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CORAZON G. RUIZ v. CA

FACTS:

The case involves a dispute between petitioner, Corazon G. Ruiz, and private respondent, Consuelo Torres, regarding loans obtained by the petitioner. The petitioner obtained several loans from the private respondent in varying amounts, which were consolidated under one promissory note. The loans were secured by a real estate mortgage on a lot registered under petitioner's name. The petitioner also obtained three additional loans from the private respondent, which were secured by jewelry pledged by the petitioner.

The petitioner made the interest payments on the consolidated loan until March 1996 but faced difficulties in collecting payments from her clients, which led to her failure to make subsequent payments. The private respondent demanded payment of the loans and sought the extra-judicial foreclosure of the real estate mortgage. A notice of sheriff's sale was issued, and the auction sale was scheduled on October 8, 1996.

One day before the scheduled auction sale, the petitioner filed a complaint with the RTC, seeking a Temporary Restraining Order to stop the foreclosure sale and to fix her indebtedness to the private respondent. The trial court granted the prayer for a Temporary Restraining Order and subsequently issued a writ of preliminary injunction. In its decision, the trial court held that the real estate mortgage was unenforceable due to the lack of signature and participation of the petitioner's husband, who was stated as the attorney-in-fact on the mortgage document. The trial court also invalidated the promissory note as a unilateral contract of adhesion imposed by the dominant bargaining party on a weaker party. However, the court recognized the petitioner's obligation to pay the private respondent.

The trial court ruled in favor of the respondent and ordered the petitioner to pay the principal loan plus interest and other loans owed. It also ordered the petitioner to reimburse the respondent for the expenses incurred in the foreclosure sale and attorney's fees. The respondent appealed to the Court of Appeals, where it was ruled that the real estate mortgage is valid and may be foreclosed. However, the interest and surcharges stipulated in the promissory notes were declared as excessive and unconscionable. The Court of Appeals ordered the application of the legal rate of interest and a reduced amount for attorney's fees. The petitioner now appeals to the Supreme Court, raising issues on the validity of the promissory note, the character of the mortgaged property, and the rates of interest and surcharges.

ISSUES:

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

  2. Whether the real property covered by the subject deed of mortgage dated March 20, 1995 is paraphernal property of petitioner;

  3. Whether the rates of interests and surcharges on the obligation of petitioner to private respondent are valid.

  4. Whether the property in question is conjugal or paraphernal property.

  5. Whether the rates of interests and surcharges on the petitioner's obligation to the private respondent are legal.

  6. Whether the 10% surcharge per month stipulated in the promissory notes is iniquitous or unconscionable.

  7. Whether the interest rate of 36% per annum is reasonable.

RULING:

  1. The promissory note is not a contract of adhesion. The court reasoned that a contract of adhesion is one in which all provisions have been drafted only by one party, usually a corporation, and the other party merely adheres to it without the ability to negotiate or change its terms. In this case, the promissory note did not contain any fine print provision that could not have been examined by the petitioner. There was no evidence that the petitioner was forced or compelled to sign the note. She had the opportunity to study its stipulations and even entered into several loan transactions with the private respondent, which shows that she was not forced to accept the terms. Therefore, the promissory note is not a contract of adhesion.

  2. The real property covered by the subject deed of mortgage is paraphernal property. The property is registered solely in the name of the petitioner, and the phrase "married to Rogelio Ruiz" is merely descriptive of her civil status and should not be construed to mean that her husband is also a registered owner. The registration of the property in the name of the petitioner alone does not prove that it was acquired during the marriage and is presumed to be conjugal property. There was no proof presented that the property was acquired during the marriage. Therefore, the property is considered paraphernal property.

  3. The court did not specifically address the issue regarding the validity of the rates of interest and surcharges on the petitioner's obligation to the private respondent.

  4. The property in question is determined to be paraphernal property belonging exclusively to the wife. The fact that the title is in the name of the wife alone is determinative of its nature as paraphernal property.

  5. The 10% compounded monthly interest, the 10% surcharge per month, and the 1% compounded monthly interest stipulated in the promissory notes are invalid. The legal rate of interest of 12% per annum applies after the maturity dates of the notes until full payment. The surcharge is limited to only 1% per month without compounding. The court upholds the award of attorney's fees but reduces the percentage to a fixed amount. The 3% per month or 36% per annum interest rate is also reduced to 1% per month or 12% per annum interest.

  6. The 10% surcharge per month stipulated in the promissory notes was properly reduced by the appellate court.

  7. The interest rate of 36% per annum is ordered reduced to 12% per annum.

PRINCIPLES:

  • The title of the property is determinative of its nature, whether conjugal or paraphernal. (Corazon Quijas vs. Rogelio Ruiz)

  • Stipulated interest rates are illegal if they are unconscionable. (Medel vs. Court of Appeals; Spouses Solangon vs. Salazar)

  • Stipulated penalties in loan agreements can be equitably reduced if they are iniquitous or unconscionable. (Art. 2227 of the New Civil Code)

  • Courts have the power to reduce or eliminate unconscionable stipulations in contracts.

  • Interest rates may be reduced by the court if they are unreasonably high.