The Law on Obligations and Contracts

7/24/2019 The Law on Obligations and Contracts

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THE LAW ON OBLIGATIONS AND CONTRACTS

I. GENERAL PROVISION

(Definition, nature and concepts)

ARTICLE 1305

Art. 1305. A contract is a meeting of minds between two persons whereby one binds himself, with

respect to the other, to give something or to render some service. (1254a)

ARTICLE 1307 AND 1316

Art. 1307. Innominate contracts shall be regulated by the stipulations of the parties, by the provisions

of Titles I and II of this Book, by the rules governing the most analogous nominate contracts, and by the

customs of the place. (n)

Art. 1316. Real contracts, such as deposit, pledge and Commodatum, are not perfected until the

delivery of the object of the obligation. (n)

CASES

FIRST DIVISION

[G.R. No. 138945. August 19, 2003]

FELIX GOCHAN AND SONSREALTY CORPORATION and STA. LUCIA REALTY AND DEVELOPMENTCORPORATION,petitioners, vs. HEIRS OF RAYMUNDO BABA, namely, BESTRA BABA,MARICEL BABA, CRESENCIA BABA, ANTONIO BABA, and PETRONILA BABA, represented byAttorney-in-fact VIRGINIA SUMALINOG,respondents.

D E C I S I O N

YNARES-SANTIAGO,J.:

The purpose of an action or suit and the law to govern it, including the period of prescription, is tobe determined by the complaint itself, its allegations and prayer for relief .[1]Thus, while the issues ofpossession and fraud are material to the prescriptibility of suits captioned as reconveyance andquieting of title,[2]it would not be so where, from the allegations of the complaint, the action is inreality one for declaration of nullity of contracts on the ground of absence of the essential requisitesthereof. These contracts are void ad initioand actions to declare their inexistence do not prescribe.[3]

This is a petition for review on certiorariseeking to set aside the February 12, 1999 Decision[4]ofthe Court of Appeals in CA-G.R. CV No. 57080, which reversed the May 3, 1997 Order[5]of the RegionalTrial Court of Lapu-Lapu City, Branch 54, in Civil Case No. 4494-L.

The facts show that Lot No. 3537, a conjugal property of spouses Raymundo Baba and DoroteaInot, was originally titled under Original Certificate of Title No. RO-0820,[6]in the name ofDorotea. After Raymundos demise in 1947, an extrajudicial settlement of his estate, including Lot No.3537, was executed on December 8, 1966,[7]among the heirs of Raymundo, namely, Dorotea Inot andhis 2 children, Victoriano Baba and Gregorio Baba. One-half undivided portion of the 6,326 square
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meter lot was adjudicated in favor of Dorotea, and the other half divided between Victoriano andGregorio. On December 28, 1966, Dorotea, Victoriano and Gregorio, in consideration of the amount ofP2,346.70, sold Lot No. 3537 to petitioner Felix Gochan and Sons Realty Corporation (GochanRealty).[8]Consequently, OCT No. RO-0820 was cancelled and in lieu thereof, Transfer Certificate ofTitle No. T-1842, dated February 23, 1968 was issued in favor of Gochan Realty.[9]Sometime in 1995,the latter entered into a joint venture agreement with Sta. Lucia Realty and Development CorporationInc. for the development, among others, of Lot No. 3537, into a subdivision.[10]

On June 13, 1996, respondents Bestra, Maricel, Crecencia, Antonio and Petronila, all surnamedBaba, filed a complaint for quieting of title and reconveyance with damages against petitioners withthe RTC of Lapu-Lapu City, Branch 54, docketed as Civil Case No. 4494-L. They alleged that they areamong the 7 children of Dorotea Inot and Raymundo Baba; that petitioners connived with Dorotea Inot,Victoriano and Gregorio Baba in executing the extrajudicial settlement and deed of sale whichfraudulently deprived them of their hereditary share in Lot No. 3537; and that said transactions arevoid insofar as their respective shares are concerned because they never consented to the said sale andextrajudicial settlement, which came to their knowledge barely a year prior to the filing of thecomplaint.[11]

In its answer,[12]petitioner Gochan Realty averred that respondents have no personality to suebecause they are not children of Dorotea Inot and Raymundo Baba; that even assuming they are lawful

heirs of the spouses, their action is barred by estoppel, laches and prescription for having been filedmore than 28 years after the issuance of the transfer certificate of title in its name; and that anydefect in the transactions leading to its acquisition of Lot No. 3537 will not affect its title because it isa purchaser in good faith and for value.

Meanwhile, petitioner Sta. Lucia Realty and Development Corporation Inc. was declared in defaultfor failure to file an answer within the reglementary period.[13]

On May 3, 1997, the complaint for quieting of title and reconveyance with damages filed againstpetitioner was dismissed on the ground of prescription and laches. The trial court ruled thatrespondents action is one for enforcement of implied or constructive trust based on fraud whichprescribes in 10 years from the issuance of title over the property. Hence, respondents action wasbarred by prescription and laches for having been filed after 28 years from the time Gochan Realtyobtained title to the property.

Respondents appealed to the Court of Appeals which reversed the decision of the trial court andreinstated the complaint of respondents. While it also found that respondents action is a suit toenforce an implied or constructive trust based on fraud, it ruled that since respondents are inpossession of the disputed property, their action cannot be barred by prescription and laches, being inthe nature of a suit for quieting of title. Petitioners motion for reconsideration was denied on May 25,1999.

Hence, the instant petition where the sole issue raised for resolution is whether or notrespondents complaint is dismissible on the ground of prescription and laches.

In determining whether the complaint is barred by the statute of limitations, both courts held thatrespondents action is grounded on fraud, and applied the rule that the fraudulent conveyance of theproperty creates an implied trust, an obligation created by law, which prescribes in ten years from thedate of the issuance of the certificate of title.[14]However, the Court of Appeals held that such anaction does not prescribe when the disputed property is in the possession of the plaintiff seekingreconveyance.[15]The issue of possession, however, is not material in the case at bar. A circumspectscrutiny of the complaint reveals that although the respondents describe the extrajudicial settlementand deed of sale as fraudulent insofar as their shares are concerned, their action in reality seeks todeclare said deeds as inexistent for lack of consent, an essential element for the existence of acontract. The settled rule is that the purpose of an action or suit and the law to govern it, includingthe period of prescription, is to be determined by the complaint itself, its allegations and prayer forrelief.[16]
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In the case at bar, the allegations of the complaint unmistakably assail the extrajudicialsettlement and deed of sale with respect to their share on the ground of absence ofconsent. Thus,respondents alleged in their complaint

2.2 Dorotea Inot, Gregorio Baba, Victoriano Baba and defendant Felix Gochan and Realty Corporation,conniving and confederating with each other, with the evil motive and bad intent of getting the

corresponding hereditary share of the plaintiffs caused the [issuance of a] Transfer Certificate of Titlecovering the entire lot in the name of defendant Felix Gochan and Realty Corporation They have madeto appear in a document denominated as Extrajudicial Settlement dated 8 February 1966 and Deed ofAbsolute Sale dated 28 December 1966 in favor of defendant Felix Gochan and Realty Corporation, thatthey have validly executed the same free from legal infirmity and element of perjury, notwithstandingclear and full knowledge about plaintiffs real right and interest thereto, machine copies of the saiddocument are hereto attached as Annex C and D respectively;

2.3 To all legal intents and purposes, plaintiffs herein never disposed of their share to anybody muchless to the defendant Felix Gochan and Realty Corporation.

2.4 Subsequently, other defendant Sta. Lucia Realty Corporation, despite its knowledge about thedefect in the title entered into a Joint Venture Agreement with other defendant Felix Gochan Realty

Corporation and the same being annotated in TCT No. T-1824 as Entry Nos. 9371-XIII-D.B,9372 and9373;

2.5 Complainants, upon knowledge about the said humiliating situation, did not waste time inexhausting all its recovering mode and legal remedies thru seeking relief unto this Honorable Court.

2.6 The assessed value of the lot is P38,220.00;

x x x x x x x x x

3.0 Consequently, the fraudulent acts of the defendant Felix Gochan and Realty Corporation and theeventual participation of the defendant Sta. Lucia Realty Corporation shall have no legal and valid

effect insofar as the corresponding and respective share of each plaintiff is concerned which is ThreeHundred Fifty Five (355) Square meters, more or less, each or a total area of One Thousand NineHundred Seventy-Five (1,975) square meters, more or less. The deed of conveyance aforestated shallnot therefore bind the plaintiffs;[17]

Hence, for purposes of determining whether respondents action has prescribed, fraud in theconveyance of the disputed lot and the possession thereof by the respondents are not material.Thefact that the conveyance of a property was fraudulent, either because it was procured without theknowledge of some of the co-owners or by virtue of the owners forged signature or by a fictitious deedof sale, does not automatically make fraud the basis for reconveyance of the disputed property. Thereal question in the instant case (without, however, prejudging the validity or invalidity of the sale toGochan Realty), is whether or not from the allegations of the complaint, there exists a cause of actionto declare the inexistence of the contract of sale with respect to the shares of respondents in Lot No.

3537 on the ground of absence of any of the essential requisites of a valid contract. If the answer is inthe negative, then the dismissal of the complaint must be upheld, otherwise, the dismissal on theground of prescription is erroneous because actions for the declaration of inexistence of contracts onthe ground of absence of any of the essential requisites thereof do not prescribe.

Under Article 1318 of the Civil Code, there is no contract unless the following requisites concur:(1) consent of the contracting parties; (2) object certain which is the subject matter of the contract;and (3) cause of the obligation. The absence of any of these essential requisites renders the contractinexistent and an action or defense to declare said contract void ab initiodoes not prescribe, pursuantto Article 1410 of the same Code. In Delos Reyes v. Court of Appeals,[18]it was held that one of the
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requisites of a valid contract under Article 1318 of the Civil Code, namely, the consent and thecapacity to give consent of the parties to the contract, is an indispensable condition for the existenceof consent. There is no effective consent in law without the capacity to give such consent. In otherwords, legal consent presupposes capacity. Thus, there is said to be no consent, and consequently, nocontractwhen the agreement is entered into by one in behalf of another who has never given himauthorization therefor unless he has by law a right to represent the latter.[19]

InHeirs of Romana Ingjug-Tiro v. Casals,[20]the Court, applying Article 1410 of the Civil Codedeclared that a claim of prescription is unavailing where the assailed conveyance is void ab initio withrespect to those who had no knowledge of the transaction. The case involved a fraudulent sale andextrajudicial settlement of a lot executed without the knowledge and consent of some of the co-owners. It was held that the sale of the realty is void in so far as it prejudiced the shares of said co-owners and that the issuance of a certificate of title over the whole property in favor of the vendeedoes not divest the other co-owners of the shares that rightfully belonged to them. The nullity of thesaid sale proceeds from the absence of legal capacity and consent to dispose of the property. Thus

Article 1458 of the New Civil Code provides: By the contract of sale one of the contracting partiesobligates himself to transfer the ownership of and to deliver a determinate thing, and the other to paytherefor a price certain in money or its equivalent. It is essential that the vendors be the owners of theproperty sold otherwise they cannot dispose that which does not belong to them. As the Romans put it:

Nemo dat quod non habet. No one can give more than what he has. The sale of the realty torespondents is null and void insofar as it prejudiced petitioners interests and participation therein. Atbest, only the ownership of the shares of Luisa, Maria and Guillerma in the disputed property couldhave been transferred to respondents.

Consequently, respondents could not have acquired ownership over the land to the extent of the sharesof petitioners. The issuance of a certificate of title in their favor could not vest upon them ownershipof the entire property; neither could it validate the purchase thereof which is null andvoid. Registration does not vest title; it is merely the evidence of such title. Our land registration lawsdo not give the holder any better title than what he actually has. Being null and void, the sale torespondents of petitioners shares produced no legal effects whatsoever.

Similarly, the claim that Francisco Ingjug died in 1963 but appeared to be a party to the ExtrajudicialSettlement and Confirmation of Sale executed in 1967 would be fatal to the validity of the contract, ifproved by clear and convincing evidence. Contracting parties must be juristic entities at the time ofthe consummation of the contract. Stated otherwise, to form a valid and legal agreement it isnecessary that there be a party capable of contracting and a party capable of being contractedwith. Hence, if any one party to a supposed contract was already dead at the time of its execution,such contract is undoubtedly simulated and false and therefore null and void by reason of its havingbeen made after the death of the party who appears as one of the contracting parties therein. Thedeath of a person terminates contractual capacity.

In actions for reconveyance of property predicated on the fact that the conveyance complained of wasnull and void ab initio, a claim of prescription of action would be unavailing. The action or defense forthe declaration of the inexistence of a contract does not prescribe[21]

Likewise, in the cases of Solomon v. Intermediate Appellate Court,[22]Vda. De Portugal v.Intermediate Appellate Court,[23]Garanciang v. Garanciang,[24]and Lacsamana v. Court ofAppeals,[25]the Court ruled that conveyances by virtue of a forged signature or a fictitious deed of saleare void ab initio. The absence of the essential requites of consent and cause or consideration in thesecases rendered the contract inexistent and the action to declare their nullity is imprescriptible.

Nemo dat quod non habet No one can give more than what he has.[26]Assuming that theallegations in respondents complaint are true, their claim that the execution of the extrajudicialsettlement and the deed of sale involving Lot No. 3537, which led to the issuance of a certificate of
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title in the name of Gochan Realty, was without their knowledge or consent, gives rise to animprescriptible cause of action to declare said transactions inexistent on the ground of absence of legalcapacity and consent. Hence, the dismissal of respondents complaint on the ground of prescription waserroneous.

On the other hand, laches is defined as failure or neglect for an unreasonable and unexplainedlength of time, to do that which, by exercising due diligence, could or should have been done

earlier. It is negligence or omission to assert a right within a reasonable time, warranting presumptionthat the party entitled to assert it has abandoned it or has declined to assert it.[27]Its elements are: (1)conduct on the part of the defendant, or of one under whom he claims, giving rise to the situationwhich the complaint seeks a remedy; (2) delay in asserting the complainants rights, the complainanthaving had knowledge or notice of the defendants conduct as having been afforded an opportunity toinstitute a suit; (3) lack of knowledge or notice on the part of the defendant that the complainantwould assert the right in which he bases his suit; and (4) injury or prejudice to the defendant in theevent relief is accorded to the complainant, or the suit is not held barred.[28]

Though laches applies even to imprescriptible actions,[29]its elements must be provedpositively.[30]Laches is evidentiary in nature which could not be established by mere allegations in thepleadings and can not be resolved in a motion to dismiss.[31]At this stage therefore, the dismissal of thecomplaint on the ground of laches is premature.

It is but fair, without prejudging the issues, that the parties be allowed to substantiate theirrespective claims and defenses in a full-blown trial, and obtain a ruling on all the issues presented intheir pleadings.[32]Indeed, while the averments in the complaint show that respondents action isimprescriptible, Gochan Realty is not precluded from presenting evidence that it is a purchaser in goodfaith or that respondents have no personality to sue for reconveyance or, even assuming that they arelawful heirs of Dorotea Inot and Raymundo Baba, that they are guilty of laches or are estopped fromquestioning the validity of the extrajudicial partition and deed of sale of Lot No. 3537 with respect totheir shares.

The trial court thus erred in dismissing respondents complaint on the ground of prescription andlaches, and while the Court of Appeals is correct in ordering the reinstatement of the complaint, itsdecision is sustained on a different ground.

WHEREFORE, in view of all the foregoing, the petition is DENIED. The Decision of the Court of

Appeals in CA-G.R. CV No. 57080, which ordered that the instant case be REMANDED to the RegionalTrial Court of Lapu-Lapu City, Branch 54, for trial and judgment on the merits is AFFIRMED.

SO ORDERED.

FIRST DIVISION

[G.R. No. 126260. December 16, 2004]

SOUTH PACHEM DEVELOPMENT, INC.,petitioner, vs. HONORABLE COURT OF APPEALS AND MAKATICOMMERCIAL ESTATE ASSOCIATION, INC., respondents.

D E C I S I O N

AZCUNA,J.:
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This is a petition for review on certiorariof the decision[1]of the Court of Appeals dated August30, 1996 which affirmed in totothe decision[2]of the Regional Trial Court of Makati, Branch 60, datedNovember 5, 1990.

Private respondent Makati Commercial Estate Association, Inc. (formerly Ayala Commercial EstateAssociation) is an association of all real estate owners and long-term lessees of parcels of land locatedin the Makati commercial area. Pursuant to its Articles of Incorporation, the members of private

respondent are assessed association dues annually, subject to penalty and interest in case of default.On July 25, 1973, by virtue of two duly notarized deeds of absolute sale, petitioner South PachemDevelopment, Inc. purchased from Ayala Corporation two adjoining parcels of land, designated as LotsNos. 7 and 8, Block No. 5, located at Legaspi Village, Makati. Subparagraph (1) of paragraph (A) of thedeed restrictions, which was duly annotated in the titles of the property and annexed to the twodeeds, provides that:

1. The owner of this lot or his successor-in-interest is required to be and is automatically a member ofthe [Makati Commercial Estate Association, Inc.] or any other Association which may be formed or towhich the area may be affiliated for the purpose, and must abide by the rules and regulations laiddown by the Association in the interest of security, maintenance, beautification and the generalwelfare of the area. The Association will also provide for and collect assessments which will constitutea lien on the property, junior only to liens of the Government for taxes and to voluntary mortgages for

sufficient consideration entered into in good faith, PROVIDED that SCHOOLS, CHURCHES, otherRELIGIOUS institutions and buildings for public use are exempt from the payment of Association dues.[3]

In 1984, petitioner stopped paying its association dues, including the interest and penalty, toprivate respondent. According to petitioner, it realized that private respondent was not reallyperforming the services it promised to perform, e.g., collection of garbage and the maintenance ofroads and ensuring the peace and order situation of the area, which are being undertaken by the citygovernment of Makati. It claimed that the payment of association fees for forty seven (47) yearsamounts to a perpetual imposition upon a member of private respondent (as an association) whichtherefore makes it illegal.

On June 16, 1988, private respondent filed a complaint against petitioner in the Regional TrialCourt of Makati, Branch 60, for collection of a sum of money arising from the latters non-payment of

association dues. In its answer, the petitioner admitted that it was aware of the provisions in the deedrestrictions, but questioned its legality for being contrary to morals, public policy, good customs, andthe Constitution, as these constituted a perpetual burden on the property and the purchaser would bedeprived of the use of the property without due process of law.

Meanwhile, on May 10, 1989, petitioner sought leave of court to file a third party complaintagainst China Banking Corporation allegedly for having assumed the liability of petitioner by virtue of acompromise agreement, dated May 27, 1988, in a separate civil case which was executed a month priorto the filing of the civil case. The trial court denied the motion. On November 5, 1990, the trial courtrendered a decision in favor of the private respondent. The dispositive portion thereof reads:

WHEREFORE, the Court hereby renders judgment as follows:

The defendant SOUTH PACHEM DEVELOPMENT, INC. is ordered to pay the plaintiff MAKATI COMMERCIALESTATE ASSOCIATION, INC. the following:

P165,031.00 The defendants unpaid dues and interest thereon from 1984 to 1988.

Six (6) percent of P165,031.00 Annually from June 16, 1988 until the principal amount is fully paid, asdamages.
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Three (3) percent of P165,031.00 compounded monthly from January 1, 1989 until the amount is fullypaid As interest and penalty charges pursuant to Exh. E.

P19,755.00 Annually from January 1, 1989 until it ceases to be a member of the plaintiff as annualdues.

The unpaid annual dues from January 1, 1989 shall bear an interest of three (3) percent per month;this interest is compounded monthly.

P10,000.00 As attorneys fees.

The counterclaim is DISMISSED; and

Cost is taxed against the defendant.[4]

On appeal, the Court of Appeals affirmed the decision of the trial court. Hence, this petition.

Petitioner challenges the validity of the stipulation in the deed restrictions, as annexed to the twodeeds of absolute sale, which states that the buyer of a property shall pay the association dues for a

period of 47 years commencing from the date of purchase. It maintains that the period of 47 yearsconstitutes a restriction on its right to enjoy and dispose of the property under Article 428 of the CivilCode as the non-payment of the association dues would constitute a lien on the subject property.Petitioner also mentions that under paragraph (D) of the deed restrictions, in the event of a breach ofany of the special conditions, private respondent shall have the right to rescind the sale without thenecessity of giving notice to the petitioner; return the payments it received less whatever expensesincurred; and dispose of the property to any other person.

Thus,

D. RESCISSION AND CANCELLATION: The breach of any of the herein special conditions, terms,restrictions, reservations and stipulations of sale by the VENDEE shall cause the cancellation andrescission of this sale without necessity of notice to the VENDEE or of any judicial declaration to that

effect, and any amount paid on account of the lot shall be reimbursed to the VENDEE by the VENDORminus expenses, if any, of the execution and registration of the corresponding instrument of rescission,real estate brokers commission, if any, and any unpaid charges on the property, and the VENDEE shallremove within SIXTY DAYS any and all improvements placed or introduced in the lot to dispose of andsell said parcel of land to any other person in the same manner as if this contract had never beenexecuted or entered into.[5]

Private respondent, on the other hand, contends that the deed restrictions is a valid limitation onpetitioners right of ownership. It adds that even assuming that the deed restrictions amounted to alimitation on petitioners use and enjoyment over the subject properties, the same was voluntarilyentered into with petitioners consent.

The petition has no merit.

To begin with, it is undisputed that petitioner South Pachem Development, Inc. purchased fromAyala Corporation two adjoining parcels of land, designated as Lots Nos. 7 and 8, Block No. 5, locatedin Legaspi Village, Makati. The deed restrictions, duly annotated on the titles, was incorporated in thecontract of sale. The deed restrictions provided, among others, that a buyer or his successor-in interestautomatically becomes a member of the private respondent as an association and enjoined compliancewith its rules and regulations for the security, maintenance, beautification, and general welfare of theland owners. Assessments collected by the private respondent would constitute a lien on the subjectproperty. The deed restrictions is a valid agreement freely and voluntarily agreed upon between the
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petitioner and private respondent. When an agreement between the parties has been forged, suchcontract becomes the law between the parties and each one is bound to comply therewith.

This Court emphasizes that under the principle of estoppel, petitioner is precluded from denyingthe validity of the transaction it had earlier freely and voluntarily entered into with privaterespondent. It shall not be allowed to disavow or repudiate a valid agreement at this late stage withregard to the provisions of the deed restrictions after having paid its association dues from 1973 to

1984. As the Court of Appeals rightly stated, the petitioner is guilty of estoppel by acquiescence.Petitioners inaction for the past 11 years effectively forecloses its right to question the perceivedinfirmity in an agreement which it had mutually entered into with the private respondent. In thisregard, petitioners acceptance of the terms of the contract without any dissent raises the presumptionthat all the terms therein were brought to its knowledge and duly agreed upon. It is thus estoppedfrom later denying that it had assented to the terms.[6]In view of its acquiescence, the petitioner isnow barred from challenging the same under the principle that one who sleeps on his rights shall notbe heard to complain.[7]

Even assuming that the fact of estoppel be not considered, the stipulation in the deed restrictions,with regard to the membership of a lot owner to the association and the payment of the fees, remainsto be valid and binding between the petitioner and respondent for the following reasons:

First. The provision in the deed restrictions which required a purchaser of a parcel of land located

in the Makati area to pay association fees is a valid stipulation. A case in point is Bel Air VillageAssociation, Inc. v. Dionisio[8]where the village association filed a complaint for collection of theassociation dues and also claimed for penalty and other charges. The Court affirmed the rule that anannotation to the effect that the lot owner becomes an automatic member of the village associationand must abide by such rules and regulations laid down by said association was a valid restraint on onesownership over the property as the same was for the interest of the sanitation, security and thegeneral welfare of the community.

In Cariday Investment Corporation v. Court of Appeals,[9]it was recognized that residents and lotowners in the subdivision automatically become members of the Forbes Park Association and are boundby its rules and regulations stipulated in the deed of restrictions. A provision in the deed of restrictionsannotated at the back of the certificate of title of a lot owner in the Forbes Park Subdivision requiredthe owner to use his lot for residential purposes and stated that not more than one single family

residential building will be constructed thereon; that the property would be subject to an easement oftwo meters within the lot and adjacent to the rear and two sides thereof for the purpose of drainage,sewerage water and other public facilities as may be necessary and desirable; and that additionalrestrictions, reservations, or servitudes as the association may, from time to time, adopt and prescribewould be for a period of fifty (50) years from January 1, 1949. Therein petitioner allowed theoccupancy by two families, thereby violating the single-family residential building restriction. ThisCourt declared that the purpose of the restriction is valid as it avoids overcrowding both in the housesand in the subdivision which would result in pressure upon the common facilities such as water, powerand telephone connections; accelerate the deterioration of the roads; and create problems ofsanitation and security in the subdivision. Likewise, the restrictions were for aesthetic considerationand for the preservation of the peace, beauty, tranquility, and serenity of living at Forbes Park.

Second. Petitioner insists that since the parties had no deliberate intent to clothe privaterespondent with the authority to impose fees for a period of 47 years at the time the contract was

executed, it cannot make such imposition which partakes of a stipulationpour autrui.

The contention is untenable. The second paragraph of Article 1311 of the Civil Code explains thatif a contract should contain some stipulation in favor of a third person, he may demand its fulfillmentprovided he communicated his acceptance to the obligor before its revocation. A mere incidentalbenefit or interest of a person is not sufficient. The contracting parties must have clearly anddeliberately conferred a favor upon a third person. Accordingly, to sustain the theory of the petitionerwould result in a modification of what the parties had expressly agreed to be bound. The imposition ofthe association fees in the deed restrictions cannot be regarded as a stipulationpour autrui clearly anddeliberately conferred upon private respondent. What was clearly stated in the contract of sale
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between them is that upon purchase by the petitioner of the two parcels of land (Lots Nos. 7 and 8,Block No. 5, located in Legaspi Village, Makati), it automatically becomes a member of privaterespondent and is thus bound to comply with the rules and regulations thereof. Additionally, theassessments collected by the private respondent would constitute a lien on the properties of thepetitioner. Nowhere can it be inferred that there was a stipulationpour autrui in favor of privaterespondent.

The case of Bel Air Village Association, Inc. v. Dionisio,[10]which had the same issues involved,explained that when therein private respondent voluntarily bought the subject parcel of land, it wasunderstood that it took the same free from all encumbrances except the notations at the back of thecertificate of title, among which was, that it automatically becomes a member of thereinpetitioner. The dues collected are intended for garbage collection, salary of security guards, cleaningand maintenance of streets and street lights, establishment of parks, and other community projects forthe benefit of all residents within the Bel Air Village. These expenses are necessary, valid, andreasonable for the community.

Simply put, the requisites of a stipulationpour autruior a stipulation in favor of a third person arethe following: (1) there must be a stipulation in favor of a third person, (2) the stipulation must be apart, not the whole, of the contract, (3) the contracting parties must have clearly and deliberatelyconferred a favor upon a third person, not a mere incidental benefit or interest, (4) the third person

must have communicated his acceptance to the obligor before its revocation, and (5) neither of thecontracting parties bears the legal representation or authorization of the third party.[11]Theserequisites are not present in this case.

Third. Petitioner makes much of the fact that the deed restrictions partake of the nature of acontract of adhesion wherein a party to the agreement would be subjected to an onerous financialimposition for 47 years which in effect would curtail its freedom to enter into contracts withoutrestraint as set forth in Article 1306 of the Civil Code [12]and Sections 1[13]and 8[14]of Article III of theConstitution.

A contract of adhesion is defined as one where one of the parties imposes a ready-made form ofcontract which the other party may accept or reject, but which the latter cannot modify. One partyprepares the stipulation in the contract, while the other party merely affixes his signature or his"adhesion" thereto, giving no room for negotiation and depriving the latter of the opportunity to

bargain on equal footing. These types of contracts have nonetheless been declared as binding asordinary contracts, the reason being that the party who adheres to the contract is free to reject itentirely.[15]Thus, such agreement is notper seinefficacious. Corollarily, should there be any ambiguityin a contract of adhesion, such ambiguity is to be construed against the party who prepared it. If,however, the stipulations are not obscure, but are clear and leave no doubt on the intention of theparties, the literal meaning of its stipulations must be held controlling.[16]To reiterate, contracts ofadhesion are not prohibited even as the courts remain careful in scrutinizing the factual circumstancesand the situation of the parties concerned in the case to determine the respective claims of contendingparties on their efficacy and enforceability.[17]When petitioner purchased the subject properties inMakati, the deed restrictions were made an addendum or supplement to the two deeds of absolutesale. The deed restrictions were pre-printed and duly annotated on the titles corresponding to theparcels of land purchased and petitioner, through its duly authorized representative, affixed itssignature thereto. The stipulations were plain and unambiguous which leave no room forinterpretation. As such, petitioner was presumed to have full knowledge and to have acted with duecare or, at the very least, to have been aware of the terms and conditions of the contract and that ithad actually assented to the stipulations as there was never any objection interposed prior to theactual purchase of the subject property.

Nothing in this Decision forecloses the right of petitioner, as member of the association, fromasking for an accounting of the funds of said association and/or the disposition of the dues collected byit for the avowed purposes stated the deed restrictions, as even, in the event that, as petitioner nowcontends, the association in fact no longer performs the aforesaid services, from the petitioners filing
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an appropriate complaint for specific performance or the rescission of the agreement and/or the deedrestrictions for non-performance of the corresponding obligation thereunder.

WHEREFORE, the petition is DENIED and the decision of the Court of Appeals is AFFIRMED. Costsagainst petitioner.

SO ORDERED.

BASIC PRINCIPLES OR CHARACTERISTICS OF CONTRACTS

A. Consensuality (Arts. 1315 & 1317)

Art. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not

only to the fulfillment of what has been expressly stipulated but also to all the consequences which,

according to their nature, may be in keeping with good faith, usage and law. (1258)

Art. 1317. No one may contract in the name of another without being authorized by the latter, orunless he has by law a right to represent him.

B. Autonomy; Limitations (Art. 1306)

Art. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as

they may deem convenient, provided they are not contrary to law, morals, good customs, public order,

or public policy. (1255a)

Cases:

THIRD DIVISION

[G.R. No. 131622. November 27, 1998]

LETICIA Y. MEDEL DR. RAFAEL MEDEL and SERVANDO FRANCO,petitioners, vs. COURT OF APPEALS,SPOUSES VERONICA R. GONZALES and DANILO G. GONZALES, JR., doing lending businessunder the trade name and style "GONZALES CREDIT ENTERPRISES", respondents.

D E C I S I O N

PARDO,J.:

The case before the Court is a petition for review on certiorari, under Rule 45 of the Revised Rulesof Court, seeking to set aside the decision of the Court of Appeals,[1]and its resolution denyingreconsideration,[2]the dispositive portion of which decision reads as follows:
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"WHEREFORE, the appealed judgment is hereby MODIFIED such thatdefendants are hereby ordered to pay the plaintiff: the sum of P500,000.00, plus 5.5%per month interest and 2% service charge per annum effective July 23, 1986, plus 1%per month of the total amount due and demandable as penalty charges effectiveAugust 23, 1986, until the entire amount is fully paid.

"The award to the plaintiff of P50,000.00 as attorney's fees is affirmed. And so

is the imposition of costs against the defendants.

SO ORDERED."[3]

The Court required the respondents to comment on the petition,[4]which was filed on April 3,1998,[5]and the petitioners to reply thereto, which was filed on May 29, 1998.[6]We now resolve to givedue course to the petition and decide the case.

The facts of the case, as found by the Court of Appeals in its decision, which are consideredbinding and conclusive on the parties herein, as the appeal is limited to questions of law, are asfollows:

On November 7, 1985, Servando Franco and Leticia Medel (hereafter Servando and Leticia)

obtained a loan from Veronica R. Gonzales (hereafter Veronica), who was engaged in the moneylending business under the name "Gonzales Credit Enterprises", in the amount of P50,000.00, payable intwo months. Veronica gave only the amount of P47,000.00, to the borrowers, as sheretained P3,000.00, as advance interest for one month at 6% per month. Servado and Leticia executeda promissory note for P50,000.00, to evidence the loan, payable on January 7, 1986.

On November 19, 1985, Servando and Leticia obtained from Veronica another loan in the amountof P90,000.00, payable in two months, at 6% interest per month. They executed a promissory note toevidence the loan, maturing on January 19, 1986. They received only P84,000.00, out of the proceedsof the loan.

On maturity of the two promissory notes, the borrowers failed to pay the indebtedness.

On June 11, 1986, Servando and Leticia secured from Veronica still another loan in the amountof P300,000.00, maturing in one month, secured by a real estate mortgage over a property belonging toLeticia Makalintal Yaptinchay, who issued a special power of attorney in favor of Leticia Medel,authorizing her to execute the mortgage. Servando and Leticia executed a promissory note in favor ofVeronica to pay the sum ofP300,000.00, after a month, or on July 11, 1986. However, only the sumof P275,000.00, was given to them out of the proceeds of the loan.

Like the previous loans, Servando and Medel failed to pay the third loan on maturity.

On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael Medel, consolidatedall their previous unpaid loans totaling P440,000.00, and sought from Veronica another loan in theamount ofP60,000.00, bringing their indebtedness to a total of P500,000.00, payable on August 23,1986. The executed a promissory note, reading as follows:

"Baliwag, Bulacan July 23, 1986

"Maturity Date August 23, 1986

"P500,000.00

"FOR VALUE RECEIVED, I/WE jointly and severally promise to pay to the order of VERONICA R.GONZALES doing business in the business style of GONZALES CREDIT ENTERPRISES, Filipino, oflegal age, married to Danilo G. Gonzales, Jr., of Baliwag Bulacan, the sum of PESOS ........FIVE HUNDRED THOUSAND ..... (P500,000.00) PhilippineCurrency with interest thereon at the rate of 5.5 PERCENT per month plus 2% service charge p
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er annum from date hereof until fully paid according to the amortization schedule containedherein. (Underscoring supplied)

"Payment will be made in full at the maturity date.

"Should I/WE fail to pay any amortization or portion hereof when due, all the otherinstallments together with all interest accrued shall immediately be due and payable and

I/WE hereby agree to payan additionalamount equivalent to one per cent (1%) per month of the amount due and demandable as penalty charges in the form of liquidated damages until fully paid; and thefurther sum of TWENTY FIVE PER CENT(25%) thereon in full, withoutdeductions as Attorney's Fee whether actually incurred or not, of the total amount due anddemandable, exclusive of costs and judicial or extra judicial expenses. (Underscoringsupplied)

"I, WE further agree that in the event the present rate of interest on loan is increased by lawor the Central Bank of the Philippines, the holder shall have the option to apply and collectthe increased interest charges without notice although the original interest have already beencollected wholly or partially unless the contrary is required by law.

"It is also a special condition of this contract that the parties herein agree that the amount of

peso-obligation under this agreement is based on the present value of peso, and if there beany change in the value thereof, due to extraordinary inflation or deflation, or any othercause or reason, then the peso-obligation herein contracted shall be adjusted in accordancewith the value of the peso then prevailing at the time of the complete fulfillment ofobligation.

"Demand and notice of dishonor waived. Holder may accept partial payments and grantrenewals of this note or extension of payments, reserving rights against each and all indorsersand all parties to this note.

"IN CASE OF JUDICIAL Execution of this obligation, or any part of it, the debtors waive allhis/their rights under the provisions of Section 12, Rule 39, of the Revised Rules of Court."

On maturity of the loan, the borrowers failed to pay the indebtedness of P500,000.00, plusinterests and penalties, evidenced by the above-quoted promissory note.

On February 20, 1990, Veronica R. Gonzales, joined by her husband Danilo G. Gonzales, filed withthe Regional Trial Court of Bulacan, Branch 16, at Malolos, Bulacan, a complaint for collection of thefull amount of the loan including interests and other charges.

In his answer to the complaint filed with the trial court on April 5, 1990, defendant Servandoalleged that he did not obtain any loan from the plaintiffs; that it was defendants Leticia and Dr.Rafael Medel who borrowed from the plaintiffs the sum of P500,000.00, and actually received theamount and benefited therefrom; that the loan was secured by a real estate mortgage executed infavor of the plaintiffs, and that he (Servando Franco) signed the promissory note only as a witness.

In their separate answer filed on April 10,1990, defendants Leticia and Rafael Medel alleged thatthe loan was the transaction of Leticia Yaptinchay, who executed a mortgage in favor of the plaintiffsover a parcel of real estate situated in San Juan, Batangas; that the interest rate is excessive at 5.5%

per month with additional service charge of 2% per annum, and penalty charge of 1% per month; thatthe stipulation for attorney's fees of 25% ofthe amount due is unconscionable, illegal and excessive,and that substantial payments made were applied to interest, penalties and other charges.

After due trial, the lower court declared that the due execution and genuineness of the fourpromissory notes had been duly proved, and ruled that although the Usury Law had been repealed, theinterest charged by the plaintiffs on the loans was unconscionable and "revolting to theconscience". Hence, the trial court applied "the provision of the New [Civil] Code" that the "legal rateof interest for loan or forbearance of money, goods or credit is 12% per annum."[7]
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Accordingly, on December 9, 1991, the trial court rendered judgment, the dispositive portion ofwhich reads as follows:

"WHEREFORE, premises considered, judgment is hereby rendered, as follows:

"1. Ordering the defendants Servando Franco and Leticia Medel, jointly and severally, to pay plaintiffs

the amount of P47,000.00 plus 12% interest per annum from November 7, 1985 and 1% per month aspenalty, until the entire amount is paid in full.

"2. Ordering the defendants Servando Franco and Leticia Y. Medel to plaintiffs, jointly and severallythe amount of P84,000.00 with 12% interest per annum and 1% per cent per month as penalty fromNovember 19,1985 until the whole amount is fully paid;

"3. Ordering the defendants to pay the plaintiffs, jointly and severally, the amount of P285,000.00 plus12% interest per annum and 1% per month as penalty from July 11, 1986, until the whole amount isfully paid;

"4. Ordering the defendants to pay plaintiffs, jointly and severally, the amount of P50,000.00 asattorney's fees;

"5. All counterclaims are hereby dismissed.

"With costs against the defendants."[8]

In due time, both plaintiffs and defendants appealed to the Court of Appeals.

In their appeal, plaintiffs-appellants argued that the promissory note, which consolidated all theunpaid loans of the defendants, is the law that governs the parties. They further argued that CircularNo. 416 of the CentralBank prescribing the rate of interest for loans or forbearance of money, goods orcredit at 12% per annum, applies only in the absence of a stipulation on interest rate, but not when theparties agreed thereon.

The Court of Appeals sustained the plaintiffs-appellants' contention. It ruled that "the Usury Lawhaving become 'legally inexistent' with the promulgation by the Central Bank in 1982 of Circular No.905, the lender and borrower could agree on any interest that may be charged on the loan".[9]TheCourt of Appeals further held that "the imposition of 'an additional amount equivalent to 1% per monthof the amount due and demandable as penalty charges in the form of liquidated damages until fullypaid' was allowed by law".[10]

Accordingly, on March 21, 1997, the Court of Appeals promulgated it decision reversing that of theRegional Trial Court, disposing as follows:

"WHEREFORE, the appealed judgment is hereby MODIFIED such that defendantsare hereby ordered to pay the plaintiffs the sum of P500,000.00, plus 5.5% per monthinterest and 2% service charge per annum effective July 23, 1986, plus 1% per monthof the total amount due and demandable as penalty charges effective August 24,

1986, until the entire amount is fully paid.

"The award to the plaintiffs of P50,000.00 as attorney's fees is affirmed. And sois the imposition of costs against the defendants.

"SO OREDERED."[11]

On April 15, 1997, defendants-appellants filed a motion for reconsideration of the saiddecision. By resolution dated November 25, 1997, the Court of Appeals denied the motion.[12]

Hence, defendants interposed the present recourse via petition for review on certiorari.[13]
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We find the petition meritorious.

Basically, the issue revolves on the validity of the interest rate stipulated upon. Thus, the questionpresented is whether or not the stipulated rate of interest at 5.5% per month on the loan in the sumof P500,000.00, that plaintiffs extended to the defendants is usurious. In other words, is the Usury Lawstill effective, or has it been repealed by Central Bank Circular No. 905, adopted on December 22,1982, pursuant to its powers under P.D. No. 116, as amended by P.D. No. 1684?

We agree with petitioners that the stipulated rate of interest at 5.5% per month onthe P500,000.00 loan is excessive, iniquitous, unconscionable and exorbitant.13However, we can notconsider the rate "usurious" because this Court has consistently held that Circulr No. 905 of the CentralBank, adopted on December 22, 1982, has expressly removed the interest ceilings prescribed by theUsury Law[14]and that the Usury Law is now "legally inexistent".[15]

In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61[16]the Court heldthat CB Circular No. 905 "did not repeal nor in anyway amend the Usury Law but simply suspended thelatter's effectivity." Indeed, we have held that "a Central Bank Circular can not repeal a law. Only a lawcan repeal another law."[17]In the recent case of Florendo vs. Court of Appeals[18],the Court reiteratedthe ruling that "by virtue of CB Circular 905, the Usury Law has been rendered ineffective". "Usury hasbeen legally non-existent in our jurisdiction. Interest can now be charged as lender and borrower mayagree upon."[19]

Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated upon by theparties in the promissory note iniquitous or unconscionable, and, hence, contrary to morals ("contrabonos mores"), if not against the law.[20]The stipulation is void.[21]The courts shall reduce equitablyliquidated damages, whether intended as an indemnity or a penalty if they are iniquitous orunconscionable.[22]

Consequently, the Court of Appeals erred in upholding the stipulation of the parties. Rather, weagree with the trial court that, under the circumstances, interest at 12% per annum, and an additional1% a month penalty charge as liquidated damages may be more reasonable.

WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision of the Court of Appealspromulgated on March 21, 1997, and its resolution dated November 25, 1997. Instead, we renderjudgment REVIVING and AFFIRMING the decision dated December 9, 1991, of the Regional Trial Court of

Bulacan, Branch 16, Malolos, Bulacan, in Civil Case No. 134-M-90, involving the same parties.

No pronouncement as to costs in this instance

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 146942 April 22, 2003

CORAZON G. RUIZ,petitioner,vs.COURT OF APPEALS and CONSUELO TORRES,respondents.

PUNO,J.:
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On appeal is the decision1of the Court of Appeals in CA-G.R. CV No. 56621 dated 25 August 2000,setting aside the decision2of the trial court dated 19 May 1997 and lifting the permanent injunction onthe foreclosure sale of the subject lot covered by TCT No. RT-96686, as well as its subsequentResolution3dated 26 January 2001, denying petitioners Motion for Reconsideration.

The facts of the case are as follows:

Petitioner Corazon G. Ruiz is engaged in the business of buying and selling jewelry.4She obtained loansfrom private respondent Consuelo Torres on different occasions, in the following amounts:P100,000.00; P200,000.00; P300,000.00; and P150,000.00.5Prior to their maturity, the loans wereconsolidated under one (1) promissory note dated March 22, 1995, which reads as follows:6

"P750,000.00 Quezon City, March22, 1995

PROMISSORY NOTE

For value received, I, CORAZON RUIZ, as principal and ROGELIO RUIZ as surety in solidum,

jointly and severally promise to pay to the order of CONSUELO P. TORRES the sum of SEVENHUNDRED FIFTY THOUSAND PESOS (P750,000.00) Philippine Currency, to earn an interest at therate of three per cent (3%) a month, for thirteen months, payable every _____ of the month,and to start on April 1995 and to mature on April 1996, subject to renewal.

If the amount due is not paid on date due, a SURCHARGE of ONE PERCENT of the principal loan,for every month default, shall be collected.

Remaining balance as of the maturity date shall earn an interest at the rate of ten percent amonth, compounded monthly.

It is finally agreed that the principal and surety in solidum, shall pay attorneys fees at the rateof twenty-five percent (25%) of the entire amount to be collected, in case this note is not paid

according to the terms and conditions set forth, and same is referred to a lawyer forcollection.

In computing the interest and surcharge, a fraction of the month shall be considered one fullmonth.

In the event of an amicable settlement, the principal and surety in solidum shall reimburse theexpenses of the plaintiff.

(Sgd.) Corazon RuizPrincipal

__________________Surety"

The consolidated loan of P750,000.00 was secured by a real estate mortgage on a 240-square meter lotin New Haven Village, Novaliches, Quezon City, covered by Transfer Certificate of Title (TCT) No. RT-96686, and registered in the name of petitioner.7The mortgage was signed by Corazon Ruiz for herselfand as attorney-in-fact of her husband Rogelio. It was executed on 20 March 1995, or two (2) daysbefore the execution of the subject promissory note.8

Thereafter, petitioner obtained three (3) more loans from private respondent, under the followingpromissory notes: (1) promissory note dated 21 April 1995, in the amount of P100,000.00;9(2)promissory note dated May 23, 1995, in the amount of P100,000.00;10and (3) promissory note dated


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December 21, 1995, in the amount of P100,000.00.11These combined loans of P300,000.00 weresecured by P571,000.00 worth of jewelry pledged by petitioner to private respondent.12

From April 1995 to March 1996, petitioner paid the stipulated 3% monthly interest on the P750,000.00loan,13amounting to P270,000.00.14After March 1996, petitioner was unable to make interest paymentsas she had difficulties collecting from her clients in her jewelry business.15

Due to petitioners failure to pay the principal loan of P750,000.00, as well as the interest payment forApril 1996, private respondent demanded payment not only of the P750,000.00 loan, but also of theP300,000.00 loan.16When petitioner failed to pay, private respondent sought the extra-judicialforeclosure of the aforementioned real estate mortgage.17

On September 5, 1996, Acting Clerk of Court and Ex-Officio Sheriff Perlita V. Ele, Deputy Sheriff In-Charge Rolando G. Acal and Supervising Sheriff Silverio P. Bernas issued a Notice of Sheriffs Sale ofsubject lot. The public auction was scheduled on October 8, 1996.18

On October 7, 1996, one (1) day before the scheduled auction sale, petitioner filed a complaint withthe RTC of Quezon City docketed as Civil Case No. Q-96-29024, with a prayer for the issuance of aTemporary Restraining Order to enjoin the sheriff from proceeding with the foreclosure sale and to fix

her indebtedness to private respondent to P706,000.00. The computed amount of P706,000.00 wasbased on the aggregate loan of P750,000.00, covered by the March 22, 1995 promissory note, plus theother loans of P300,000.00, covered by separate promissory notes, plus interest, minus P571,000.00representing the amount of jewelry pledged in favor of private respondent.19

The trial court granted the prayer for the issuance of a Temporary Restraining Order,20and on 29October 1996, issued a writ of preliminary injunction.21In its Decision dated May 19, 1997, it orderedthe Clerk of Court and Ex-Officio Sheriff to desist with the foreclosure sale of the subject property, andit made permanent the writ of preliminary injunction. It held that the real estate mortgage isunenforceable because of the lack of the participation and signature of petitioners husband. It notedthat although the subject real estate mortgage stated that petitioner was "attorney-in-fact for herselfand her husband," the Special Power of Attorney was never presented in court during the trial.22

The trial court further held that the promissory note in question is a unilateral contract of adhesiondrafted by private respondent. It struck down the contract as repugnant to public policy because it wasimposed by a dominant bargaining party (private respondent) on a weaker party(petitioner).23Nevertheless, it held that petitioner still has an obligation to pay the privaterespondent. Private respondent was further barred from imposing on petitioner the obligation to paythe surcharge of one percent (1%) per month from March 1996 onwards, and interest of ten percent(10%) a month, compounded monthly from September 1996 to January 1997. Petitioner was thusordered to pay the amount of P750,000.00 plus three percent (3%) interest per month, or a total ofP885,000.00, plus legal interest from date of [receipt of] the decision until the total amount ofP885,000.00 is paid.24

Aside from the foregoing, the trial court took into account petitioners proposal to pay her otherobligations to private respondent in the amount of P392,000.00.25

The trial court also recognized the expenses borne by private respondent with regard the foreclosuresale and attorneys fees. As the notice of the foreclosure sale has already been published, it orderedthe petitioner to reimburse private respondent the amount of P15,000.00 plus attorneys fees of thesame amount.26

Thus, the trial court computed petitioners obligation to private respondent, as follows:


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Principal Loan . P 750,000.00

Interest.. 135,000.00

Other Loans. 392,000.00

Publication Fees. 15,000.00

Attorneys Fees 15,000.00

TOTAL P1,307,000.00

with legal interest from date of receipt of decision until payment of total amount of P1,307,000.00 hasbeen made.27

Private respondents motion for reconsideration was denied in an Order dated July 21, 1997.

Private respondent appealed to the Court of Appeals. The appellate court set aside the decision of thetrial court. It ruled that the real estate mortgage is valid despite the non-participation of petitionershusband in its execution because the land on which it was constituted is paraphernal property ofpetitioner-wife. Consequently, she may encumber the lot without the consent of her husband.28Itallowed its foreclosure since the loan it secured was not paid.

Nonetheless, the appellate court declared as invalid the 10% compounded monthly interest29and the10% surcharge per month stipulated in the promissory notes dated May 23, 1995 and December 1,1995,30and so too the 1% compounded monthly interest stipulated in the promissory note dated 21April 1995,31for being excessive, iniquitous, unconscionable, and contrary to morals. It held that thelegal rate of interest of 12% per annum shall apply after the maturity dates of the notes until fullpayment of the entire amount due, and that the only permissible rate of surcharge is 1% per month,without compounding.32The appellate court also granted attorneys fees in the amount of P50,000.00,and not the stipulated 25% of the amount due, following the ruling in the case of Medel v. Court ofAppeals.33

Now, before this Court, petitioner assigns the following errors:

(1) PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE PROMISSORYNOTE OF P750,000.00 IS NOT A CONTRACT OF ADHESION DESPITE THE CLEAR SHOWING THATTHE SAME IS A READY-MADE CONTRACT PREPARED BY (THE) RESPONDENT CONSUELO TORRESAND DID NOT REFLECT THEIR TRUE INTENTIONS AS IT WEIGHED HEAVILY IN FAVOR OFRESPONDENT AND AGAINST PETITIONER.

(2) PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN DECLARING THAT THEPROPERTY COVERED BY THE SUBJECT DEED OF MORTGAGE OF MARCH 20, 1995 IS APARAPHERNAL PROPERTY OF THE PETITIONER AND NOT CONJUGAL EVEN THOUGH THE ISSUE OFWHETHER OR NOT THE MORTGAGED PROPERTY IS PARAPHERNAL WAS NEVER RAISED, NORDISCUSSED AND ARGUED BEFORE THE TRIAL COURT.

(3) PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN DISREGARDING THE TRIALCOURTS COMPUTATION OF THE ACTUAL OBLIGATIONS OF THE PETITIONER WITH (THE)RESPONDENT TORRES EVEN THOUGH THE SAME IS BASED ON EVIDENCE SUBMITTED BEFORE IT.

The pertinent issues to be resolved are:

(1) Whether the promissory note of P750,000.00 is a contract of adhesion;


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(2) Whether the real property covered by the subject deed of mortgage dated March 20, 1995 isparaphernal property of petitioner; and

(3) Whether the rates of interests and surcharges on the obligation of petitioner to private respondentare valid.

I

We hold that the promissory note in the case at bar is not a contract of adhesion. In Sweet Lines, Inc.vs. Teves,34this Court discussed the nature of a contract of adhesion as follows:

". . . there are certain contracts almost all the provisions of which have been drafted only byone party, usually a corporation. Such contracts are called contracts of adhesion, because theonly participation of the other party is the signing of his signature or his adhesion thereto.Insurance contracts, bills of lading, contracts of sale of lots on the installment plan fall intothis category.35

" . . . it is drafted only by one party, usually the corporation, and is sought to be accepted oradhered to by the other party . . . who cannot change the same and who are thus made to

adhere hereto on the take it or leave it basis . . . "36

In said case of Sweet Lines,37the conditions of the contract on the 4 x 6 inches passenger ticket are infine print. Thus we held:

" . . . it is hardly just and proper to expect the passengers to examine their tickets receivedfrom crowded/congested counters, more often than not during rush hours, for conditions thatmay be printed thereon, much less charge them with having consented to the conditions, soprinted, especially if there are a number of such conditions in fine print, as in this case."38

We further stressed in the said case that the questioned Condition No. 14 was prepared solely by oneparty which was the corporation, and the other party who was then a passenger had no say in its

preparation. The passengers have no opportunity to examine and consider the terms and conditions ofthe contract prior to the purchase of their tickets.39

In the case at bar, the promissory note in question did not contain any fine print provision which couldnot have been examined by the petitioner. Petitioner had all the time to go over and study thestipulations embodied in the promissory note. Aside from the March 22, 1995 promissory note forP750,000.00, three other promissory notes of different dates and amounts were executed by petitionerin favor of private respondent. These promissory notes contain similar terms and conditions, with alittle variance in the terms of interests and surcharges. The fact that petitioner and private respondenthad entered into not only one but several loan transactions shows that petitioner was not in any waycompelled to accept the terms allegedly imposed by private respondent. Moreover, petitioner, in hercomplaint40dated October 7, 1996 filed with the trial court, never claimed that she was forced to signthe subject note. Paragraph five of her complaint states:

"That on or about March 22, 1995 plaintiff was required by the defendant Torres to execute apromissory note consolidating her unpaid principal loan and interests which said defendantcomputed to be in the sum of P750,000.00 . . ."

To be required is certainly different from being compelled. She could have rejected the conditionsmade by private respondent. As an experienced business- woman, she ought to understand all theconditions set forth in the subject promissory note. As held by this Court in Lee, et al. vs. Court ofAppeals, et al.,41it is presumed that a person takes ordinary care of his concerns.42Hence, the natural


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presumption is that one does not sign a document without first informing himself of its contents andconsequences. This presumption acquires greater force in the case at bar where not only one butseveral documents were executed at different times by petitioner in favor of private respondent.

II

We also affirm the ruling of the appellate court that the real property covered by the subject deed ofmortgage is paraphernal property. The property subject of the mortgage is registered in the name of"Corazon G. Ruiz, of legal age, married to Rogelio Ruiz, Filipinos." Thus, title is registered in the nameof Corazon alone because the phrase "married to Rogelio Ruiz" is merely descriptive of the civil statusof Corazon and should not be construed to mean that her husband is also a registered owner.Furthermore, registration of the property in the name of "Corazon G. Ruiz, of legal age, married toRogelio Ruiz" is not proof that such property was acquired during the marriage, and thus, is presumedto be conjugal. The property could have been acquired by Corazon while she was still single, andregistered only after her marriage to Rogelio Ruiz. Acquisition of title and registration thereof are twodifferent acts.43The presumption under Article 116 of the Family Code that properties acquired duringthe marriage are presumed to be conjugal cannot apply in the instant case. Before such presumptioncan apply, it must first be established that the property was in fact acquired during the marriage. Inother words, proof of acquisition during the marriage is a condition sine qua nonfor the operation of

the presumption in favor of conjugal ownership.44

No such proof was offered nor presented in the caseat bar. Thus, on the basis alone of the certificate of title, it cannot be presumed that said propertywas acquired during the marriage and that it is conjugal property. Since there is no showing as to whenthe property in question was acquired, the fact that the title is in the name of the wife alone isdeterminative of its nature as paraphernal, i.e., belonging exclusively to said spouse.45The only importof the title is that Corazon is the owner of said property, the same having been registered in her namealone, and that she is married to Rogelio Ruiz.46

III

We now resolve the issue of whether the rates of interests and surcharges on the obligation ofpetitioner to private respondent are legal.

The four (4) unpaid promissory notes executed by petitioner in favor of private respondent are in thefollowing amounts and maturity dates:

(1) P750,000.00, dated March 22, 1995 matured on April 21, 1996;

(2) P100,000.00, dated April 21, 1995 matured on August 21, 1995;

(3) P100,000.00, dated May 23, 1995 matured on November 23, 1995; and

(4) P100,000.00, dated December 21, 1995 matured on March 1, 1996.

The P750,000.00 promissory note dated March 22, 1995 has the following provisions:

(1) 3% monthly interest, from the signing of the note until its maturity date;

(2) 10% compounded monthly interest on the remaining balance at maturity date;

(3) 1% surcharge on the principal loan for every month of default; and

(4) 25% attorneys fees.


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The Law on Obligations and Contracts

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Transcript of The Law on Obligations and Contracts