G.R. No. 150773 - Spouses Carpo vs. Chua

Case Summary (G.R. No. 150773)

Factual Background

Petitioners borrowed PHP 175,000 from respondents on 18 July 1995, payable within six months and bearing an agreed interest of six percent per month. To secure the loan petitioners mortgaged their residential house and lot covered by Transfer Certificate of Title No. 23180 located in San Francisco, Magarao, Camarines Sur. Petitioners failed to pay the loan upon demand.

Mortgage, Foreclosure, and Transfer of Title

Respondents extrajudicially foreclosed the real estate mortgage. The mortgaged property was sold at public auction on 8 July 1996 and was awarded to respondents as the sole bidders for PHP 367,457.80. After petitioners failed to redeem, Sheriff Rolando A. Borja issued a certificate of sale on 5 September 1997. Transfer Certificate of Title No. 23180 was cancelled and TCT No. 29338 was issued in the name of respondents.

Actions for Possession and Annulment

Despite the issuance of TCT No. 29338, petitioners remained in possession. Respondents filed a petition for writ of possession before the RTC in Special Proceedings No. 98-1665, and RTC Judge Ernesto A. Miguel ordered issuance of a writ of possession on 23 March 1999. Petitioners then filed a complaint for annulment of the real estate mortgage and consequent foreclosure proceedings on 23 July 1999, docketed as Civil Case No. 99-4376, and consigned PHP 257,197.26 with the court. A temporary restraining order was issued on motion on 3 August 1999, and on 6 January 2000 the RTC suspended enforcement of the writ of possession pending final disposition of Civil Case No. 99-4376.

Proceedings in the Court of Appeals and RTC Dismissal

Respondents petitioned the Court of Appeals for certiorari and mandamus (CA-G.R. SP No. 57297) to set aside the RTC orders enjoining enforcement of the writ. While that petition was pending, RTC Judge Filemon B. Montenegro dismissed Civil Case No. 99-4376 by Decision dated 26 October 2001 on the ground that the complaint was filed out of time and barred by laches, construing the complaint as one for annulment of a voidable contract subject to the four-year prescriptive period of Article 1391.

Issues Presented to the Supreme Court

The consolidated petitions raised primarily whether the agreed interest rate of six percent per month was void and whether that invalidity affected the validity of the real estate mortgage; whether the RTC correctly dismissed the complaint as barred by prescription and laches; and whether the Court of Appeals properly entertained and granted respondents' petition for certiorari and mandamus to set aside the RTC orders suspending enforcement of the writ of possession.

Petitioners' Contentions

In G.R. No. 150773 petitioners argued that the stipulated interest of six percent per month (seventy-two percent per annum) was so excessive and unconscionable as to be null and void under Medel v. Court of Appeals, and that the mortgage ancillary to the loan should likewise be annulled or, at least, that the principal should be recoverable only with interest at the legal rate of twelve percent per annum plus a monthly penalty. In G.R. No. 153599 petitioners contended that the RTC did not commit grave abuse of discretion in issuing the restraining orders and that those orders were not proper subjects of certiorari and mandamus because the reglementary periods had lapsed.

Legal Analysis on Usurious Interest and the Accessory Nature of Mortgage

The Court recognized the established line of jurisprudence, including Medel v. Court of Appeals, Solangon v. Salazar, Imperial v. Jaucian, Ruiz v. Court of Appeals, Cuaton v. Salud, and Arrofo v. Quino, invalidating excessive stipulated interest as contrary to morals or public policy and reducing such rates equitably to reasonable legal rates. The Court reaffirmed that a stipulation for usurious interest is separable from the principal obligation and that the principal loan indebtedness survives even when the agreed interest is void. Citing Briones v. Cammayo, the Court reiterated that usurious contracts are divisible and that the lender retains the right to recover the principal; the remedy is to correct the interest, not to render the entire loan null. Because a mortgage is accessory to the principal obligation, its validity depends on the loan's validity; therefore the invalidity of the interest stipulation alone did not render the ancillary mortgage void.

Prescription and Laches

The RTC treated the complaint as one for annulment of a voidable contract and applied the four-year prescription under Article 1391. The Supreme Court found no adequate proof of undue influence vitiating petitioners' consent. The Court explained the element of undue influence under Article 1337 and required that the influence must have deprived the contracting party of reasonable freedom of choice. Mere financial distress did not establish undue influence. The Court further held that petitioners had not acted promptly to challenge the foreclosure and had slept on their rights; the failure to timely assert rights during the foreclosure, issuance of the certificate of sale, issuance of TCT in respondents' favor, and the petition for writ of possession demonstrated laches. Accordingly, even if undue influence had been present, the action would have been time-barred and petitioners were guilty of laches.

Reviewability of RTC Orders by Certiorari and Mandamus; Timeliness

The Court considered whether respondents timely filed the special civil action under Rule 65 to challenge the RTC orders enjoining enforcement of the writ of possession. The temporary restraining order of 3 August 1999 had efficacy for only twenty days and became functus officio upon expiration; thus assailing it was moot. The injunction-like order of 6 January 2000 was interlocutory in nature because it provisionally suspended enforcement pending final disposition and left substantial proceedings for the RTC to resolve. Interlocutory orders are not properly assailed by appeal but by certiorari when the remedy of appeal is inadequate. The Court held that the sixty-day reglementary period of Section 4, Rule 65 applied and that respondent

Case Syllabus (G.R. No. 150773)

Parties and Posture

Spouses David B. Carpo and Rechilda S. Carpo were the petitioners who sought annulment of a real estate mortgage and consequential relief in Civil Case No. 99-4376 before the RTC, Branch 26, Naga City.
Eleanor Chua and Elma Dy Ng were the respondents who foreclosed the mortgage, purchased the property at public auction, and sought a writ of possession in SP No. 98-1665.
The RTC dismissed the complaint in Civil Case No. 99-4376 for being filed out of time and for laches, prompting petitioners to elevate the matter directly to this Court as G.R. No. 150773.
The Court of Appeals granted respondents' petition for certiorari and mandamus in CA-G.R. SP No. 57297 and set aside RTC orders suspending enforcement of the writ of possession, prompting petitioners to file G.R. No. 153599.
The Supreme Court consolidated G.R. Nos. 150773 and 153599 for resolution on petitioners' motions.

Key Facts

Petitioners borrowed One Hundred Seventy-Five Thousand Pesos (P175,000.00) from respondents on 18 July 1995, payable within six months at an interest rate of six percent (6%) per month.
Petitioners mortgaged their residential house and lot covered by Transfer Certificate of Title No. 23180 as security for the loan.
Petitioners defaulted, and the mortgage was extrajudicially foreclosed with the property sold at public auction on 8 July 1996 and awarded to respondents for P367,457.80 as the sole bidders.
A certificate of sale was issued on 5 September 1997 by Sheriff Rolando A. Borja and TCT No. 29338 was subsequently issued in the name of respondents.
Petitioners continued to occupy the property, leading respondents to file SP No. 98-1665 for a writ of possession and to seek enforcement in the RTC.
Petitioners filed Civil Case No. 99-4376 on 23 July 1999 for annulment of the real estate mortgage and consigned P257,197.26 with the RTC.
The RTC issued a temporary restraining order on 3 August 1999 and, by Order dated 6 January 2000, suspended enforcement of the writ of possession pending final disposition of Civil Case No. 99-4376.

Issues Presented

Whether the stipulated interest rate of six percent (6%) per month was so excessive, iniquitous, unconscionable, and contrary to morals as to be void.
Whether the invalidity of the stipulated interest rate rendered the principal loan obligation and the ancillary real estate mortgage void.
Whether the RTC correctly dismissed the complaint as barred by prescription and laches.
Whether the Court of Appeals erred in entertaining respondents' petition for certiorari and mandamus and in annulling the RTC orders enjoining enforcement of the writ of possession.

Parties' Contentions

Petitioners contended that the agreed interest rate was null and void under Medel v. Court of Appeals and that the invalidity of the interest should affect the validity of the mortgage, entitling them to relief.
Petitioners further contended in G.R. No. 153599 that the RTC did not commit grave abuse of discretion in issuing the injunctive orders and that those orders were not proper subjects of certiorari and mandamus.
Respondents contended that the stipulated interest was unconscionable but that the principal obligation and the mortgage survived, and that the RTC was obliged to issue a writ of possession once title had consolidated in the mortgagee.

Legal Framework

The Court app