5/11/2017 Dio vs Japor : 154129 : July 8, 2005 : J.

Quisumbing : First Division : Decision

FIRSTDIVISION

[G.R.No.154129.July8,2005]

TERESITA DIO, petitioner, vs. SPOUSES VIRGILIO and LUZ ROCES JAPOR and
[1]
MARTA JAPOR,respondents.

DECISION
QUISUMBING,J.:

[2]
ForreviewoncertiorariistheDecision, datedFebruary22,2002,oftheCourtofAppeals,inthe
consolidatedcasesCAG.R.CVNo.51521andCAG.R.SPNo.40457.Thedecretalportionread:

WHEREFORE, premises considered, in CA-G.R. CV No. 51521, the decision of the trial court is AFFIRMED
with MODIFICATION. Judgment is rendered as follows:

1.DeclaringtheRealEstateMortgagetobevalid
2. Fixing the interest at 12% per annum and an additional 1% penalty charge per month such that
plaintiffsappellantscontractualobligationunderthedeedofrealestatemortgagewouldamountto
P1,252,674.00
3.DirectingdefendantappelleeDiotogivethesurplusofP2,247,326.00toplaintiffsappellantsand
4.Affirmingthedissolutionofthewritofpreliminaryinjunctionpreviouslyissuedbythetrialcourt.

No pronouncement as to costs.

The Petition in CA-G.R. SP No. 40457 is DENIED for being moot and academic.
[3]
SO ORDERED.
[4]
Equally assailed in this petition is the Resolution, dated July 2, 2002, of the appellate court,
denyingTeresitaDiosMotionforPartialReconsiderationofMarch19,2002andtheSpousesJapor
andMartaJaporsMotionforReconsiderationdatedMarch20,2002.
Theantecedentfactsareasfollows:
Herein respondents Spouses Virgilio Japor and Luz Roces Japor were the owners of an 845.5
squaremeterresidentiallotincludingitsimprovements,situatedinBarangayIbabangMayao,Lucena
City,asshownbyTransferCertificateofTitle(TCT)No.T39514.AdjacenttotheJaporslotisanother
lotownedbyrespondentMartaJapor,whichconsistedof325.5squaremetersandtitledunderTCT
No.T15018.
OnAugust23,1982,therespondentsobtainedaloanofP90,000fromtheQuezonDevelopment
Bank(QDB),andassecuritytherefor,theymortgagedthelotscoveredbyTCTNos.T39514andT
15018toQDB,asevidencedbyaDeedofRealEstateMortgagedulyexecutedbyandbetweenthe
respondentsandQDB.
On December 6, 1983, respondents and QDB amended the Deed of Real Estate Mortgage
increasingrespondentsloantoP128,000.

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Therespondentsfailedtopaytheiraforesaidloans.However,beforethebankcouldforecloseon
themortgage,respondents,thrutheirbroker,oneLuciaG.Orian,offeredtomortgagetheirproperties
topetitionerTeresitaDio.PetitionerpreparedaDeedofRealEstateMortgage,wherebyrespondents
mortgagedanewthe two propertiesalreadymortgagedwithQDBto securethe timelypaymentofa
P350,000loanthatrespondentshadfrompetitionerDio.TheDeedofRealEstateMortgage,though
dated January 1989, was actually executed on February 13, 1989 and notarized on February 17,
1989.
Underthetermsofthedeed,respondentsagreedtopaythepetitionerinterestattherateoffive
percent(5%)amonth,withinaperiodoftwomonthsoruntilApril14,1989.Intheeventofdefault,an
additional interest equivalent to five percent (5%) of the amount then due, for every month of delay,
wouldbechargedonthem.
TherespondentsfailedtosettletheirobligationtopetitioneronApril14,1989,theagreeddeadline
forsettlement.
OnAugust27,1991,petitionermadewrittendemandsupontherespondentstopaytheirdebt.
Despite repeated demands, respondents did not pay, hence petitioner applied for extrajudicial
foreclosureofthemortgage.TheauctionoftheunredeemedpropertieswassetforFebruary26,1992.
Meanwhile, on February 24, 1992, respondents filed an action for Fixing of Contractual
ObligationwithPrayerforPreliminaryMandatoryInjunction/RestrainingOrder,docketedasCivil
Case No. 9226, with the Regional Trial Court (RTC) of Lucena City. Respondents prayed that
judgmentberenderedfixingthecontractualobligationsofplaintiffswiththedefendantDiopluslegalor
[5]
allowableintereststhereon.
The trial court issued an Order enjoining the auction sale of the aforementioned mortgaged
properties.
On June 15, 1992, the Japors filed a Motion to Admit Amended Complaint with an attached
copyoftheirAmendedComplaintprayingthattheDeedofRealEstateMortgagedatedFebruary13,
1989bedeclarednullandvoid,butreiteratingthepleathatthetrialcourtfixthecontractualobligations
oftheJaporswithDio.Thetrialcourtdeniedthemotion.
On September 27, 1994, respondents filed with the appellate court, a petition for certiorari,
docketedasCAG.R.SPNo.35315,prayingthattheCourtofAppealsdirectthetrialcourttoadmit
[6]
theirAmendedComplaint.Theappellatecourtdeniedsaidpetition.
OnDecember11,1995,thetrialcourthandeddownthefollowingjudgment:

WHEREFORE, in view of the foregoing considerations, judgment is rendered:

1.Dismissingthecomplaintforfailureoftheplaintiffstosubstantiatetheiraffirmativeallegations
2. Declaring the Real Estate Mortgage (Exhs. A to A13/Exhs. 3 to 3D) to be valid and binding as
betweentheparties,moreparticularlytheplaintiffsVirgilioJapor,LuzJaporandMartaJapororthe
latterssubstitutedheirorheirs,asthecasemaybe
3.DissolvingthewritofpreliminaryinjunctionpreviouslyissuedbythisCourtand
4.Topaythecostofthissuit.
[7]
SO ORDERED.

OnJanuary17,1996,respondentsfiledtheirnoticeofappeal.OnApril26,1996,theyalsofileda
Petition for Temporary Restraining Order And/Or Mandatory Injunction in Aid of Appellate
JurisdictionwiththeCourtofAppeals.

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On May 8, 1996, petitioner Dio as the sole bidder in an auction purchased the properties for
P3,500,000.
OnMay9,1996,theCourtofAppealsdeniedrespondentsapplicationforatemporaryrestraining
[8]
order.
On October 9, 1996, the appellate court consolidated CAG.R. CV No. 51521 and CAG.R. SP
No.40457.
Asstatedattheoutset,theappellatecourtaffirmedthedecisionofthetrialcourtwithrespectto
thevalidityoftheDeedofRealEstateMortgage,butmodifiedtheinterestandpenaltyratesforbeing
unconscionableandexorbitant.
Beforeus,petitionerassignsthefollowingerrorsallegedlycommittedbytheappellatecourt:
I

THE ALLEGED INIQUITY OF THE STIPULATED INTEREST AND PENALTY WAS NOT RAISED
BEFORE THE TRIAL COURT NOR ASSIGNED AS AN ERROR IN RESPONDENTS APPEAL.

II

THE STIPULATED INTEREST AND PENALTY ARE NOT EXCESSIVE, INIQUITOUS,

UNCONSCIONABLE, EXORBITANT AND CONTRARY TO MORAL[S].

III

PAYMENT OF THE SURPLUS OF P2,247,326.00 TO RESPONDENTS WOULD RESULT IN THEIR

UNJUST ENRICHMENT.

IV
[9]
RESPONDENTS APPEAL SHOULD HAVE BEEN DISMISSED DUE TO FORUM SHOPPING.

Simply stated, the issue is: Did the Court of Appeals err when it held that the stipulations on
interest and penalty in the Deed of Real Estate Mortgage is contrary to morals, if not illegal?
Corollarily,wererespondentsentitledtoanysurplusontheauctionsaleprice?
[10]
On the main issue, petitioner contends that The Usury Law has been rendered ineffective by
CentralBankCircularNo.905,seriesof1982andaccordingly,usuryhasbecomelegallynonexistent
inthisjurisdiction,thus,interestratesmayaccordinglybepeggedatsuchlevelsorratesasthelender
andtheborrowermayagreeupon.Petitioneraversshehasnotviolatedanylawconsideringsheis
notengagedinthebusinessofmoneylending.Moreover,sheclaimsshehassufferedinconveniences
andincurredexpensesforsome13yearsnowasaresultofrespondentsfailuretopayher.Petitioner
further points out that the 5% interest rate was proposed by the respondents and have only
themselvestoblameiftheinterestsandpenaltiesballoonedtoitspresentamountduetotheirwillful
delayanddefaultinpayment.Theappellatecourtthuserred,petitionernowinsists,inapplyingSps.
[11] [12]
Almedav.CourtofAppeals andMedelv.CourtofAppeals toreducetheinterestrateto12%per
annumandthepenaltyto1%permonth.
RespondentsadmittheyowepetitionerP350,000anddonotquestionanylawfulinterestontheir
loanbuttheymaintainthattheDeedofRealEstateMortgageisnullandvoidsinceitdidnotstatethe
trueintentoftheparties,whichlimitedthe5%interestratetoonlytwo(2)monthsfromthedateofthe
loan and which did not provide for penalties and other charges in the event of default or delay.
Respondents vehemently contend that they never consented to the said stipulations and hence,
shouldnotbeboundbythem.
Onthefirstissue,weareconstrainedtoruleagainstthepetitionerscontentions.
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Central Bank Circular No. 905, which took effect on January 1, 1983, effectively removed the
ceiling on interest rates for both secured and unsecured loans, regardless of maturity. However,
nothing in said Circular grants lenders carte blanche authority to impose interest rates which would
[13]
result in the enslavement of their borrowers or to the hemorrhaging of their assets. While a
stipulated rate of interest may not technically and necessarily be usurious under Circular No. 905,
[14]
usury now being legally nonexistent in our jurisdiction, nonetheless, said rate may be equitably
reduced should the same be found to be iniquitous, unconscionable, and exorbitant, and hence,
[15]
contrarytomorals(contrabonosmores),ifnotagainstthelaw. Whatisiniquitous,unconscionable,
andexorbitantshalldependuponthefactualcircumstancesofeachcase.
Intheinstantcase,theCourtofAppealsfoundthatthe5%interestratepermonthand5%penalty
ratepermonthforeverymonthofdefaultordelayisinrealityinterestrateat120%perannum.This
Courthasheldthatastipulatedinterestrateof5.5%permonthor66%perannumisvoidforbeing
[16]
iniquitousorunconscionable. Wehavelikewiseruledthataninterestrateof6%permonthor72%
[17]
per annum is outrageous and inordinate. Conformably to these precedent cases, a combined
interest and penalty rate at 10% per month or 120% per annum, should be deemed iniquitous,
unconscionable,andinordinate.Hence,wesustaintheappellatecourtwhenitfoundtheinterestand
penalty rates in the Deed of Real Estate Mortgage in the present case excessive, hence legally
impermissible. Reduction is legally called for now in rates of interest and penalty stated in the
mortgagecontract.
Whatthenshouldtheinterestandpenaltyratesbe?
The evidence shows that it was indeed the respondents who proposed the 5% interest rate per
month for two (2) months. Having agreed to said rate, the parties are now estopped from claiming
otherwise. For the succeeding period after the two months, however, the Court of Appeals correctly
reducedtheinterestrateto12%perannumandthepenaltyrateto1%permonth,inaccordancewith
[18]
Article2227 oftheCivilCode.
[19]
ButwererespondentsentitledtothesurplusofP2,247,326 asaresultoftheoverpricinginthe
auction?
WenotethatthesurpluswastheresultofthecomputationbytheCourtofAppealsofrespondents
outstandingliabilitybasedonareducedinterestrateof12%perannumandthereducedpenaltyrate
[20]
of1%permonth.ThecourtaquothenproceededtoapplyourrulinginSulitv.CourtofAppeals, to
the effect that in case of surplus in the purchase price, the mortgagee is liable for such surplus as
actuallycomesintohishands,butwherehesellsoncreditinsteadofcash,hemuststillaccountfor
theproceedsasifthepricewerepaidincash,forsuchsurplusstandsintheplaceofthelanditself
withrespecttoliensthereonorvestedrightsthereinparticularlythoseofthemortgagororhisassigns.
Intheinstantcase,however,thereisnosurplustospeakof.Inadjustingtheinterestandpenalty
ratestoequitableandconscionablelevels,whattheCourtdidwasmerelytoreflectthetruepriceof
thelandintheforeclosuresale.Theamountofthepetitionersbidmerelyrepresentedthetrueamount
ofthemortgagedebt.Nosurplusinthepurchasepricewasthuscreatedtowhichtherespondentsas
themortgagorshaveavestedright.
WHEREFORE,theDecisiondatedFebruary22,2002,oftheCourtofAppealsintheconsolidated
casesCAG.R.CVNo.51521andCAG.R.SPNo.40457isherebyAFFIRMEDwithMODIFICATION.
TheinterestrateforthesubjectloanowingtoQDB,orwhoeverisnowthepartymortgagee,ishereby
fixed at five percent (5%) for the first two (2) months following the date of execution of the Deed of
Real Estate Mortgage, and twelve percent (12%) for the succeeding period. The penalty rate
thereaftershallbefixedatonepercent(1%)permonth.PetitionerTeresitaDioisdeclaredfreeofany
obligation to return to the respondents, the Spouses Virgilio Japor and Luz Roces Japor and Marta
Japor, any surplus in the foreclosure sale price. There being no surplus, after the court below had

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[21]
applied our ruling in Sulit, respondents could not legally claim any overprice from the petitioner,
muchlesstheamountofP2,247,326.00.
SOORDERED.
Davide,Jr.,C.J.,(Chairman),YnaresSantiago,andAzcuna,JJ.,concur.
Carpio,J.,onofficialleave.

[1]
Maritaelsewhereintherecords.
[2]
CARollo,CAG.R.CVNo.51521,pp.316330.PennedbyAssociateJusticeEliezerR.DeLosSantos,withAssociate
JusticesBuenaventuraJ.Guerrero,andRodrigoV.Cosicoconcurring.
[3]
Id.at329330.
[4]
Id.at492494.
[5]
Records,p.5.
[6]
Id.at918927.PennedbyAssociateJusticeMa.AliciaAustriaMartinez(nowamemberofthisCourt),withAssociate
JusticesPedroA.Ramirez,andBernardoLl.Salasconcurring.
[7]
Id.at963964.
[8]
CARollo,CAG.R.SPNo.40457,p.51.
[9]
Rollo,pp.2223.
[10]
ActNo.2655(1916),asamended.
[11]
G.R.No.113412,17April1996,326Phil.309.
[12]
G.R.No.131622,27November1998,359Phil.820.
[13]
SpousesSolangonv.Salazar,G.R.No.125944,29June2001,412Phil.816,822.
[14]
Peoplev.Dizon,G.R.No.120957,22August1996,329Phil.685,696andcasescitedtherein.
[15]
Supra,note12at830.
[16]
Ibid.
[17]
Supra,note13at823.
[18]
Art.2227.Liquidateddamages,whetherintendedasanindemnityorapenalty,shallbeequitablyreducediftheyare
iniquitousorunconscionable.
[19]
Rollo,pp.5457.
[20]
G.R.No.119247,17February1997,335Phil.914,928929.
[21]
Ibid.

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