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MANILA PRINCE HOTEL, petitioner, vs. GOVERNMENT SERVICE INSURANCE SYSTEM

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Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 146942 April 22, 2003
CORAZON G. RUIZ, petitioner,
vs.
COURT OF APPEALS and CONSUELO TORRES, respondents.
PUNO, J.:
On appeal is the decision
1
of the Court of Appeals in CA-G.R. CV No. 56621 dated 25 August
2000, setting aside the decision
2
of the trial court dated 19 May 1997 and lifting the permanent
injunction on the foreclosure sale of the subject lot covered by TCT No. RT-96686, as well as its
subsequent Resolution
3
dated 26 January 2001, denying petitioner’s Motion for Reconsideration.
The facts of the case are as follows:
Petitioner Corazon G. Ruiz is engaged in the business of buying and selling jewelry.
4
She
obtained loans from private respondent Consuelo Torres on different occasions, in the following
amounts: P100,000.00; P200,000.00; P300,000.00; and P150,000.00.
5
Prior to their maturity,
the loans were consolidated under one (1) promissory note dated March 22, 1995, which reads
as follows:
6
"P750,000.00
Quezon City, March 22,
1995
PROMISSORY NOTE
For value received, I, CORAZON RUIZ, as principal and ROGELIO RUIZ as surety in
solidum, jointly and severally promise to pay to the order of CONSUELO P.
TORRES the sum of SEVEN HUNDRED FIFTY THOUSAND PESOS (P750,000.00)
Philippine Currency, to earn an interest at the rate of three per cent (3%) a month, for
thirteen months, payable every _____ of the month, and to start on April 1995 and to
mature on April 1996, subject to renewal.
If the amount due is not paid on date due, a SURCHARGE of ONE PERCENT of the
principal loan, for every month default, shall be collected.
Remaining balance as of the maturity date shall earn an interest at the rate of ten
percent a month, compounded monthly.
It is finally agreed that the principal and surety in solidum, shall pay attorney’s fees at
the rate of twenty-five percent (25%) of the entire amount to be collected, in case this
note is not paid according to the terms and conditions set forth, and same is referred
to a lawyer for collection.
In computing the interest and surcharge, a fraction of the month shall be considered
one full month.
In the event of an amicable settlement, the principal and surety in solidum shall
reimburse the expenses of the plaintiff.
(Sgd.) Corazon Ruiz
Principal
__________________
Surety"
The consolidated loan of P750,000.00 was secured by a real estate mortgage on a 240-square
meter lot in New Haven Village, Novaliches, Quezon City, covered by Transfer Certificate of Title
(TCT) No. RT-96686, and registered in the name of petitioner.
7
The mortgage was signed by
Corazon Ruiz for herself and as attorney-in-fact of her husband Rogelio. It was executed on 20
March 1995, or two (2) days before the execution of the subject promissory note.
8
Thereafter, petitioner obtained three (3) more loans from private respondent, under the following
promissory notes: (1) promissory note dated 21 April 1995, in the amount of P100,000.00;
9
(2)
promissory note dated May 23, 1995, in the amount of P100,000.00;
10
and (3) promissory note
dated December 21, 1995, in the amount of P100,000.00.
11
These combined loans of
P300,000.00 were secured by P571,000.00 worth of jewelry pledged by petitioner to private
respondent.
12
From April 1995 to March 1996, petitioner paid the stipulated 3% monthly interest on the
P750,000.00 loan,
13
amounting to P270,000.00.
14
After March 1996, petitioner was unable to
make interest payments as she had difficulties collecting from her clients in her jewelry
business.
15
Due to petitioner’s failure to pay the principal loan of P750,000.00, as well as the interest
payment for April 1996, private respondent demanded payment not only of the P750,000.00
loan, but also of the P300,000.00 loan.
16
When petitioner failed to pay, private respondent sought
the extra-judicial foreclosure of the aforementioned real estate mortgage.
17
On September 5, 1996, Acting Clerk of Court and Ex-Officio Sheriff Perlita V. Ele, Deputy Sheriff
In-Charge Rolando G. Acal and Supervising Sheriff Silverio P. Bernas issued a Notice of
Sheriff’s Sale of subject lot. The public auction was scheduled on October 8, 1996.
18
On October 7, 1996, one (1) day before the scheduled auction sale, petitioner filed a complaint
with the RTC of Quezon City docketed as Civil Case No. Q-96-29024, with a prayer for the
issuance of a Temporary Restraining Order to enjoin the sheriff from proceeding with the
foreclosure sale and to fix her indebtedness to private respondent to P706,000.00. The
computed amount of P706,000.00 was based on the aggregate loan of P750,000.00, covered by
the March 22, 1995 promissory note, plus the other loans of P300,000.00, covered by separate
promissory notes, plus interest, minus P571,000.00 representing the amount of jewelry pledged
in favor of private respondent.
19
The trial court granted the prayer for the issuance of a Temporary Restraining Order,
20
and on
29 October 1996, issued a writ of preliminary injunction.
21
In its Decision dated May 19, 1997, it
ordered the Clerk of Court and Ex-Officio Sheriff to desist with the foreclosure sale of the subject
property, and it made permanent the writ of preliminary injunction. It held that the real estate
mortgage is unenforceable because of the lack of the participation and signature of petitioner’s
husband. It noted that although the subject real estate mortgage stated that petitioner was
"attorney-in-fact for herself and her husband," the Special Power of Attorney was never
presented in court during the trial.
22

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The trial court further held that the promissory note in question is a unilateral contract of
adhesion drafted by private respondent. It struck down the contract as repugnant to public policy
because it was imposed by a dominant bargaining party (private respondent) on a weaker party
(petitioner).
23
Nevertheless, it held that petitioner still has an obligation to pay the private
respondent. Private respondent was further barred from imposing on petitioner the obligation to
pay the surcharge of one percent (1%) per month from March 1996 onwards, and interest of ten
percent (10%) a month, compounded monthly from September 1996 to January 1997. Petitioner
was thus ordered to pay the amount of P750,000.00 plus three percent (3%) interest per month,
or a total of P885,000.00, plus legal interest from date of [receipt of] the decision until the total
amount of P885,000.00 is paid.
24
Aside from the foregoing, the trial court took into account petitioner’s proposal to pay her other
obligations to private respondent in the amount of P392,000.00.
25
The trial court also recognized the expenses borne by private respondent with regard the
foreclosure sale and attorney’s fees. As the notice of the foreclosure sale has already been
published, it ordered the petitioner to reimburse private respondent the amount of P15,000.00
plus attorney’s fees of the same amount.
26
Thus, the trial court computed petitioner’s obligation to private respondent, as follows:
Principal Loan …………….
P 750,000.00
Interest……………………..
135,000.00
Other Loans……………….
392,000.00
Publication Fees…………….
15,000.00
Attorney’s Fees ……………
15,000.00
TOTAL…………………
P1,307,000.00
with legal interest from date of receipt of decision until payment of total amount of P1,307,000.00
has been made.
27
Private respondent’s motion for reconsideration was denied in an Order dated July 21, 1997.
Private respondent appealed to the Court of Appeals. The appellate court set aside the decision
of the trial court. It ruled that the real estate mortgage is valid despite the non-participation of
petitioner’s husband in its execution because the land on which it was constituted is paraphernal
property of petitioner-wife. Consequently, she may encumber the lot without the consent of her
husband.
28
It allowed its foreclosure since the loan it secured was not paid.
Nonetheless, the appellate court declared as invalid the 10% compounded monthly
interest
29
and the 10% surcharge per month stipulated in the promissory notes dated May 23,
1995 and December 1, 1995,
30
and so too the 1% compounded monthly interest stipulated in the
promissory note dated 21 April 1995,
31
for being excessive, iniquitous, unconscionable, and
contrary to morals. It held that the legal rate of interest of 12% per annum shall apply after the
maturity dates of the notes until full payment of the entire amount due, and that the only
permissible rate of surcharge is 1% per month, without compounding.
32
The appellate court also
granted attorney’s fees in the amount of P50,000.00, and not the stipulated 25% of the amount
due, following the ruling in the case of Medel v. Court of Appeals.
33
Now, before this Court, petitioner assigns the following errors:
(1) PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING
THAT THE PROMISSORY NOTE OF P750,000.00 IS NOT A CONTRACT OF
ADHESION DESPITE THE CLEAR SHOWING THAT THE SAME IS A READY-MADE
CONTRACT PREPARED BY (THE) RESPONDENT CONSUELO TORRES AND DID
NOT REFLECT THEIR TRUE INTENTIONS AS IT WEIGHED HEAVILY IN FAVOR
OF RESPONDENT AND AGAINST PETITIONER.
(2) PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN
DECLARING THAT THE PROPERTY COVERED BY THE SUBJECT DEED OF
MORTGAGE OF MARCH 20, 1995 IS A PARAPHERNAL PROPERTY OF THE
PETITIONER AND NOT CONJUGAL EVEN THOUGH THE ISSUE OF WHETHER
OR NOT THE MORTGAGED PROPERTY IS PARAPHERNAL WAS NEVER
RAISED, NOR DISCUSSED AND ARGUED BEFORE THE TRIAL COURT.
(3) PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN
DISREGARDING THE TRIAL COURT’S COMPUTATION OF THE ACTUAL
OBLIGATIONS OF THE PETITIONER WITH (THE) RESPONDENT TORRES EVEN
THOUGH THE SAME IS BASED ON EVIDENCE SUBMITTED BEFORE IT.
The pertinent issues to be resolved are:
(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; and
(3) Whether the rates of interests and surcharges on the obligation of petitioner to private
respondent are valid.
I
We hold that the promissory note in the case at bar is not a contract of adhesion. In Sweet
Lines, Inc. vs. Teves,
34
this Court discussed the nature of a contract of adhesion as follows:
". . . there are certain contracts almost all the provisions of which have been drafted
only by one party, usually a corporation. Such contracts are called contracts of
adhesion, because the only participation of the other party is the signing of his
signature or his ‘adhesion’ thereto. Insurance contracts, bills of lading, contracts of
sale of lots on the installment plan fall into this category.
35
" . . . it is drafted only by one party, usually the corporation, and is sought to be
accepted or adhered to by the other party . . . who cannot change the same and who
are thus made to adhere hereto on the ‘take it or leave it’ basis . . . "
36
In said case of Sweet Lines,
37
the conditions of the contract on the 4 x 6 inches passenger ticket
are in fine print. Thus we held:
" . . . it is hardly just and proper to expect the passengers to examine their tickets
received from crowded/congested counters, more often than not during rush hours, for
conditions that may be printed thereon, much less charge them with having consented
to the conditions, so printed, especially if there are a number of such conditions in fine
print, as in this case."
38

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Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 146942             April 22, 2003 CORAZON G. RUIZ, petitioner,  vs. COURT OF APPEALS and CONSUELO TORRES, respondents. PUNO, J.: On appeal is the decision1 of the Court of Appeals in CA-G.R. CV No. 56621 dated 25 August 2000, setting aside the decision2 of the trial court dated 19 May 1997 and lifting the permanent injunction on the foreclosure sale of the subject lot covered by TCT No. RT-96686, as well as its subsequent Resolution3 dated 26 January 2001, denying petitioner’s Motion for Reconsideration. The facts of the case are as follows: Petitioner Corazon G. Ruiz is engaged in the business of buying and selling jewelry.4 She obtained loans from private respondent Consuelo Torres on different occasions, in the following amounts: P100,000.00; P200,000.00; P300,000.00; and P150,000.00.5 Prior to their maturity, the loans were consolidated under one (1) promissory note dated March 22, 1995, which reads as follows:6 "P750,000.00 Quezon City, March 22, 1995 PROMISSORY NOTE For value received, I, CORAZON RUIZ, as principal and ROGELIO RUIZ as surety in solidum, jointly and severally promise to pay to the order of CONSUELO P. TORRES the sum of SEVEN HUNDRED FIFTY THOUSAND PESOS (P750,000.00) Philippine Currency, to earn an interest at the rate of three per cent (3%) a month, for thirteen months, payable every _____ of the month, and to start on April 1995 and to mature on April 1 ...
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