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G.R. No.

169617 April 4, 2007

A&&or%#),i%,F*-&, Respondents.
This is a petition for Review on Certiorari under Rule 45 of the Rules of Court assailin the De!ision of the
Court of "ppeals,
dated $# "uust %&&5, reversin the De!ision rendered '( the trial !ourt on #$
De!e)'er #**5. The Court of "ppeals, in its assailed De!ision, +,ed the interest rate of the loan 'etween
the parties at #%- per annu), and ordered the Spouses .oilo and Pri)itiva Espiritu /Spouses Espiritu0 to
re!onve( the su'1e!t propert( to the Spouses 2andrito !onditioned upon the pa()ent of the loan.
Petitioners D32CE, 4EN2IND", ED5IN, C6NT7I", "ND 8IRI"8 "NDRE", all surna)ed ESPIRIT3, are the onl(
!hildren and leal heirs of the Spouses .oilo and Pri)itiva Espiritu, who 'oth died durin the penden!( of
the !ase 'efore the 7onora'le Court of "ppeals.
Respondents Spouses 8a,i)o and Pa9 2andrito /Spouses 2andrito0 are herein represented '( their son and
attorne(:in:fa!t, .oilo 2andrito.
On 5 Septe)'er #*;<, Spouses 2andrito loaned fro) the Spouses Espiritu the a)ount of P$5&,&&&.&&
pa(a'le in three )onths. To se!ure the loan, the Spouses 2andrito e,e!uted a real estate )ortae over a
+ve hundred fort( /54&0 s=uare )eter lot lo!ated in "la'an, 8untinlupa, !overed '( Transfer Certi+!ate of
Title No. S:4;*4;, in favor of the Spouses Espiritu. >ro) the P$5&,&&&.&& that the 2andritos were supposed
to re!eive, P#?,5&&.&& was dedu!ted as interest for the +rst )onth whi!h was e=uivalent to +ve per!ent of
the prin!ipal de't, andP?,5&&.&& was further dedu!ted as servi!e fee. Thus, the( a!tuall( re!eived a net
a)ount of P$%5,&&&.&&. The aree)ent, however, provided that the prin!ipal inde'tedness earns @interest
at the leal rate.@
"fter three )onths, when the de't 'e!a)e due and de)anda'le, the Spouses 2andrito were una'le to pa(
the prin!ipal, and had not 'een a'le to )aAe an( interest pa()ents other than the a)ount initiall(
dedu!ted fro) the pro!eeds of the loan. On %* De!e)'er #*;<, the loan aree)ent was e,tended to 4
Banuar( #*;? throuh an ")end)ent of Real Estate 8ortae. The loan was restru!tured in su!h a wa(
that the unpaid interest 'e!a)e part of the prin!ipal, thus in!reasin the prin!ipal to P$;5,&&&. The new
loan aree)ent adopted all other ter)s and !onditions !ontained in +rst aree)ent.
Due to the !ontinued ina'ilit( of the Spouses 2andritos to settle their o'liations with the Spouses Espiritu,
the loan aree)ent was renewed three )ore ti)es. In all these su'se=uent renewals, the sa)e ter)s and
!onditions found in the +rst aree)ent were retained. On %* Bul( #*;?, the prin!ipal was in!reased
to P5&?,&&&.&& in!lusive of runnin interest. On ## 8ar!h #*;;, it was in!reased to P<4?,&&&.&&. "nd on
%# O!to'er #*;;, the prin!ipal was in!reased to P;?4,#%5.&&.
"t the hearin 'efore the trial !ourt, .oilo
Espiritu testi+ed that the in!rease in the prin!ipal in ea!h a)end)ent of the loan aree)ent did not
!orrespond to the a)ount delivered to the Spouses 2andrito. Rather, the in!rease in the prin!ipal had 'een
due to unpaid interest and other !hares.
The de't re)ained unpaid. "s a !onse=uen!e, the Spouses Espiritu fore!losed the )ortaed propert( on
$# O!to'er #**&. Durin the au!tion sale, the propert( was sold to the Spouses Espiritu as the lone 'idder.
On * Banuar( #**#, the SheriCDs Certi+!ate of Sale was annotated on the title of the )ortaed propert(,
ivin the Spouses 2andrito until ; Banuar( #**% to redee) the propert(.
The Spouses 2andrito failed to redee) the su'1e!t propert( althouh the( alleed that the( neotiated for
the rede)ption of the propert( as earl( as $& O!to'er #**#. 5hile the neotiated pri!e for the land
started atP#,5*5,$*%.?*, it was alleedl( in!reased '( the Spouses Espiritu fro) ti)e to ti)e. Spouses
2andrito alleedl( tendered two )anaerDs !he!As and so)e !ash, totalin P#,;&&,&&&.&& to the Spouses
Espiritu on #$ Banuar( #**%, 'ut the latter refused to a!!ept the sa)e. The( also alleed that the Spouses
Espiritu in!reased the a)ount de)anded to P%.5 8illion and ave the) until Bul( #**% to pa( the said
a)ount. 7owever, upon in=uir(, the( found out that on %4 Bune #**%, the Spouses Espiritu had alread(
e,e!uted an "Edavit of Consolidation of Ownership and reistered the )ortaed propert( in their na)e,
and that the Reister of Deeds of 8aAati had alread( issued Transfer Certi+!ate of Title No. #?*;&% in the
na)e of the Spouses Espiritu. On * O!to'er #**%, the Spouses 2andrito, represented '( their son .oilo
2andrito, +led an a!tion for annul)ent or re!onve(an!e of title, with da)aes aainst the Spouses Espiritu
'efore 4ran!h #4< of the Reional Trial Court of 8aAati.
")on the alleations in their Co)plaint, the(
stated that the Spouses Espiritu, as !reditors and )ortaees, @i)posed interest rates that are sho!Ain to
oneDs )oral senses.@
The trial !ourt dis)issed the !o)plaint and upheld the validit( of the fore!losure sale. The trial !ourt
ordered in its De!ision, dated #$ De!e)'er #**5F
57ERE>ORE, all the foreoin pre)ises !onsidered, the herein !o)plaint is here'( dis)issed forthwith.
5ithout pronoun!e)ents to !osts.
The Spouses 2andrito appealed to the Court of "ppeals pursuant to Rule 4# of the #**? Rules of Court. In
its De!ision dated $# "uust %&&5, the Court of "ppeals reversed the trial !ourtDs de!ision, de!reein that
the +ve per!ent /5-0 interest i)posed '( the Spouses Espiritu on the +rst )onth and the var(in interest
rates i)posed for the su!!eedin )onths !ontravened the provisions of the Real Estate 8ortae !ontra!t
whi!h provided that interest at the leal rate, i.e., #%- per annu), would 'e i)posed. It also ruled that
althouh the 3sur( 2aw had 'een rendered ineCe!tive '( Central 4anA Cir!ular No. *&5, whi!h, in eCe!t,
re)oved the !eilin rates pres!ri'ed for interests, thus, allowin parties to freel( stipulate thereon, the
!ourts )a( render void an( stipulation of interest rates whi!h are found ini=uitous or un!ons!iona'le. "s a
result, the Court of "ppeals set the interest rate of the loan at the leal rate, or #%- per annu).
>urther)ore, the Court of "ppeals held that the a!tion for re!onve(an!e, +led '( the Spouses 2andrito, is
still a proper re)ed(. Even if the Spouses 2andrito failed to redee) the propert( within the one:(ear
rede)ption period provided '( law, the a!tion for re!onve(an!e re)ained as a re)ed( availa'le to a
landowner whose propert( was wronfull( reistered in anotherDs na)e sin!e the su'1e!t propert( has not
(et passed to an inno!ent pur!haser for value.
In the de!retal portion of its De!ision, the Court of "ppeals ruled
57ERE>ORE, the instant appeal is here'( GR"NTED. The assailed De!ision dated De!e)'er #$, #**5 of
the Reional Trial Court of 8aAati, 4ran!h #4< in Civil Case No. *%:%*%& is here'( REHERSED and SET
"SIDE, and a new one is here'( entered as followsF /#0 The leal rate of #%- per annu) is here'( >IIED to
'e applied as the interest of the loanJ and /%0 Conditioned upon the pa()ent of the loan, defendants:
appellees spouses .oilo and Pri)itiva Espiritu are here'( ordered to re!onve( Transfer Certi+!ate of Title
No. S:4;*4; to appellant spouses 8a,i)o and Pa9 2andrito.
The !ase is RE8"NDED to the Trial Court for the a'ove deter)ination.
7en!e, the present petition. The followin issues were raisedF
The petition is without )erit.
The Real Estate 8ortae e,e!uted 'etween the parties spe!i+ed that @the prin!ipal inde'tedness shall
earn interest at the leal rate.@ The aree)ent !ontained no other provision on interest or an( fees or
!hares in!ident to the de't. In at least three !ontra!ts, all desinated as ")end)ent of Real Estate
8ortae, the interest rate i)posed was, liAewise, unspe!i+ed. Durin his testi)on(, .oilo Espiritu
ad)itted that the in!rease in the prin!ipal in ea!h of the ")end)ents of the Real Estate 8ortae
!onsists of interest and !hares. The Spouses Espiritu alleed that the parties had areed on the interest
and !hares i)posed in !onne!tion with the loan, hereunder enu)eratedF
#. P#?,5&&.&& was the interest !hared for the +rst )onth and P?,5&&.&& was i)posed as servi!e fee.
%. P$5,&&&.&& interest and !hares, or the diCeren!e 'etween the P$5&,&&&.&& prin!ipal in the Real Estate
8ortae dated 5 Septe)'er #*;< and the P$;5,&&&.&& prin!ipal in the ")end)ent of the Real Estate
8ortae dated %* De!e)'er #*;<.
$. P#$%,&&&.&& interest and !hares, or the diCeren!e 'etween the P$;5,&&&.&& prin!ipal in the
")end)ent of the Real Estate 8ortae dated %* De!e)'er #*;< and the P5&?,&&&.&& prin!ipal in the
")end)ent of the Real Estate 8ortae dated %* Bul( #*;?.
4. P#4&,&&&.&& interest and !hares, or the diCeren!e 'etween the P5&?,&&&.&& prin!ipal in the
")end)ent of the Real Estate 8ortae dated %* Bul( #*;? and the P<4?,&&&.&& prin!ipal in the
")end)ent of the Real Estate 8ortae dated ## 8ar!h #*;;.
5. P%%?,#%5.&& interest and !hares, or the diCeren!e 'etween the P<4?,&&&.&& prin!ipal in the
")end)ent of the Real Estate 8ortae dated ## 8ar!h #*;; and the P;?4,#%5 prin!ipal in the
")end)ent of the Real Estate 8ortae dated %# O!to'er #*;;.
The total interest and !hares a)ountin to P55*,#%5.&& on the oriinal prin!ipal of P$5&,&&& was
a!!u)ulated over onl( two (ears and one )onth. These !hares are not found in an( written aree)ent
'etween the parties. The re!ords fail to show an( !o)putation on how )u!h interest was !hared and
what other fees were i)posed. Not onl( did la!A of transparen!( !hara!teri9e the afore)entioned
aree)ents, the interest rates and the servi!e !hare i)posed, at an averae of <.$*- per )onth, are
In ena!tin Repu'li! "!t No. $?<5, Anown as the @Truth in 2endin "!t,@ the State seeAs to prote!t its
!iti9ens fro) a la!A of awareness of the true !ost of !redit '( assurin the full dis!losure of su!h !osts.
Se!tion 4, in !onne!tion with Se!tion $/$0
of the said law, ives a detailed enu)eration of the spe!i+!
infor)ation re=uired to 'e dis!losed, a)on whi!h are the interest and other !hares in!ident to the
e,tension of !redit. Se!tion <
of the sa)e law i)poses on an(one who willfull( violates these provisions,
san!tions whi!h in!lude !ivil lia'ilit(, and a +ne andKor i)prison)ent.
"lthouh an( a!tion seeAin to i)pose either !ivil or !ri)inal lia'ilit( had alread( pres!ri'ed, this Court
frowns upon the underhanded )anner in whi!h the Spouses Espiritu i)posed interest and !hares, in
!onne!tion with the loan. This is aravated '( the fa!t that one of the !reditors, .oilo Espiritu, a law(er, is
hardl( in a position to plead inoran!e of the re=uire)ents of the law in !onne!tion with the transparen!(
of !redit transa!tions. In addition, the Civil Code !learl( provides thatF
"rti!le #*5<. No interest shall 'e due unless it has 'een stipulated in writin.
The o)ission of the Spouses Espiritu in spe!if(in in the !ontra!t the interest rate whi!h was a!tuall(
i)posed, in !ontravention of the law, )anifested 'ad faith.
In several !ases, this Court has 'een Anown to de!lare null and void stipulations on interest and !hares
that were found e,!essive, ini=uitous, and un!ons!iona'le. In the !ase of 8edel v. Court of "ppeals,
Court de!lared an interest rate of 5.5- per )onth on a P5&&,&&&.&& loan to 'e e,!essive, ini=uitous,
un!ons!iona'le and e,or'itant. Even if the parties the)selves areed on the interest rate and stipulated
the sa)e in a written aree)ent, it nevertheless de!lared su!h stipulation as void and ordered the
i)position of a #%- (earl( interest rate. In Spouses Solanon v. Sala9ar,
<- )onthl( interest on
a P<&,&&&.&& loan was liAewise e=uita'l( redu!ed to a #- )onthl( interest or #%- per annu). In Rui9 v.
Court of "ppeals,
the Court found a $- )onthl( interest i)posed on four separate loans with a total
of P#,&5&,&&&.&& to 'e e,!essive and redu!ed the interest to a #- )onthl( interest or #%- per annu).
In de!larin void the stipulations authori9in e,!essive interest and !hares, the Court de!lared that
althouh the 3sur( 2aw was suspended '( Central 4anA Cir!ular No. *&5, s. #*;%, eCe!tive on # Banuar(
#*;$, and !onse=uentl( parties are iven a wide latitude to aree on an( interest rate, nothin in the said
Cir!ular rants lenders !arte 'lan!he authorit( to raise interest rates to levels whi!h will either enslave
their 'orrowers or lead to a he)orrhain of their assets.
Stipulation authori9in ini=uitous or un!ons!iona'le interests are !ontrar( to )orals, if not aainst the law.
3nder "rti!le #4&* of the Civil Code, these !ontra!ts are ine,istent and void fro) the 'einnin. The(
!annot 'e rati+ed nor the riht to set up their illealit( as a defense 'e waived.
The nullit( of the
stipulation on the usurious interest does not, however, aCe!t the lenderDs riht to re!over the prin!ipal of
the loan.
Nor would it aCe!t the ter)s of the real estate )ortae. The riht to fore!lose the )ortae
re)ains with the !reditors, and said riht !an 'e e,er!ised upon the failure of the de'tors to pa( the de't
due. The de't due is to 'e !onsidered without the stipulation of the e,!essive interest. " leal interest of
#%- per annu) will 'e added in pla!e of the e,!essive interest for)erl( i)posed.
5hile the ter)s of the Real Estate 8ortae re)ain eCe!tive, the fore!losure pro!eedins held on $#
O!ot'er #**& !annot 'e iven eCe!t. In the Noti!e of SheriCDs Sale
dated 5 O!to'er #**&, and in the
Certi+!ate of Sale
dated $# O!to'er #**&, the a)ount desinated as )ortae inde'tedness a)ounted
to P;?4,#%5.&&. 2iAewise, in the de)and letter
dated #% De!e)'er #*;*, .oilo Espiritu de)anded fro)
the Spouses 2andrito the a)ount of P;?4,#%5.&& for the unpaid loan. Sin!e the de't due is li)ited to the
prin!ipal of P$5&,&&&.&& with #%- per annu) as leal interest, the previous de)and for pa()ent of the
a)ount of P;?4,#%5.&& !annot 'e !onsidered as a valid de)and for pa()ent. >or an o'liation to 'e!o)e
due, there )ust 'e a valid de)and.
Nor !an the fore!losure pro!eedins 'e !onsidered valid sin!e the
total a)ount of the inde'tedness durin the fore!losure pro!eedins was peed at P;?4,#%5.&& whi!h
in!luded interest and whi!h this Court now nulli+es for 'ein e,!essive, ini=uitous and e,or'itant. If the
fore!losure pro!eedins were !onsidered valid, this would result in an ine=uita'le situation wherein the
Spouses 2andrito will have their land fore!losed for failure to pa( an over:inLated loan onl( a s)all part of
whi!h the( were o'liated to pa(.
8oreover, it is evident fro) the fa!ts of the !ase that despite !onsidera'le eCort on their part, the Spouses
2andrito failed to redee) the )ortaed propert( 'e!ause the( were una'le to raise the total a)ount,
whi!h was rossl( inLated '( the e,!essive interest i)posed. Their atte)pt to redee) the )ortaed
propert( at the inLated a)ount of P#,5*5,$*%.?*, as earl( as $& O!to'er #**#, is reLe!ted in a letter,
whi!h !reditor:)ortaee .oilo 2andrito a!Anowleded to have re!eived '( aE,in his sinature
The( also atta!hed in their Co)plaint !opies of two !he!As in the a)ounts of P??&,&&&.&&
and P**5,&;?.&&, 'oth dated #$ Banuar( #**%, whi!h were alleedl( refused '( the Spouses
2astl(, the Spouses Espiritu even atta!hed in their e,hi'its a !op( of a handwritten letter, dated
%? Banuar( #**4, written '( Pa9 2andrito, addressed to the Spouses Espiritu, wherein the for)er oCered to
pa( the latter the su) of P%,&&&,&&&.&&.
In all these instan!es, the Spouses 2andrito had tried, 'ut failed,
to pa( an a)ount wa( over the inde'tedness the( were supposed to pa( M i.e., P$5&,&&&.&& and #%-
interest per annu). Thus, it is onl( proper that the Spouses 2andrito 'e iven the opportunit( to repa( the
real a)ount of their inde'tedness.
Sin!e the Spouses 2andrito, the de'tors in this !ase, were not iven an opportunit( to settle their de't, at
the !orre!t a)ount and without the ini=uitous interest i)posed, no fore!losure pro!eedins )a( 'e
instituted. " 1ud)ent orderin a fore!losure sale is !onditioned upon a +ndin on the !orre!t a)ount of
the unpaid o'liation and the failure of the de'tor to pa( the said a)ount.
In this !ase, it has not (et
'een shown that the Spouses 2andrito had alread( failed to pa( the !orre!t a)ount of the de't and,
therefore, a fore!losure sale !annot 'e !ondu!ted in order to answer for the unpaid de't. The fore!losure
sale !ondu!ted upon their failure to pa(P;?4,#%5 in #**& should 'e nulli+ed sin!e the a)ount de)anded
as the outstandin loan was overstatedJ !onse=uentl( it has not 'een shown that the )ortaors M the
Spouses 2andrito, have failed to pa( their outstandin o'liation. 8oreover, if the pro!eeds of the sale
toether with its reasona'le rates of interest were applied to the o'liation, onl( a s)all part of its oriinal
loans would a!tuall( re)ain outstandin, 'ut 'e!ause of the un!ons!iona'le interest rates, the larer part
!orresponded to said e,!essive and ini=uitous interest.
"s a result, the su'se=uent reistration of the fore!losure sale !annot transfer an( rihts over the
)ortaed propert( to the Spouses Espiritu. The reistration of the fore!losure sale, herein de!lared
invalid, !annot vest title over the )ortaed propert(. The Torrens s(ste) does not !reate or vest title
where one does not have a rihtful !lai) over a real propert(. It onl( !on+r)s and re!ords title alread(
e,istin and vested. It does not per)it one to enri!h oneself at the e,pense of another.
Thus, the de!ree
of reistration, even after the lapse of one /#0 (ear, !annot attain the status of indefeasi'ilit(.
Sini+!antl(, the re!ords show that the propert( )ortaed was pur!hased '( the Spouses Espiritu and
had not 'een transferred to an inno!ent pur!haser for value. This )eans that an a!tion for re!onve(an!e
)a( still 'e availed of in this !ase.
Reistration of propert( '( one person in his or her na)e, whether '( )istaAe or fraud, the real owner
'ein another person, i)presses upon the title so a!=uired the !hara!ter of a !onstru!tive trust for the real
owner, whi!h would 1ustif( an a!tion for re!onve(an!e.
This is 'ased on "rti!le #4<5 of the Civil Code
whi!h states thatF
"rt. #4<5. If propert( a!=uired throuh )istaAes or fraud, the person o'tainin it is, '( for!e of law,
!onsidered a trustee of an i)plied trust for 'ene+t of the person fro) who) the propert( !o)es.
The a!tion for re!onve(an!e does not pres!ri'e until after a period of ten (ears fro) the date of the
reistration of the !erti+!ate of sale sin!e the a!tion would 'e 'ased on i)plied trust.
Thus, the a!tion for
re!onve(an!e +led on $# O!to'er #**%, )ore than one (ear after the SheriCDs Certi+!ate of Sale was
reistered on * Banuar( #**#, was +led within the pres!ription period.
It should, however, 'e reiterated that the provisions of the Real Estate 8ortae are not annulled and the
prin!ipal o'liation stands. In addition, the interest is not !o)pletel( re)ovedJ rather, it is set '( this
Court at #%- per annu). Should the Spouses 2andrito fail to pa( the prin!ipal, with its re!o)puted
interest whi!h runs fro) the ti)e the loan aree)ent was entered into on 5 Septe)'er #*;< until the
present, there is nothin in this De!ision whi!h prevents the Spouses Espiritu fro) fore!losin the
)ortaed propert(.
The last issue raised '( the petitioners is whether or not .oilo 2andrito was authori9ed to +le the a!tion for
re!onve(an!e +led 'efore the trial !ourt or even to +le the appeal fro) the 1ud)ent of the trial !ourt, '(
virtue of the Spe!ial Power of "ttorne( dated $& Septe)'er #**%. The( further noted that the trial !ourt
and the Court of "ppeals failed to rule on this issue.
The Spe!ial Power of "ttorne(
dated $& Septe)'er #**% was e,e!uted '( 8a,i)o 2andrito, Br., with the
!onfor)it( of Pa9 2andrito, in !onne!tion with the )ortaed propert(. It authori9ed .oilo 2andritoF
%. To )aAe, sin, e,e!ute and deliver !orrespondin pertinent !ontra!ts, do!u)ents, aree)ents and
other writins of whatever nature or Aind and to sue or +le leal a!tion in an( !ourt of the Philippines, to
!olle!t, asA de)ands, en!ash !he!As, and re!over an( and all su) of )onies, pro!eeds, interest and other
due a!!ruin, ownin, pa(a'le or 'elonin to )e as su!h owner of the afore:)entioned propert(.
/E)phasis provided.0
.oilo 2andritoDs authorit( to +le the !ase is !learl( set forth in the Spe!ial Power of "ttorne(. >urther)ore,
the re!ords of the !ase une=uivo!all( show that .oilo 2andrito +led the re!onve(an!e !ase with the full
authorit( of his )other, Pa9 2andrito, who attended the hearins of the !ase, +led in her 'ehalf, without
)aAin an( protest.
She even testi+ed in the sa)e !ase on $& "uust #**5. >ro) the a!ts of Pa9
2andrito, there is no dou't that she had authori9ed her son to +le the a!tion for re!onve(an!e, in her
'ehalf, 'efore the trial !ourt.
IN HIE5 O> T7E >OREGOING, the instant Petition is DENIED. This Court ">>IR8S the assailed De!ision of
the Court of "ppeals, pro)ulated on $# "uust %&&5, +,in the interest rate of the loan 'etween the
parties at #%- per annu), and orderin the Spouses Espiritu to re!onve( the su'1e!t propert( to the
Spouses 2andrito !onditioned upon the pa()ent of the loan toether with herein +,ed rate of interest.
Costs aainst the petitioners.