HEIRS OF THE ESTATE OF JOSE RAMOS, SR., AND LOURDES RAMOS, REPRESENTED BY THEIR ATTORNEY-IN-FACT, JOSE RAMOS, PLAINTIFFS-APPELLANTS, VS. SPS. JOSE SAAVEDRA, SR. AND LILIA J. SAA…
PEREZ, J.:
CA G.R. CV. No. 02501 is an ordinary appeal[2] under Rule 41 of the Rules of Court seeking reversal of the 25 March 2011 Decision[3] of the Regional Trial Court, Branch 15, of Davao City in Civil Case No. 28, 767-2001, dismissing the case filed by Spouses Jose Ramos and Lourdes Ramos for Quieting of Title with Prayer to Set a Period to Pay Loan Obligation and Application for Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction for lack of merit.
CA G.R. SP No. 04373 is a petition for certiorari[4] under Rule 65 of the Rules of Court seeking to annul the Order[5] dated 13 May 2011 issued by the same RTC denying the plaintiff-appellants’ Motion to Quash Writ of Possession and Notice to Vacate[6], as well as the Order[7] dated 06 June 2011 denying the Motion for Reconsideration[8] thereof.
The Facts
On 12 October 1998, Spouses Jose Ramos, Sr. and Lourdes Ramos (Spouses Ramos) entered into a contract of short-term loan with Jose Saavedra, Sr. (Saavedra), in the amount of P1,200,000.00 with an interest rate of six percent (6 %) per month payable within one year.[9] In consideration of the loan, Spouses Ramos executed a promissory note for P1,200,000.00.[10] Also, as security for the loan Spouses Ramos executed, in favor of Saavedra, a Deed of Real Estate Mortgage[11] over a parcel of land covered by Original Certificate of Titled No. P-12841[12] registered under the name of “Jose S. Ramos, Sr. married to Lourdes Noel.”
Spouses Ramos paid the first month amortization on the loan, but were not able to pay subsequent debt payments such that by October 1999 the debt had ballooned to P 2,064,000.00.[13]
The loan default of Spouses Ramos persisted, and as a result, Saavedra extra-judicially foreclosed the real estate mortgage on the former’s property.[14]
In the auction sale for the foreclosed property, appellee Jocelyn Sardan (Sardan) emerged as the highest bidder. For plaintiff-appellants’ failure to redeem the property within the redemption period, the title was consolidated in favor of Sardan on 14 February 2003, OCT No. P-12841 in the name of Spouses Ramos was cancelled and Transfer of Certificate of Title No. T-358363[15] was issued in Sardan’s name on 13 February 2003.
On 19 September 2001, Spouse Ramos filed a complaint against Saavedra for “Annulment of the Loan Interest, Cancellation of the Deed of Real Estate Mortgage, Annulment of the Extra-judicial foreclosure proceedings, Cancellation of Certificate of Sale and Consolidation of Ownership with prayer for issuance of Writ of Preliminary Injunction”[16] docketed as Civil Case No. 28,767-2001. The complaint was amended later to convert the principal cause of action to one for quieting of title.
When Jose Ramos, Sr. died on 02 January 2002, he was substituted by his heirs (plaintiff-appellants) as party to this case.[17]
On 14 November 2003, plaintiff-appellants amended their complaint into an action for “Quieting of Title with prayer to Set a Period to Pay Loan Obligation, and application for the issuance of a Temporary Restraining Order, and Injunction.”[18]
On 03 March 2007, Lourdes Ramos died due to cardiorespiratory arrest, thus, she was substituted by her heirs.[19] From then on, Civil Case No. 28,767-2001 was prosecuted by the heirs of the late Spouses Ramos.
On 27 October 2010, pending the resolution of the Civil Case No. 28,767-2001, Sardan filed a “Petition for Issuance of a Writ of Possession”[20] before the court a quo, which came to plaintiff-appellants’ knowledge only upon the receipt of the 08 March 2011 Order[21] granting the issuance of the writ of possession. The said petition was docketed as Other Case No. 1,020-10.
On 18 March 2011, the Writ of Possession[22] was issued by the court a quo. Following the issuance of the writ of possession in favor of Sardan, the court a quo issued a Notice to Vacate[23] to plaintiff-appellants on 04 April 2011.
Meanwhile, on 25 March 2011, the court a quo dismissed plaintiff-appellants complaint in Civil Case No. 28, 767-2001, ruling that since plaintiff-appellants had already lost title to the mortgaged property due to foreclosure they no longer had any interest to pursue an action for quieting of title. This Decision is the subject of appeal in CA G.R. CV. No. 02501 in this Court.
In Other Case No. 1,020-10, aggrieved with the issuance of the writ of possession, Jose N. Ramos, Jr., representing the heirs of Spouses Ramos, pursuant to Section 8 of Act 3135 as amended,[24] filed a Petition to Cancel and to Hold in Abeyance the Issuance of the Writ of Possession and/or to Cancel the Same, if one is already issued[25] on 07 April 2011.
Consequently, on 18 April 2011, plaintiff-appellant moved to quash the writ of possession and notice to vacate,[26] which was subsequently denied by the court a quo in the assailed 13 May 2011 Order.
On 01 June 2011, petitioner filed an Urgent Motion for Reconsideration of the 13 May 2011 Order. On 06 June 2011, the court a quo denied the said motion; hence the filing of CA G.R. SP No. 04373 for petition for certiorari before this Court.
In their Brief with Memorandum, plaintiffs-appellants imputed the following errors allegedly committed by the court a quo:[27]
1. THE COURT A QUO ERRED IN HOLDING THAT THE INTEREST RATE EQUIVALENT TO SEVENTY-TWO PERCENT (72%) PER ANNUM, IMPOSED ON THE PRINCIPAL LOAN OF PLAINTIFF-APPELLANTS/PETITIONER DID NOT RENDER THE PROMISSORY NOTE AND THE REAL ESTATE MORTGAGE EXECUTED VOID DESPITE BEING CONTRARY TO MORALS, GOOD CUSTOMS AND PUBLIC POLICY.
2. THE COURT A QUO ERRED IN HOLDING THAT PLAINTIFFS-APPELLANTS/ PETITIONER HAS NO CAUSE OF ACTION TO INSTITUTE THE COMPLAINT FOR QUIETING OF TITLE AGAINST DEFENDANTS-APPELLEES.
3. THE COURT A QUO ERRED IN DENYING THE URGENT MOTION TO QUASH WRIT OF POSSESSION AND NOTICE TO VACATE DESPITE PENDENCY OF THE PETITION TO CANCEL SALE FILED BY THE PLAINTIFFS-APPELLANTS/PETITIONER.
The Court’s Ruling
CA G.R. CV. No. 02501
Does an iniquitous and
unconscionable stipulation on
interest rates void the contract of
loan?
Plaintiff-appellants argue that the interest stipulation in their contract of loan is void, and thus the accessory contract of mortgage, the subsequent foreclosure as well as the writ of possession in favor of the buyer at foreclosure are also void and should be set aside in this appeal.
Central Bank Circular No. 905, which took effect on 01 January 1983 made usury legally inexistent by removing the ceiling on the interest rates that can be charged for secured and unsecured loans. In this regime the lender and borrower in a contract of loan may freely stipulate on the chargeable interest rates mutually acceptable to them.
However, it is well settled that while there is no law at present setting ceilings on interest rates, lenders do not have carte blanche authority to raise interest rates to unreasonable and oppressive levels. Principles of contract law empower the courts to void interest stipulations and to reduce interest rates and penalty charges that are found to be iniquitous, unconscionable and exorbitant.[28]
In the case at bar, the chargeable monthly interest rate was 6% per month or 72 % for the full term of the loan for one year. Plaintiff-appellants posit that such rate is iniquitous, unconscionable and therefor void.
Plaintiff-appellants raise a valid point.
We declare that the 6% interest monthly interest rate or 72% per annum, is iniquitous, immoral and unconscionable. We borrow the wisdom in Medel v. Court of Appeals,[29] where the Supreme Court held that a 5.5% stipulated interest rate is unconscionable and contrary to morals, to wit:
“Basically, the issue revolves on the validity of the interest rate stipulated upon. Thus, the question presented is whether or not the stipulated rate of interest at 5.5% per month on the loan in the sum of P500,000.00, that plaintiffs extended to the defendants is usurious. In other words, is the Usury Law still 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 on the P500,000.00 loan is excessive, iniquitous, unconscionable and exorbitant. However, we can not consider the rate “usurious” because this Court has consistently held that Circular No. 905 of the Central Bank, adopted on December 22, 1982, has expressly removed the interest ceilings prescribed by the Usury Law 14 and that the Usury Law is now “legally inexistent”.
In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61 the Court held that CB Circular No. 905 “did not repeal nor in anyway amend the Usury Law but simply suspended the latter’s effectivity.” Indeed, we have held that “a Central Bank Circular can not repeal a law. Only a law can repeal another law.” In the recent case of Florendo vs. Court of Appeals, the Court reiterated the ruling that “by virtue of CB Circular 905, the Usury Law has been rendered ineffective”. “Usury has been legally non-existent in our jurisdiction. Interest can now be charged as lender and borrower may agree upon.”
Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated upon by the parties in the promissory note iniquitous or unconscionable, and, hence, contrary to morals (“contra bonos mores”), if not against the law. The stipulation is void. The courts shall reduce equitably liquidated damages, whether intended as an indemnity or a penalty if they are iniquitous or unconscionable.”
However, despite the nullity of the stipulated interest rate, the contract of loan between the parties subsists and plaintiff-appellants’ obligation to pay the principal of the unpaid obligation remains. The loan shall then be considered to have no agreed interest rate. In a contract of loan, the cause is as to the borrower, the acquisition of the thing loaned and as to the lender, the right to demand its return or its equivalent.[30] Interest is not an essential part of the contract as in fact a loan agreement without stipulation as to interest is a completely valid contract. The obligation to pay the principal amount borrowed is separable from the obligation to pay interest.[31]
To nullify the loan and relieve the debtor of all obligations arising from the loan and not just the void interest violates the basic principle of equity and fairness. To deny the lender the right to demand performance of the debtor’s obligation to pay the loan would be to unjustly enrich the debtor at the borrower’s expense. If the loan contract including the accessory contract of mortgage is to be nullified, then this Court will commit a wrong by impairing the parties’ contract and give the plaintiffs-appellants the property of appellees gratuitously.
In this case, there is no dispute that Spouses Ramos owe Saavedra the principal amount of P1,200,000.00, of which the former paid only the first loan amortization. There is no allegation much less any evidence of payment. There is thus no issue that the principal obligations remains unperformed and the appellants are clearly in default of the loan.
Do plaintiff-appellants have a cause of action for quieting of
title?
Plaintiff-appellants contend that since the contract of loan is void because the interest stipulation is void, then it follows that the accessory real estate mortgage on the subject property is also void and the sale and subsequent transfer of the subject property to appellee Sardan by way of foreclosure should with the same reasoning be set aside. It is on this premise that plaintiff-appellants filed the case below for quieting of title.
The theory is unsound.
As already settled, the contract of loan is valid, which means that the accessory contract of real estate mortgage executed by Spouses Ramos in favor of Saavedra is also valid. Considering the validity of these contracts, the extra-judicial foreclosure and subsequent sale of the subject property to Sardan is in conformity with the law, particularly since plaintiff-appellants do not in this appeal raise any other ground that will render the foreclosure invalid. Plaintiff-appellants failed to present any evidence impeaching the presumptive regularity of the foreclosure proceeding.
When Spouses Ramos defaulted in their obligation to pay, Saavedra has the legal right to extra-judicially foreclose the property by virtue of the real estate mortgage. Foreclosure is but a necessary consequence of non-payment of mortgage indebtedness.
Further, since Spouses Ramos failed to redeem the subject property within the redemption period, consolidation of title becomes a matter of right for Sardan, the auction buyer, and the delivery of possession of the foreclosed property becomes a ministerial duty of the courts.
The right of the purchaser to the possession of the foreclosed property becomes absolute upon the expiration of the redemption period.[32] Hence, the mortgagor’s right to redeem is barred and his interest in the property sold is divested.
An action to quiet title or remove clouds therefrom is akin to an action for declaratory relief and other similar remedies.[33] It is a common law remedy which found its way to our Civil Code particularly Article 476, which says:
“Article 476. Whenever there is a cloud on title to real property or any interest therein, by reason of any instrument, record, claim, encumbrance or proceeding which is apparently valid or effective but is in truth and in fact invalid, ineffective, voidable, or unenforceable, and may be prejudicial to said title, an action may be brought to remove such cloud or to quiet the title.
An action may also be brought to prevent a cloud from being cast upon title to real property or any interest therein.”
Tracing its origins from equity jurisprudence, the purpose of an action for quieting of title is to secure an adjudication that a claim of title to or an interest in property, adverse to that of the complainant, is invalid, so that the complainant and those claiming under him may be forever afterward free from any danger or hostile claim.[34] The competent court is tasked to determine the respective rights of the complainant and other claimants, not only to place things in their proper place, to make the one who has no rights to said immovable respect and not disturb the other, but also for the benefit of both, so that he who has the right would see every cloud of doubt over the property dissipated, and he could afterwards without fear introduce the improvements he may desire, to use, and even to abuse the property as he deems best.[35]
For an action to quiet title to prosper, two indispensable requisites must concur, namely: (1) the plaintiff or complainant has a legal or an equitable title to or interest in the real property subject of the action; an (2) the deed, claim, encumbrance, or proceeding claimed to be casting cloud on his title must be shown to be in fact invalid or inoperative despite its prima facie appearance of validity or legal efficacy.[36]
Here the above-cited requisites are not present.
As the records bear, plaintiff-appellants amended their complaint on 14 November 2003 to convert their pending action to one for quieting of title. By such time, appellee Sardan, as highest bidder at foreclosure, had already consolidated title after appellants failed to exercise their right of redemption one year after the registration of the foreclosure sale in her favor.
By consolidation, all the rights and interest of the registered owner are aggregated and transferred to the buyer. Both title and the right of possession arising from title are now vested in the buyer. Because consolidation of title becomes a matter of right upon expiration of the redemption period, the auction buyer becomes the owner of the foreclosed property.[37]
Having already lost all title and interests in the foreclosed property, plaintiff-appellants have no more cause of action to institute the complaint for quieting of title and the court a quo acted correctly in dismissing the case for absence of merit.
CA G.R. SP No. 04373
Did the court a quo commit grave
abuse of discretion in issuing the
writ of possession?
After the redemption period expires and the property has been consolidated in the buyer’s name, the buyer becomes entitled to the issuance of the writ of possession in his favor. The issuance of a writ of possession is a ministerial function of the court, and the procedure to obtain it is summary. It is a well settled rule that a pending suit for annulment of mortgage and the subsequent auction sale does not preclude the issuance of a writ of possession since it has become a matter of right of the buyer to secure his possession of the property.
There is in this case no ground to digress from the ruling in Nagtalon v. UCPB,[38] where the Supreme Court expounded on this already well settled rule:
xxx
“The issue this Court is mainly called upon to resolve is far from novel; jurisprudence is replete with cases holding that the issuance of a writ of possession to a purchaser in a public auction is a ministerial function of the court, which cannot be enjoined or restrained, even by the filing of a civil case for the declaration of nullity of the foreclosure and consequent auction sale.
We have long recognized the rule that once title to the property has been consolidated in the buyer’s name upon failure of the mortgagor to redeem the property within the one-year redemption period, the writ of possession becomes a matter of right belonging to the buyer. Consequently, the buyer can demand possession of the property at anytime. Its right to possession has then ripened into the right of a confirmed absolute owner and the issuance of the writ becomes a ministerial function that does not admit of the exercise of the court’s discretion. The court, acting on an application for its issuance, should issue the writ as a matter of course and without any delay.
The right to the issuance of a writ of possession is outlined in Sections 6 and 7 of Act 3135, as amended by Act 4118, to wit:
Sec. 6. In all cases in which an extrajudicial sale is made x x x, the debtor, his successors in interest or any judicial creditor or judgment creditor of said debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust under which the property is sold, may redeem the same at any time within the term of one year from and after the date of the sale; and such redemption shall be governed by the provisions of sections four hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil Procedure, in so far as these are not inconsistent with the provisions of this Act.
Sec 7. In any sale made under the provisions of this Act, the purchaser may petition the Court of First Instance of the province or place where the property or any part thereof is situated, to give him possession thereof during the redemption period, furnishing bond in an amount equivalent to the use of the property for a period of twelve months, to indemnify the debtor in case it be shown that the sale was made without violating the mortgage or without complying with the requirements of this Act. Such petition shall be made under oath and filed in form of an ex parte motion x x x and the court shall, upon approval of the bond, order that a writ of possession issue, addressed to the sheriff of the province in which the property is situated, who shall execute said order immediately.”
xxx
In Mallari v. Banco Filipino Savings & Mortgage Bank[39] citing Saguan v. Philippine Bank of Communications,[40] the Supreme Court held:
“… The purchaser can demand possession at any time following the consolidation of ownership in his name and the issuance to him of a new TCT. After consolidation of title in the purchaser’s name for failure of the mortgagor to redeem the property, the purchaser’s right to possession ripens into the absolute right of a confirmed owner. At that point, the issuance of a writ of possession, upon proper application and proof of title, to a purchaser in an extrajudicial foreclosure sale becomes merely a ministerial function. Effectively, the court cannot exercise its discretion.
Therefore, the issuance by the RTC of a writ of possession in favor of the respondent in this case is proper. We have consistently held that the duty of the trial court to grant a writ of possession in such instances is ministerial, and the court may not exercise discretion or judgment…
We emphasize that the proceeding in a petition for a writ of possession is ex-parte and summary in nature. It is a judicial proceeding brought for the benefit of one party only and without need of notice to any person claiming an adverse interest. It is a proceeding wherein relief is granted even without giving the person against whom the relief is sought an opportunity to be heard. By its very nature, an ex-parte petition for issuance of a writ of possession is a non-litigious proceeding authorized under Act No. 3135, as amended.”
xxx
Considering that the issuance of the writ of possession is ministerial in nature, any question on the exercise of discretion on the part of the court in connection with such issuance is clearly misplaced.[41] The issuance of the writ is not even a matter of discretion or judgment of the court a quo to begin with.
WHEREFORE, foregoing premises considered, the appeal on the 25 March 2011 Decision in Civil Case No. 28,767-2001 in CA-G.R. CV No. 02501 is DISMISSED for lack of merit.
Further, the petition for certiorari on the 13 May 2011 and 06 June 2011 Orders in CA-G.R. SP No. 04373 is hereby DENIED.
SO ORDERED
Camello, J., Ch., and Inting, JJ., concur.
[1] CA G.R. SP No. 04373, Rollo, p. 148, quoted in a Minute Resolution dated 16 August 2011.
[2] CA G.R. CV. No. 02501, Rollo, p. 31-56.
[3] CA G.R. CV. No. 02501, Records, pp. 484-492.
[4] CA G.R. SP No. 04373, Rollo, pp. 2-37.
[5] CA G.R. SP No. 04373, Rollo, pp.44-46.
[6] CA G.R. SP No. 04373, Rollo, pp. 86-90.
[7] CA G.R. SP No. 04373, Rollo, pp.47-48.
[8] CA G.R. SP No. 04373, Rollo, pp. 91-96.
[9] CA G.R. CV. No. 02501, Records, p. 194.
[10] Id.
[11] CA G.R. CV. No. 02501, Records, p. 195-196.
[12] CA G.R. CV. No. 02501, Records, p.16.
[13] CA G.R. SP No. 04373, Records, p. 26
[14] CA G.R. CV. No. 02501, Records, pp.44-45.
[15] CA G.R. CV. No. 02501, Records, p 381.
[16] CA G.R. CV. No. 02501, Records, pp. 2-10.
[17] CA G.R. CV. No. 02501, Records, pp.93-95.
[18] CA G.R. CV. No. 02501, Records, pp. 185-193.
[19] CA G.R. CV. No. 02501, Records, pp. 345-349
[20] CA G.R. SP No. 04373, Rollo, pp. 50-54.
[21] CA G.R. SP No. 04373, Rollo,pp.60-62.
[22] CA G.R. SP No. 04373, Rollo, pp. 97-98.
[23] CA G.R. SP No. 04373, Rollo, p. 85.
[24] Sec.8. The debtor may, in the proceedings in which possession was requested, but not later than thirty days after the purchaser was given possession, petition that the sale be set aside and the writ of possession cancelled, specifying the damages suffered by him, because the mortgage was not violated or the sale was not made in accordance with the provisions hereof, and the court shall take cognizance of this petition in accordance with the summary procedure provided for in section one hundred and twelve of Act No. 496; and if it finds the complaint of the debtor justified, it shall dispose in his favor of all or part of the bond furnished by the person who obtained possession. Either of the parties may appeal from the order of the judge in accordance with 14 of Act No. 496; but the order of possession shall continue in effect during the pendency of the appeal.
[25] CA G.R. SP No. 04373, Rollo, pp. 69-84.
[26] CA G.R. SP No. 04373, Rollo, pp. 86-90.
[27] CA G.R. CV. No. 02501, Rollo, p.32.
[28] Philippine Export and Foreign Loan Guarantee Corporation v. Amalgamate Management and Development Corporation, G.R. No. 177729, 28 September 2011.
[29] G.R. No. 131622, 27 November 1998.
[30] Article 1351, Civil Code.
[31] Article 1420, Civil Code; Briones v. Cammayo, 41 SCRA 404 (1971).
[32] Torbela vs. Rosario, G.R. No.140528, 07 December 2011.
[33] Section 1, Rule 63, Rules of Court.
[34] Bank of Commerce v. Sps. Prudencio San Pablo, Jr. and Natividad O. San Pablo, G.R. No. 167848, 27 April 2007.
[35] Dionisio Mananquil, et al. v. Roberto Moico, G.R. No 180076, 21 November 2012.
[36] Eland Philippines, Inc. v. Garcia, G.R. No. 173289, 17 February 2010.
[37] GC Dalton Industries, Inc. v. Equitable PCI Bank, G.R. No. 171169, 24 August 2009.
[38] G.R. No. 172504, 31 July 2013
[39] G.R. No. 157660, 29 August 2008.
[40] G.R. No. 159882, 23 November 2007.
[41] Espiridion v. Court of Appeals, G.R. No. 159882. 23 November 2007.