is authorized to execute in favor of the
association, as the agent of the debtors, the necessary instruments of
conveyance, in the manner and form prescribed in paragraph ten of
this agreement.
"Sixteenth. The debtors shall pay all taxes now due or hereafter to
become due upon the premises herein mortgaged or the rents thereof
and shall comply with all rules and regulations prescribed by the
health and other government authorities.
"Seventeenth. The debtors shall keep the buildings now erected upon
the mortgaged premises in good order of repair during the life of this
agreement and to the satisfaction of whatever architect the
association may employ to inspect the same, and to that end the
debtors hereby grant unto the association an irrevocable license to
permit the agents of the association to enter upon the mortgaged
premises to inspect the same at such times as they may deem
necessary; it being understood that if the debtors shall fail to permit
inspections of the property or to make the repairs demanded by the
association as agreed herein, they shall forfeit the right to the time
given them under this agreement within which to repay the loan
granted them by this instrument, the loan shall thereby become due
and payable and the association may proceed to collect it in the
manner prescribed in paragraph ten hereof.
"Eighteenth. It is expressly understood that should the premises

herein mortgaged be destroyed by earthquake, typhoon, fire, act of
war, or in any other manner, while this contract is in force, or by
reason thereof it should suffer any damage or deterioration the repair
of which will cost 20 per cent or more of the value of the premises,
the loan herein granted shall immediately become due and payable
to the association, which, at its election, is authorized to proceed to
collect the same unless the debtors shall, with-
262
in 15 days after demand by the association, give security satisfactory

to the association, that the premises shall be rebuilt.
"Nineteenth. It is further agreed that, in the event of the
condemnation of the mortgaged premises, 'any sum to which the
debtors may become entitled by reason of said condemnation
proceedings shall be paid to the association to be applied to the
payment of whatever sum may then be owing to the association
from the debtors unless, in the event that only a part of the premises
is taken by condemnation proceedings, it shall be agreed by the
association and the debtors that the proceeds of such partial
condemnation shall be used in the improvement and rebuilding of
the premises upon the remaining portion of the land herein
mortgaged; and for that purpose an irrevocable power of attorney is
hereby granted to the manager of the association, whoever he may
be, to collect the indemnity in any such condemnation proceedings
from any person or persons who shall be obliged to pay the same.
"Twentieth. It is agreed that all payments required of the debtors

under this agreement shall, at the election of the association, be paid
in gold coin of the United States at the rate of one gold dollar for
each two pesos, Philippine currency, owed by the debtors.
"Twenty-first. It is further agreed that the debtors shall be obliged to

show to the manager of the association, whoever he may be, on or
before the last day on which any taxes shall be due and payable on
the mortgaged premises, the receipts showing payment of said taxes,
and any breach of this agreement by the debtors shall authorize the
association to proceed to enforce its rights as provided in paragraph
ten hereof; and in the event that the debtors shall fail to pay said
taxes the association may pay them, all sums so paid by the
association to be considered as a part of the principal of the loan
herein granted and to bear interest at the rate of 15 per cent until
paid.
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"Twenty-second. All sums disbursed by the association on account

of insurance premiums, taxes, or other account of the debtors shall
not only be considered as a part of this loan, increasing the principal
amount thereof, but the repayment thereof to the association shall be
secured by the mortgage herein created upon the real estate of the
debtors and shall be due and payable in cash to the association
immediately after said disbursements shall have been declared
payable in the manner prescribed for the payment of the shares of
stock subscribed for by the debtors.
"In witness whereof the parties have hereunto set their hands, at the
City of Manila, this 13th day of March, 1920, the president of .the
association, Francisco Ortigas, signing for and in representation of
the association, by virtue of the powers vested in him by the by-laws
and regulations of the association in force on this date, and the
debtor, (Mrs.) Rosario Javelona, (signing) in Iloilo on the 17th day
of March, 1920.
(Sgd.) "BUENAVENTURA LOPEZ
"ROSARIO JAVELONA
"FRANCISCO ORTIGAS
"Witnesses:
"At Manila. (Sgd.) FERNANDO HERNANDEZ
"S. CHOFRE
"At Iloilo. ( Sgd) MARIANO LOPEZ
"F. C. BUENAFLOR"
The parties submitted to the court an agreed statement of facts as

follows:
"STIPULATION
"Now come the parties in the above entitled cause, and stipulate and
agree that the following facts are true:
"1. Plaintiffs are husband and wife, of legal age, and residents
of the municipality of Silay, Province of Occidental Negros,
Philippine Islands.
"2. The defendant El Hogar Filipino is, and at all times herein
mentioned was, a building and loan associa
264
tion organized and existing as a domestic corporation under

and by virtue of the Philippine Corporation Law.
"3. The defendant, Geronimo Paredes, is, and at all times
herein mentioned was, the duly appointed, qualified and
acting register of deeds of the Province of Occidental
Negros, Philippine Islands.
"4. On or about March 13th, 1920, in the City of Manila,
Philippine Islands, plaintiffs executed a mortgage on real
estate, a duplicate of which, marked Exhibit 1, is annexed
to the original answer of the said defendant, dated
September 19, 1922; and at the time of the execution of said
mortgage the said defendant received from the Philippine
National Bank, a former creditor of plaintiffs, the certificate
of title to the property described in said deed of mortgage.
"5. The lands described in said deed of mortgage are all
situated in the Province of Occidental Negros, Philippine
Islands.
"6. The said mortgage was duly recorded in the office of the
register of deeds of said province in accordance with the
requirements of existing law concerning the registration of
mortgages on real estates registered in accordance with the
Land Registration Act.
"7. Exercising the right claimed by it under clause 10 of the
said deed of mortgage (Exhibit 1), the defendant El Hogar
Filipino on or about the 29th day of June, 1922, after its
board of directors had taken advantage of the option to treat
the debt as due and demandable, and after the publication of
notices in accordance with the provisions of said' clause 10,
caused each and everyone of the parcels of land described
in said deed of mortgage to be sold at, public extrajudicial
auction by a licensed auctioneer, but without any judicial
proceeding whatever.
"8. At said public extrajudicial auction the defendant El Hogar
Filipino was the only bidder, and all of said parcels of land,
with the improvements thereon, were ad
265
VOL. 47, JANUARY 12, 1925 265

judicated to said defendant by the said licensed auctioneer

for the sum of P87,505.53.
"9. Thereupon said auctioneer executed a public document,
certifying his proceedings in said sale (offered in evidence
as Exhibit 10 of El Hogar Filipino), and thirty days
thereafter the manager of El Hogar Filipino executed a deed
of sale of said property to said El Hogar Filipino (a true
copy of which is in evidence herein as Exhibit 11 of El
Hogar Filipino).
"10. Thereafter, the defendant El Hogar Filipino filed for record
in the office of the register of deeds of the Province of
Occidental Negros the originals of the deeds in evidence as
Exhibits 10 and 11, executed in f avor of the said defendant,
covering all the parcels of land described in the said deed of
sale and in the deed of mortgage hereinabove mentioned,
which deed of sale was executed, as above set forth, as the
result of the said public extrajudicial auction sale, and at the
same time it presented to the registrar of deeds the owner's
duplicate certificate of title to said parcels of land, and
demanded that the sale to El Hogar Filipino be registered,
the certificate of title standing in the name of plaintiffs
cancelled, and the corresponding new certificate of title
issued to El Hogar Filipino in accordance with the said deed
of sale, Exhibits 10 and 11.
"11. The defendant registrar of deeds refused to record the deed
of sale to El Hogar Filipino, to cancel the certificate of title
in the name of plaintiffs, and to issue a new certificate of
title to El Hogar Filipino, pending the final disposition of
this case.
"12. Plaintiffs herein were not shareholders of El Hogar Filipino
prior to the execution by them of the deed of mortgage,
Exhibit 1.
"13. No loan of its funds is made by El Hogar Filipino, except to
shareholders.
"14. Plaintiffs are now in possession of the properties described
in the deed of mortgage, Exhibit 1, and refuse to deliver the
same to El Hogar Filipino.
266

"15. As borrowers, plaintiffs undertook, and were required under
the contract set forth in said deed of mortgage, to pay each
year P7,560, as interest at the rate of nine per centum per
annum upon the P84,000 mentioned in said deed, by
monthly installments, and to continue making such
payments until the value of the said 420 shares, for which,
as stated in Exhibit 1, they had subscribed, composed of
their monthly payments (including entrance fees) and their
share in the profits, shall amount to P200 per share, or the
total value of P84,000, and' when the said shares shall have
reached the said value, they were to be withdrawn,
cancelled and appropriated by the corporation and the
mortgage cancelled.
"16. The sum of P12,164.25 credited to plaintiffs as the value of
their shares for the purpose of determining the balance for
the collection of which El Hogar Filipino caused the
mortgaged property to be sold at extrajudicial sale for the
realization of the mortgage herein mentioned, was
composed of the sums paid by the said plaintiffs on account
of their subscription to the shares and the dividends earned,
received and prorated to said shares.
"17. On or about March 17, 1921, and April 29, 1920, Mr. Jose
Reguera, a duly authorized agent of El Hogar Filipino,
entered into a supplementary agreement with plaintiffs,
incorporated into his letters written on behalf of El Hogar
Filipino, as hereinafter set forth, it being understood that the
letter of April 29, 1920, although erroneously addressed to
Gil Lopez, was really addressed to Buenaventura Lopez,
who received the same in an envelope properly addressed to
him. Such letters are respectively of the following tenor:
"'lloilo, April 29, 1920. Loan No. 917. Mr. Gil Lopez—
Dear Sir: Confirming our verbal arrangement concerning
the payment of monthly dues and interest upon your loan,
we notify you that in accordance with said agreement you
will make an annual payment of P12,600 on March 17,
1921, and on the same date of each successive
267
VOL. 47, JANUARY 12, 1925 267

year, it being expressly understood and agreed that the
slightest delay or default in payment on such date of the
complete annual installment will operate to produce the
rescission of this special concession, and the payment will
be due and demandable strictly in accordance with the
conditions stipulated in the deed of mortgage, and in this
case fines or surcharges which may have accrued shall all
be payable.
" 'Please sign at the foot your conformity, returning this
letter and retaining the duplicate. Yours very truly, El Hogar
Filipino (Sgd.) J. Reguera, Agent, ("Accepted, (Sgd.) B.
L.")/
" 'lloilo, March 17, 1921. Mr. Buenaventura Lopez, Silay—
Dear Sir: Please be informed that from the first of this
month the annual payment on your loan No. 921, as
amortization and interest, is due, amounting to the total of
P12,600. As the payment should have been, but was not,
made at the time indicated, you are reminded of it in
accordance with instructions from the head office, to the
end that the payment may be made with the least possible
delay. Yours very truly, (Sgd.) J. Reguera, Agent.'
"18. It is stipulated that the sum of P12,600 referred to in the
letters above transcribed, is made up of P5,040, as partial
payments at the rate of P420 a month on account of 420
ordinary shares subscribed for by plaintiffs, and the sum of
P7,560, as annual interest upon the P84,000 mentioned in
the deed of mortgage at the rate of nine per centum per
annum.
"19. Plaintiffs failed to pay the taxes on the land described in the
mortgage, Exhibit 1, for the years 1921 and 1922, for
reasons not important in this case, but which are the
subject-matter of another suit against Miguel J. Ossorio and
the Victorias Milling Company, now pending in this court,
as a consequence of which the land was declared
confiscated; within the time allowed by law El Hogar
Filipino deposited in the provincial treasury of Occidental
Negros the sum of P1,707.84, which sum was accepted
268
by the treasury upon the understanding that it would remain

as a deposit while El Hogar Filipino negotiated for the
repurchase of the property.
"20. Subject to the provisions of the law, all borrowing
shareholders of El Hogar Filipino are required to pay a
premium of 16.67 per centum of the amount of the loan,
which is fixed by the board of directors.
"21. Also subject to the provisions of the law, premiums
collected from shareholders are considered by El Hogar
Filipino as a profit earned in the year in which the loan is
made.
"22. Also subject to the provisions of the' law, the net profits
earned by El Hogar Filipino, including interest upon loans,
premiums paid by borrowing shareholders, fines collected
from shareholders for delinquency in the payment of dues
on shares or of interest, entrance fees, and other sources, are
determined at the end of each year prorated to shareholders
in proportion to their respective participations in the total
paid in capital, such participations consisting of the dues
paid on account of the par value of subscribed shares and
the accumulated profits earned in preceding years.
"23. As shown by Exhibit 1, plaintiffs subscribed for 420
ordinary shares of El Hogar Filipino, and obligated
themselves in the same manner as other holders of such
shares, to pay P1 per month on each share to the
corporation until such time as the payments so made, plus
the part of the profits of the corporation pertaining to such
shares, should equal the par value of P200 per share, the
sum; of P5,040 being the total annual payment required of
them as dues upon their 420 shares.
"24. Plaintiffs, as shareholders, participated proportionately with
other shareholders in the benefit derived by El Hogar
Filipino from the premium. charged against plaintiffs for
their loan secured by said mortgage, and the profits
269
VOL. 47, JANUARY 12, 1925 269
derived from, similar premiums paid by other borrowing

shareholders.
"25. The defendant El Hogar Filipino offers as documentary
proof, in addition to that attached to the deposition of the
witness, Señor Lopez, the receipt dated March 17, 1920,
No. 896, for the sum of P50, as Exhibit 12; Receipt No.
1298, dated March 17, 1920, for the sum of P89.50, as
Exhibit 13; Receipt No. 5232, dated March 17, 1920, as
Exhibit 14; Receipt No. 1451, dated March 17, 1920, for
the sum of P1,554, as Exhibit 15; and Receipt No. 1064,
dated March 17, 1920, for the sum of P14,000, as Exhibit
16. It is stipulated that said receipts, Exhibits Nos. 12, 13,
14, 15, and 16 were introduced by plaintiffs, in whose
possession they had been. Plaintiffs stated, in connection
with the said receipts, Exhibits Nos. 12, 13, 14, 15, and 16,
that the sums of money mentioned therein were paid by El
Hogar Filipino for their account, said sums having been
deducted from the gross amount of the loan.
"26. Plaintiffs reserve their objection to the materiality of the
facts set forth in paragraph eighteen of this stipulation, and
contend that said facts are immaterial upon the ground that
they do not relate to any issue made by the pleadings
herein.
"Bacolod, Occidental Negros, January 31, 1923.
"MONTINOLA, MONTINOLA & HONTIVEROS
"FISHER, DEWITT, PERKINS & BRADY
"By (Sgd.) F. C. FISHER
"Attorneys for the defendant El Hogar Filipino
"HlLADO & HlLADO
"(Sgd.) EMILIO Y. HILADO
"Attorneys for Plaintiffs
"(Sgd.) GERONIMO PAREDES
"Register of Deeds of Occidental Negros
"By (Sgd.) SIMEON BITANGA
"Fiscal Delegado"
270
On the same date the parties entered into an agreement as follows:

"STIPULATION
"It is hereby agreed that the amended complaint dated January 30,
1923, shall be understood as presented nunc pro tunc instead of the
amended complaint of December 18, 1922; that the answer and
cross-complaint of El Hogar Filipino of January 4, 1923, shall be
taken as answer and cross-complaint to the amended complaint of
January 30, 1923; and that the replication of the plaintiffs dated
January 24, 1923, to the said answer and cross-complaint shall be
deemed existing; and that the answer of the register of deeds of
January 31, 1923, shall be deemed as reproduced with respect to the
above mentioned pleadings, as amended, of the parties litigant.
"Bacolod, January 31, 1923.
"MONTINOLA, MONTINOLA & HONTIVEROS
"FISHER, DEWITT, PERKINS & BRADY
"By (Sgd.) F. C. FISHER
"Attorneys for the defendant
"HlLADO & HlLADO
"By (Sgd.) EMILIO Y. HILADO
"Attorneys for the plaintiffs
"GERONIMO PAREDES
"Register of Deeds of Occidental Negros
"By (Sgd.) SlMEON BlTANGA
"Deputy Fiscal"
The defendant register of deeds filed an answer, adopting as his the

allegations of the amended complaint, dated January 30, 1923, and
of the reply dated January 24, 1923, of the plaintiffs to the cross-
complaint of El Hogar Filipino.
The court a quo rendered a decision, (a) declaring the contract of

mortgage Exhibit 1 null ab initio and consequently clause 10 thereof
also null and void; (b) annulling the extrajudicial sale of the
properties in litigation
271
VOL. 47, JANUARY 12, 1925 271

described in paragraph 3 of the amended complaint, and therefore

declaring null and void also all the acts and documents made
thereafter in accordance with clause 10 of the contract, particularly
the documents marked Exhibits 10 and 11 and all recordations and
registrations of those documents made by the register of deeds and
all certificates of transfer issued by virtue thereof in favor of El
Hogar Filipino; (c) ordering El Hogar Filipino to return to the
plaintiffs the sum of P12,600 with legal interest from the date of the
filing of the original complaint plus the sum of P5,000, as attorney's
fees; and (d) dismissing the two cross-complaints of El Hogar
Filipino, with costs against the defendant.
Defendant's counsel moved for a new trial on the ground that the
evidence was not sufficient to justify the decision, and that the
decision was contrary to law. With the objection of the plaintiffs, the
court by an order dated April 10, 1924, reconsidered its original
decision, and summarizing the points raised by the parties in their
briefs, to wit: (a) Whether or not the contract contained in Exhibit 1
in question was usurious; (b) whether or not the provision of clause
10 of Exhibit 1 was valid; and (c) whether or not El Hogar Filipino,
a corporation organized under the laws of these Islands, had the right
to recover the amount actually lent by virtue of Exhibit 1, rendered a
decision declaring that the contract contained in Exhibit 1 was
usurious, that clause 10 of the said contract was null and' void, but
set aside so much of its decision of August 14, 1923, as held that El
Hogar Filipino had no right to recover from the plaintiffs the amount
of the loan; and by thus amending its decision, the court ordered the
plaintiffs, Buenaventura Lopez and Rosario Javelona, to return to the
defendant El Hogar Filipino the amount of P66,682 with legal
interest from March 17, 1920, until fully paid.
Plaintiffs and defendant excepted to the amended decision. Plaintiffs

prayed, furthermore, for a new trial on the ground that the judgment
was not supported by the
272
evidence and that it was against the law, which motion was denied
by the court, and both parties perfected bills of exceptions and took
the case to this court.
Plaintiffs urge that the trial court erred: (a) In not holding that the
mortgage transaction was void as to both principal and interest; (b)
in holding that plaintiffs must return to the defendant corporation the
sum of P66,682; (c) in allowing legal interest on the aforesaid sum
from the date of the execution of the mortgage; and (d) in overruling
plaintiffs' motion for new trial.
The questions raised by the plaintiffs-appellants are not new in this

jurisdiction. In the case of Delgado vs. Alonso Duque Valgona (44
Phil., 739), this court cited with approval the decision in the case of
Moncrief vs. Palmer (114 Atl., 181; 17 A. L. R., 119), in which it
was held that the debtor seeking equity must do equity by returning
to the creditor the capital that he may have received. In discussing
the law applicable to the case, this court, among other things, said
the following:
" 'The provisions of the Rhode Island statute with reference to usury
are drastic. Chapter 434, Public Laws 1909, amended by chapter
838, Public Laws 1912. The violation of the act is punishable as a
misdemeanor, every contract made in violation of it is void, and the
borrower may recover in an action at law, not only the interest, but
any portion of the principal paid by him upon such usurious
contract. The complainant's solicitor has presented to us a very
comprehensive and able argument in support of his contention that
equity should recognize the view of public policy emphatically
expressed in the legislative act, and should cancel the usurious and
void contract. This argument would have more persuasive force if
the question were a new one. The settled ,and nearly universal
practice of courts of equity is opposed to the complainant's
contention. The statutes of different states have various provisions
directed towards the prevention of the extortion and oppression of
usury. Whatever may be the method' adopted
273
VOL. 47, JANUARY 12, 1925 273
by the legislature, however, although the legislative provision may

go to the limit of our statute and declare the contract void and
unenforceable, nevertheless courts of equity, in the absence of
statute specifically constraining them to act differently, have insisted
upon the equitable principle that he "who seeks equity must do
equity," and have required the borrower, before he can be given the
relief of cancellation of the contract, to perform the moral obligation
resting upon him, and pay or offer to pay the principal of the loan
with legal interest.' "
Commenting upon the foregoing decision, Mr. Justice Street, who

penned the decision of this court in the Delgado vs. Alonso Duque
Valgona case, supra, said:
"The doctrine of that case we consider applicable here; and without

expressing any opinion upon the broader question whether capital
lent upon a usurious contract can be recovered in an aggressive
action by the creditor, we are content to hold that when the debtor in
a usurious contract sees fit, or finds it necessary to apply to the court
for equitable relief, he will, as a condition to the granting of such
relief, be required to restore what he received f rom the other party.
In the present case both parties are before the court in the attitude of
suppliants, each asking for relief from the contract in question; and
in order to avoid the possibility of further litigation, as well as to
secure complete justice, an order will be entered requiring the
plaintiff, as a condition of the satisfaction of the judgment in his
favor, to reconvey to the defendant the same twelve parcels acquired
by the plaintiff from the defendant."
In the case of Go Chioco vs. Martinez (45 Phil., 256), this court held
the following:
"Under Act No. 2655, all usurious loan is void, but this does not
mean that the debtor may keep the principal received by him as loan,
thus unjustly enriching himself to the damage of the creditor, but
that the creditor has no right of action for the recovery of the
stipulated interest,
274
Lopez and Javelona, vs. El Hogar Filipino
although he may sue for the recovery of the principal loaned."
In the course of the decision and after examining the several

provisions of the Usury Law, we held that: " * * * The law, in
declaring usurious loans to be void, determines its effects and makes
them to consist in the reimbursement of the interest paid during the
two years preceding the making of the claim, the payment of
attorney's fees and provides further for the institution of criminal
action for the imposition of the penalty fixed by the law. * * * "
This doctrine was applied in the case of Gui Jong & Co. vs. Rivera
and Avellar (45 Phil., 778) recently decided by this court with the
concurrence of all the justices 'who took part in its decision. In that
case, the defendant maintained that, inasmuch as the transaction was
usurious and was therefore void, he was relieved from all
responsibility and that the plaintiff had no right to recover anything
of him. The court held: "Where a mortgagor admits that he got the
money and owes it to the plaintiff, he is not released from the
payment of the debt because the transaction was usurious," and
"Although the interest was usurious, it did not operate as a payment
or satisfaction of the original loan, and this is specially true where
no interest was ever paid."
In the course of the decision, the court aptly makes these remarks:
"Upon what theory can the defendant breach his own contract and
rely upon its enforcement? Upon what legal principle can he deny
liability upon a contract which he repudiated and failed to perform?
How and in what manner has the defendant paid the amount of the
original loan, which he admits having received? Upon what legal or
equitable principle can he defeat the payment of the amount of the
original loan for the reason that he failed and neglected to perform
his own contract? By no fiction or rule of law would the fact that the
interest was usurious and was never paid by the defendant operate as
a payment or satisfaction of the original loan.
275
VOL. 47, JANUARY 12, 1925 275
"In any event, he should pay the plaintiff the amount which he justly
owes him. That question was squarely met and decided in the case
of Aguilar vs. Rubiato and Gonzalez Vila (40 Phil., 570), which
upon legal principle was followed in Delgado vs. Alonso Duque
Valgona (44 Phil., 739), and which was cited and approved in Go
Chioco vs. Martinez (45 Phil., 256)."
It was held in the case of Hodges vs. Gelbolinga (R. G. No. 21760,
decided August 8, 1924),1 that the trial court erred in holding the
entire contract void and in dismissing the complaint, because the
interest was in excess of 24 per cent per annum. The court said: " *
* * In the opinion in the case of Go Chioco vs. Martinez (45
Phil., 256), the majority of this court held that, in an action upon a
usurious loan, the lender can recover the capital actually lent,
together with interest thereon from the time of the institution of his
action. According to this doctrine, the contract is unenforcible only
to the extent of the stipulated usurious interest."
Thus it will be seen that the jurisprudence of this court on the

question raised by plaintiffs' appeal is decidedly to the effect that the
Usury Law (Act No. 2655), by its letter and spirit, does not deprive
the lender of his right to recover of the borrower. the money actually
loaned—this only in the case that the interest collected is usurious.
The law, as it is now, does not provide for the forfeiture of the
capital in favor of the debtor in usurious contracts and while ,we
may believe it to be more convenient to forfeit the capital, as a
drastic measure to eradicate the evil of usury, we should not,
however, resolve a legal question by abiding by our opinion
regarding its convenience, but should be guided by what We
understand is the intent of the law. There was a law (Act No. 2073),
enacted by the Philippine Commission in 1911, establishing the rate
of legal interest and fixing the effect of usury in the
_____________
1 Not reported.
276
Moro Province, in the Mountain Province, and in the Provinces of

Agusan and Nueva Vizcaya, of which section 6 provides that
"whenever it satisfactorily appears to a court that any bond, bill,
note, assurance, pledge, conveyance, contract, security, or evidence
of ,debt has been taken or received in violation of the provisions of
this Act, the court shall declare the same to be void, and enjoin any
proceeding thereon, and shall order the same to be cancelled and
given up." But the present law (Act No. 2655, as amended by Act
No. 2992) does not contain the same prohibitory provision as the
former law, and the silence of Act No. 2655 upon this point, in
conjunction with the express prohibition contained in Act No. 2073,
shows that that prohibition was intentionally omitted from the
present law and that the Legislature, in so omitting such provision
from the new law, expressly intended to open the door of the courts
to the creditor and allow him to claim the return of his capital.
The fact must specially be borne in mind that Commission Bill No.
217, introduced in 1914 by Commissioner Martin, in its section 1,
contained a provision to the effect that "any contract which directly
or indirectly called for the payment of interest in excess of 12 per
cent per annum shall be null and void, not only as to the interest, but
also as to the capital invested." But such provision was eliminated
from the Usury Law, as finally passed by the Legislature on
February 24, 1916. Not only this, but in the explanatory statement of
the same Act No. 2655, which repealed all other Acts incompatible
with its provisions, it was expressly said that in cases of violation of
the Usury Law, a fine equivalent to four times the excess of the
interest collected, or a corresponding subsidiary imprisonment in
case of insolvency, would be better than, and preferable to, the
forfeiture of the capital. Is this not a conclusive proof that, in the
enactment of the Usury Law, the Legislature did not contemplate the
forfeiture of the capital in usurious contracts?
277
VOL. 47, JANUARY 12, 1925 277
Plaintiffs' attorney, however, argue vigorously upon the significance

of the word "void" as used in section 7 of the Usury Law,
contending that usurious contracts, because expressly banned by the
law as absolutely null and void, should not be given any effect by
the courts.
It must be observed, first of all, that the intention of the legislator

must be ascertained, not from the consideration of a single word or a
particular phrase of the law, but from the context of the whole law or
from a portion thereof as compared with the whole. (25 R. C. L., p.
1007 and cases cited.) As was said by Chief Justice Marshall in
Pennington vs. Coxe (2 Cranch, 33; 2 Law. ed., 199), "that a law is
the best expositor of itself; that every part of an act is to be taken
into view f or the purpose of discovering the mind of the legislature;
and that the details of one part may contain regulations restricting
the extent of general expressions used in another part of the same
act, are among those plain rules laid down by common sense f or the
exposition of statutes which have been uniformly acknowledged. *
* *"
We are in accord with plaintiffs' counsel that if the Legislature had

used a clear and unambiguous language, the law must be enforced
according to its clear and evident intent. However, this is not so with
the case at bar. The Legislature contented itself with employing the
word "void," a word very frequently used with little precision to
mean whatever is voidable or void, so that when it is used in a law,
the context of the law must be resorted to, before giving it its exact
meaning.
The words "void" and "voidable'" are not often used with exact
discrimination; indeed in some books there is great want of precision
in the use of them and much confusion has resulted from the
looseness in the use of these words. The terms have frequently been
used indiscriminately and what is merely voidable is frequently
called void. So often has the word "void" been used in the sense of
voidable that it may be said to have almost lost its primary meaning;
so that when it is found in a statute or judicial opinion,.
278
it is ordinarily necessary to resort to the context in order to

determine precisely what meaning is to be given to it. Indeed it is
said that the term "void" is oftener used to point out what may be
avoided than to indicate a nullity. (40 Cyc., 214, 215.)
In the present case, what is the meaning of the word "void" as used
in sections 7 and 8 of the Usury Law? It will be noted that section 7
avoids all usurious contracts, but immediately after this provision, it
recognizes the validity of usurious negotiable instruments whenever
acquired in good faith by a third person; so that the usurious contract
which is void is not absolutely void, but perfectly valid under certain
circumstances.
Again, section 8 makes void and of no effect whatever loans are

payable in agricultural products and seeds, unless the price of the
products is fixed by referring to the current price thereof at the time
of the performance of the obligation; and according to section 10,
the lender violating this law should be compelled to return to the
borrower an amount equivalent only to what he may have received
as interest. It results from the very context of the law, therefore, that
the lawmaker in using the word "void" did not intend that the
transaction should be a complete nullity, but merely a nullity in
respect to the agreed interest.
This conclusion has been upheld by the majority of this court in the
case of Go Chioco vs. Martinez, supra. We then held that:
"The other questions raised in this appeal refer to whether a debtor,

who has paid usurious interest, can recover the amount paid by him
on account of the principal and whether the usurious creditor has a
right to recover the principal loaned, and not paid by the debtor. The
resolution on these two questions depends upon the interpretation of
section 7 of Act No. 2655 which provides:
" 'All conveyances, mortgages, bonds, bills, notes, and other

contracts or evidences of debt, and all deposits of goods or other
things, whereupon or whereby there shall
279
VOL. 47, JANUARY 12, 1925 279
be reserved, secured, taken, or received, directly or indirectly, a

higher rate or greater sum or value for the loan or forbearance of
money, goods, or credits than is hereinbefore allowed, shall be void:
Provided, however, That no merely clerical error in the computation
of interest, made without intent to evade any of the provisions of this
Act, shall render a contract void: And provided further, That nothing
herein contained shall be construed to prevent the purchase by an
innocent purchaser of negotiable mercantile paper, usurious or
otherwise, for valuable consideration before maturity, when there
has been no intent on the part of said purchaser to evade the
provisions of this Act and said purchase was not a part of the
original usurious transaction. In any case, however, the maker of
said note shall have the right to recover from said original holder the
whole interest paid by him thereon and, in case of litigation, also the
costs and such attorney's fees as may be allowed by the court.'
"As may be seen, notwithstanding the provision as to the nullity of

the usurious note, in case the same is indorsed to an innocent third
person, the innocent purchaser is entitled to collect the amount, with
interest, from the maker and the maker is entitled to recover from
the original holder thereof only the interest paid by him, and, in case
of litigation, the costs and attorney's fees as may be allowed by the
court. Therefore, the only effect of the nullity of the note is the
recovery of the interest paid by the debtor, not the value of the note.
"If, on account of the nullity of a usurious note, the original holder

thereof, or the payee, has no right to recover any amount upon said
note, there is no reason why, in case the same is transferred to a third
person who acquires it in good faith and for a consideration, the
payee should be benefited by the amount collected by him from the
transferee as payment of the note endorsed and not repay the maker
the value of the same. Likewise, if by virtue of such a nullity,
nothing can be collected by the
280
holder of the note, there is no reason why the reimbursement of the

interest should be limited to the amount collected during the two
years immediately preceding the date on which the action for the
recovery thereof was instituted, and should not include all the
interest collected prior to said period. And it is because the law
limits the effect of the nullity to the reimbursement of the interest
paid during the period of two years preceding the filing of the
complaint, which provision being of a penal nature must be strictly
construed so that it should not include the reimbursement of the
principal paid and the unpaid principal which is not provided in the
law.
"That the legislator did not have in mind that the usurious creditor
should lose the capital loaned by him is further made apparent by the
provisions of section 8 of Act No. 2655 as amended by Act No.
2992. Said section reads thus:
" 'All loans under which payment is to be made in agricultural

products or seed or in any other kind of commodities shall also be
null and void unless they provide that such products or seed or other
commodities shall be appraised at the time when the obligation falls
due at the current local market price: Provided, That unless
otherwise stated in a document written in a language or dialect
intelligible to the debtor and subscribed in the presence of not less
than two witnesses, any contract advancing money to be repaid later
in agricultural products or seed or any other kind of commodities
shall be understood to be a loan, and any person or corporation
having paid otherwise shall be entitled in case action is brought
within two years after such payment or delivery to recover all the
products or seed delivered as interest, or the value thereof, together
with the costs and attorney's fees in such sum as may be allowed by
the court. Nothing contained in this section shall be construed to
prevent the lender from taking interest for the money lent, provided
such interest be not in excess of the rates herein fixed.'
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VOL. 47, JANUARY 12, 1925 281
"Under this legal provision, in case of a usurious contract, by virtue

of which payments are to be made in agricultural products, seeds or
other fruits, the debtor may recover from the usurious creditor only
what he might deliver as interest, which shows, in our opinion, that
what he might have paid as principal is not recoverable. Now, if it is
-held that in another kind of a usurious contract, the debtor may
recover not only the interest paid but also the principal, how can it
be explained that by the mere fact of the debt being payable in fruits,
the debtor is not entitled to recover the principal which he might
have paid ? The conclusion is inevitable that the nullity of a usurious
loan provided in the law means only that the lender cannot demand
payment of the stipulated usurious interest.
"Moreover, section 10 of Act No. 2655 as amended by Act No. 2992

provides:
" 'Without prejudice to the proper civil action, violations of this Act
shall be subject to criminal prosecution and the guilty person shall,
upon conviction, be sentenced to a fine of not less than fifty pesos
nor more than two hundred pesos or to imprisonment for not less
than ten days nor more than six months, or both, in the discretion of
the court, and to return the entire sum received as interest from the
party aggrieved, and in case of nonpayment, to suffer subsidiary
imprisonment at the rate of one day for every two pesos: Provided,
That in case of corporations, associations, societies or companies the
manager, administrator or gerente or the person who has charge of
the management or administration of the business shall be criminally
responsible. for any violation of this Act.'
"As may be seen, this legal provision requires the restitution only of
what might have been received by the convicted usurer as interest. If
the intention of the legislator was to confiscate the principal loaned,
he would not have limited himself to the statement that the interest
collected must be refunded.
282

"In interpreting Act No. 2655, the fact must not be lost sight of that
in August, 1911, the Philippine Commission enacted Act No. 2073,
which fixes and defines the legal rate of interest, declares the effect
of usury on contracts, and provides for other purposes in the Moro
Province, Mountain Province, and in the Provinces of Agusan and
Nueva Vizcaya. Section 3 of this Act provides:
" 'SEC. 3. All bonds, bills, notes, assurances, conveyances, chattel

mortgages, and all other contracts and securities whatsoever, and all
deposits of goods, or anything whatever, whereupon or whereby
there shall be reserved, secured, or taken any greater sum or value
for the loan or forbearance of any money, goods, or things in action,
than is above prescribed, shall be void, except as to bona fide
purchasers of negotiable paper, as hereinafter provided, in good
faith, for a valuable consideration, before maturity: Provided, That
no merely clerical error in the computation of interest, made with no
intent to avoid the provisions of this Act, shall render the contract
usurious: And provided further, That the payment of interest in
advance for one year at a rate not to exceed fifteen per centum per
annum shall not be construed to constitute usury: And provided
further, That nothing herein shall be construed to prevent the
purchase of negotiable mercantile paper, usurious or otherwise, for a
valuable consideration, by an innocent purchaser, free from all
equities, at any price, before the maturity of the same, when there
has been no intent to evade the provisions of this Act, or where said
purchase has not been a part of the original usurious transaction. In
any case, however, where the original holder of a usurious note sells
the same to an innocent purchaser, the maker of said note or his
representative shall have the right to recover back f rom the said
original holder the amount of principal and interest paid by him on
said note.'
"The phraseology of section 7 of Act No. 2655 is so similar to the

language of section 3 of Act No. 2073 that
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VOL. 47, JANUARY 12, 1925 283
it may well be said that Act No. 2655 was drafted after Act No. 2073
for the whole Philippines, which Act (No. 2655) fixes the rate of
interest on loans, declares the effect of receiving or collecting
usurious interest and provides for other purposes. A comparison of
the terms of the laws above quoted shows only one essential
difference, and that is, that while section 3 of the former Act No.
2073 gives the debtor the right to recover not only the usurious
interest but also the principal, section 7 of the later Act, that is, Act
No. 2655, authorizes the debtor to recover only what he might have
paid. In view of this fact, there is no room for doubt that the
Philippine Legislature, in enacting Act No. 2655, deemed the
provision of section 3 of Act No. 2073 to be unjust as to the
confiscation of the principal and so it provided in Act No. 2655 that
the debtor may recover only the interest paid, attorney's fees and
costs.
* * * * * * *
"And, if we turn our attention on the Acts above cited, Nos. 2073
and 2655, it will be seen that section 6 of the former Act provides:
" 'Whenever it satisfactorily appears to a court that any bond, bill,

note, assurance, pledge, conveyance, contract, security, or evidence
of debt has been taken or received in violation of the provisions of
this Act, the court shall declare the same to be void, and enjoin any
proceeding thereon, and shall order the same to be cancelled and
given up.'
"This provision shows that under that law, it was expressly

prohibited to maintain any action on usurious contracts. Then there
is no doubt that the creditor cannot institute any action for the
recovery of the capital or part of the capital loaned. Undoubtedly, the
legislator, in enacting Act No. 2073, deemed it reasonable that the
creditor should lose the capital, because, aside from the fact that in
that Act no penalty was provided for against usury other than the
loss of all the interest paid by the debtor in case the usurious
instrument was negotiated (sec.
284
3), and of the interest paid in the two years preceding the filing of
the complaint in all other cases (sec. 2) ; in said Act only one rate of
interest quite liberal was fixed, namely, 15 per cent per annum
according to section 1 and building and loan associations as well as
pawn shops were exempted from every limitation according to
section 7.
"But the Act now in force, No. 2655, as amended by Act No. 2992,
contains no such prohibitive provision as that of the former Act No.
2073 and the silence of Act No. 2655 in this respect, in contra-
distinction with the express prohibition of Act No. 2073, shows that
said prohibition was intentionally omitted from the law now in
force, and that the Legislature, in omitting such rule from the new
law, did not intend to bar the creditor from coming into court for the
recovery of his capital. And the reason for. such an omission is clear
if it is taken into account that Act No. 2655 made the situation of the
creditor quite difficult in these respects: (a) No creditor is exempt
from the law (section 2) ; (b) the maximum rates were fixed, which
were to be applicable to building and loan associations and pawn
shops (section 4) ; (c) the general rate of interest was reduced to 12
per cent on loans with securities of real properties and 14 per cent if
there are no such securities (sections 2 and 3); (d) in case of
litigation, the judge shall sentence the creditor to pay attorney's fees
to the debtor (sections 6 and 8); (e) usury was made a crime and is
punishable by a fine equal to the interest stipulated, or subsidiary
imprisonment in case of insolvency (section 10). We believe that
these new penalties and restrictions were inserted by the Legislature
in lieu of the loss of the capital provided by Act No. 2073.
"And the foregoing conclusion is fully sustained not only by the

history of the Usury Law, but also by the preamble of the law itself.
By the history, because the bill of the Commission No. 217 prepared
by Commissioner Martin in 1914 in its section 1 contained a
provision to the effect that
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VOL. 47, JANUARY 12, 1925 285
'any contract which directly or indirectly provides for the payment of

any interest in excess of 12 per cent per annum shall be null and
void not only as to the interest but as to the principal invested,'
which provision was eliminated f rom the Usury Law as it was
finally passed by the Legislature. By the preamble, because speaking
of the necessity of the intervention of the prosecuting attorney in
actions resulting from the violation of the Usury Law, as well as of
the penal sanction', said preamble gives the following reasoning: 'We
believe it to be a sound proposition that the fiscal should intervene in
the actions arising from the violation of the proposed provisions set
out in the original bill, because, among other reasons, those poor
persons unable to employ an attorney will be represented and thus
the law would not be a dead letter. But without the penal clause, it
seems that such intervention is not proper. But, why not insert such
clause? We would not be the first and only nation which would do
such a thing. We are of the opinion that a fine equivalent to four
times the amount in excess of the interest charged or subsidiary
imprisonment in case of insolvency, would be sufficient and better
than the forf eiture of the principal.' Theref ore, there can be no
room for doubt that it was not the intention of the Philippine
Legislature to forfeit the principal in condemning usury by means of
a law."
In support of this opinion, we may also cite the decision of the

United States Supreme Court in the case of McBroom vs. Scottish
Mortgage & Land Investment Co. of New Mexico (153 U. S., 318;
38 Law. ed., 729), referring to the interpretation of the Usury Law of
New Mexico, where it says that:
"Was the contract between the parties void as to the amount loaned
with legal interest thereon, because it provided for, or in its
execution involved, the payment of usurious interest? The plaintiff
insists that it was, and, consequently, that a cause of action accrued
immediately
286
upon the payment of the bonus of $6,500 to the company's agent, or

at least from the first payment of interest for a fixed period. This
question must first receive attention.
"Of course, effect must be given to the intention of the legislature as

manifested by the words of the statute, interpreted according to their
natural signification. And in ascertaining that intention all of its
provisions must be considered together. As said in Harris vs.
Runnels (53 U. S., 12 How., 79, 84 [13; 901, 903]): 'Before the rule
can be applied in any case of a statute prohibiting or enjoining things
to be done, with a prohibition and a penalty, or a penalty only for
doing a thing which it forbids, the statute must be examined as a
whole to find out whether or not the makers of it meant that a
contract in contravention of it should be void, or that it was not to be
so. In other words, whatever may be the structure of the statute in
respect to prohibition and penalty, or penalty alone, that it is not to
be taken for granted that the legislature meant that contracts in
contravention of it were to be void, in the sense that they were not to
be enforced in a court of justice.' So, in Pratt vs. Short (79 N. Y.,
437, 445; 35 Am. Rep., 531) : 'Prohibitory statute may itself point
out the consequences of its violation; and if on a consideration of the
whole statute, it appears that the legislature intended to define such
consequences and to exclude any other penalty or forfeiture than
such as is declared in the statute itself, no other will be enforced, and
if an action can be maintained on the transaction of which the
prohibited transaction was a part, without sanctioning the illegality,
such action will be entertained.' (See also Pangborn vs. Westlake, 36
Iowa, 546, 549, and authorities there cited.)
"The statute of New Mexico does not declare a contract providing

for usurious interest to be absolutely void in respect to the amount
loaned and legal interest thereon, but only imposes a fine upon any
person or corporation charging, collecting, or receiving a higher rate
of interest than twelve per cent per annum, and forfeits to the person,
from
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VOL. 47, JANUARY 12, 1925 287
whom such interest is collected or received, or to his executors,

administrators, or assigns, double the amount so collected or
received—the action to recover such penalty to be brought within
three years after the cause of action accrues. Construing sections
1736, 1737, and 1738 together, the statute does not prohibit the
recovery of the amount loaned with legal interest. No such
consequence, as the forfeiture of the principal and legal interest, is
visited upon the lender. And that seems to be the view expressed by
the supreme court of the territory of New Mexico, when, construing
the local statute, in Miligan vs. Cromwell (3 N. M., 330), it said: 'lf it
should not be legal to recover more than 12 per cent interest per
annum upon written contracts, the converse of that proposition
would seem to follow as a necessary consequence that it shall be
lawful to recover on such contract 12 per cent interest per annum.' It
is true that, by necessary implication, the contract is void as to any
of interest stipulated to be paid, in excess of the highest rate allowed
by the statute. But as the statute only imposes a fine for charging,
collecting, or receiving usurious interest, and gives to the borrower a
right to recover double the amount of such interest collected or
received from him, the courts ought not to declare the contract void
as to principal and legal interest. That would add a penalty not
prescribed by the statute."
Another argument advanced by counsel for plaintiffs, maintaining

that the defendant El Hogar Filipino cannot take anything under the
contract of mortgage and loan, is that the defendant corporation is
without corporate power to enter into such kind of a contract, and
therefore its act is ultra vires. In their briefs as appellees plaintiffs
allege that the loan made to them is an agricultural loan, and the
maximum interest allowed by Act No. 2655 for such a contract is 12
per cent per annum. This law, however, does not make any
distinction between loans whether agricultural, urban, industrial, or
commercial. All loans secured by mortgage upon real property,
whether for agri-
288
cultural purposes, industrial, or commercial, or for the construction

or acquisition of urban properties cannot earn more than 12 per cent
per annum interest, in accordance with the general rule established
in section 2 of the said law; but loan and building associations may
charge up to 18 per cent per annum interest in accordance with the
exception contained in the same section,
Although not stated in so many words, we perceive from plaintiffs'

brief that building and loan associations cannot make loans except
for the construction and acquisition of homes.
Aside from the fact that there is nothing in Exhibit 1 showing (nor
did the plaintiffs show) that the loan made was for agricultural
purposes, the law, in describing building and loan associations, says:
"All corporations whose capital stock is required or is permitted to

be paid in by the stockholders in regular, equal, periodical payments
and whose purpose is to accumulate the savings of its stockholders,
to repay to said stockholders their accumulated savings and profits
upon surrender of their stock, to encourage industry, frugality, and
home building among its stockholders, and to loan its funds and
funds borrowed for the purpose to stockholders on the security of
unencumbered real estate and the pledge of shares of capital stock
owned by the stockholders as collateral security, shall be known as
building and loan corporations, and the words 'mutual building and
loan association' shall form part of the name of every such
corporation." (Sec. 171, Act No. 1459.)
It will thus be seen that one of the principal purposes for which this
kind of corporation is organized is to lend its funds and funds
borrowed for the purpose to stockholders on the security of
unencumbered real estate and the pledge of shares of capital stock
owned by the stockholders as additional security. What is the
purpose mentioned by the law? According to the same section, the
289
VOL. 47, JANUARY 12, 1925 289
purpose is (a) to accumulate the savings of its stockholders; (b) to

repay to said stockholders their accumulated savings and profits
upon surrender of their stock; (c) to encourage industry, frugality
and home building among its stockholders.
In the case of El Hogar Filipino vs. Rafferty (37 Phil., 995), this
court said:
"A building and loan association is an organization created for the

purpose of accumulating a fund by the weekly, monthly or yearly
subscriptions or savings of its members, to assist them in building or
purchasing for themselves dwellings or real estate, by loaning to
them the requisite money from the funds of the society. To all
particular intent it may be said to. be to enable a number of
associates to have and invest their savings to mutual advantage, so
that, from time to time, any individual among them may receive, out
of the accumulation of the pittances which each contributes
periodically, a sum, by way of loan, wherewith to build or pay for a
home, and ultimately making it absolutely his own by the payment
of such small amounts from time to time. Building and loan
associations are institutions in modern society and are now
recognized as important factors in the social and economic
development of the country. The controlling idea is the massing of
the separate earnings of wage-workers and the savings of persons of
small means, in such a 'manner as to aid them in procuring homes
for themselves. It is the organization of thrift and self-help, a
practical application of the maxim that in 'union there is strength.' "
It must be noted, however, that although the controlling idea in

building and loan associations is that of accumulating the separate
earnings of wage-workers and the savings of persons of small means
in such a manner as to aid them in building up homes for
themselves, this idea, nevertheless, is not exclusive, because the law
itself determines the various rious purposes which such associations
may pursue in their
290
operations. The characteristic of these associations is the mutual

benefit for its members, as defined in the Rafferty case, supra.
Upon this point Sundheim in his work on Law of Building and Loan
Associations, sections 5 and 7, has the following to say:
"All these names are misleading and convey no exact idea of what
an association is. The name has no legal or practical significance,
except that, by usage, it has become descriptive of a peculiar class of
corporations with especial rights and powers defined by statute.
Many associations to-day do not use the word 'building' in their
corporate title, but style themselves 'Savings and Loan Associations,'
which is more descriptive and less misleading. The term 'building
and loan associations' would seem to imply that they were engaged
in the business of building. This was or is seldom true, although in
some jurisdictions they seem to have that power. The borrower may,
if he so desires, build a house with the money advanced, or he may
use it in any trade or business. The association merely loans or
advances the money and the use to which it is put is none of its
concern.
* * * * * * *
"They are the most economically conducted financial institutions in

the world, and have, despite this, suffered the least financial loss.
They have grown to such an extent to recent years that they no
longer restrict their money to the home buyer, but loan their money
to the mere investor or dealer in real estate. They are the holders of
large mortgages secured upon farms, factories and other business
properties and rows of stores and dwellings. This is not an abuse of
their powers or a departure from their main purposes, but only a
natural and proper expansion along healthy and legitimate lines. All
legislation in recent years has been to enlarge and broaden their
powers, not to confine and restrict them. The courts have been
liberal in the construction of these specially delegated
291
VOL. 47, JANUARY 12, 1925 291

powers, and, as a result, they have grown and changed as conditions
required. Judge Endlich, no doubt the greatest authority on these
institutions, well says: 'lt is indeed, to be noted that the legislature
has attempted no definition of what constitutes a building
association. It has assumed that certain features and methods are
essential to it, and there is no room for doubt that without them no
corporation, whatever its label, can claim to be a building
association. But it has not excluded the possibility that, consistently
with these essential features, the legitimate development of the
business of these associations may add others which, at the date of
enactment, were not foreseen and against which, therefore, it is not
to be taken as implying any prohibition.' "
On the hypothesis that the loan in question is usurious, and leaving

for later discussion the determination of the amount of the loan
which is also the subject of the appeal of the defendant, it is our
opinion, in view of the foregoing, and so hold, that the errors
assigned by the plantiffs are groundless and should be overruled.
Let us now consider the appeal of the defendant El Hogar Filipino

from the judgment of the trial court pronouncing the contract Exhibit
1 usurious and therefore void, as well as the power to sell contained
in clause 10 of the said contract.
Defendant assigns as errors committed by the court the following:

(a) Its holding that the contract Exhibit 1 is usurious and void; (b) its
holding that the power to sell given in said contract Exhibit 1 is
void; (c) the computation of the principal of the loan evidenced by
said contract Exhibit 1 at P66,682; (d) the holding that the plaintiffs
are entitled to recover P12,600 heretofore paid and P5,000,
attorney's fees, or any sum whatever, of the defendant El Hogar
Filipino; (e) its failure to award possession of the property in
question to El Hogar Filipino under the allegations of its first cross-
complaint herein; and (f) the overruling of the motion for a new trial
on the question of
292
usury and the validity of paragraph 10 of the contract Exhibit 1.
It is proper to examine the manner of operation of loan and building

associations, as prescribed by the Corporation Law, for the purpose
of determining whether the contract in question is really usurious.
Section 182 of the Corporation Law, Act No. 1459, provides:
"Every loan made by the corporation must be properly evidenced by

note or other instrument in writing and must be secured by a first
mortgage * * * on * * * real estate and also by the
pledge to the corporation of shares of stock of the corporation the
matured value of which shall at least equal the amount loaned: *
* *"
As this section of the law is of a mandatory character and has not

been either tacitly or expressly repealed by Act No. 2655 or by any
other Act, El Hogar Filipino was under the obligation to comply
with its provisions in making the loan now in question, and for this
purpose, paragraph 7 Was inserted in Exhibit 1, to wit:
"As additional security for the performance of the obligations herein

contained, the debtors, pledge to the association the 420 shares of
Class A stock of the association by them subscribed f or of the
nominal f ace value of eighty-four thousand pesos (P84,000)."
As to the manner and time of paying the loan of P84,000, paragraph

2 of the said Exhibit 1 provides that:
"The debtors acknowledge having received the said sum of eighty-

four thousand pesos (P84,000), which they promise to repay as f
ollows:
"They will pay to the treasurer of the association monthly, on or

before the 5th day of every month, the sum of one peso (P1) for each
share of Class A stock subscribed for by them until the surrender or
cash value of said stock, as determined by the by-laws and
regulations of the association now in force, shall equal the said sum
of eighty-
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VOL. 47, JANUARY 12, 1925 293
four thousand pesos (P84,000), the amount of the loan by them

received from the association, or such lesser sum as the principal
loan shall have been reduced to by reason of payments made by the
debtors in reduction thereof in accordance with the conditions of
paragraph three hereof; and as soon as the surrender value of said
stock shall equal the sum owed by reason of the loan herein granted
said stock shall be surrendered and cancelled and the value thereof
applied by the association to the payment of the amount owed by the
debtors on said loan, and the president of the association shall
execute in favor of the debtors the necessary instruments of
cancellation of the mortgage hereinafter created, the expenses of
said cancellation to be charged against the debtors."
This paragraph or clause of the contract is likewise in accordance

with section 174 of the Corporation Law which reads as follows:
"* * * The dues on each share of stock subscribed for by a
stockholder shall continue to be paid by the stockholder to the corporation
until the share has been duly withdrawn, cancelled, or forfeited, or until the
share has reached its matured value; that is to say, when the dues paid on
each share and the net earnings thereof, in accordance with the by-laws,
shall amount to the par value of the share * * *."
The par value of each share of stock is two hundred pesos, according
to section 175 and, until the same is fully paid, the dues cannot,
according to the same section, be applied to any other account,
except to the completion of the payment of the shares of stock.
If the shares of stock were encumbered, this fact would not authorize
the association to apply the dues towards the reduction of the
amount loaned because section 174 does not make any
discrimination about shares of stock of any kind, but on the contrary
includes all shares that have not reached their matured value.
294
Furthermore, section 180 further supports clearly this criterion when

it provides that:
" * * * provided, however, That if shares pledged to the

corporation as security f or loans shall mature bef ore the loan is
repaid the matured value may be paid to the holder in cash as in this
section provided or may be credited to the loan at the option of the
board of directors."
If the dues on the shares pledged should be applied to the reduction

of the capital loaned, then the last quoted section would never have
any application, for there would never be a case where the "shares
pledged * * * shall mature before the loan is repaid."
Contrariwise, it might happen that the loan might be paid before the
shares should have reached their maturity value, if the borrower
avails himself of the right granted him in paragraph 3 of Exhibit 1,
to wit:
"It is agreed that the debtors may make partial payments in reduction
of their loan, provided such payments shall not be less than two
hundred pesos (P200), or any multiple thereof."
All this simply shows that El Hogar Filipino has adopted this system
of operating, not for the purpose of evading the Usury Law, as held
by the trial court, but because the Corporation Law, which came into
effect long before the enactment of the Usury Law, does not permit
it to accept securities of real estate, but must demand the pledge of
shares of capital stock as additional security.
In the case of Martinez vs. Graño (42 Phil., 35) this court said:
"It is a matter of common knowledge that a building and loan

association, such as El Hogar Filipino, upon making a loan, requires
the borrower to become subscriber to a sufficient number of shares
of the stock of the association to amortize the loan upon maturity of
the shares; and the borrower is further required to make certain
payments upon these shares contemporaneously with the payments
of the interest upon the loan, * * * "
295
VOL. 47, JANUARY 12, 1925 295
With these premises before us, which reveal the nerve of the case, let
us now consider the most important argument, affecting the peculiar
way of operation of mutual building and loan associations.
The trial court and the plaintiffs maintain that the monthly payment
of P420 as dues, at P1 per share, is a partial payment of the capital
loaned; but, as paragraph 4 provides that while the borrowers are
indebted to the association they shall pay interest at the rate of 9 per
cent per annum on the amount of P84,000, it might happen that the
debt might be reduced to an insignificant amount, but nevertheless
the debtors would still have to continue paying P7,560 as annual
interest.
If the P420 of monthly dues had been applied from the beginning to
the reduction of the amount of the capital loaned, (a) it would have
been violative of section 177 of the Corporation Law which
provides: "Payment of dues on shares of stock shall commence from
the time that such shares were issued;" (b) it would also violate the
provisions of section 174 which reads: " * * * The dues on
each share of stock subscribed for by a stockholder shall continue to
be paid by the stockholder to the corporation until the share has been
duly withdrawn, cancelled, or forfeited, * * *;" (c) it would
violate section 182 of the same law because the loan would have
been secured by real estate only, as there cannot be additional
security on shares of stock upon which no dues are paid; (d) the
subscription to the capital stock would have been nominal only, and
thereby section 181 of the law would have been infringed, which
prohibits these associations from lending money except to
shareholders; (e) it would openly violate paragraph 2 of the contract
Exhibit 1 which categorically provides that such payments shall be
for the shares of stock until the surrender or cash value of said stock
shall equal the sum of P84,000 and, as soon as the surrender value of
said stock shall equal the- amount due, said stock shall be
surrendered and cancelled and the value thereof shall
296
be applied to the payment of the amount owed by the debtors, etc.
If in accordance with the law and the contract Exhibit 1, the dues
shall be applied to the payment of the shares until they shall
reach.the amount of P84,000, all arguments predicated upon the
proposition that such dues must be applied to the reduction of the
debt (before reaching the amount of P84,000) are inadmissible in
sound logic.
The criterion of the court below upon this point is expressed in the
following paragraphs:
"In such a way although the payments made by the debtors in

accordance with paragraph 2 and other conditions of the contract
were really and actually applied to the original principal of the debt,
the latter would be reduced to such an extent that the maximum rate
of interest allowed by law of 18 per cent per annum would be less
than the fixed annual interest of P7,560, and still the debtors would
be bound to pay said interest of P7,560, etc." (Page 11, trial court's
decision.)
"Under clause 4 of the contract Exhibit 1, and clause 15 of the
stipulation of facts, so long as there remains any part, however
insignificant, of the P84,000 which has been made to appear as the
amount of the loan, the borrowers are to pay interest at nine per
centum per annum on the whole P84,000. So that, for example, even
though the value of the shares should reach P42,001, which is
applied to the loan, it would reduce the debt to P41,999, in any given
year, but the borrowers would have to pay interest at nine per
centum per annum on P84,000, just the same, or P7,560." (Page 45,
appellees' brief.)
We are unable to accept the theory maintained in the above quoted

paragraphs. Supposing for a while that the shares of stock had
attained a value of P42,001, this amount could not be applied to the
reduction of the loan without the consent of El Hogar Filipino, as it
would allow one of the parties to violate the contract without the
consent of the other. But if El Hogar Filipino had con-
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VOL. 47, JANUARY 12, 1925 297
sented to this, we cannot see why it should follow that under the
contract El Hogar Filipino could still collect interest upon P84,000,
because paragraph 3 of Exhibit 1 provides that:
"It is agreed that the debtors may make partial payments in reduction of this
loan provided such payments shall not be less than two hundred pesos
(P200), or any multiple thereof; all payments made hereunder shall be
applied in reduction of the principal of this loan on the last day of the month
in which the same shall be paid and the stipulated interest shall be
proportionately reduced from and after said date."
In such a case we presume that El Hogar Filipino, in order to be

within the law, would require the debtors to subscribe for shares of
stock whose value will be equivalent to P41,990, the balance of the
debt, if the debtors were not willing to pay the said balance then and
there.
On the other hand, the judgment appealed from makes the following
findings of fact: That the annual profits of El Hogar Filipino from all
sources of revenue are liquidated at the end of every year and are
prorated to its shareholders in proportion to their respective
participations, said participations being the amounts of their dues
paid upon the subscribed shares of stock and of the accumulated
profits of previous years (par. 19), and that the sum of P12,164.25
credited to the plaintiffs as the value of their shares in order to
determine the balance unpaid for which El Hogar Filipino, in
foreclosing the mortgage, caused the extrajudicial sale of the
property mortgaged herein, included the amount of dues paid by the
plaintiffs upon their shares of stock, as well as the dividends
corresponding to said shares of stock.
If the dues upon the shares of stock earn dividends, as found by the
trial court and as agreed upon by the parties, this runs counter to the
proposition that interest must be reduced proportionately every
month. To state it more clearly, one and the same amount cannot be
applied to the
298
payment of shares and at the same time to the reduction of the loan,
neither can it earn dividends and at the same time cause a reduction
of interest. When the payment is applied to the value of the shares, it
has the effect of increasing the participation in the capital of the
association of him who pays, and naturally the compensation is the
increase of his participation in the profits of the association; but
when it is applied to the reduction of the debt, its only effect is to
reduce the amount of the obligation and, consequently, it works a
reduction of the interest.
All of this confusion could have been avoided if at the outset the
debtors had been recognized as being debtors and stockholders at the
same time of the association. As such stockholders, they are vested
with all the rights and obligations of every stockholder with the only
difference that they cannot dispose- of their shares because they are
pledged to the association.
In the case of Freemansburg Building & Loan Assn. vs. Watts (199
Pa., 221; 48 Atl., 1075), it was held that:
" * * * In carrying out the plan on which building associations
are organized and conducted, it is not intended that a stockholder,
who borrows of the association, will discharge the debt he incurs by
direct payments on account of it. He pays at stated periods the dues
on his stock, the interest on the money borrowed, and, when the
premium bid for the loan has not been deducted, the installments on
it. When by the receipt of dues, interest, premiums and fines for
nonpayment of dues, all of the stock of the association or of the
series to which the borrower's stock belongs, becomes f ull paid or
matured, the value of his stock equals the amount of his debt, and
the transaction is then ended by the surrender of the stock by him
and the cancellation of his obligation by the association.
"Frequently, the obligations taken by building associations from borrowing

members very imperfectly express the true relation of the parties to each
other, as determined by
299
VOL. 47, JANUARY 12, 1925 299
the object in view and the rules for the government of the association, but
they should never be considered as establishing a new relation at variance
with the fundamental principles on which such associations are organized
and conducted, unless the language used will admit of no other construction.
* * *"
In Corpus Juris (volume 9, page 957), it is said that:
" * * * He occupies the dual relation of borrower and stockholder,
each of which is distinct from the other. * * *"
On page 978 it adds that:
"Generally, a building and loan association loan is unpaid until final

settlement or maturity of the borrower's shares, * * *."
And on page 979 we find that:
"In the majority of jurisdictions, * * * payments on stock are not ipso
facto payments on the loan and do not operate of themselves to extinguish it
pro tanto, even though the stock has been assigned as collateral. In a few
jurisdictions, especially those which allow and require all payments to the
association to be applied on the loan, the rule is otherwise as to stock
payments * * *."
If in other jurisdictions there can be any doubt about this point, that
is not the case, however, in this jurisdiction because Act No. 1459 is
very clear upon this matter, and clearer yet are the provisions of the
contract Exhibit 1, to .the effect that the monthly payments of P1 per
share shall be applied exclusively to the maturity value of the shares
and that the amount of the loan would not be totally paid (except by
voluntary partial payments as provided by paragraph 3) until the
surrender or cash value of the shares shall be equal to, and shall
cancel, the amount loaned.
Lastly, Exhibit 3 shows that on the very day that the loan was made
the following amount was deducted:
"Dues for three months upon shares subscribed for, P1,260."
300
This shows that with the consent of the plaintiffs the amount of the
first three monthly payments were applied to the payment of the
shares and not to the reduction of the loan. Furthermore, plaintiffs
should have known that the following monthly payments would be
applied to the same account, as was covenanted in Exhibit 1 and,
knowing it, they never made any protest.
If the solution of the case should hinge upon the provisions

regulating the application of payments, we would find article 1172
of the Civil Code providing that:
"A person owing several debts of the same kind to a single creditor may
declare, at the time of making a payment, to which of them it is to be
applied.
"If the debtor should accept from the creditor a receipt which recites the
application to be given the payment, he cannot contest it, unless there
should be ground for treating the contract as void."
From whatever point of view the case of the plaintiffs is considered,

we find that it is neither supported by the law, nor by the contract,
nor by the subsequent acts of the plaintiffs; on the contrary we
believe that the application of the dues to the payment of the
subscribed shares of stock is in accordance with Act No. 1459 and
with the contract Exhibit 1, and is not in violation of Act No. 2655.
Another ground of the judgment of the lower court for holding the
contract Exhibit 1 usurious, is that in accordance with paragraph 5,
any default in the payment of the dues, or of the interest, has the
effect of imposing a fine upon the debtors of three centavos per
month for each peso in arrears, and the further penalty of 3 per cent
per month thereon, equivalent to 36 per cent per annum, that is.
double the maximum rate of 18 per cent permitted by section 2 of
Act No. 2655.
The 18 per cent fixed in section 2 of Act No. 2655 as the maximum
rate of interest that may be collected by building and loan
associations must be understood' to refer only to the amount loaned,
as otherwise it might be construed to
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VOL. 47, JANUARY 12, 1925 301
authorize the collection of 18 per cent per year upon premiums, 18

per cent upon fines, and 18 per cent upon interest. It is unimportant
that the rate of monthly fines should exceed 18 per cent per annum
because what should not exceed 18 per cent per annum is the sum
total of the three items, "fines," "interest," and "premiums." If this is
so, it is evident that the 18 per cent does not ref er to the monthly
dues, but to the amount of the loan.
To what does the 36 per cent mentioned in the judgment refer? The
judgment appealed from is silent, but it undoubtedly refers to the
interest that the debtors have been compelled to pay for their
delinquency, consisting of a fine of three centavos per month for
each peso that they failed to pay, and not to the dues because the
fines thus imposed for delinquency are applicable alike to all
shareholders whether debtors of the association or not. The interest
that plaintiffs must pay was fixed at 9 per cent per annum upon the
sum loaned; and supposing that the debtors are delinquent for one
full year, it would result that they would pay 36 per cent of 9 per
cent of the principal which, mathematically speaking, represents
3.24 per cent of the loan. In other words, supposing that the debtor
should pay the monthly interest, but with 12 fines, as each month's
interest is only one-twelfth part of 9 per cent per annum, that is,
seventy-five hundredths of 1 per cent, it would result that the 12
fines would aggregate twenty-seven hundredths of 1 per cent per
month, equivalent to 3.24 per cent per annum. It will, thus, be seen
that 36 per cent of the annual interest (P7,560) would be but 3.24 per
cent of the whole loan (P84,000).
The argument relative to the premium is expounded by the court as

follows:
"Furthermore, it appears that the rate of premium charged by El Hogar

Filipino to the herein plaintiffs was 16.67 per cent of the amount of the loan.
This premium plus the 9 per cent interest of the first year amounts to 25.67
per cent of the amount of the loan, which is in excess
302
of the 18 per cent per annum allowed by the Usury Law for premiums,
interest, and fines."
If the contract had been entered into to last one year only, there
would undoubtedly be a flagrant violation of section 2 of Act No.
2655. But, as the contract did not have a fixed date of maturity, but
provided that it would become extinguished when the shares should
reach their maturity value of P84,000 and the experience of the years
of existence of the defendant corporation justifies the assumption
that the term of the loan would be ten years approximately, the
question that remains for determination is whether or not the
contract of loan f or two or more years is usurious, when in
accordance therewith, the creditor may, in one year, collect more
than the legal rate of interest.
Act No. 2655 limits the amount that may be charged for the use of
money in proportion to the amount of the loan and the length of the
time of its use. In accordance with the present day practice, the first
element is based upon 100 units and is termed per centum, while the
second is based upon one year and is denoted by the phrase per
annum. The prohibition is against collecting in excess of the rate of
many units per centum per annum, but there is nothing in the law
fixing the proportional part that may be collected each year. Twenty
pesos paid for the use of one hundred pesos in two years is
equivalent to 10 per cent per annum, as evident as ten pesos is the
payment for the use of the same amount for one year.
In the case of Fowler vs. Equitable Trust Company (141 U. S., 384;
35 Law. ed., 786), where the maximum legal rate of interest was 10
per cent, and the loan was for five years, with interest at the
maximum rate, and where 3 per cent per annum, that is, 15 per cent
of the total, was deducted at the time of making the loan, the balance
of 7 per cent to be paid annually, the court held that the collection of
the said discount did not make the transaction usurious.
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VOL. 47, JANUARY 12, 1925 303

In the case of Pierce, Wright & Co. vs. Davey (43 Neb., 45; 61 N.
W., 92), a promissory note for $1,750 was executed to cover a loan
at 10 per cent per annum, the maximum rate of interest allowed, it
being agreed that the note would earn 7 per cent interest per annum,
and the amount of $208.50 was deducted at the time of making the
loan. It was held that the transaction was not usurious even though
the amount collected in the first year of the loan was far in excess of
the maximum allowed by law, for the reason that the rate for the
whole time of the loan did not exceed the limit. The analogy
between the interest deducted in that case and the premium deducted
in the case at bar is very evident. If the intention of the lawmaker
had been to prohibit the collection of greater interest than that
allowed in any one year, he would undoubtedly have made his
intention clearer by inserting in the law these or similar phrases: "6,
12, 14, or 18 per cent in any one year of the contract" instead of the
"6 per cent per year, 12 per cent per year, 14 per cent per year, or 18
per cent per year, etc." that appear in sections 1, 2, and 3 of the said
law.
In the absence of a contrary provision, where the same interest is not

paid each year, it would seem that justice requires that the average
interest be taken by dividing the sum total of the interest of all the
years by the number of years so as to obtain a right figure for
comparison. Otherwise, the courts will be forced to declare usurious
a loan made for ten years, with real estate security, where it is
.stipulated that the debtor shall pay 1 per cent interest during the first
nine years and 12½ per cent during the last year—which would be
clearly unjust because the one-half of 1 per cent excess in the last
year is more than compensated by the 11 per cent less that he paid
during the first nine years.
In the instant case, where the date of maturity was the date when the
shares of stock should reach their maturity value, assuming that the
term of the contract would be ten
304
years, it would result that in the first year the amount collected
would be 16.67 per cent premium plus 9 per cent interest, making a
total of 25.67 per cent, which is 7.67 per cent interest in excess of
that allowed by law; but, as in each of the nine succeeding years
there would be collected only 9 per cent, the debtor would at the end
have paid in all 9 per cent less than the maximum allowed by law.
Regarding the return of the interest paid in advance, the final

provision of section 6 of Act No. 2655 is as follows:
"Provided, however, That the creditor shall not be obliged to return the
interest collected by him in advance when the debtor shall have paid the
obligation before it is due, * * *."
Act No. 2073, enacted by the Philippine Commission for the Moro
Province, Mountain Province, and the Provinces of Agusan and
Nueva Vizcaya, and which undoubtedly was considered in the
preparation of Act No. 2655, provides in section 3 as follows:
" * * * And provided further, That the payment of interest in
advance for one year at a rate not to exceed fifteen per centum per
annum shall not be construed to constitute usury."
It must be noted that this provision was reënacted in Act No. 2655,
but omitting therefrom the one-year limit which clearly would make
us think that interest may be collected in advance without that
limitation.
"In the case of loans running several years the exaction of a part of
the interest in advance for the full period of the loan has been held
not to render the loan usurious; but where a loan is to run for several
years, it has been held that to deduct in advance the highest rate of
interest for the entire period of the loan would constitute usury.
" * * * It would certainly seem that the exaction of the interest
in advance for the entire period of a loan which was to run for a long
time would render the transaction usurious where such exaction
would absorb so much
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VOL. 47, JANUARY 12, 1925 305
of the principal as to leave to the borrower very little of the amount

agreed on to be loaned." (29 Am. & Eng. Encyc. of Law, 492.)
Summarizing the foregoing, it may be said that the interest agreed

upon in the contract Exhibit 1 is 9 per cent per annum plus one-tenth
of the premium, that is, 1,667 per cent, making a total of 10.667 per
cent per annum, Adding to this the 3.24 per cent fines already
discussed, there 3 a maximum total of 13.907 per cent per annum,
which is far below the maximum rate of interest fixed by law.
It may happen, however, that the debtor in a contract of loan like the
one before us, availing himself of the right granted him in paragraph
3 of Exhibit 1 of making partial payments upon the loan, may,
because beneficial to his interests, pay the whole amount of the debt
within the first year of the loan; could it then be maintained that the
lender has committed usury?
It is a fact that by virtue of paragraph 9, the violation by the debtor

of his obligation might result in the debt becoming at once due and
payable—in this case also the rate of annual interest and premium
would exceed 18 per cent on account of the shortening of the time.
In both cases, however, the fact must be borne in mind that the
resulting excessive interest is not the result of the obligation of the
contract but of acts and omissions wholly independent of the will of
the lender.
Discounting promissory notes is very usual at the local banks. If in

discounting a 90-day promissory note the bank collects 2½ per cent
interest in advance and on the following day the debtor, to suit his
convenience, insists on withdrawing the note from the bank, and the
latter accepts its full payment, could the debtor accuse the bank of
violating the Usury Law, for having collected from him 2½ per cent
for a single day that he used the money, that is, 900 per cent interest
per annum?
306
If this were sound logic, it would follow that the legal acts
performed by the creditor could be made illegal at the will of the
debtor; that the interest collected, and which was not usurious at the
time of making the loan, could be turned usurious at the pleasure of
the debtor, thus giving the latter an easy and convenient way of
ruining his creditors.
The amount of the premium is determined and based upon the

faithful compliance with the obligation and of the consequent
running of the entire time of the loan and the reason for the absence
of a provision for the adjustment in case of the premature maturity
of the obligation by def ault of the debtor or on account of the
convenience of cancelling the entire obligation before it falls due is
to give substantial inducement to the compliance of the contract and
at the same time establish an effective penalty for its violation. If the
normal time of the loan were 10 years and the maturity, for non-
compliance of the provisions of the contract, takes place at the end
of five years, it would result that the one-half of the earned
premiums would have been granted by the contract of loan and the
other half would have constituted a penalty for the violation of the
contract.
"The test of usury in a contract is whether it would, if performed,

result in securing a greater rate of profit on the subject-matter than is
allowed by law. * * * " (Webb, Usury, sec. 29.)
" * * * It is on the assumption that contracts will be performed

according to their stipulations by the parties to them, and not upon
the supposition that they will be violated, their legality should be
determined. It would be an anomaly to make the violation of a
contract the test of its legality * * *." (Crider vs. San Antonio
Real Estate Building & Loan Assn., 13 Tex. Civ. App., 399; 37 S.
W., 237.)
"When an excessive rate of interest is made payable only in case of

default in payment of the principal, the higher rate is not for the use
of money, but imposed as a penalty
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VOL. 47, JANUARY 12, 1925 307
for nonperformance of the contract. By his own act the debtor may
relieve himself of the excessive payment. Whether such penalty for
the nonperformance of the contract is held enforceable or not, all
authorities are agreed that the contract is not usurious, but remains a
valid and enforceable obligation against the debtor." (39 Cyc., 953.)
"Where a borrower has agreed to pay a rate of interest not forbidden

by law, but has stipulated that, in the event of his not making
payment at the time specified, the obligation shall bear a higher rate
of interest, either from default or from the date of its execution, or
that some specific sum shall be paid in addition to the principal and
interest contracted for, the increased rate is generally regarded as a
penalty and not within the usury laws. * * *" (27 R. C. L.,
232.)
It will be observed that the American cases, while holding that the
penalties for violations are not against the usury laws, the courts
generally incline towards finding a way to relieve the debtor of such
a heavy burden. This tendency is based upon the repugnance of the
common law towards the imposition of fines. In the laws of this
jurisdiction, however, there is no such policy and nowhere in Act
No. 2655 is there a provision preventing the stipulation and
enforcement of a penalty in case of violation of the contract. Indeed,
section 6 clearly provides for such a penalty, permitting the lender to
retain the interest for the whole period of the contract, as advance
payment, because it does not distinguish between voluntary and
compulsory payment.
The validity of such a penalty was expressly upheld by this court in

the case of Go Chioco vs. Martinez, supra, wherein it was held that
"the parties to a contract of loan may validly agree upon a penalty in
case the obligation is not f ulfilled, besides the interest not prohibited
by the Usury Law, is a proposition generally admitted. * * *"
In the case of Cissna Loan Co. vs. Gawley (87 Wash., 438; 151 Pac.,
792; L. R. A. [1916 B], 807), the defendants
308
had taken a loan of a sum of money and executed a series of 96

promissory notes falling due in successive months, the nominal
value of each promissory note including interest at the legal rate
until their maturity. Each note contained a provision to the effect that
default upon any of them will result in the whole series becoming
immediately due and payable. Defendants paid the first 21 notes, but
failed to pay the others. Plaintiff filed an action for the recovery of
the unpaid promissory notes and for the foreclosure of the security,
against which a defense of usury was pleaded. The Supreme Court
of the United States said:
"Since, therefore, the interest reserved does not exceed the

maximum statutory rate if paid according to the terms of the contract
of loan, it remains to inquire whether the accelerating clauses of the
contract render it usurious. The usual test for the existence of usury
is, will the contract, if performed, result in producing to the lender a
rate of interest greater than the maximum rate permitted by the
statute, and was such result intended? And the courts generally hold
that stipulations in the contract to the effect that default in the
payment of interest, or of an installment of the principal, shall
accelerate the maturity of the entire debt are not usurious, even
though the contract, if enforced according to the terms of the default,
will result in giving the lender a rate of interest greater than the
maximum statutory rate. They regard the excessive rate after
maturity as in the nature of liquidated damages or penalties, to be
enforced only to the extent that they are not unconscionable (citing
cases and other authorities).
* * * * * * *
"Tested by these rules, the notes are not usurious for the reason
assigned by the respondents (defendants). The lender cannot, by the
terms of the notes, exact from the borrowers, of his own volition, a
greater rate of interest than the maximum rate permitted by the
statute. This right, if it accrues to it at all, accrues by reason of the
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VOL. 47, JANUARY 12, 1925 309
default of the borrowers, and this we hold, as we believe with the

weight of authority, cannot make a contract illegal which would
otherwise be legal if performed by the borrowers (quoting from
Crider vs. San Antonio Real Estate Building & Loan Assn., supra).
"But the trial court seems to have rested its decision in part on the
fact that the notes were payable before maturity at the option of the
borrowers, at an advanced rate of interest which would render them
usurious if so paid. But we cannot think this fact justifies the
conclusion that the notes are usurious. Such a payment would be
voluntary on the part of the borrowers. They were in no way
obligated to pay the loan before maturity. The agreement was thus in
the nature of a penalty which the lender exacted for the privilege of
paying before maturity. Not being capable of enforcement by him, it
was not usurious. * * *"
Other cases that are applicable may be found in the annotations on

page 812, L. R. A., 1916 B, following the case of Cissna Loan Co.
vs. Gawley, supra, and in the annotations to Smithwick vs. Whitley
(28 L. R. A. [N. S.], 113).
The trial court, in deciding the motion for. new trial presented by El
Hogar Filipino, in connection with the premium says: "In the first
place, the court believes that a mutual building and loan association
has no right to charge interest for the amount of the premium that it
collects upon granting a loan; secondly, a transaction is evidently
usurious where the defendant cannot in any way use the money for
which he paid interest, and interest is generally nothing more than
the payment for the use of money or a compensation for the
forbearance of the creditor in the collection of his credit."
If interest paid by a debtor upon a sum of money that he has not

received is usurious, the borrowers in the present case could allege
that they were not obliged to pay interest on the amount of money
that was deducted from the loan in accordance with Exhibit 3, which
was used for the pay-
310
ment of the deed and its registration, of the internal revenue stamps
and interest pertaining to two months and fourteen days, etc., and
similarly, as El Hogar Filipino retained P38,047 plus P11.50 from
the amount of the loan in order to cancel a lien in favor of the
National Bank upon the real estate mortgaged to the former, the
debtors likewise were not obliged to pay interest upon these
amounts, because they were sums of money which they did not use.
It was forgotten that if the plaintiffs desired to obtain a loan from El
Hogar Filipino they had to pay first those same amounts of money
that were deducted from the loan. They could have paid them with
their own money, in which case they would have received the full
amount of the loan, but they elected to have the lender pay said
amounts by deducting the same from the loan that they were
negotiating. It cannot be said, therefore, that said amounts were not
used by the debtors.
Referring to the amounts appearing in Exhibit 3, that were deducted

by El Hogar Filipino, we do not believe that it can be said that the
said amounts were not used by the plaintiffs, specially if we bear in
mind that the latter agreed to apply them to the payments that they
had to make before they could obtain the loan.
The stamps on the mortgage deed and on the shares of stock

subscribed for by the plaintiffs amounting to P14 and P84,
respectively, were necessary expenses that did not benefit in the least
the defendant entity, as also the fees of P50.50 charged by the
registrar of deeds, because these three amounts went into the public
treasury.
The expenses of appraisal and execution of the document amounting
to P50 and P25, respectively, are reasonable expenses incurred for
the survey of the mortgaged lands and in proportion to the amount of
the loan.
The entrance fees charged by the association for the issuance of

shares of stock, amounting to P420 at the rate of P1 per share, are
permitted by section 176 of the Corporation Law and have
absolutely nothing to do with the
311
VOL. 47, JANUARY 12, 1925 311
loan, for such fees are paid by all shareholders, whether debtors of
the association or not. If the plaintiffs had taken out their shares of
stock without borrowing money, or had negotiated the loan five
months afterwards, they would have had to pay just the same
amount of entrance fees.
With regard to the interest collected in advance, amounting to P294

for the fourteen days of the month of March and P1,260 for the
months of April and May, we have already said that Act No. 2655
expressly allows such collections in advance.
The dues for the subscribed shares of stock amounting to P420 f or

the month of March and P840 f or the months of April and May
were paid by the plaintiffs as shareholders and not as debtors.
As to the premium of P14,000,—we have already dealt with it,—its

collection is authorized by the Corporation Law and this was
recognized in paragraph 20 of the stipulation of facts.
Lastly, with regard to the amount retained by El Hogar Filipino for

paying plaintiffs' debt to the National Bank, amounting to
P38,047.99, plus P11.50 for interest, plaintiffs not only did not deny
it, but on the contrary have expressly admitted same.
Now, section 184 of Act No. 1459 says:
"The rate of interest on all loans may be fixed in the by-laws or may
be prescribed from time to time by the board of directors."
Let it be noted that the law does not say "net loans," that is, after
deducting the premium, but merely loans in general. And as section
181 of the same Corporation Law provides that: "* * * The
premium may be deducted from the amount of the loan or such
proportion may be so deducted as may be prescribed in the by-laws,
* * *" and El Hogar Filipino, exercising this right, deducted at
once the whole amount of the premium from the amount of
312
the loan, it would seem clear that, in accordance with the existing
laws, building and loan associations may charge interest upon the
gross amount of the loan, that is, including premium, and, in
harmony with these laws, this contract of loan was entered into and
the intent of the parties is evident that a nine per cent per annum
interest shall be paid upon P84,000, the total amount of the loan, and
not upon P66,682, as erroneously found by the trial court.
(Fitzgerald vs. Hennepin County Catholic Building & Loan Assn.,
56 Minn., 424; 57 W. W., 1066; Montgomery Mutual Building &
Loan Assn. vs. Robinson, 69 Ala., 413; Citizen's Mutual, etc., Assn.
vs. Webster, 25 Barb., 263; Vermont L. and T. Co. vs. Whithed, 2 N.
D., 83; 49 W. W., 318.)
If El Hogar Filipino could for a moment deviate from the system of

operation imposed upon it by the Corporation Law, and had given a
loan of P70,000 to the plaintiffs, charging therefor an annual interest
of 18 per cent only, the plaintiffs would pay for interest alone the
sum of P12,600 per annum and nobody would mark the transaction
usurious. In that case, plaintiffs would have to pay the very same
P12,600 per year as agreed in the contract, Exhibit 1, until they can
reduce the amount of the loan and if they should not pay any part
thereof during twenty-five years, af ter the lapse of so long a period
of time, they would still be owing the same P70,000.
The contract that is now attacked as usurious by the plaintiffs binds

Lopez to pay P12,600 annually for his loan, but gives him the
benefit of applying P5,040 out of the P12,600 towards the payment
of 420 shares of stock, so that when' these attain their maturity
value, the same would be applied to the payment of the P84,000
debt. Computing the dividend of these shares at 10 per cent per
annum, which is the dividend declared for the last two years (sworn
statement of Lutgardo Lopez, page 118, B. E.), they would attain
their maturity value at the end of 120 months, or if this were not
exact, then after 130 or 140 months. In other words, we might have
to wait 10,
313
VOL. 47, JANUARY 12, 1925 313
11, or 12 years, but at the end of these periods, the debt would be
extinguished.
If by charging the whole P12,600 as interest, El Hogar Filipino does

not commit usury, we do not think it can be reasonably maintained
that, by giving the debtor the right to apply a part of that amount of
interest to, the payment of the shares of stock, and thus enable him
to extinguish his debt after 10 or 12 years, the lender commits usury.
As to the assignment of error with reference to the return to the

plaintiffs of P12,600 paid by them as interest and the recovery of
P5,000 as attorneys' fees, we deem it necessary to make the matter
clear.
The right to recover interest and attorneys' fees, given by section 6

of Act No. 2655, is not a natural consequence following the
stipulation of excessive interest, but springs from the actual and real
payment of said interest.
If a person makes a note, promising to return the principal plus 20

per cent interest, but actually pays 10 per cent only, the note may be
void under section 7, but the debtor cannot recover in whole or in
part the 10 per cent by him paid, because the right to recover
interest, according to section 6, is granted only to "any person or
corporation who * * * shall have paid or delivered a high rate
or greater sum or value than is hereinbefore allowed to be taken or
received, * * *."
In the present case, the record does not show that the plaintiffs had
paid or delivered excessive interest; so that, even if the loan were
usurious, the adjudication is improper.
The def endant, lastly, assigns as errors of the court below the
declaration of nullity of paragraph 10 of the contract, Exhibit 1, and
its failure to award to El Hogar Filipino the possession of the
property sold extrajudicially to it. In the case of El Hogar Filipino
vs. Paredes (45 Phil., 178), it was held that:
"A stipulation in a mortgage of real property authorizing the

mortgagee, upon default of the mortgagor in the
314
payment of the mortgage debt and after publication for three

successive weeks in a paper of general circulation, to expose the
property to public sale and allowing the mortgagee to become a
bidder at such sale, is valid."
This doctrine was applied in the case of Descals vs. Handelsman (R.
G. No. 22422, decided September 30, 1924).1 In view thereof, we
are of the opinion that the court a quo erred in holding paragraph 10
of the contract, Exhibit 1, void, and in refusing to award possession
to the defendant of the mortgaged properties, which were sold to it.
The defendant, but principally the plaintiffs, have attached to their

briefs numerous computation tables of interest, which we believe it
is- unnecessary to examine exhaustively as in the resolution of this
court, the decisive point for determination is whether the facts herein
proven show that the defendant in the instant case has charged the
plaintiffs usurious interest.
At the time of the execution of the contract, Exhibit 1, the following

charges were deducted:
Premium (see Exhibit 16) P14,000.00

....................................................................................
Interest, 14 days of March, 1920, at 9 per cent per annum 294.00

(Exhibit 3)
.......................................................................................................
Id. for April and May, 1920, charged in advance (Ex 1,260;00
hibit 3)
.............................................................................................................
Total 15,554.00
..........................................................................................................
Payments made by debtors or debited to their

account during life of loan:
Interest, June 1, 1920, to May 31, 1921 P7,660.00
...................................................
Exhibits 8 and 9, testimony of Lutgardo Lopez (page 8)

and paragraphs 17 and 18 of agreement of facts show
that on March 21, 1921, Buenaventura Lopez and
Miguel Ossorio executed a promissory note in favor of
the company for the amount of P12,600, equivalent to
the annual payment for the period
_____________
1 Not reported.
315
VOL. 47, JANUARY 12, 1925 315
of from June 1, 1920, to May 31, 1921, that

is, P7,560, interest at 9 per cent plus
P5,040 as dues on the shares.
Interest at 9 per cent from June 1, 1921, to P7,560.00

May 31, 1922 (Exhibit 2)
......................................................................
Id., 29 days of June, 1922 (Exhibit 2) 609.00

........................................................
Fines for interest of 12 months (Exhibit 2) 1,474.20

................................................
Collections and charges made after signing the deed P17,283.20

.................................................
The sum of amounts collected at the time of signing the 32,757.20

deed and the payments made by debtors or amounts
debited to their account during the life of the loan until
the date when the properties were sold on June 29, 1922
(Exhibit 10)
.........................................................................................................
As the loan lasted 821 days and was P84,000, it is clear

that defendant collected for premiums, interest and fines
the amount of P14,363.69 per annum, equivalent to 17.09
per cent, 18 per cent per year upon P84,000 would be
P15,120 or P756.31 more than what the defendant col
lected.
In the account we excluded fines charged for delay in 831.60

the payment of dues upon the shares of stock, since those
fines were collected irrespective of the loan, but on account
of the subscription to the stock and delinquent share
holders, whether debtors of the company or not, are bound
to pay same. But even adding the amounts charged as
dues by El Hogar Filipino (Exhibit 2)
......................................................................
to the __32,757.20
....................................................................................................................
the result would be a total of 33,588.80

...................................................................................
which, divided by 821 days, length of time of the loan,

would give P14,728.34 per year, equivalent to 17.53 per
cent on the P84,000 and 391.66 less than the maximum
of P15,120 allowed by law.
In view of the foregoing, the judgment appealed from should be, as

is hereby, reversed, hereby declaring that the contract of loan and
mortgage here in question is not usurious; that the value of the loan
is P84,000; that paragraph 10 of the contract of loan is valid and that
the defendant has the right to the possession of the properties sold to
it in the extrajudicial sale; and that the plaintiffs have no right to
recover of the defendant the amount
316

of P12,600 paid as interest, nor the amount of P5,000, as attorneys'

fees.
Without special pronouncement as to costs. So ordered.
Johnson, Street, and Romualdez, JJ., concur.
Avanceña, J., concurs in the result.
MALCOLM and OSTRAND, JJ., dissenting in part:
A heavily burdened case may be considerably lightened if all excess

ballast is thrown overboard. Attempted argumentation which runs
counter to statutory provisions, plain and clear, is futile. Previous
decisions of this court on such subjects as contracts made void on
account of usury and extrajudicial sales, with those of us who
entertain different views still unconverted but quiescent, are
controlling.
Building and loan associations are the favored children of

legislation. El Hogar Filipino is typical. It was organized so as to
take full advantage of the special privileges granted to building and
loan corporations by the Corporation Law. But like all pampered
children, these associations occasionally overreach themselves to
their own detriment and the detriment of others. El Hogar Filipino,
for example, has now to accommodate its operations to the Usury
Law.
Section 2 of the Usury Law, Act No. 2655, should be before us for
observation. It reads: "No person or corporation shall directly or
indirectly take or receive in money or other property, real or
personal, a higher rate or greater sum or value for the loan or
forbearance of money, goods, or credits, where such loan or
forbearance is secured in whole or in part by a mortgage upon real
estate the title to which is duly registered, or by any document
conveying such real estate or an interest therein, than twelve per
centum per annum. Mutual building and loan societies incorporated
under the Corporation Act may, however, charge eighteen per
centum per annum but not more,
317
VOL. 47, JANUARY 12, 1925 317

directly or indirectly, including premiums, interest and fines."
Without permitting ourselves to become unduly enmeshed in

complicated computations or nice legal distinctions, let us now look
at the law as it is and at the facts as they are.
The premium is the conventional difference between the par value of

the share advanced and the amount actually received by the
borrower. Fixed premiums are occasionally permitted. In the
Philippines, by reason of section 181 of the Corporation Law, "*
* * moneys may be loaned at such premium as may be fixed
from time to time by the board of directors (of the building and loan
corporation). The premium may be deducted from the amount of the
loan or such proportion may be so deducted as may be prescribed in
the by-laws. * * *"
While the reported cases in the United States seem to condemn fixed
premiums, it is only for us to enforce the legislative provision.
Nevertheless, the premium cannot be permitted to become a device
to circumvent and avoid the law relating to usury. For under any and
every aspect of the case, the premium grows out of and is created by
the loan. Without the loan there would be no premium. Without the
premium there would be no loan. And the charge "including
premiums, interest and fines" may not be more than eighteen per
cent annually.
The cash actually received by the plaintiffs was P66,592.50.

Legitimate expenses and charges in connection with the loan
brought this amount up to P70,000. The plaintiffs paid to El Hogar
Filipino P12,600. The sum of all the payments made by the debtors
or debited against them during the life of the loan was P33,588.80.
On default of payment, the property was sold to El Hogar Filipino
for P87,505.53, representing the liquidated loan as figured by El
Hogar Filipino.
As to these amounts, El Hogar Filipino had the right to charge the

plaintiffs for the expenses involved in accom-
318

plishing the loan. El Hogar Filipino had the right to fix the amount
of the premium. El Hogar Filipino had the right to deduct the
premium from the amount of the loan. El Hogar Filipino had the
right to impose fines. But El Hogar Filipino had no right to charge
interest on the premium as our statutes do not allow it and as the
premium is not a part of the loan. El Hogar Filipino had no right to
exact an excessive premium. And El Hogar Filipino had no right to
charge more that 18 per cent per annum "including premium,
interest and fines."
The plaintiffs in reality received only P70,000. The P14,000 charged

for premium was never placed at their disposal, but was withheld by
the defendant and continued to be a part of its liquid assets. In
section 2 of the Usury Law the premium is not classified as capital,
but is evidently regarded as an indirect taking of interest. It could
hardly have been the idea of the Legislature that the premium should
be regarded both as capital and as interest at the same time.
The interpretation put upon the Usury Law by the court leaves the
way open for gross evasions of at least the spirit of the law. By the
simple expedient of increasing the premium a building and loan
association may, under the ruling of the court, increase its own rate
of interest on the money actually loaned almost indefinitely. It seems
clear that such cannot have been the intention of the Legislature.
In résumé, we desire to reëmphasize four points of paramount

importance:
(1) A fixed premium of 16.67 per cent or 20 per cent is

exorbitant and should not be sustained by the courts.
(2) The fixed premium should not be made to bear interest.
(3) A plan which, whenever the debt is enforced, gives the
lender more than 18 per cent annually including premiums,
interest and fines, computed on the amount of the loan not
including the deducted premium, is illegal.
319
VOL. 47, JANUARY 12, 1925 319
(4) Notwithstanding the vague provisions of the law, building

and loan associations should confine their operations to the
customary purposes of such associations.
It is within the province of El Hogar Filipino to readjust its present
and future business to meet every requirement of the law, and still be
a profit making concern and a power for good in the community.
For these reasons, we dissent in part.
JOHNS, J., dissenting:
It may be, as pointed out in the dissenting opinion of Mr. Justice

Malcolm, that the interest charges on the transaction in question
amount to more than 18 per cent, and for such reasons are usurious.
Be that as it may, we prefer to place our dissent on other and
different grounds.
Section 2 of Act No. 2655, known as the Usury Law, provides:
"No person or corporation shall directly or indirectly take or receive

in money or other property, real or personal, a higher rate or greater
sum or value for the loan or forbearance of money, goods, or credits,
where such loan or forbearance is secured in whole or in part by a
mortgage upon real estate the title to which is duly registered, or by
any document conveying such real estate or an interest therein, than
twelve per centum per annum. Mutual building and loan societies
incorporated under the Corporation Act may, however, charge
eighteen per centum per annum but not more, directly or indirectly,
including premiums, interest and fines."
It will be noted that it makes an exception in favor of "mutual

building and loan societies," and provides that they may "charge 18
per centum per annum, etc."
The question here involved is whether in the making of the loan in

question, the El Hogar Filipino made it as a building and loan
association. If the transaction was not a building and loan
association loan within the meaning of the law, then the rate of
interest could not exceed
320
12 per cent per annum. Under that section, if the loan was made by a
person, firm or corporation, which was not a building and loan
association within the meaning of the law, a contract to pay interest
in excess of 12 per cent per annum would be usurious and void.
It appears from the record and is a fact that the loan in question was
made on a sugar plantation, and that it was not made for the purpose
of buying real estate on which to build a home or to build a home on
real estate, which is owned by the borrower. In other words, the loan
was an agricultural loan as distinguished from a loan made to
purchase real estate for the purpose of building a home or to build a
home upon the real estate which was owned at the time of the loan.
There must be and is a valid reason for the exception made in the
statute which permits building and loan associations to charge and
receive 18 per cent per annum as interest, and which limits all other
loans made by any other person, firm or corporation to interest at 12
per cent per annum.
All building and loan associations are founded, and exceptions made
in their favor as to the rate of interest, upon the theory that they will
enable a person with small means or small income who has a family
to support, to build a home in which to live and to improve his
property and develop the country. When the exception was made by
the Legislature, it was never intended that the El Hogar Filipino or
any other corporation under the guise of a building and Ioan
association, should make a loan upon a sugar plantation of the nature
of the one in question.
If the loan shall be deemed and treated as one made by a building

and loan association as such, and the rate of interest is valid to the
amount of 18 per cent per annum, then there is no reason why an
exception should be made in favor of loans made by building and
loan associations. If building and loan associations are authorized
and per-
321
VOL. 47, JANUARY 12, 1925 321
mitted to make any kind of a loan on any kind of property and for all
kinds of purposes, and to collect 18 per cent per annum as interest,
why should an exception be made in their favor and why should they
be favored under the law?
Under such a construction, any money lender could organize a

building and loan association and loan his money for any and all
purposes and charge 18 per cent interest, and as thus construed, in
legal effect, section 2 of the Usury Act would sanction and approve
his right to collect that amount of interest. That was never the
purpose and intent of the law. So long as the El Hogar Filipino
confines and limits its loans to the spirit and intent with which
building and loan associations are organized and favored, it is
entitled to receive and collect 18 per cent interest on its money. But
when it goes outside and beyond the reason why the exception was
made in its favor and makes a straight loan on a sugar plantation or
of any similar nature, it should then be confined and limited to 12
per cent per annum for the use of its money.
It is well known that pawn brokers make loans for an exorbitant rate
of interest and that their business is licensed and their transactions
are more or less legalized because they are pawn brokers. Yet, if a
pawn broker doing business as such would make an ordinary loan on
real estate with a rate of interest of more than 12 per cent, no person
would claim or assert that it was not an usurious transaction. On
legal principles, what is the difference between a pawn broker
loaning money on real estate with interest at 18 per cent per annum
and the El Hogar Filipino under the guise of a building and loan
association making an agricultural loan with a like rate of interest?
The law does not intend that the El Hogar Filipino should take
advantage of the fact that it is a building and loan association, and as
such make all kinds of loans upon all kinds of property and charge
18 per cent interest in violation of the spirit and intent of the Act.
Such is the
322
legal effect of the decision of this court in the case of El Hogar

Filipino vs. Rafferty (37 Phil., 995, 1006), in which this court said:
"A building and loan association is an organization created for the purpose
of accumulating a fund by the monthly subscription, or savings of its
members, to assist them in building or purchasing for themselves dwellings
or real estate, by loaning to them the requisite money f rom the funds of the
society. To all particular intent it may be said to be to enable a number of
associates to have and invest their savings to mutual advantage, so that,
from time to time, any individual among them may receive, out of the
accumulation of the pittances which each contributes periodically, a sum, by
way of loan, wherewith to build or pay for a home, and ultimately making it
absolutely his own by the payment of such small amounts from time to time.
(Rhodes vs. Missouri Savings & Loan Co., 173 111., 621, 629; 42 L. E. A.,
93.)"
Page 1003, section 7, Endlich on Building and Loan Associations,
says:
"The idea which first gave rise to the institution of building associations,
which furnished their ostensible and legitimate raison d'être, and which
secured to them their popularity and their, in many respects, exceptionally
favored position before the law, is that of enabling persons belonging to a
class whose earnings are small, and with whom the slowness of the
accumulation discourages the effort, to become, by a process of gradual and
compulsory savings, either at the end of a certain period, or by anticipation
of it, the owners of homesteads. * * *"
Thornton and Blackledge, on Building and Loan Associations, on

page 6, says:
"* * * It is the organization of thrift and self-help; a practical application of

the maxim that in 'union there is strength.' The effect of such a movement is
to dignify the home; to foster morality, and to make thoughtful, wise, and
responsible citizens. It is for such reasons that the
323
VOL. 47, JANUARY 12, 1925 323
law and the courts, where such associations have been properly conducted,
have looked upon them with favor. Whether they shall retain the favorable
estimation of legislatures and courts will depend in large measure upon the
wise forecast and determined purpose of those who control such institutions.
Those departures from the original idea, intended to enhance the profits of
investors, without in any degree aiding those who are endeavoring to build
homes, have been, and in the future probably will be, severely censured by
the courts."
Fletcher, Cyc. of Corps., vol. 1, p. 136, says:
"An incorporated building and loan association is a corporation for the

purpose of raising, by periodical subscriptions of members, a stock or fund
to assist members by advances or loans, generally on mortgage security, in
building or purchasing homes. Such corporations are different from
corporations formed for pecuniary profit.
"The term (building and loan association) does not generally include
corporations unless their purpose is to accumulate f unds and lend the same
to members to assist them in purchasing or building homes * * *.
(Cases cited.) It does not include a corporation * * * for the purpose
of purchasing and improving real estate and advancing money on mortgages
* * * or a corporation merely for the purpose of loaning money." (Id.
and cases cited.)
In defining the object and purpose of building and loan associations,

Corpus Juris, vol. 9, page 920, says:
"B. Object and purpose.—As it is sometimes stated in the statutes relating

to, and in the charters and constitutions of, building and loan associations,
the principal object of a building and loan association is to create a loan
fund for the benefit of its borrowing members, the underlying idea being
that, by means of the system of small periodical payments provided, people
of limited means will be enabled to become the owners of homes, and thrift,
economy, and good citizenship will thereby be promoted. By reason of the
favorable results attending the operation of these
324
associations, and their beneficent purposes, they have, especially before they
attained their present tremendous growth, been favored and granted special
privileges by the various legislatures, such as permission to charge high
rates of interest and 'exemption from taxation. * * * "
Words & Phrases, volume 1, page 899, says:
"A building and loan association is an organization created for the purpose
of accumulating a fund by the monthly subscriptions and savings of its
members to assist them in building or purchasing for themselves dwellings
or real estate by loan to them of the requisite money from the funds of the
society upon good security."
It will be noted that the exception made in the statute above quoted
is for "mutual building and loan societies incorporated under the
Corporation Act." The use of the word "mutual" is significant and
important. Under the statute, it is not sufficient that the corporation
should be a building and loan association. It must be a mutual
building and loan association. In the present case, it clearly appears
that the El Hogar Filipino is owned, operated and controlled by the
stockholders who have subscribed and paid for their stock in full,
and who are lenders of money, as distinguished from borrowers. In
other words, as the owners of the paid up stock, they own and
control the corporation and lend its money, as in the instant case, to
persons who become subscribers to the capital stock, for the purpose
of borrowing money, and who do not become actual stockholders
until their loans are fully paid. The net result is that the funds of the
corporation evidenced by the stock of the paid up stockholders are
loaned to persons who are borrowers and the owners of unpaid
capital stock. In actual practice, the owner of paid up capital stock is
thus allowed and permitted to loan the money evidenced by his
stock for interest at the rate of 18 per cent per annum. That was
never the purpose and intent of the law, and it was to defeat that very
thing that the Legislature inserted the word "mutual" in the Usury
Law.
325
VOL. 47, JANUARY 19, 1925 325
American Express Co. vs. Aldanese
Applying the law to the facts, we have this situation. In legal effect,
we have a paid up stockholder in the corporation loaning his money
to an unpaid stockholder for interest at a shade less than 18 per cent
per annum, and under the guise and pretense that it was making the
loan for mutual building and loan purposes, the El Hogar Filipino
made a straight agricultural loan on a sugar plantation at a rate of
interest a shade less than 18 per cent per annum. In legal effect, that
is the transaction which is sustained by the majority. The net result
will be that every money lender, including a bank, can organize a
building and loan association and make any kind of a loan to any
person for any kind of a purpose and charge interest at the rate of 18
per cent per annum, and that the limitations placed upon such loans
by section 2 of the Usury Act will be a nullity.
I vigorously dissent.
Judgment reversed.
___________
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[No. 22678.

January 12, 1925]

BUENAVENTUEA LOPEZ and

250 PHILIPPINE REPORTS ANNOTATED

Lopez and Javelona vs. El Hogar Filipino

570; Delgado vs. Alonso Duque Valgona, 44 Phil., 739; Go

2. ID.; ID.; STATUTORY CONSTRUCTION.—The intention

3. ID.; ID.; "VOID" AND "VOIDABLE."—The words "void"

4. ID. ; ID. ; ID. ; MEANING OF THE WORD "VOID" IN

5. ID.; ID.; RATES OF INTEREST; LOANS WITH

6. ID.; ID.; CORPORATION LAW; BUILDING AND LOAN

VOL. 47, JANUARY 12, 1925 251

7. ID.; ID.; ID.; ID.; DUES; LOANS; APPLICATION OF

8. ID. ; ID. ; ID. ; ID. ; DUAL JURIDICAL RELATION.—

9. ID. ; ID. ; ID. ; ID. ; BASIS OF THE RATE FIXED BY

252 PHILIPPINE REPORTS ANNOTATED

Lopez and Javelona vs. El Hogar Filipino

to the 9 per cent interest, gives 12.24 per cent, which is

10. ID. ; ID.; ID.; ID.; BASIS OF RATE AS TO TIME.—Act

11. ID.; ID.; ID.; ID.; COLLECTION OF INTEREST IN

VOL. 47, JANUARY 12, 1925 253

Lopez and Javelona vs. El Hogar Filipino

13. ID. ; ID. ; ID. ; ID. ; DISCOUNTS.—It is usurious and

14. ID. ; ID.; ID.; ID.; STIPULATION OF EXCESSIVE

16. ID.; ID.; ID.; ID.; DETERMINATION OF CHARACTER

17. ID.; ID.; ID.; ID.; ID.; AMOUNTS NOT TO BE

254 PHILIPPINE REPORTS ANNOTATED

Lopez and Javelona vs. El Hogar Filipino

nor those that the borrower has paid to said association in

18. CORPORATION LAW; BUILDING AND LOAN

APPEAL from a judgment of the Court of First Instance of

The facts are stated in the opinion of the court.

W. H. Lawrence, Montinola & Hontiveros, Antonio Sanz, and Fisher,

No appearance for appellee.

This litigation arose out of a loan of P84,000 which the defendant El

The mortgaged properties were sold publicly in an extrajudicial sale

VOL. 47, JANUARY 12, 1925 255

Lopez and Javelona vs. El Hogar Filipino

For answer to this complaint, the defendant El Hogar Filipino set up

On account of its importance on the decision of this case, the

256 PHILIPPINE REPORTS ANNOTATED

Lopez and Javelona vs. El Hogar Filipino

ﬁrst part, and the spouses Buenaventura Lopez (husband) and

"First. The association hereby grants unto the spouses Buenaventura

VOL. 47, JANUARY 12, 1925 257

Lopez and Javelona vs. El Hogar Filipino

"Third. It is agreed that the debtors may make partial payments in

"Fifth. In the event of the failure of the debtors to pay the

"Sixth. Notwithstanding the personal responsibility which shall arise

258 PHILIPPINE REPORTS ANNOTATED

Lopez and Javelona vs. El Hogar Filipino

"Eighth. The debtors hereby grant unto the manager of the

VOL. 47, JANUARY 12, 1925 259

Lopez and Javelona vs. El Hogar Filipino

"Tenth. The debtors hereby grant unto the manager of the

"Eleventh. The debtors agree not to sell or mortgage the property

260 PHILIPPINE REPORTS ANNOTATED

Lopez and Javelona vs. El Hogar Filipino

proper, the policies to be delivered to the association duly indorsed