Asian Cathay Finance and Leasing Corporation, Petitioner vs.

Spouses Cesario
Gravador and Norma de Vera and Spouses Emma Concepcion G. Dumigpi and
Federico L. Dumigpi, Respondents, G.R. No. 186550; 5 July 2010
Facts: Asian Cathay Finance and Leasing Corporation (ACFLC) extended a loan of
P800,000.00 to respondent Cesario Gravador (Cesario), with respondents Norma de
Vera and Emma Concepcion Dumigpi as his co-makers. The loan was payable in 60
monthly installments of P24,000.00 each and secured by a real estate mortgage
executed by Cesario over his property. Respondents paid the first installment for
November 1999 but failed to pay the subsequent installments. In February 2000,
ACFLC demanded payment of P1,871,480.00 from respondents. Respondents asked
for more time to pay but ACFLC denied their request. Respondents filed a case for
annulment of the real estate mortgage and promissory note before the Regional Trial
Court (RTC). Respondents averred that the mortgage did not make reference to the
promissory note and contained a provision on the waiver of the mortgagors right of
redemption, which is contrary to law and public policy. Respondents added that the
promissory note did not specify the maturity date of the loan, the interest rate, and the
mode of payment, and illegally imposed liquidated damages. ACFLC filed a petition for
extrajudicial foreclosure of mortgage with the office of the Deputy Sheriff. The RTC
dismissed respondents complaint for annulment of mortgage for lack of cause of action,
holding that respondents were well-educated individuals who could not feign naivet in
the execution of the loan documents. The RTC further held that the alleged defects in
the promissory note and in the deed of real estate mortgage were too insubstantial to
warrant the nullification of the mortgage. It added that a promissory note was not one of
the essential elements of a mortgage, thus, reference to a promissory note was neither
indispensable nor imperative for the validity of the mortgage. Respondents appealed to
the Court of Appeals (CA) which reversed the RTC. The CA held that the amount of
P1,871,480.00 demanded by ACFLC from respondents was unconscionable and
excessive. The CA fixed the interest rate at 12% per annum and reduced the penalty
charge to 1% per month. The CA also invalidated the waiver of respondents right of
redemption for reasons of public policy. When the CA denied ACFLCs motion for
reconsideration, ACFLC brought the case to the Supreme Court, insisting on the validity
of the real estate mortgage and promissory note. ACFLC argued that right of
redemption was a privilege which respondents could waive as they did in this case. It
further argued that respondents action for annulment of mortgage was a collateral
attack on its certificate of title.
Issues: (1) Whether or not the interest imposed by ACFLC was unconscionable and
excessive; (2) Whether or not the provision in the real estate mortgage on the
mortgagors waiver of right of redemption should be voided for being against public
policy; and (3) Whether or not the action for annulment of mortgage was a collateral
attack on ACFLCs certificate of title.
Ruling: (1) It is true that parties to a loan agreement have a wide latitude to stipulate on
any interest rate in view of Central Bank Circular No. 905, series of 1982, which
suspended the Usury Law ceiling on interest rate effective 1 January 1983. However,
interest rates, whenever unconscionable, may be equitably reduced or even invalidated.

In a span of 3 months (from the payment of the initial installment for November 1999 up
to ACFLCs demand on 1 February 2000), respondents principal obligation of
P800,000.00 ballooned by more than P1,000,000.00. ACFLC failed to show any
computation on how much interest was imposed and on the penalties charged. Thus,
the amount claimed by ACFLC was unconscionable. Stipulations authorizing the
imposition of iniquitous or unconscionable interest are contrary to morals, if not against
the law. Under Article 1409 of the Civil Code, these contracts are inexistent and void
from the beginning. They cannot be ratified nor the right to set up their illegality as a
defense be waived. The nullity of the stipulation on the usurious interest does not,
however, affect the lenders right to recover the principal of the loan. Nor would it affect
the terms of the real estate mortgage. The right to foreclose the mortgage remains with
the creditors, and said right can be exercised upon the failure of the debtors to pay the
debt due. The debt due is to be considered without the stipulation of the excessive
interest. A legal interest of 12% per annum will be added in place of the excessive
interest formerly imposed. The nullification by the CA of the interest rate and the penalty
charge and the consequent imposition of an interest rate of 12% and penalty charge of
1% per month cannot, therefore, be considered a reversible error. The Court cited
Spouses Castro vs. Tan, et al. (G.R. No. 168940; 24 November 2009), where it held
that: The imposition of an unconscionable rate of interest on a money debt, even if
knowingly and voluntarily assumed, is immoral and unjust. It is tantamount to a
repugnant spoliation and an iniquitous deprivation of property, repulsive to the common
sense of man. It has no support in law, in principles of justice, or in the human
conscience nor is there any reason whatsoever which may justify such imposition as
righteous and as one that may be sustained within the sphere of public or private
morals. (2) Settled is the rule that for a waiver to be valid and effective, it must, in the
first place, be couched in clear and unequivocal terms which will leave no doubt as to
the intention of a party to give up a right or benefit which legally pertains to him. The
intention to waive a right or an advantage must be shown clearly and convincingly.
ACFLC failed to convince the Court that respondents waived their right of redemption
voluntarily. The Court agreed with the CAs explanation in invalidating the waiver: The
supposed waiver was in fine print and in the form and language prepared by ACFLC,
partaking of the nature of a contract of adhesion. Doubts in the interpretation of
stipulations in contracts of adhesion should be resolved against the party that prepared
them. This principle especially holds true with regard to waivers, which are not
presumed, but which must be clearly and convincingly shown. ACFLC failed to show the
efficacy of this waiver. Moreover, to say that the mortgagors right of redemption may be
waived through a fine print in a mortgage contract is, in the last analysis, tantamount to
placing at the mortgagees absolute disposal the property foreclosed. It would render
practically nugatory this right that is provided by law for the mortgagor for reasons of
public policy. A contract of adhesion may be struck down as void and unenforceable for
being subversive to public policy, when the weaker party is completely deprived of the
opportunity to bargain on equal footing. (3) The case for annulment of mortgage was
filed long before the consolidation of ACFLCs title over the property. In fact, when
respondents filed said case at the first instance, the title to the property was still in
Cesarios name. It was pending with the RTC when ACFLC filed a petition for

foreclosure of mortgage and even when a writ of possession was issued. Clearly,
ACFLCs title was subject to the final outcome of the case for annulment of mortgage.
VIOLETATUDTUD BANATE, MARY MELGRID M.CORTEL, BONIFACIO CORTEL,
ROSENDOMAGLASANG, and PATROCINIA MONILAR, versusPHILIPPINE COUNTRYSIDE
RURAL BANK (LILOAN,CEBU), INC. and TEOFILO SOON, JR.GR 163825 July 13,
2010DOCTRINE OF APPARENT AUTHORITY
On July 22, 1997, petitioner spouses RosendoMaglasang and Patrocinia Monilar
(spousesMaglasang) obtained a loan from PCRB forP1,070,000.00. The subject loan
was evidenced by apromissory note and was payable on January 18, 1998.To secure
the payment of the subject loan, thespouses Maglasang executed, in favor of PCRB a
realestate mortgage over their property, Lot 12868-H-3-C,including the house
constructed thereon (collectivelyreferred to as subject properties), owned bypetitioners
Mary Melgrid and Bonifacio Cortel
(spouses Cortel), the spouses Maglasangs daughter
and son-in-law, respectively. Aside from the subjectloan, the spouses Maglasang
obtained two other loansfrom PCRB which were covered by separatepromissory notes
and secured by mortgages on theirother properties.Sometime in November 1997
(before the subject loanbecame due), the spouses Maglasang and the spouses
Cortel asked PCRBs permission to sell the subject
properties. They likewise requested that the subjectproperties be released from the
mortgage since thetwo other loans were adequately secured by the othermortgages.
The spouses Maglasang and the spousesCortel claimed that the PCRB, acting through
itsBranch Manager, Pancrasio Mondigo, verbally agreedto their request but required
first the full payment ofthe subject loan. The spouses Maglasang and thespouses Cortel
thereafter sold to petitioner VioletaBanate the subject properties for P1,750,000.00.
Thespouses Magsalang and the spouses Cortel used theamount to pay the subject
loan with PCRB. After
settling the subject loan, PCRB gave the owners
duplicate certificate of title of Lot 12868-H-3-C toBanate, who was able to secure a new
title in hername. The title, however, carried the mortgage lien infavor of PCRB,
prompting the petitioners to requestfrom PCRB a Deed of Release of Mortgage. As
PCRB
refused to comply with the petitioners request, the
petitioners instituted an action for specificperformance before the RTC to compel PCRB
toexecute the release deed.The petitioners additionally sought payment ofdamages
from PCRB, which, they claimed, caused thepublication of a news report stating that
they
surreptitiously caused the transfer of ownership of
Lot 12868-H-3-C. The petitioners considered the newsreport false and malicious, as
PCRB knew of the sale ofthe subject properties and, in fact, consented thereto.
PCRB countered the petitioners allegations by
invoking the cross-collateral stipulation in themortgage deed which states:1.

That as security for the payment of theloan or advance in principal sum of onemillion
seventy thousand pesos only(P1,070,000.00) and such other loans oradvances already
obtained, or still to beobtained by the MORTGAGOR(s) asMAKER(s), CO-MAKER(s)
orGUARANTOR(s) from the MORTGAGEEplus interest at the rate of _____ perannum
and penalty and litigation chargespayable on the dates mentioned in thecorresponding
promissory notes, theMORTGAGOR(s) hereby transfer(s) andconvey(s) to
MORTGAGEE by way of firstmortgage the parcel(s) of land describedhereunder,
together with theimprovements now existing for which mayhereafter be made thereon,
of whichMORTGAGOR(s) represent(s) andwarrant(s) that MORTGAGOR(s) is/are
theabsolute owner(s) and that the same is/arefree from all liens and
encumbrances;Accordingly, PCRB claimed that full payment of thethree loans, obtained
by the spouses Maglasang, wasnecessary before any of the mortgages could
bereleased; the settlement of the subject loan merelyconstituted partial payment of the
total obligation.Thus, the payment does not authorize the release ofthe subject
properties from the mortgage lien.
PCRB considered Banate as a buyer in bad faith as shewas fully aware of the existing
mortgage in its favorwhen she purchased the subject properties from thespouses
Maglasang and the spouses Cortel. Itexplained that it allowed the release of the owners
duplicate certificate of title to Banate only to enableher to annotate the sale. PCRB
claimed that therelease of the title should not indicate thecorresponding release of the
subject properties fromthe mortgage constituted thereon.The RTC ruled in favor of the
petitioners. It noted that
the petitioners, as necessitous men, could not have bargained on equal footing with
PCRB in executing themortgage, and concluded that it was a contract ofadhesion.
On appeal, the CA reversed the RTCs decision.
Issues: 1. Whether the purported agreement between thepetitioners and Mondigo
novated the mortgagecontract over the subject properties and is thusbinding upon
PCRB.
2. If the first issue is resolved negatively, whetherBanate can demand restitution of the
amount paid forthe subject properties on the theory that the newagreement with
Mondigo is deemed rescinded.
Ruling: The purported agreement did not novate themortgage contract, particularly the
cross- collateralstipulation thereonBefore we resolve the issues directly posed, we
firstdwell on the determination of the nature of the cross-collateral stipulation in the
mortgage contract. As ageneral rule, a mortgage liability is usually limited tothe amount
mentioned in the contract. However, theamounts named as consideration in a contract
ofmortgage do not limit the amount for which themortgage may stand as security if, from
the fourcorners of the instrument, the intent to secure
futureand other indebtedness can be gathered. Thisstipulation is valid and binding
between the partiesand is known as the blanket mortgage clause (also
known as the dragnet clause). In the present case, the mortgage contractindisputably
provides that the subject properties serveas security, not only for the payment of the
subject

loan, but also for such other loans or advances

already obtained, or still to be obtained. The cross
-collateral stipulation in the mortgage contractbetween the parties is thus simply a
variety of adragnet clause. After agreeing to such stipulation, thepetitioners cannot insist
that the subject properties bereleased from mortgage since the security covers notonly
the subject loan but the two other loans as well.The petitioners, however, claim that their
agreementwith Mondigo must be deemed to have novated themortgage contract. They
posit that the full payment ofthe subject loan extinguished their obligation arisingfrom
the mortgage contract, including the stipulatedcross-collateral provision. Consequently,
consistentwith their theory of a novated agreement, thepetitioners maintain that it
devolves upon PCRB toexecute the corresponding Deed of Release ofMortgage.
We find the petitioners argument unpersuasive.
Novation, in its broad concept, may either beextinctive or modificatory. It is extinctive
when an oldobligation is terminated by the creation of a newobligation that takes the
place of the former; it ismerely modificatory when the old obligation subsiststo the extent
that it remains compatible with theamendatory agreement. An extinctive novation
resultseither by changing the object or principal conditions(objective or real), or by
substituting the person of thedebtor or subrogating a third person in the rights ofthe
creditor (subjective or personal). Under this mode,novation would have dual functions
one toextinguish an existing obligation, the other tosubstitute a new one in its place
requiring a confluxof four essential requisites: (1) a previous validobligation; (2) an
agreement of all parties concernedto a new contract; (3) the extinguishment of the
oldobligation; and (4) the birth of a valid newobligation.[13]The second requisite is
lacking in this case. Novationpresupposes not only the extinguishment ormodification of
an existing obligation but, moreimportantly, the creation of a valid new obligation.

Marsman Drysdale Land, Inc. vs. Philippine Geoanalytics, Inc. and Gotesco
Properties, Inc. (G.R. No. 183374; 29 June 2010) Gotesco Properties, Inc. vs.

Marsman Drysdale Land, Inc. and Philippine Geoanalytics, Inc. (G.R. No. 183376;
29 June 2010)
Facts: Marsman Drysdale, Inc. (Marsman) and Gotesco Properties, Inc. (Gotesco)
entered into a joint venture agreement for the construction and development of an office
building on a land owned by Marsman. They agreed on a 50-50 ratio on the proceeds of
the project, but did not agree on how losses would be divided. The joint venture
engaged the services of Philippine Geoanalytics, Inc. (PGI) to provide subsurface soil
exploration, seismic study and geotechnical engineering. PGI completed its seismic
study but failed to complete its subsurface soil exploration because the area where
drilling was to be made had not been cleared. The building project was subsequently
shelved due to unfavorable economic conditions. PGI billed the joint venture for work
done, but was not paid despite its repeated demands. PGI, thus, filed a collection case
against Marsman and Gotesco. Marsman passed the obligation to Gotesco because
under the joint venture agreement, Gotesco was solely liable for the monetary expenses
of the project, and Marsmans participation was limited to the land. Gotesco, on the
other hand, asserted that PGI had no cause of action against it as PGI had yet to
complete the services in its contract, and it was Marsmans failure to clear the property
of debris which prevented PGI from completing its work.
Issue: Who between Marsman and Gotesco was liable to pay PGI its unpaid claims?
Held: Marsman and Gotesco are jointly liable to PGI. PGI was never a party to the joint
venture agreement. While the joint venture agreement clearly spelled out the capital
contributions of Marsman (land) and Gotesco (cash) and the funding mechanism, it
cannot be used to defeat the lawful claim of PGI against the two joint venturerspartners.
PGIs contract clearly listed the joint venturers Marsman and Gotesco as the beneficial
owner of the project, and all billing invoices indicated the consortium as the client. When
there are two or more debtors, the obligation is presumed to be joint unless the law or
the obligation expressly states that the liability is solidary, or unless the nature of the
obligation requires solidary liability (Articles 1207 and 1208, Civil Code). In this case,
since solidary liability was not required by law, or the contract, or by the nature of the
obligation, the obligation to PGI was presumed to be joint between Marsman and
Gotesco. A joint venture being a form of partnership, it is to be governed by the laws on
partnership. Under the laws on partnership, particularly Article 1797 of the Civil Code,
the losses and profits shall be distributed in accordance with the agreement; if only the
share of each partner in the profits has been agreed upon, the share of each in the
losses shall be in the same proportion. In the joint venture agreement, Marsman and
Gotesco agreed on a 50-50 ratio on the proceeds of the project, but did not provide for
the splitting of losses. Applying Article 1797, the same ratio applies in splitting the
obligation-loss of the joint venture to PGI.

G.R. No. 182398 : July 20, 2010BENNY HUNG,

Petitioner vs.BPI CARD FINANCE CORP.,Respondent

.
FACTS:
Guess? Footwear and BPI Express Card Corporation entered into two merchant
agreements, datedAugust 25, 1994 and November 16, 1994, whereby Guess?
Footwear agreed to honor validly issued BPIExpress Credit Cards presented by
cardholders in the purchase of its goods and services. In the firstagreement, petitioner
Benny Hung signed as owner and manager of Guess? Footwear. He signed thesecond
agreement as president of Guess? Footwear which he also referred to as B&R
SportswearEnterprises.From May 1997 to January 1999, respondent BPI mistakenly
credit, through three hundred fifty-two(352) checks, Three Million Four Hundred Eighty
Thousand Four Hundred Twenty-Seven Pesos and23/100 (
3,480,427.23) to the account of Guess? Footwear. When informed of the
overpayments,petitioner Benny Hung transferred Nine Hundred Sixty-Three Thousand
Six Hundred Four Pesos and03/100 (963, 604.03) from the bank accountof B&R
Sportswear Enterprises to BPIs account as partial payment.In a letter dated September 27,
1999, BPI demanded the balance payment amounting to Two MillionFive Hundred
Sixteen Thousand Eight Hundred Twenty-Six Pesos and 68/100 (2,516,826.68) but
Guess?Footwear failed to pay. BPI then filed a collection of suit before the RTC of
Makati City.
ISSUE:Whether or not petitioner can be held liable for the satisfaction of the RTCs Decision against B&R
SportswearDistributor, Inc.
RULING:
Yes. Clearly, petitioner has represented in his dealings with respondent that Guess?
Footwear or B&RFootwear Distributors, Inc. Is also B&R Sportswear Enterprises. For
this reason, the more completecorrection on the name of the defendant should be from
B&R Sportswear Distributor, Inc. To B&RFootwear Distributors, Inc. and Benny Hung.
Petitioner is the proper defendant because his soleproprietorship B&R Sportswear
Enterprises has no juridical personality apart from him. Again, thecorrection only
confirms the voluntary correction already made by B&R Footwear Distributors, Inc.
orGuess? Footwear which is also B&R Sportswear Enterprises. Correction of this formal
defect is alsoallowed by Section 4, Rule 10 of the Rules of Court

[G.R. No. 174096 : July 20, 2010]

SPOUSES DIVINIA C. PUBLICO AND JOSE T. PUBLICO,* PETITIONERS, VS.
TERESA BAUTISTA, RESPONDENT.
Facts: Petitioners, spouses Divinia Publico (Divinia) and Jose Publico (Jose) obtained
on April 12, 1996 a P200,000 loan from Teresa Bautista (respondent) which was
secured by a real estate mortgage (REM) over a real property covered by Transfer
Certificate of Title (TCT) No. T-244828.
The REM, "Kasulatan ng Pagkakautang na may Panagot" (Kasulatan), provides, inter
alia, that the loan would bear interest and penalties to would be paid within one-and-ahalf years, failing which the mortgaged property would be sold pursuant to Act 3135.
Petitioners surrendered the owners' copy of TCT No. T-244828 to respondent.
In September 1996, petitioners borrowed from respondent the owners' copy of the title
in order to re-mortgage the property covered thereby to secure another loan the
proceeds of which would be used to pay respondent. Divina executed
a Pagpapatunay reading:
Na, ang aking pagkakautang ay aking babayaran kung ang titulong ito ay mainsanla ko
sa banko at kami ay nagkasundo din na sa P200,00.00 thousand [sic] na aking
pagkakautang ay magbibigay muna ako ng P100,000.00 [sic]. At mag-iiwan ako ng
rehistro ng aking sasakyan sa Taxi na may numero na MVMR 40693326 MVMT
36169691 para naman sa natitirang balanse na P100,000.00 thousand [sic] bilang
prenda.
Petitioners thereupon obtained a P200,000 loan from Hiyas Savings and Loan Bank,
Inc. (Hiyas Bank).They, however, failed to settle their obligation to respondent.
Respondent, fearing that Hiyas Bank might foreclose the mortgage, offered Hiyas Bank
to pay petitioners' loan. The bank agreed to the proposal, with the condition that
respondent also pay the other obligations of petitioners that were secured by REMs on
two other properties covered by TCT Nos. T-265662 (M) and T-265663.
In the presence of petitioner Jose, respondent settled petitioners' obligations to the bank
amounting to P697,714.58. The receipts of payment were in the name of Jose,
however, albeit it contained annotations on the dorsal portions thereof that respondent
advanced the payment of petitioners' obligations. Both Jose and respondent affixed
their signatures on the annotations.
Despite demands, petitioners failed to pay their obligations totaling P897,714.58, hence,
respondent filed on February 1, 1999 a Complaint for foreclosure of mortgage, sum of
money and damages before the Regional Trial Court (RTC) of Bulacan.

Issues:
1. Whether [RESPONDENT] could still file an action for judicial forclosure on the
basis of the "KASULATAN NG PAGPAPAUTANG NA MAY PANAGOT" despite
the subsequent execution of the "PAGPAPATUNAY" and the delievery of the
owners' copy of TCT [NO.] 244828 to [DIVINIA];
2. Whether there was a valid subrogation under article 1294 of the civil code;
3. Whether the award of attorneys fees was proper.

Ruling: Petitioners assert that the mortgage had been cancelled and discharged not
only by the Pagpapatunay but also by respondent's act of paying their debt with Hiyas
Bank to thus make respondent the subrogee of the bank. To petitioners, the remedy of
respondent is to sue for collection of sum of money, and not the foreclosure of
mortgage.
Respondent counters that the Pagpapatunay did not take the place of
the Kasulatan since she merely allowed petitioners to remortgage the property; that
petitioners failed to present any evidence to show payment of their outstanding loan
obligations; and that she was compelled to litigate to protect her interest to thus justify
the award of attorney's fees.
The petition fails.
The Pagpapatunay was not a new obligation which could have extinguished
the Kasulatan since the condition of payment that was set out in the Pagpapatunay was
never fulfilled. The trial court found that no competent evidence was introduced, except
the bare assertion of Divinia, to prove petitioners' payment of the obligation or that they
complied with the conditions set out in the Pagpapatunay. As did the appellate court,
the Court sustains the trial court's finding.
Petitioners' invocation of Article 1236 of the Civil Code does not help them. They cannot
deny their indebtedness to respondent on the basis of said Article [22] since the payment
advanced by respondent on petitioners' behalf redounded to their benefit and Divinia
never objected to it when she came to learn of it. It is thus immaterial that Divinia was
unaware of respondent's action for the law ultimately allows recovery to the extent that
the debtors-petitioners were benefited.
Clutching at straws, petitioners claim that they were deprived of the equity of
redemption when the trial court failed to state the period within which they could
redeem. The Court of Appeals, however, did specify a period of "ninety (90) days from
finality of judgment" to pay the adjudged amount. This is in consonance with the period
mentioned by Section 2, Rule 68 of the 1997 Rules of Civil Procedure. While the trial

court did not use the phrase "entry of judgment" as the reckoning point for the
redemption period, the Rules provide that the date of finality of the judgment shall be
deemed to be the date of its entry.
Petitioners can thus exercise their equity of redemption within the period provided, and
even thereafter, provided they do so before the foreclosure sale is confirmed by the trial
court.
Respecting the third issue, petitioners' contention of valid subrogation under Article
1294 of the Civil Code is misplaced. The appellate court aptly ruled that

There is no subrogation to speak of in this case, precisely because the law itself
proscribes the subrogation of the third person to the rights of the creditor when payment
had been made by such third person, in the absence of an express contractual
stipulation authorizing the same. The right to recover from the debtor is based on the
mere fact of payment and on considerations of justice, but it gives to the third person
who paid only a simple action for reimbursement, without the securities, guaranties and
other rights recognized in the creditor, which are extinguished by the payment.
Consequently, Hiyas Bank has no interest in the suit between [petitioners] and
[respondent]. (citations omitted; emphasis and underscoring supplied)
It bears pointing out that petitioners invoked their theory of subrogation only to question
why Hiyas Bank was not impleaded as an indispensable party. The trial court correctly
ruled that Hiyas Bank was not an indispensable party to the case.
On the final issue of award of attorney's fees, while indeed the trial court failed to
discuss the legal basis thereof, the Court holds that petitioners' failure to satisfy their
just obligations has compelled respondent to litigate and incur expenses to protect her
interest. Surely, it is only just and equitable to award attorney's fees in respondent's
favor for litigating and incurring expenses since 1999 when she filed her complaint.
WHEREFORE, the petition is DENIED.