Facts:

This case involves the petitioner Asian Cathay Finance and Leasing Corporation (ACFLC) and the respondents, spouses Cesario Gravador and Norma de Vera, along with spouses Emma Concepcion Dumigpi and Federico L. Dumigpi. The events unfolded on October 22, 1999, when ACFLC extended a loan worth Eight Hundred Thousand Pesos (₱800,000.00) to Cesario Gravador, with Norma de Vera and Emma Concepcion Dumigpi serving as co-makers. The loan was set to be repaid in a total of sixty monthly installments of ₱24,400.00 each. To secure this loan, Gravador executed a real estate mortgage over his property located in Sta. Maria, Bulacan, covered by Transfer Certificate of Title No. T-29234.

The respondents made their initial payment in November 1999 but failed to follow through with subsequent installments. On February 1, 2000, ACFLC issued a demand letter for the payment of ₱1,871,480.00, giving the respondents five days to pay. The respondents requested a grace period to settle the amount bu

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Facts:

Loan Transaction and Mortgage Execution

• On October 22, 1999, Asian Cathay Finance and Leasing Corporation (ACFLC) extended a loan of ₱800,000.00 to respondent Cesario Gravador, with respondents Norma de Vera and Emma Concepcion Dumigpi as co-makers.
• The loan was to be repaid in sixty (60) monthly installments of ₱24,400.00 each.
• To secure the loan, respondent Cesario executed a real estate mortgage over his property in Sta. Maria, Bulacan, covered by Transfer Certificate of Title No. T-29234.

Payment Defaults and Demand for Payment

• Respondents paid the initial installment due in November 1999.
• Subsequent installments were not paid, prompting ACFLC to send a demand letter on February 1, 2000, demanding a payment amount of ₱1,871,480.00 within five (5) days.
• Despite respondents’ request for additional time to settle the account, ACFLC refused their request.

Extrajudicial Foreclosure and Respondents’ Counteraction

• Following the default, ACFLC filed a petition for extrajudicial foreclosure of the mortgage with the Office of the Deputy Sheriff of Malolos, Bulacan.
• On April 7, 2000, respondents initiated a suit for annulment of the real estate mortgage and promissory note, seeking damages and relief through a temporary restraining order (TRO) and writ of preliminary injunction.
• Respondents claimed the mortgage and promissory note were null and void due to:
• The mortgage’s failure to properly reference the promissory note.
• The promissory note’s lack of essential details such as the maturity date, interest rate, and mode of payment.
• The imposition of illegally excessive liquidated damages.
• The inclusion of a waiver of the mortgagor’s right of redemption in the mortgage, which was argued to be contrary to law and public policy.
• Violations of the Truth in Lending Act (Republic Act No. 3765) in the disclosure statement.

Trial Court Proceedings and Decision

• On April 12, 2000, the Regional Trial Court (RTC) issued an order denying respondents’ application for a TRO, noting that the acts sought to be enjoined were already completed.
• On May 12, 2000, ACFLC filed its Answer, denying the allegations and asserting that it was exercising its rights as mortgagee.
• After trial, the RTC dismissed the respondents’ complaint for lack of cause of action and upheld the validity of both the promissory note and the real estate mortgage, stating:
• Respondents were well-educated and could not claim to have been deceived.
• The alleged defects in the documents were insubstantial.
• The reference to the promissory note in the mortgage was not a requisite for its validity.
• The interest rate, penalty charge, and waiver of the right of redemption were proper.

Court of Appeals (CA) Decision

• On June 10, 2008, the CA reversed the RTC’s decision, ruling that:
• The demanded amount of ₱1,871,480.00 was unconscionable and excessive.
• The principal loan should remain at ₱800,000.00.
• Interest should be capped at 12% per annum (or 1% per month) and penalties similarly reduced.
• The waiver of the mortgagor’s right of redemption was invalidated on grounds of public policy.
• The CA also dismissed the claims for moral and exemplary damages and attorney’s fees.
• A subsequent motion for reconsideration filed by ACFLC was denied on February 11, 2009.

Petitioner’s (ACFLC’s) Appeal

• ACFLC argued that:
• The respondents, being well-educated, could not be deceived into executing documents with objectionable provisions.
• The CA erred in invalidating the agreed-upon interest rate and penalty charge.
• The waiver of the right of redemption should be upheld as a valid contractual stipulation.
• The Court eventually found merit in the CA’s adjustments, noting:
• The unconscionable accumulation of charges.
• The inadequacy of evidence regarding a voluntary and clear waiver of redemption rights, especially when such waiver was presented in fine print in a contract of adhesion.

Issue:

Whether the respondents’ suit for annulment of the real estate mortgage and promissory note is sustainable on the grounds that:

• The promissory note lacked essential terms (maturity date, interest rate, and mode of payment).
• The real estate mortgage contained a provision waiving the mortgagor’s right of redemption, allegedly contrary to law and public policy.
• Whether the charges imposed by ACFLC (interest rate and penalty charge) were excessive, unconscionable, and not properly supported by the loan documents.
• Whether the failure of ACFLC to provide the mandatory disclosure statement under Republic Act No. 3765 invalidates the terms of the loan, particularly the interest rate.
• Whether the waiver of the mortgagor’s right of redemption, as contained in the real estate mortgage, is valid given the nature of the contract of adhesion and the requirement for clear and unequivocal waiver of such a right.
• Whether the extrajudicial foreclosure petition filed by ACFLC should proceed in light of the disputes raised regarding the validity of the underlying documents.

Ruling:

• (Subscriber-Only)

Ratio:

• (Subscriber-Only)

Doctrine:

• (Subscriber-Only)