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G.R.No.186550

RepublicofthePhilippines
SupremeCourt
Manila

SECONDDIVISION

ASIANCATHAYFINANCEAND
G.R.No.186550
LEASINGCORPORATION,

Petitioner,
Present:

CARPIO,J.,

Chairperson,
versus
NACHURA,

PERALTA,

ABAD,and

MENDOZA,JJ.
SPOUSESCESARIOGRAVADORand

NORMADEVERAandSPOUSES
Promulgated:
EMMACONCEPCIONG.DUMIGPI
July5,2010
andFEDERICOL.DUMIGPI,

Respondents.

xx

DECISION
NACHURA,J.:

[1]
oftheCourtofAppeals(CA)inCAG.R.CV

OnappealistheJune10,2008Decision

[2]
No.83197,settingasidetheApril5,2004decision oftheRegionalTrialCourt(RTC),
[3]
Branch 9, Bulacan, as well as its subsequent Resolution dated February 11, 2009,
denyingpetitionersmotionforreconsideration.
OnOctober22,1999,petitionerAsianCathayFinanceandLeasingCorporation(ACFLC)
[4]
extended a loan of Eight Hundred Thousand Pesos (P800,000.00) to respondent
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CesarioGravador,withrespondentsNormadeVeraandEmmaConcepcionDumigpias
comakers.Theloanwaspayableinsixty(60)monthlyinstallmentsofP24,400.00each.
To secure the loan, respondent Cesario executed a real estate mortgage

[5]
over his

propertyinSta.Maria,Bulacan,coveredbyTransferCertificateofTitleNo.T29234.

[6]

Respondents paid the initial installment due in November 1999. However, they were
unable to pay the subsequent ones. Consequently, on February 1, 2000, respondents
receivedaletterdemandingpaymentofP1,871,480.00withinfive(5)daysfromreceipt
thereof.Respondentsrequestedforanadditionalperiodtosettletheiraccount,butACFLC
denied the request. Petitioner filed a petition for extrajudicial foreclosure of mortgage
withtheOfficeoftheDeputySheriffofMalolos,Bulacan.

OnApril7,2000,respondentsfiledasuitforannulmentofrealestatemortgageand
promissory note with damages and prayer for issuance of a temporary restraining order
(TRO) and writ of preliminary injunction. Respondents claimed that the real estate
mortgageisnullandvoid.Theypointedoutthatthemortgagedoesnotmakereferenceto
the promissory note dated October 22, 1999. The promissory note does not specify the
maturity date of the loan, the interest rate, and the mode of payment and it illegally
imposed liquidated damages. The real estate mortgage, on the other hand, contains a
provisiononthewaiverofthemortgagorsrightofredemption,aprovisionthatiscontrary
to law and public policy. Respondents added that ACFLC violated Republic Act No.
3765,ortheTruthinLendingAct,inthedisclosurestatementthatshouldbeissuedtothe
borrower.Respondents,thus,claimedthatACFLCspetitionforforeclosurelackedfactual
and legal basis, and prayed that the promissory note, real estate mortgage, and any
certificate of sale that might be issued in connection with ACFLCs petition for
extrajudicialforeclosurebedeclarednullandvoid.Inthealternative,respondentsprayed
thatthecourtfixtheirobligationatP800,000.00 if the mortgage could not be annulled,
and declare as null and void the provisions on the waiver of mortgagors right of
redemption and imposition of the liquidated damages. Respondents further prayed for
moralandexemplarydamages,aswellasattorneysfees,andfortheissuanceofaTROto
enjoinACFLCfromforeclosingtheirproperty.

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[7]
denying respondents application

On April 12, 2000, the RTC issued an Order,

forTRO,astheactssoughttobeenjoinedwerealreadyfaitaccompli.

OnMay12,2000,ACFLCfileditsAnswer,denyingthematerialallegationsinthe
complaint and averring failure to state a cause of action and lack of cause of action, as
defenses.ACFLCclaimedthatitwasmerelyexercisingitsrightasmortgagorhence,it
prayedforthedismissalofthecomplaint.

Aftertrial,theRTCrenderedadecision,dismissingthecomplaintforlackofcause
ofaction.Sustainingthevalidityofthepromissorynoteandtherealestatemortgage,the
RTCheldthatrespondentsarewelleducatedindividualswhocouldnotfeignnaivetinthe
execution of the loan documents. It, therefore, rejected respondents claim that ACFLC
deceived them into signing the promissory note, disclosure statement, and deed of real
estatemortgage.TheRTCfurtherheldthattheallegeddefectsinthepromissorynoteand
inthedeedofrealestatemortgagearetooinsubstantialtowarrantthenullificationofthe
mortgage. It added that a promissory note is not one of the essential elements of a
mortgagethus,referencetoapromissorynoteisneitherindispensablenorimperativefor
thevalidityofthemortgage.TheRTCalsoupheldtheinterestrateandthepenaltycharge
imposed by ACFLC, and the waiver of respondents right of redemption provided in the
deedofrealestatemortgage.

TheRTCdisposedthus:

WHEREFORE,onthebasisoftheevidenceonrecordandthelaws/jurisprudence
applicablethereto,judgmentisherebyrenderedDISMISSINGthecomplaintintheabove
entitledcaseforwantofcauseofactionaswellasthecounterclaimof[petitioner]Asian
CathayFinance&LeasingCorporationformoralandexemplarydamagesandattorneys
feesforabjectlackofprooftojustifythesame.

[8]
SOORDERED.

Aggrieved,respondentsappealedtotheCA.OnJune10,2008,theCArenderedthe
assailedDecision,reversingtheRTC.ItheldthattheamountofP1,871,480.00demanded
by ACFLC from respondents is unconscionable and excessive. Thus, it declared
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respondents principal loan to be P800,000.00, and fixed the interest rate at 12% per
annumandreducedthepenaltychargeto1%permonth.ItexplainedthatACFLCcould
notinsistontheinterestrateprovidedonthenotebecauseitfailedtoproviderespondents
withthedisclosurestatementpriortotheconsummationoftheloantransaction.Finally,
the CA invalidated the waiver of respondents right of redemption for reasons of public
policy.Thus,theCAordered:

WHEREFORE, premises considered, the appealed decision is REVERSED

ANDSETASIDE.Judgmentisherebyrenderedasfollows:

1) Affirming the amount of the principal loan under the REM and Disclosure
StatementbothdatedOctober22,1999tobeP800,000.00,subjectto:

a. 1% interest per month (12% per annum) on the principal from

November23,1999untilthedateoftheforeclosuresale,lessP24,000.00paid
by[respondents]asfirstmonthamortization[]

b.1%penaltychargepermonthontheprincipalfromDecember23,1999untilthe
dateoftheforeclosuresale.

2)Declaringpar.14oftheREMasnullandvoidbyreasonofpublicpolicy,and
grantingmortgagorsaperiodofoneyearfromthefinalityofthisDecisionwithinwhichto
redeemthesubjectpropertybypayingtheredemptionpriceascomputedunderparagraph
1 hereof, plus one percent (1%) interest thereon from the time of foreclosure up to the
timeoftheactualredemptionpursuanttoSection28,Rule39ofthe1997RulesonCivil
Procedure.

The claim of the [respondents] for moral and exemplary damages and attorneys
feesisdismissedforlackofmerit.

[9]
SOORDERED.

ACFLC filed a motion for reconsideration, but the CA denied it on February 11,
2009.

ACFLC is now before us, faulting the CA for reversing the dismissal of respondents
complaint.Itpointsoutthatrespondentsarewelleducatedpersonswhoarefamiliarwith
theexecutionofloandocuments.Thus,theycannotbedeceivedintosigningadocument
containingprovisionsthattheyarenotamenableto.ACFLCascribeserroronthepartof
theCAforinvalidatingtheinterestratesimposedonrespondentsloan,andthewaiverof
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therightofredemption.

Theappeallacksmerit.

It is true that parties to a loan agreement have a wide latitude to stipulate on any
interestrateinviewofCentralBankCircularNo.905,seriesof1982,whichsuspendedthe
Usury Law ceiling on interest rate effective January 1, 1983. However, interest rates,
wheneverunconscionable,maybeequitablyreducedoreveninvalidated.Inseveralcases,
[10]
thisCourthaddeclaredasnullandvoidstipulationsoninterestandchargesthatwere
foundexcessive,iniquitousandunconscionable.

RecordsshowthattheamountofloanobtainedbyrespondentsonOctober22,1999
wasP800,000.00.RespondentspaidtheinstallmentforNovember1999,butfailedtopay
thesubsequentones.OnFebruary1,2000,ACFLCdemandedpaymentofP1,871,480.00.
Inaspanofthreemonths,respondentsobligationballoonedbymorethanP1,000,000.00.
ACFLC failed to show any computation on how much interest was imposed and on the
penaltiescharged.Thus,wefullyagreewiththeCAthattheamountclaimedbyACFLC
isunconscionable.

InSpousesIsaganiandDiosdadaCastrov.AngelinadeLeonTan,Sps.Concepcion
T.ClementeandAlexanderC.Clemente,Sps.ElizabethT.CarpioandAlvinCarpio,Sps.
MarieRoseT.SolimanandArvinSolimanandJuliusAmielTan,

[11]

thisCourtheld:

The imposition of an unconscionable rate of interest on a money debt, even if

knowinglyandvoluntarilyassumed,isimmoralandunjust.Itistantamounttoarepugnant
spoliation and an iniquitous deprivation of property, repulsive to the common sense of
man.Ithasnosupportinlaw,inprinciplesofjustice,orinthehumanconsciencenoris
there any reason whatsoever which may justify such imposition as righteous and as one
thatmaybesustainedwithinthesphereofpublicorprivatemorals.

Stipulationsauthorizingtheimpositionofiniquitousorunconscionableinterestare
contrary to morals, if not against the law. Under Article 1409 of the Civil Code, these
contractsareinexistentandvoidfromthebeginning.Theycannotberatifiednortheright
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to set up their illegality as a defense be waived. The nullity of the stipulation on the
usuriousinterestdoesnot,however,affectthelendersrighttorecovertheprincipalofthe
loan.Norwoulditaffectthetermsoftherealestatemortgage.Therighttoforeclosethe
mortgageremainswiththecreditors,andsaidrightcanbeexerciseduponthefailureofthe
debtorstopaythedebtdue.Thedebtdueistobeconsideredwithoutthestipulationofthe
excessive interest. A legal interest of 12% per annum will be added in place of the
[12]
The nullification by the CA of the interest rate

excessive interest formerly imposed.

and the penalty charge and the consequent imposition of an interest rate of 12% and
penaltychargeof1%permonthcannot,therefore,beconsideredareversibleerror.

ACFLCnextfaultstheCAforinvalidatingparagraph14oftherealestatemortgage
which provides for the waiver of the mortgagors right of redemption. It argues that the
rightofredemptionisaprivilegehence,respondentsareatlibertytowaivetheirrightof
redemption,astheydidinthiscase.

Settled is the rule that for a waiver to be valid and effective, it must, in the first
place, be couched in clear and unequivocal terms which will leave no doubt as to the
intention of a party to give up a right or benefit which legally pertains to him.
Additionally, the intention to waive a right or an advantage must be shown clearly and
[13]
convincingly.
Unfortunately, ACFLC failed to convince us that respondents waived
theirrightofredemptionvoluntarily.

AstheCAhadtakenpainstodemonstrate:

Thesupposedwaiverbythemortgagorswascontainedinastatementmadeinfineprintin
theREM.Itwasmadeintheformandlanguagepreparedby[petitioner]ACFLCwhilethe
[respondents] merely affixed their signatures or adhesion thereto.It thus partakes of the
natureofacontractofadhesion.Itissettledthatdoubtsintheinterpretationofstipulations
in contracts of adhesion should be resolved against the party that prepared them. This
principleespeciallyholdstruewithregardtowaivers,whicharenotpresumed,butwhich
must be clearly and convincingly shown. [Petitioner] ACFLC presented no evidence
henceitfailedtoshowtheefficacyofthiswaiver.

Moreover,tosaythatthemortgagorsrightofredemptionmaybewaivedthrougha
fine print in a mortgage contract is, in the last analysis, tantamount to placing at the
mortgageesabsolutedisposalthepropertyforeclosed.Itwouldrenderpracticallynugatory
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thisrightthatisprovidedbylawforthemortgagorforreasonsofpublicpolicy.Acontract
ofadhesionmaybestruckdownasvoidandunenforceableforbeingsubversivetopublic
policy, when the weaker party is completely deprived of the opportunity to bargain on
[14]
equalfooting.

Infine,whentheredemptionerchoosestoexercisehisrightofredemption,itisthe
[15]
Thus, we affirm the CA in

policy of the law to aid rather than to defeat his right.

nullifyingthewaiveroftherightofredemptionprovidedintherealestatemortgage.

Finally,ACFLCclaimsthatrespondentscomplaintforannulmentofmortgageisa
collateralattackonitscertificateoftitle.Theargumentisspecious.

TheinstantcomplaintforannulmentofmortgagewasfiledonApril7,2000,long
before the consolidation of ACFLCs title over the property. In fact, when respondents
filed this suit at the first instance, the title to the property was still in the name of
respondent Cesario. The instant case was pending with the RTC when ACFLC filed a
petition for foreclosure of mortgage and even when a writ of possession was issued.
Clearly,ACFLCstitleissubjecttothefinaloutcomeofthepresentcase.

WHEREFORE,thepetitionisDENIED.TheassailedDecisionandResolutionof
the Court of Appeals in CAG.R. CV No. 83197 are AFFIRMED. Costs against
petitioner.

SOORDERED.

ANTONIOEDUARDOB.NACHURA
AssociateJustice

WECONCUR:

ANTONIOT.CARPIO

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AssociateJustice
Chairperson
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DIOSDADOM.PERALTA
AssociateJustice

ROBERTOA.ABAD
AssociateJustice

JOSECATRALMENDOZA
AssociateJustice

ATTESTATION

IattestthattheconclusionsintheaboveDecisionhadbeenreachedinconsultationbefore
thecasewasassignedtothewriteroftheopinionoftheCourtsDivision.

ANTONIOT.CARPIO
AssociateJustice
Chairperson,SecondDivision

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's
Attestation, I certify that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the Courts
Division.

RENATOC.CORONA
ChiefJustice
[1]
PennedbyAssociateJusticePortiaAlioHormachuelos,withAssociateJusticesRosemariD.CarandangandEstelaM.
PerlasBernabe,concurringrollo,pp.7288.
[2]
Records,pp.207215.
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[3]
Rollo,pp.9092.
[4]
ExhibitC,records,p.16.
[5]
ExhibitB,id.at1415.
[6]
ExhibitA,id.at12.
[7]
Id.at40.
[8]
Id.at215.
[9]
Rollo,pp.8687.
[10]
HeirsofZoiloEspirituv.Landrito,G.R.No.169617,April3,2007,520SCRA383,393Ruizv.CourtofAppeals,449
Phil.419,433435(2003)SpousesSolangonv.Salazar,412Phil.816,822823(2001).
[11]
G.R.No.168940,November24,2009.
[12]
HeirsofZoiloEspirituv.Landrito,supranote11,at398.
[13]
SeeThomsonv.CourtofAppeals,G.R.No.116631,October28,1998,358Phil.761,778(1998).
[14]
Rollo,pp.8586.
[15]
IliganBayManufacturingCorporationv.Dy,G.R.Nos.140836&140907,June8,2007,524SCRA55,70.

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