Nunelon R. Marquez VS. Elisan Credit Corporation G.R. No. 194642, April 06, 2015 Brion, J.: Doctrine Article 1176 Should Be Treated As A General Presumption Subject To The

NUNELON R.
MARQUEZ
VS.
ELISAN CREDIT CORPORATION
G.R. No. 194642, April 06, 2015
BRION, J.:
DOCTRINE
Article 1176 should be treated as a general presumption subject to the

more specific presumption under Article 1253. Article 1176 is relevant on
questions pertaining to the effects and nature of obligations in general, while
Article 1253 is specifically pertinent on questions involving application of
payments and extinguishment of obligations.
FACTS
The petitioner obtained a loan from the respondent for fifty-five thousand
pesos P55,000.00 evidenced by a promissory note and a cash voucher both
dated June 15, 1992. The petitioner signed a promissory note which provided
that it is payable in weekly installments and subject to 26% annual interest. In
case of non-payment, the petitioner agreed to pay 10% monthly penalty based
on the total amount unpaid and another 25% of such amount for attorney's
fees exclusive of costs, and judicial and extrajudicial expenses.
When the loan matured on December 15, 1992, the petitioner had only
paid P29, 960.00, leaving an unpaid balance of P25,040.00. Petitioner asked
the respondent if he could pay in daily installments until the second loan is
paid. The respondent agreed thus, as of September 1994 or 21 months after
the second loan's maturity, the petitioner had already paid a total of
P56,440.00, an amount greater than the principal. The respondent further
alleged that pursuant to the terms of the promissory note, the petitioner's
failure to fully pay upon maturity triggered the imposition of the 10% monthly
penalty and twenty-five 25% attorney's fees
Despite the receipt of more than the amount of the principal, the
respondent filed a complaint for judicial foreclosure of the chattel mortgage
because the petitioner allegedly failed to settle the balance of the second loan
despite demand.
ISSUE
Did the respondent act lawfully when it credited the daily payments
against the interest instead of the principal?
RULING
Yes. There is a need to analyze and harmonize Article 1176 and Article
1253 of the Civil Code to determine whether the daily payments made after the
second loan's maturity should be credited against the interest or against the
principal.
The presumption under Article 1176 does not resolve the question of

whether the amount received by the creditor is a payment for the principal or
interest. Under this article the amount received by the creditor is the payment
for the principal, but a doubt arises on whether or not the interest is waived
because the creditor accepts the payment for the principal without reservation
with respect to the interest. Article 1176 resolves this doubt by presuming that
the creditor waives the payment of interest because he accepts payment for the
principal without any reservation.
On the other hand, the presumption under Article 1253 resolves doubts
involving payment of interest-bearing debts. It is a given under this Article that
the debt produces interest. The doubt pertains to the application of payment;
the uncertainty is on whether the amount received by the creditor is payment
for the principal or the interest. Article 1253 resolves this doubt by providing a
hierarchy: payments shall first be applied to the interest; payment shall then
be applied to the principal only after the interest has been fully-paid.
Correlating the two provisions, the rule under Article 1253 that payments
shall first be applied to the interest and not to the principal shall govern if two
facts exist: (1) the debt produces interest (e.g., the payment of interest is
expressly stipulated) and (2) the principal remains unpaid.
The exception is a situation covered under Article 1176, i.e., when the
creditor waives payment of the interest despite the presence of 1 and 2 above.
In such case, the payments shall obviously be credited to the principal.
Since the doubt in the present case pertains to the application of the daily
payments, Article 1253 shall apply. Only when there is a waiver of interest
shall Article 1176 become relevant.
Under this analysis, we rule that the respondent properly credited the
daily payments to the interest and not to the principal because: (1) the debt
produces interest, i.e., the promissory note securing the second loan provided
for payment of interest; (2) a portion of the second loan remained unpaid upon
maturity; and (3) the respondent did not waive the payment of interest.

Nunelon R. Marquez VS. Elisan Credit Corporation G.R. No. 194642, April 06, 2015 Brion, J.: Doctrine Article 1176 Should Be Treated As A General Presumption Subject To The

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Nunelon R. Marquez VS. Elisan Credit Corporation G.R. No. 194642, April 06, 2015 Brion, J.: Doctrine Article 1176 Should Be Treated As A General Presumption Subject To The

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NUNELON R.

ELISAN CREDIT CORPORATION

G.R. No. 194642, April 06, 2015

Article 1176 should be treated as a general presumption subject to the

The presumption under Article 1176 does not resolve the question of

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