GSIS v.

CA

Facts:
Respondents Nemencio and Josefina Mendoza applied with the GSIS a
loan of Php 600,000.00. The GSIS Board of Trustees approved only the amount
Php 350,000.00, subject to the ff. conditions:
o 9% rate of interest per annum compounded monthly
o Repayable in 10 years at a monthly amortization of Php
4,433.65 including principal and interest
o Any installment or amortization that remains due and
unpaid shall bear interest at the rate of 9%/12% per month
However, the approved amount was reduced to Php 295,000.00. The
spouses Medina accepted the reduced amount and executed a promissory note
as well as a real estate mortgage in favor of GSIS.
Upon request of the spouses Medina, the GSIS approved the restoration
of the Php 350,000.00 initially approved by the GSIS.
The Medinas then executed in favor of the GSIS an Amendment of Real
Estate Mortgage.
Upon application by the Medinas, the GSIS approved an additional loan
of Php 230,000.00 in favor of the Medinas on the security of the same mortgaged
properties and several additional properties:
o 9% interest per annum compounded monthly
o Repayable in 10 years
Beginning 1965, the Medinas defaulted in the payment of the monthly
amortization on their loan, the GSIS imposed 9%/12% interest on all installments
due and unpaid. In 1967, the Medinas began defaulting in the payment of fire
insurance premiums.
The GSIS notified the respondents that they had arrearages totaling Php
575, 652.42 and demanded payment within 7 days from notice, otherwise, it
would foreclose the mortgage.
GSIS filed an Application for Foreclosure of Mortgage. The Medinas filed
a complaint asking for a restraining order or writ of preliminary inunction to
prevent the GSIS from proceeding wit the extrajudicial foreclosure. However, in
view of PD 385, no such order or write was issued. The Medinas made a last
partial payment in the amount of Php 209, 662.80, after which the foreclosure
proceeded.
At the public auction, the real properties of the Medinas were sold to the
GSIS as the highest bidder for the amount of Php 440, 080.00. The
corresponding Certificate of Sale was executed by the Sheriff of Manila.
The Medinas then filed an amended complaint with the trial court, praying
for:
o Declaration of nullity of their 2 real estate mortgage
contracts with the GSIS as well as of the extrajudicial foreclosure
proceedings
o Refund of the excess payments plus attorneys fees and
damages
The trial court declared the extrajudicial foreclosure null and void and the
Certificate of Sale of no legal force and effect. Medinas were ordered to pay Php
1,611.12 in full payment of their obligation with interest.
Both parties appealed to the CA, which ruled in favor of the Medinas.
GSIS was ordered to reimburse Php 9, 580.00 overpayment as well as attorneys
 fees and litigation expenses.
Hence, the instant petition for review on certiorari instituted by GSIS.
Issues/Held:
WoN the Amendment of Real Estate Mortgage superseded the Mortgage
Contract particularly with respect to compounding of interest- NO.
o GSIS: The Amendment did not supersede the original
mortgage which was being amended only with respect to the amount
secured thereby, and the amount of monthly amortizations.
o Medinas: There is no express stipulation on compounded
interest in the amended mortgage contract so that the compounded
interest stipulation in the original contact cannot be enforced in the later
one. Hence, they are entitled to claim an overpayment.
o SC. There is no ambiguity whatsoever in the terms and
conditions of the amendment of the mortgage contract. The title, perusal,
and body of the Amendment of Real Estate Mortgage, taking into account
the prior, contemporaneous, and subsequent acts of the parties, shows
that the said amendment never intended to completely supersede the
mortgage contract.
WoN the fire insurance proceeds in the sum of Php 11,152.02 should be
credited to the total payment made by the spouses- NO.
o GSIS had already credited the aforementioned amount.
WoN the interest rates on the loan accounts are usurious- NO.
o The Usury Law only applies to interest by way of
compensation for the use or forbearance of money. Interest by way of
damages is covered by Art. 229 of the Civil Code.
o Bachrach case: Should there be an agreement, the penalty
does not include the interest, and as such the 2 are different and distinct
things which may be demanded separately.
o The stipulation about payment of such additional rate
partakes of the nature of a penalty clause, which is sanctioned by law.
WoN the foreclosure was null and void- NO.
o From the aforementioned, it is clear that the Medinas failed
to settle their accounts with the GSIS and that the latter had a perfect
right to foreclose the mortgage.
o There is also obvious error in invalidating the foreclosure
on the basis of a typographical error in the Certificate of Sale which stated
the wrong date of foreclosure. The Certificate of Sale is merely provisional
in character and is not intended to operate as an absolute transfer of the
subject property, but merely to identify the property, to show the price paid
and the date when the right of redemption expires.

Ruling:
Decision of the CA reversed and set aside.