Carpo v. Chua

LABOR II | B2015
CASES
Carpo v Chua
September 30, 2005
Tinga, J:
Rods, sorry medyo detailed ung case
laches. The premise was that the complaint was one for annulment
of voidable contract, thus barred by 4-year prescriptive period.
This caused the first case to be filed with the SC.
The CA annulled the RTC TRO, saying that it was the ministerial duty of
the lower court to issue a writ of possession when title over the
property
consolidated
in the
mortgagee.
SUMMARY: Sps Carpo loaned from Chua and Ng. They secured this with a realmortgaged
estate mortgage
of had
theirbeen
house
and lot. When
they
failed to pay, this
was foreclosed. They failed to redeem, hence a writ of possession was issued to Chua and Ng. They filed an action to annul the real estate mortgage
ISSUES:
and foreclosure, basically saying that the interest rates are unconscionable. The
RTC issued a TRO to enjoin the writ of possession, and petition was
(IMPT!)
WON by
theprescription.
agreed rate
interestthe
is null
and void,
filed by respondents with the CA. The RTC decided on the main case by saying1.that
it is barred
CAofannulled
RTC TRO.
SC
if in
yes,
WON
affects
validityofof
the
real estate
consolidated the 2 cases, and ruled that the real estate mortgage cannot be annulled,and
since
a long
lineitof
cases, the
the validity
the
interest
does
mortgage
not affect the validity of the main obligation, and since the real estate mortgage is ancillary
to such main obligation, it cannot be nullified as well.
2. WON CA could properly entertain petition for certiorari
from
timeliness
aspect;
and it
WON
CAexist
correctly
DOCTRINE: The consideration for the mortgage is also that of the principal contract, and
from
such principal
contract
cannot
as an concluded
that
of possession
could no longer be stayed
independent contract. Being a mere accessory contract, its validity would depend on that
of writ
the loan
secured by it.
An usurious loan is not a complete nullity but defective only with respect to theRATIO:
agreed interest. Following this conclusion, the loan is valid even
when the interest is not, and also it follows that the mortgage is valid.
1. Petitioners arguments: the agreed rate of interest of 6% per month
or 72% per annum is so excessive, iniquitous, unconscionable and
The purchaser in a foreclosure sale is entitled as a matter of right to a writ of possession,
of whether
there null
is a pending
suit
for annulment
exorbitant regardless
that it should
be declared
and void.
They
should have
of the mortgage or the foreclosure proceedings.
been declared to be liable for the original amount of the loan plus 12%
per annum.
The proper remedy for the petitioners in this case is an action to annul the interest rate, which does not prescribe.
The court discussed the case of Medel, which was cited by petitioners.
That caseEVIDENCING
ruled that 5.5% per month or 66% per annum interest was
CREDITOR
Eleanor Chua & Elma Dy Ng
INSTRUMENT
iniquitous and unconscionable, and in a long line of cases the Court has
CREDIT:
invalidated
similar
stipulations, even those as low as 3% per month or
DEBTOR
Sps David Carpo & Rechilda Carpo
SECURITY
FOR THE
LOAN:
36% per annum. These were reduced to sometimes 12% per annum or
18% per annum. The Court ruled that there is no need to reverse these
principles, and ruled that the interest in this case is excessive,
FACTS: (consolidated cases)
iniquitous, unconscionable, and exorbitant. The Court noted Art 1306 1 of
Petitioners in this case (Sps Carpo) loaned P175,000 from respondents
the NCC, and said that this could be used usually to invalidate the
(Chua & Ng), payable within 6 months, with an interest rate of 6%
interest. However, the RTC refuse to apply the ruling in Medel because
per month. They mortgaged their house and lot, and when they failed
the petition sought to annul the real estate mortgage, while Medel was
to pay, these were extrajudicially foreclosed and awarded to the
a case for annulment of the loan contract itself.
respondents, who were the only bidders. When the petitioners failed to
redeem the property, a certificate of sale was issued in favor of Chua &
Ng, and TCT was cancelled and new one issued in their name. Sps
Carpo continued to occupy the lot, so respondents filed a petition for
writ of possession, which was granted by RTC.
Sps Carpo filed a petition for annulment of real estate mortgage
and foreclosure. A TRO was issued on 3 Aug 1999, enjoining the
enforcement of the writ of possession. Respondents filed a petition for
certiorari and mandamus before the CA against this order.
During the pendency of the CA case, RTC dismissed the complaint by
Sps Carpo on the ground that it was filed out of time and barred by
The Court said that the consideration for the mortgage is also that of
the principal contract, and from such principal contract it cannot exist
as an independent contract. Being a mere accessory contract, its
validity would depend on that of the loan secured by it. The Court noted
that in Medel, the court did not invalidate the entire loan obligation, but
only reduced the rate of interest. This and the subsequent cases were
congruent with the rule that an usurious loan is not a complete nullity
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.
LABOR II | B2015
CASES
but defective only with respect to the agreed interest. The Court
discussed the case of Briones v Cammayo, where it was said that the
debtor in an usurious contract of laon should pay the creditor the
amount which he justly owes him. Several other cases were cited,
including Palileo v Cosio and Pascua v Perez, which said that when a
contract is found to be tainted with usury "the only right of the
respondent (creditor) . . . was merely to collect the amount of the loan,
plus interest due thereon.
There is a view that the ruling should be abandoned in view of Art 1957 2
of the NCC. The conclusion, according to the view, is that the whole
contract is void, and there is no right to recover, even the creditors
capital. In connection with this, Art 1411 3 is also cited. The view also
says that this rule is modified by Art 1413, in that the borrower is
allowed to recover interest paid in excess of the interest allowed by
usury law. The Court disposed of the argument, by saying that Art 1411
is not new, as well as Art 1305, therefore it does not warrant departure
from the previous interpretation that a loan with usurious interest is not
totally void, but only as to the interest. One decision stated thus:
. . . [a]ppellants fail to consider that a contract of loan with usurious
interest consists of principal and accessory stipulations; the principal
one is to pay the debt; the accessory stipulation is to pay interest
thereon.
And said two stipulations are divisible in the sense that the former can
still stand without the latter. Article 1273, Civil Code, attests to this:
"The renunciation of the principal debt shall extinguish the accessory
obligations; but the waiver of the latter shall leave the former in force."
The question therefore to resolve is whether the illegal terms as to
payment of interest likewise renders a nullity the legal terms as to
payments of the principal debt. Article 1420 of the New Civil Code
provides in this regard: "In case of a divisible contract, if the illegal
terms can be separated from the legal ones, the latter may be
enforced."
2 Contracts and stipulations, under any cloak or device whatever, intended to circumvent
the laws against usury shall be void. The borrower may recover in accordance with the laws
on usury.
3 When the nullity proceeds from the illegality of the cause or object of the contract, and
the act constitutes a criminal offense, both parties being in pari delicto, they shall have no
action against each other, and both shall be prosecuted. Moreover, the provisions of the
Penal Code relative to the disposal of effects or instruments of a crime shall be applicable to
the things or the price of the contract.
In simple loan with stipulation of usurious interest, the prestation of the

debtor to pay the principal debt, which is the cause of the contract
(Article 1350, Civil Code), is not illegal. The illegality lies only as to the
prestation to pay the stipulated interest; hence, being separable, the
latter only should be deemed void, since it is the only one that is illegal.
....
This being the case, the principal debt can be recovered, and the debt
earns interest from the date of demand if debtor incurs in delay, based
on Art 2209, which provides for the payment of interest by way of
damages in obligations to pay money.
Hence, it is clear and settled that the principal loan obligation still
stands and remains valid. By the same token, since the mortgage
contract derives its vitality from the validity of the principal obligation,
the invalid stipulation on interest rate is similarly insufficient to render
void the ancillary mortgage contract.
On the decision of the RTC that the complaint was barred by the 4-year
prescriptive period, the court said that it was important because had
the loan and mortgage contracts been declared void instead, then no
prescriptive period will run. However, there was no showing that the
petitioners consent tot eh loan and mortgage agreements were vitiated
by undue influence. The financial condition of petitioners may have
motivated them to contract, but it cannot be said to have undue
influence just because the respondents lent them money. For undue
influence to be present, the influence exerted must have so
overpowered or subjugated the mind of the contracting party as to
destroy his free agency, making him express the will of another rather
than his own. The petitioners are also barred by laches, since they did
not raise the issue of the real estate mortgage in the foreclosure
proceedings, but only when the writ of possession was issued.
2. A TRO has only a 20-day period of validity. When the 20-day period
elapsed, the TRO has become functus officio, and there is no sense in
assailing the validity of this order, which was challenged after more
than 4 months by respondents. On the other hand, the other order was
in the nature of a writ of injunction, which had an indefinite efficacy. It
may be properly assailed by way of special civil action for certiorari. The
other argument is that this 2nd order was a final order, and not
interlocutory, hence appeal was the proper remedy. The court said that
this is not correct, since the order in issue is an interlocutory order,
since its effectivity hinged on the outcome of the pending action for
annulment of real estate mortgage. Certiorari was proper and was filed
in time. Also, mandamus lies to compel performance of a ministerial
duty, and since the issuance of a writ of possession to a purchaser in an
extrajudicial foreclosure is a ministerial function, then it is also proper.
LABOR II | B2015
CASES
The purchaser in a foreclosure sale is entitled as a matter of right to a
writ of possession, regardless of whether there is a pending suit for
annulment of the mortgage or the foreclosure proceedings. An
injunction to prohibit the issuance of the writ is improper.
Petitioners should have filed an action to annul interest rate, which does
not prescribe.
RULING: WHEREFORE, in view of all the foregoing, the petitions
are DENIED. Costs against petitioner

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LABOR II | B2015

In simple loan with stipulation of usurious interest, the prestation of the

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