I.

II.

Title:

GSIS vs. CA
GR L-52478 October 30, 1986

Doctrine
Usury Law applies only to interest by way of compensation for the use or forbearance of
money. Interest by way of damages is governed by Article 2209 of the Civil Code of the
Philippines which provides:

Properties of Medinas were sols at public auction to GSIS as the highest bidder.
Medina then filed and Amended Complaint with CFI praying for the declaration of
nullity of their two real estate mortgage contract with GSIS as well as the extrajudicial foreclosure.

Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor
incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall
be the payment of the interest agreed upon,

RTC: Extra-judicial foreclosure null and void and Certificate of Title in favor of GSIS
is of no legal force and effect. Medinas to pay P1, 611.12 in full payment of their
obligation with interest of 9%/annum.

GSIS and Medinas both appealed to CA.

CA: RTC judgment affirmed. GSS to reimburse P9, 580.00 as overpayment to

Medinas.

Petition of review on certiorari to SC by GSIS.

Civil Code permits the agreement upon a penalty apart from the interest. The stipulation
about payment of such additional rate partakes of the nature of a penalty clause, which is
sanctioned by law.
III.

Facts

Sps. Nemencio and Josefina Medina applied with GSIS for a loan of P600k. GSIS
approved only the amount of P350k subject to the ff. conditions: (1) interest rate at
9%/annum compounded monthly (2) any installment that remains due and unpaid
shall bear interest at the rate of 9%/12%/month.

Office of the Economic Coordinator reduced the amount to P295k which the Medinas
accepted and executed a real estate mortgage (original mortgage, 4 April 1962) in
favor of GSIS. Upon the request of Medinas, GSIS and the Eco. Coordinator
approved the restoration of the loan to P350k (denominated as Account No. 31055).

Medinas then executed an Amendment of Real Estate Mortgage which states that the
mortgage will now cover the amount of P350k instead of P295k, and the payment of
monthly amortization including principal and interest. Further, all other terms and
conditions in the original mortgage insofar as they are not inconsistent with the
amended mortgage are confirmed, ratified and in full force and effect.

Another loan was approved by GSIS for the amount of P230k on the secuiryt of the
same mortgaged properties and to bear interest at 9%/annum.
Medinas defaulted in their payment of the monthly amortization and their fire
insurance premium. GSIS then imposed 9%/12% interest on installment due and
unpaid. GSIS notified and demanded payment from Medinas otherwise it would
foreclose the mortgage.
GSIS filed an application for Foreclosure of Mortgage with the Sheriff of Manila.
Medinas then file with CFI Manila a complaint praying for the issuance of TRO and
writ of preliminary injunction but no TRO/writ of preliminary injunction was issued.

IV.

Issues
(1) Whether or not the interest rates on the loan accounts of the Medinas are usurious.
(NO)

V.

Held
(1) Usury Law applies only to interest by way of compensation for the use or forbearance
of money. Interest by way of damages is governed by Article 2209 of the Civil Code of the
Philippines which provides:
Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor
incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall
be the payment of the interest agreed upon,
Civil Code permits the agreement upon a penalty apart from the interest. Should there be
such an agreement, the penalty does not include the interest, and as such the two are
different and distinct things which may be demanded separately. Reiterating the same
principle in the later case of Equitable Banking Corp. (supra), where this Court held that
the stipulation about payment of such additional rate partakes of the nature of a penalty
clause, which is sanctioned by law.
CA decision reversed and set aside.