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Spouses Cuyco v. Spouses Cuyco, GR No.

168736 April 19, 2006

Doctrine: When an obligation is breached, and it consists in the payment of a sum


of money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing.

Facts: Spouses Feliciano & Adelina Cuyco, petitioners, obtained a loan of 1.5M at a
rate of 18% interest per annum and secured by real estate mortgage over a parcel
of land with improvements, from Spouses Renato & Filipina Cuyco, respondents.
Subsequent loans were also obtained, however the contracts covering some of the
loans were not expressed as to whether they were still covered by the same
mortgage. Petitioners defaulted payments, so that the respondents sued for
foreclosure and sale of the property to settle the obligations of the petitioners. RTC
rendered judgment ordering the petitioners to settle the amount of loans plus
interests compounded, the interest of 18% shall also earn the legal interest of 12%.
On appeal, the CA affirmed RTC's decision as to interests but clarified that the
mortgage could only cover those loan contracts that were expressly stating so, and
that payment of the principal obligation of 18% per annum shall discharge the
property mortgage.

Issues:
1. Are the courts correct in compounding the interests and adding a legal interest
over the stipulated interest?
2. Should the subsequent loans be covered by the mortgage however absent the
stipulations?

Held: On the first issue, Yes, the courts did not err in applying the rules in
application of interest enunciated in Eastern Shipping Lines, Inc v. CA which states
in paragraph 1, When an obligation is breached, and it consists in the payment of
a sum of money, i.e., a loan or forbearance of money, the interest due should be
that which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence of
stipulation, the rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.

On the 2nd issue, as a general rule, a mortgage liability is usually limited to the
amount mentioned in the contract. An obligation is not secured by a mortgage
unless it comes fairly within the terms of the mortgage contract. It is clear from a
perusal of the aforequoted real estate mortgage that there is no stipulation that
the mortgaged realty shall also secure future loans and advancements. Thus, what
applies is the general rule above stated.