Title
Ruiz vs. Court of Appeals
Case
G.R. No. 146942
Decision Date
Apr 22, 2003
Jewelry business owner defaults on loans; court rules mortgage valid, reduces excessive interest rates, and allows foreclosure on paraphernal property.
promissory note
real estate mortgage
validity of agreements
A

Case Summary (G.R. No. L-8454)

Factual Background

Petitioner conducted a jewelry buying and selling business and obtained several loans from private respondent Consuelo Torres in the aggregate initially computed as P750,000.00, purportedly by consolidating earlier advances into a promissory note dated March 22, 1995. That consolidated loan was secured by a real estate mortgage on a 240-square meter lot in New Haven Village, Novaliches, Quezon City, covered by TCT No. RT-96686 and registered in petitioner’s name. The mortgage was signed by petitioner for herself and as attorney-in-fact of her husband Rogelio and was executed March 20, 1995. Petitioner later obtained three additional P100,000.00 loans secured by pledged jewelry valued at P571,000.00. From April 1995 to March 1996 petitioner paid the stipulated three percent monthly interest on the P750,000.00 obligation amounting to P270,000.00, but thereafter she failed to make interest or principal payments and respondent demanded payment of both the consolidated P750,000.00 loan and the P300,000.00 in separate notes, prompting respondent to initiate extrajudicial foreclosure.

Foreclosure and Injunctive Relief

A Notice of Sheriff’s Sale issued September 5, 1996 set a public auction for October 8, 1996. Petitioner filed a complaint in the RTC of Quezon City on October 7, 1996, seeking a temporary restraining order to enjoin the sheriff from proceeding with the foreclosure sale and praying that her indebtedness to respondent be fixed at P706,000.00 after accounting for pledged jewelry. The trial court granted a temporary restraining order and on October 29, 1996 issued a writ of preliminary injunction, thereby halting the scheduled foreclosure.

Trial Court Proceedings

In its decision dated May 19, 1997 the trial court made permanent the injunction, declared the real estate mortgage unenforceable for lack of participation and signature of petitioner’s husband and for failure to present the Special Power of Attorney, and characterized the March 22, 1995 promissory note as a unilateral contract of adhesion prepared by respondent and repugnant to public policy. The trial court nevertheless held that petitioner remained liable for the obligation, barred respondent from imposing the one percent per month surcharge from March 1996 and the ten percent per month compounded interest from September 1996 onward, and fixed petitioner’s liability at P750,000.00 plus three percent monthly interest to yield P885,000.00, then computed total obligations including other loans, publication expenses and attorneys fees at P1,307,000.00 with legal interest from receipt of the decision until full payment. The trial court denied respondent’s motion for reconsideration on July 21, 1997.

Court of Appeals Ruling

The Court of Appeals set aside the trial court decision. It held that the mortgage was valid because the mortgaged land was the wife’s paraphernal property and thus could be encumbered without the husband’s consent. The appellate court allowed foreclosure to proceed but declared invalid the stipulated ten percent compounded monthly interest and the ten percent monthly surcharge in the notes dated May 23, 1995 and December 1, 1995, and it declared invalid the one percent compounded monthly surcharge in the April 21, 1995 note, as excessive and unconscionable. The Court of Appeals applied the legal interest rate of twelve percent per annum after maturity and allowed only a one percent per month surcharge without compounding. It awarded attorneys fees in the amount of P50,000.00 instead of the stipulated percentages.

Issues Presented on Certiorari

Petitioner assigned these principal errors: that the Court of Appeals gravely erred in ruling that the P750,000.00 promissory note was not a contract of adhesion; that the Court of Appeals gravely erred in declaring the mortgaged property paraphernal property when that issue was not raised or argued at trial; and that the Court of Appeals disregarded the trial court’s computation of petitioner’s actual obligations despite evidentiary support.

Petitioner's Contentions

Petitioner contended that the consolidated promissory note was a ready-made contract imposed by respondent, that the appellate court should not have ruled on the paraphernal nature of the property absent trial adjudication, and that the appellate court improperly set aside the trial court’s computation of amounts owing which rested on evidence presented below.

The Court’s Finding on Contract of Adhesion

The Supreme Court held that the March 22, 1995 promissory note was not a contract of adhesion. Relying on the definition and criteria discussed in Sweet Lines, Inc. v. Teves, the Court observed that the note contained no fine print clauses that a borrower could not examine, that petitioner had time and opportunity to study its terms, and that the parties had engaged in multiple loan transactions containing similar stipulations. The Court noted that petitioner’s complaint itself did not allege coercion to sign the note but merely said she was “required” to execute it, and the Court invoked the presumption that one takes ordinary care of his concerns and reads documents as reflected in Rule 131, Sec. 3(d) and the Court’s precedents.

The Court’s Finding on Paraphernal Property

The Supreme Court affirmed the appellate court’s holding that the property subject to the mortgage was paraphernal property of petitioner. The Court explained that title was registered in petitioner’s name alone and that the descriptive phrase “married to Rogelio Ruiz” did not prove conjugal acquisition. The Court held that the presumption of conjugal ownership under Article 116 of the Family Code applies only where it is established that the property was acquired during the marriage, a condition sine qua non for the operation of the presumption, and that no proof of acquisition during the marriage was offered. On that basis, the Court deemed the registration in petitioner’s name determinative of its paraphernal nature.

The Court’s Ruling on Interest and Surcharges

The Supreme Court affirmed the Court of Appeals’ invalidation of the ten percent compounded monthly interest and the ten percent monthly surcharge contained in certain notes, and the one percent compounded monthly surcharge in another note, as excessive, iniquitous and unconscionable. The Court applied the controlling line of authorities, including Medel v. Court of Appeals, Garcia v. Court of Appeals, Bautista v. Pilar Development Corporation, and Spouses Solangon v. Salazar, to hold that stipulated rates may be reduced when unconscionable despite the suspension of the Usury Law by Central Bank Circular No. 905, s. 1982. The Court equitably reduced the stipulated three percent per month (thirty-six percent per annum) interest to one percent per month (twelve percent per annum) on all four notes, affirmed that the legally permissible rate after maturity is twelve percent per annum, and held that the only permissible surcharge is one percent per month without compounding. The Court also upheld the reduction of stipulated attorneys fees to a reasonable award, confirming the P50,000.00 allowance.

Disposition and Relief

The Supreme Court affirmed the appealed decision of the Court of Appeals but modified it to reduce the interest rate of thirty-six percent per annum to twelve percent per annum. The Court directed that petitioner pay respondent the principal amounts of the four promiss

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