Queblar vs. Garduño

The Court held that an acceleration clause in a loan contract does not automatically place the debtor in default absent an express stipulation to that effect; consequently, default interest accrues only from the date of judicial or extrajudicial demand. The Court also ruled that a written deed of loan carries a strong presumption of correctness regarding the principal amount, which a borrower’s uncorroborated testimony cannot overcome, particularly when the borrower is a public official who voluntarily executed the instrument without reserving conditions.

Leonardo Garduño, then a Judge of the Court of First Instance, executed a deed of loan with spouses Feliciano Basa and Amalia Arcega for P8,400, secured by a mortgage on an estate. The contract required repayment in forty-two monthly installments of P200 and stipulated that failure to pay any installment would mature the entire obligation. Garduño later defaulted. Venancio Queblar subsequently acquired the creditors' rights under the loan and instituted a collection and foreclosure action.

• Leonardo Garduño executed a deed of loan (Exhibit A) with spouses Feliciano Basa and Amalia Arcega, acknowledging receipt of P8,400 and securing the obligation through a mortgage on an estate.
• The contract stipulated repayment in forty-two monthly installments of P200 and provided that failure to pay any installment would mature the entire obligation. It further contained a stipulation for the payment of reasonable attorney’s fees in case of litigation.
• Garduño defaulted on the installment payments. Venancio Queblar, as assignee of the creditors’ rights, filed a complaint for collection and foreclosure on May 4, 1933.
• Garduño alleged that he actually received only P2,100, claiming the remaining P6,300 represented half of an anticipated P12,600 profit from a property resale that never materialized. He asserted that the P8,400 face value was recorded conditionally upon the successful resale.
• The trial court found the loan valid and ordered payment of P7,750 plus legal interest from the filing date, with foreclosure as a secondary remedy. Both parties appealed the decision.

• Queblar maintained that the trial court erred in computing default interest only from May 4, 1933, arguing that interest should have accrued from March 1926, when Garduño first failed to pay the stipulated monthly installments, pursuant to the acceleration clause.
• He further argued that the contract’s express provision for attorney’s fees in case of litigation warranted an award, though the trial court omitted it from the dispositive portion.

• Garduño and Martinez argued that the trial court erred in recognizing P8,400 as the true loan amount, contending that only P2,100 was actually received and that the excess represented unearned expected profits.
• They contended that the obligation should be reduced to the actual amount received, and that the acceleration and default provisions should not apply given the alleged conditional nature of the P6,300 component.

• Procedural Issues:
  • Whether the trial court correctly computed the commencement date of default interest.
  • Whether attorney’s fees were properly awarded and at what rate.
• Substantive Issues:
  • Whether the true principal amount of the loan was P2,100 or P8,400.
  • Whether an acceleration clause without an express default stipulation automatically places a debtor in mora.

• Procedural: The Court affirmed that default interest properly commences from May 4, 1933, the date of judicial demand. It modified the judgment to award attorney’s fees at five percent of the unpaid debt, finding the rate reasonable in light of the contract’s express stipulation and the complexity of the litigation.
• Substantive: The Court ruled that the face value of the deed of loan constitutes the true principal amount, rejecting Garduño’s claim of a P2,100 actual receipt as incredible and unsupported by the instrument’s terms. It held that under Article 1100 of the Civil Code, default requires a judicial or extrajudicial demand when the obligation does not expressly state that non-payment automatically places the debtor in default. Consequently, the acceleration clause matured the obligation but did not trigger default interest absent an explicit stipulation or subsequent demand.

• Presumption of Regularity of Written Instruments — A voluntarily executed deed of loan carries the presumption that its stated terms, including the principal amount, reflect the true agreement between the parties. The Court applied this doctrine to reject parol evidence attempting to reduce the principal, emphasizing that a borrower’s uncorroborated testimony cannot overcome the written instrument’s face value, particularly when the borrower is a public official who assumed the obligation without reserving conditions.
• Default and Demand under Article 1100 of the Old Civil Code — Obligations are demandable from the time they arise, and default (mora) generally requires judicial or extrajudicial demand unless the law or the contract expressly provides otherwise. The Court applied this principle to hold that an acceleration clause alone does not constitute an express stipulation of automatic default; thus, default interest accrues only from the date of formal demand.

• "It is incomprehensible that the defendant Leonardo Garduño, who was then a Judge of the Court of First Instance, should agree to assume a debt of P8,400 if he had really received only P2,100." — The Court invoked this passage to underscore the inherent improbability of the borrower’s parol defense, noting that his judicial office and the absence of any written condition precedent defeated his claim.
• "although a contract of loan stipulates that failure to pay any of the installments therein stipulated would mature the entire obligation, without expressly stating that the debtor shall thereafter be in default, there is no justification to so hold and to adjudicate interest from the date of said non-fulfillment, but from the time a judicial or extrajudicial demand for payment is made of him (art. 1100, Civil Code...)" — This passage establishes the controlling rule that acceleration of maturity and the triggering of default interest are distinct legal consequences, the latter requiring an express contractual stipulation or formal demand.

• Compañia General de Tabacos vs. Araza, 7 Phil. 455 — Cited as controlling precedent for the rule that default interest does not commence from the mere breach of an installment schedule when the contract lacks an express stipulation of automatic default; judicial or extrajudicial demand remains a prerequisite for placing the debtor in mora.

• Article 1100, Civil Code (Old) — Governed the requisites for placing a debtor in default. The Court applied its first paragraph to hold that without an express contractual declaration of automatic default, the debtor is only in mora upon judicial or extrajudicial demand, thereby fixing the accrual date of default interest.