GR 186550; (July, 2010) (Digest)
G.R. No. 186550 ; July 5, 2010
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.
FACTS
Petitioner Asian Cathay Finance and Leasing Corporation (ACFLC) extended an ₱800,000.00 loan to respondent Cesario Gravador, with other respondents as co-makers, secured by a real estate mortgage. After paying only the first installment, respondents defaulted. ACFLC then demanded payment of ₱1,871,480.00 and initiated extrajudicial foreclosure. Respondents filed a complaint for annulment of the mortgage and promissory note, alleging the documents were void for lacking essential terms, imposing unconscionable charges, and containing an illegal waiver of the right of redemption. They also claimed ACFLC violated the Truth in Lending Act. The Regional Trial Court dismissed the complaint, upholding the validity of the loan documents.
ISSUE
The core issues were: (1) the validity of the stipulated interest and penalty charges; (2) the enforceability of the waiver of the right of redemption in the mortgage contract; and (3) whether the complaint constituted an improper collateral attack on a certificate of title.
RULING
The Supreme Court denied the petition and affirmed the Court of Appeals. On the first issue, the Court upheld the CA’s reduction of the interest rate to 12% per annum and the penalty to 1% per month. It ruled that while parties may agree on interest, the CA correctly found the original demanded amount unconscionable. The Court affirmed the use of its equitable power to temper excessive charges.
On the second issue, the Court affirmed the nullity of the contractual waiver of the right of redemption. Citing public policy, the Court held that the right of redemption is a legal remedy designed to aid the mortgagor, not to be defeated by a contractual stipulation. Such a waiver in a contract of adhesion, where the borrower has no bargaining power, is void as it subverts this protective policy.
Finally, the Court rejected ACFLC’s claim of a collateral attack. It clarified that the complaint for annulment was filed before ACFLC consolidated its title; thus, the title remained subject to the case’s outcome. The action was a direct challenge to the mortgage’s validity, not an attack on a certificate of title.