ANDRES SUPERABLE, PLAINTIFF-APPELLANT, VS. SPOUSES PASTOR AND AURORA ROBLES & SPOUSES BERNARDO AND ELVIRA CORDOVIZ, DEFENDANTS-APPELLEES.

Superable versus Robles

The Case

This is an appeal by Andres Superable, the plaintiff-appellant, against the spouses Pastor and Aurora Robles and the spouses Bernardo and Elvira Cordoviz, the defendants-appellees. Superable bought two residential lots and the house standing on them in Parañaque City from the Robles spouses, paid the full price, and moved in with his family. He later discovered that the properties were mortgaged to the Cordoviz spouses, who had foreclosed the mortgage and taken the titles in their own names. He sued to annul the extrajudicial foreclosure sale and the resulting titles, and to recover damages. The case matters because it shows how courts treat an unconscionable interest rate, an unstated interest, and a foreclosure carried out without any demand on the debtor.

Procedural History

Superable filed a complaint for annulment of extrajudicial foreclosure sale and title with damages before the Regional Trial Court of Parañaque City, Branch 274. After trial, the trial court rendered judgment in favor of Superable but only against the Robles spouses, ordering them to pay actual damages of 4,500,000 pesos, moral damages of 100,000 pesos, exemplary damages of 100,000 pesos, attorney's fees of 100,000 pesos plus 5,000 pesos for every court appearance, and the costs of suit. The trial court dismissed the case against the Cordoviz spouses, with no pronouncement as to costs. Superable appealed the dismissal of his claims against the Cordoviz spouses directly to the Supreme Court.

Facts

In 1997, the Robles spouses, through an intermediary, obtained a loan from the Cordoviz spouses to pay off an earlier loan with Luzon Development Bank. The Cordoviz spouses released 2,000,000 pesos, but the real estate mortgage placed on the titles stated a principal of 3,500,000 pesos, which included interest of five percent a month, or 100,000 pesos a month. The mortgage contained no written stipulation on the interest rate and no separate loan document setting out the terms. The mortgage lien was annotated on the titles in August 1997.

In September 1997, the Robles spouses sold the properties to Superable by a contract to sell, representing that the properties were free from liens. Superable paid the full price in July 1998, occupied the properties, and made improvements. When he asked for the titles, he discovered the mortgage annotation. The Robles spouses admitted the misrepresentation and promised to settle with the Cordoviz spouses. They secured a certification dated September 1998 in which the Cordoviz spouses stated they would not foreclose the properties. Unknown to Superable, the Cordoviz spouses had already foreclosed in February 1998, and they foreclosed again in January 2000. A certificate of sale was issued and registered, the redemption period lapsed, and titles were consolidated in the names of the Cordoviz spouses.

The Robles spouses had paid 2,300,000 pesos and tendered an additional 1,500,000 pesos, which would have settled the debt in full, but the Cordoviz spouses refused. The Cordoviz spouses never made any demand on the Robles spouses before foreclosing. Superable and his family vacated the properties in 2003.

Issues

• Whether or not the Cordoviz spouses were lenders and mortgagees in good faith.
• Whether or not the Robles spouses were in default on their loan, so as to sustain the legality of the foreclosure.
• Whether or not the Robles spouses alone should be held liable to Superable for the damages he sustained.

Applicable Provisions

Article 1409 of the Civil Code, as quoted in the decision, provides:

Under Article 1409 of the Civil Code, these contracts are inexistent and void from the beginning. They cannot be ratified nor the right to set up their illegality as a defense be waived.

This bears on the case because the mortgage stipulating unconscionable interest is void from the beginning and cannot give rise to any enforceable right.

Article 2154 of the Civil Code, as invoked in the decision, provides:

Spouses Robles paid P2,300,000.00, or an excess of P180,000.00, thereby entitling them to the return of the excess amount pursuant to Article 2154 of the Civil Code.

This bears on the case because the excess payment creates a quasi-contract obliging the payee to return what was paid by mistake.

Ruling

On the first issue, the Court held that the Cordoviz spouses were not lenders in good faith. There was no document evidencing the principal loan with a statement of interest and charges, contrary to the Truth in Lending Act, which requires full disclosure of the cost of credit. The loan amount in the mortgage, 3,500,000 pesos, was not the amount agreed upon, since it incorporated interest of five percent a month on a 2,000,000 peso loan. The Court held that a stipulated interest of three percent per month and higher is excessive, iniquitous, unconscionable and exorbitant, and that collecting interest without a written stipulation is prohibited by law. Under the Bangko Sentral ng Pilipinas Circular No. 799, absent an express contract, interest is six percent per annum, so the 2,000,000 peso loan earns 120,000 pesos a year. Since the Robles spouses paid 2,300,000 pesos, an excess of 180,000 pesos, they are entitled to its return under the principle of solutio indebiti, meaning no one shall unjustly enrich himself at the expense of another.

On the second issue, the Court held that the Robles spouses were not in default. Default requires that the obligation be demandable and liquidated, that the debtor delays performance, and that the creditor demands performance judicially or extrajudicially. The Cordoviz spouses never made any demand before foreclosing. Because the mortgage incorporated an unconscionable interest, it was an illegal, inexistent contract, void from the beginning and incapable of ratification, and a void contract cannot give rise to any enforceable right or obligation. Hence, the foreclosure was null and void, and the derivative titles in the names of the Cordoviz spouses should be annulled.

On the third issue, the Court held that the appeal was meritorious, and directed the Cordoviz spouses to reconvey the properties to the Robles spouses, who shall then convey them to Superable.

Doctrine

A stipulation of interest of three percent per month or higher is excessive, iniquitous and unconscionable, and is void under Article 1409 of the Civil Code, so that a mortgage incorporating such interest is inexistent from the beginning and cannot be ratified. Interest cannot be collected without a written stipulation, and in the absence of an express contract the rate is six percent per annum. A foreclosure is void where the debtor was never in default because no demand, judicial or extrajudicial, was made. An excess payment creates a quasi-contract under the principle of solutio indebiti, entitling the payer to recover what was paid by mistake.

Disposition

The Supreme Court granted the appeal, annulled the foreclosure and the titles of the Cordoviz spouses, and ordered them to reconvey the properties to the Robles spouses, who shall then convey them to Superable.

Remember This

The one line to memorize is that a mortgage carrying unconscionable interest is void from the beginning, and a foreclosure without demand on the debtor is likewise void. Examiners use this case to test the rules on unconscionable interest, the requisites of default, and the application of solutio indebiti to excess payments.