Nunelon R. Marquez v. Elisan Credit Corporation

Summary

This civil case involved the proper application of loan payments and chattel mortgage validity. Marquez obtained two loans from Elisan Credit Corporation, securing the first with a chattel mortgage. After fully paying the first loan and partially paying the second, he made daily installments totaling more than the principal. The Supreme Court held that under Article 1253 of the Civil Code, payments on interest-bearing debts must first be applied to interest before principal. However, the Court ruled the chattel mortgage could not secure the second loan as it was extinguished upon payment of the first loan per the accessory nature of security contracts. The Court significantly reduced the excessive interest rates, penalties, and attorney's fees from 26%, 120%, and 25% respectively to 2% each, demonstrating judicial power to prevent unconscionable contractual terms. The decision clarifies payment application rules and chattel mortgage limitations in Philippine law.