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Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 171354             March 7, 2007

MARYLOU B. TOLENTINO, M.D., Petitioner,
vs.
COURT OF APPEALS and CITYTRUST BANKING CORPORATION, Respondents.

D E C I S I O N

YNARES-SANTIAGO, J.:

This Petition for Review on Certiorari¹ assails the October 28, 2005 Decision² of the Court of Appeals in CA-G.R. CV. No. 83794, which reversed the April 22, 2004 Decision³ of the Regional Trial Court of Mandaluyong City, Branch 213 in Civil Case No. MC-00-1063, as well as the January 31, 2006 Resolution⁴ denying petitioner's Motion for Reconsideration.

The antecedent facts are as follows:

In May 1996, petitioner Marylou B. Tolentino (Tolentino) applied for and was granted by private respondent Citytrust Banking Corporation ("Citytrust," now Bank of the Philippine Islands) a Business Credit Line Facility for P2,450,000⁵ secured by a First Real Estate Mortgage⁶ over her property covered by Transfer Certificate of Title (TCT) No. 1933.⁷

On July 16, 1998, Citytrust informed Tolentino that her credit line has expired thereby making her P2,611,440.23 outstanding balance immediately due and demandable.⁸ Tolentino failed to settle her obligations thus her property was extrajudicially foreclosed and sold in a public auction, with Citytrust as the highest bidder. On April 13, 1999, the Certificate of Sale was registered and duly annotated on TCT No. 1933.

As of March 17, 2000, the "Statement of Account To Redeem" ⁹ sent by Citytrust showed petitioner's outstanding obligation at P5,386,993.91. Petitioner asked for a re-computation and the deletion of certain charges, such as the late payment charges, foreclosure expenses, attorney's fees, liquidated damages, and interests, but was denied by Citytrust. As of April 10, 2000, petitioner's outstanding balance amounted to P5,431,337.41.

On April 7, 2000, petitioner filed a Complaint for Judicial Redemption, Accounting and Damages, with application for the issuance of a Temporary Restraining Order/Writ of Preliminary Injunction, against Citytrust and the Register of Deeds of Mandaluyong City.¹⁰ Petitioner alleged that the bank unilaterally increased the interest charges in her credit line from 17.75% to 23.04%; that she was forced to convert her existing Home Owners Credit Line into an Amortized Term Loan with interest of 19.50%;¹¹ that the bank cancelled her credit line when she refused the said conversion; that her mortgaged property was foreclosed and sold at public auction but the bank did not remit the balance of the proceeds of the foreclosure sale; and that the bank unjustifiably refused her request for accounting and re-computation of the redemption amount.

In its Answer with Counterclaim,¹² Citytrust asserted that petitioner's credit line has a term of one year and that upon the expiration of the said period, it may be cancelled and closed; that the inclusion of late payment charges, foreclosure expense, attorney's fees, liquidated damages, foreclosure fee, and interests in the redemption price was in accordance with the terms and conditions of their loan and mortgage contracts; that the bid price was applied to the outstanding obligations of petitioner; and that the Complaint of petitioner was merely dilatory and frivolous considering that she has admitted having defaulted in the payment of her obligations.

Meanwhile, TCT No. 1933 was cancelled and a new title¹³ was issued in favor of Citytrust. However, petitioner was able to secure a writ of preliminary injunction,¹⁴ which enjoined Citytrust from taking possession, selling, and/or otherwise disposing of the foreclosed property.

After trial on the merits, the Regional Trial Court of Mandaluyong City, Branch 213, rendered judgment upholding petitioner's right of redemption, but at the price computed by private respondent. The dispositive portion of the Decision reads:

WHEREFORE, judgment is hereby rendered upholding the right of the herein plaintiff MARILOU TOLENTINO to redeem the foreclosed property covered by Transfer Certificate of Title No. 1933 in accordance however with the computation stated in the account to redeem as of April 10, 2000 issued by the defendant CITYTRUST BANKING CORPORATION (now FAMILY BANK) particularly marked as Exhibit 10 for the Defendant.

SO ORDERED.¹⁵

The trial court held that the filing of an action for judicial redemption by petitioner is equivalent to a formal offer to redeem. Having exercised her right of legal redemption, petitioner should not be barred from redeeming the property, but at the redemption price as computed by Citytrust pursuant to the provisions of their loan agreement. The trial court held that petitioner cannot belatedly claim that the loan agreement and mortgage contract are contracts of adhesion considering that she freely and voluntarily executed the same, nor was she ignorant of the nature and provisions of the agreements.

Both the petitioner and the bank appealed to the Court of Appeals, which rendered the assailed Decision, the dispositive portion of which reads:

WHEREFORE, premises considered, the appeal of plaintiff is DISMISSED for lack of merit, while the appeal of defendant Bank of the Philippine Islands is hereby GRANTED. The appealed Decision dated April 22, 2004 of the Regional Trial Court of Mandaluyong City, Branch 213 is hereby REVERSED and SET ASIDE. A new judgment is hereby entered DISMISSING the complaint in Civil Case No. MC-00-1063.

With costs against the plaintiff-appellant.

SO ORDERED.¹⁶

The Court of Appeals held that petitioner's act of filing an action for judicial redemption without simultaneous consignation of redemption money was not valid. Having failed to exercise her right of redemption within the one-year period provided by law, petitioner thus lost all her rights over the foreclosed property. The appellate court noted that as early as March 17, 2000, Citytrust computed the redemption price at P5,386,993.91; however, petitioner only offered to pay P3 million pesos, without attempting to tender a single centavo to private respondent. Further, records show that when asked during trial if she was prepared to tender the amount, petitioner replied in the negative.

Petitioner's motion for reconsideration was denied; hence, this petition.

Petitioner insists that the mortgage agreement is a contract of adhesion since it was solely prepared by the bank and her only participation thereto was to affix her signature; that the 25% attorney's fees, penalty, late payment charges, and liquidated damages are excessive and unconscionable; that the capital gains tax should not have been added to the computation of the redemption price; that the filing of the complaint for judicial redemption effectively tolled the running one-year prescriptive period; that the consignation of the redemption price is only necessary if the redemption suit was filed after the expiration of the redemption period; and that without admitting the loss of right to redeem, the surplus of the proceeds of the foreclosure sale should have been returned to her.

The petition lacks merit.

A contract of adhesion is an agreement where one of the parties imposes a ready-made form of contract which the other party may accept or reject, but which the latter cannot modify. One party prepares the stipulation in the contract, while the other party merely affixes his signature or his "adhesion" thereto giving no room for negotiation and depriving the latter of the opportunity to bargain on equal footing.¹⁷

It bears stressing that a contract of adhesion is just as binding as ordinary contracts. However, there are instances when this Court has struck down such contract as void when the weaker party is imposed upon in dealing with the dominant bargaining party and is reduced to the alternative of taking it or leaving it, completely deprived of the opportunity to bargain on equal footing. Nevertheless, a contract of adhesion is not invalid per se; it is not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent.¹⁸

Should there be any ambiguity in a contract of adhesion, such ambiguity is to be construed against the party who prepared it. If, however, the stipulations are not obscure, but are clear and leave no doubt on the intention of the parties, the literal meaning of its stipulations must be held controlling.¹⁹

In the instant case, it has not been shown that petitioner signed the contracts through mistake, violence, intimidation, undue influence, or fraud. Petitioner even admitted during trial that she was not compelled to sign the contracts, nor was she totally ignorant of their nature, having been engaged in business since 1984.²⁰ Petitioner only raised in issue the following stipulations before the redemption period expired, to wit:

2. Loan Line - CityTrust shall make the Loan Line available to Client for a period of one (1) year from the date of this Agreement subject to Section 19; xxx

19. Cancellation - (a) The Loan Line may be cancelled by either party upon thirty-day written notice to the other party.

(b) CityTrust may shorten the period of availability of the Loan Line upon thirty-day written notice to Client.

(c) Upon cancellation of the Loan Line or expiration of the period of availability of the Loan Line, the Loan Account and CityTrust Business Credit Line Current Account shall be automatically cancelled/closed and Client shall immediately pay the entire Outstanding Balance. Client shall immediately surrender to CityTrust any and all unused CityTrust Business Credit Line Check(s) as well as the ATM card issued to access the CityTrust Business Credit Line Current Account.

7. Interest on Outstanding Balance - The Outstanding Balance shall earn simple interest, computed daily, at such per annum rate for such interest period (of not less than 30 days) as shall be determined in advance by CityTrust and advised initially through the Letter of Approval and thereafter through the Statement of Loan Account. Interest shall be calculated on the basis of actual number of days elapsed and a year of 360 days. Interest accrued shall be automatically debited by the CityTrust against the Loan Account.

9. Penalty Charges - Failure to make the full remittance required to cover the Excess Availment within fifteen (15) days from the date that the same is incurred shall subject the Excess Availment to penalty charge. Failure to make the full remittance required to cover an Excess Availment within fifty-nine (59) days from the date that the same is incurred shall subject the entire Outstanding Balance to the aforesaid penalty charge. Penalty charges shall be imposed by CityTrust without prejudice to Sections 7 (Interest on Outstanding Balance) and 15 [Events of Default].

The penalty charge shall be such per annum rate as shall be determined by CityTrust and advised through the Statement of Loan Account and Demand Statement. Sail penalty charge shall be fixed for thirty (30) days or such other period as may be determined by CityTrust and shall be automatically debited against the Loan Account.

20. Collection/Attorney's Fees - in the event CityTrust is compelled to litigate or engage the services of a lawyer or collection agent for collection or implementation of the terms of the Agreements, Client shall pay attorney's fees in the sum equivalent to twenty-five (25%) percent of the amount due but which attorney's fees shall in any case be not less than FIVE THOUSAND PESOS (P5,000.00) plus costs of suit and other litigation expenses and, in addition, liquidated damages in the sum equivalent to ten (10%) percent of the amount due but which liquidated damages shall in any case be not less than ONE THOUSAND PESOS (P1,000.00).²¹

We find the above-quoted provisions explicit and leave no room for construction. It is easily understood, especially by a businesswoman like the petitioner. Thus, we agree with the conclusion of the trial and appellate courts that no compelling reasons were presented to declare the subject contractual documents as void contracts of adhesion.²²

Anent the legality of petitioner's judicial redemption and the bank's computation of the redemption price, Section 6 of Act No. 3135,²³ as amended,²⁴ provides for the requisites for a valid redemption, to wit:

SEC. 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore referred to, the debtor, his successors in interest or any judicial creditor or judgment creditor of said debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust under which the property is sold, may redeem the same at any time within the term of one year from and after the date of sale; and such redemption shall be governed by the provisions of sections four hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil Procedure, insofar as these are not inconsistent with the provisions of this Act.

However, considering that private respondent is a banking institution, the determination of the redemption price is governed by Section 78 of the General Banking Act,²⁵ as amended by Presidential Decree No. 1828, which provides:

In the event of foreclosure, whether judicially or extrajudicially, of any mortgage on real estate which is security for any loan granted before the passage of this Act or under the provisions of this Act, the mortgagor or debtor whose real property has been sold at public auction, judicially or extrajudicially, for the full or partial payment of an obligation to any bank, banking or credit institution, within the purview of this Act shall have the right, within one year after the sale of the real estate as a result of the foreclosure of the respective mortgage, to redeem the property by paying the amount fixed by the court in the order of execution, or the amount due under the mortgage deed, as the case may be, with interest thereon at the rate specified in the mortgage, and all the costs, and judicial and other expenses incurred by the bank or institution concerned by reason of the execution and sale and as a result of the custody of said property less the income received from the property.

Section 78 of the General Banking Act amended Section 6 of Act No. 3135 insofar as the redemption price is concerned when the mortgagee is a bank or a banking or credit institution.²⁶ Thus, the amount at which the foreclosed property is redeemable is the amount due under the mortgage deed, or the outstanding obligation of the mortgagor plus interest and expenses in accordance with Section 78 of the General Banking Act.²⁷

In Banco Filipino Savings and Mortgage Bank v. Court of Appeals,²⁸ we ruled that the redemptioner should make an actual tender in good faith of the full amount of the purchase price, i.e., the amount fixed by the court in the order of execution or the amount due under the mortgage deed, as the case may be, with interest thereon at the rate specified in the mortgage, and all the costs, and judicial and other expenses incurred by the bank or institution concerned by reason of the execution and sale and as a result of the custody of said property less the income received from the property.²⁹

As correctly pointed out by the appellate court, the general rule in redemption is that it is not sufficient that a person offering to redeem simply manifests his/her desire to do so. The statement of intention must be accompanied by an actual and simultaneous tender of payment. This constitutes the exercise of the right to repurchase. Bona fide redemption necessarily implies a reasonable and valid tender of the entire purchase price, otherwise the rule on the redemption period fixed by law can easily be circumvented.³⁰

Petitioner however claims, citing Banco Filipino Savings and Mortgage Bank v. Court of Appeals ³¹ and Lee Chuy Realty Corporation v. Court of Appeals³² that in case of disagreement over the redemption price, the redemptioner may preserve his right of redemption through judicial action which must be filed within the one-year period of redemption. The filing of a court action to enforce redemption, being equivalent to a formal offer to redeem, would have the effect of preserving his redemptive rights and "freezing" the expiration of the one-year period.³³ Bona fide tender of the redemption price, within the prescribed period is only essential to preserve the right of redemption for future enforcement beyond such period of redemption and within the period prescribed for the action by the statute of limitations. Where the right to redeem is exercised through judicial action within the reglementary period, the offer to redeem, accompanied by a bona fide tender of the redemption price, while proper, may be unessential.³⁴

It should, however, be noted that in Hi-Yield Realty, Inc. v. Court of Appeals,³⁵ we held that the action for judicial redemption should be filed on time and in good faith, the redemption price is finally determined and paid within a reasonable time, and the rights of the parties are respected. Stated otherwise, the foregoing interpretation has three critical dimensions: (1) timely redemption or redemption by expiration date; (2) good faith as always, meaning, the filing of the action must have been for the sole purpose of determining the redemption price and not to stretch the redemptive period indefinitely; and (3) once the redemption price is determined within a reasonable time, the redemptioner must make prompt payment in full.³⁶

The records show that the correct redemption price had been determined prior to the filing of the complaint for judicial redemption. Petitioner had been furnished updated Statements of Account specifying the redemption price even prior to the consolidation of the title of the foreclosed property in the bank's name. The inclusion of late payment charges, foreclosure expense, attorney's fees, liquidated damages, foreclosure fee, and interests therein was pursuant to the Loan Agreement. Considering that the Loan Agreement was read and freely adhered to by petitioner, the stipulations therein are binding on her.³⁷

Moreover, petitioner admitted during trial that she was not questioning the computation of the redemption price, but she was requesting for a condonation of certain fees and charges.

Q. Now Madam Witness, during the last hearing, you were questioning the statement of account, the computation, is that correct?

A. Yes, sir.

Q. In particular, you were questioning the attorney's fees of twenty five percent (25%), is that correct?

A. Yes, sir.

Q. Did you not read the mortgage loan agreement, Madam Witness?

A. I know its [sic] there in the mortgage loan what I said is that I was requesting for a condonation.

Q. So, you are [sic] not questioning it?

A. Yes, sir.

Q. In your complaint there is an allegation that the computation has no basis, do you confirm that, do you still maintain that?

A. Yes.

Q. Why do you say so?

A. I was just hoping that some of the items could be condone[d] because they were rather high, although, normally, in the mortgage contract it is really stated that they charge twenty five percent for attorney's fees, so I agreed with it.

Q. So, it is not your statement in your complaint that the computation has no basis, is not correct?

A. Yes, sir.

Q. So, the twenty five percent computation here has a basis, which is the mortgage loan agreement, correct?

A. Yes, in your agreement.

Q. And in that agreement you have your signature therein?

A. Yes.

Q. And you have read that before signing it?

A. Yes, sir.

Q. So, also with this liquidated damages of ten percent (10%), there is a basis under the mortgage loan agreement?

A. I'm not sure.

Q. I will show you again the mortgage loan agreement xxx.

x x x x

Q. Now, Ms. Witness, can you now say that this statement of account is with basis, accurate and with basis [sic]?

A. It has a basis, based on your conditions as prepared by the bank.

Q. Which you have conform[ed] to?

A. Yes, I have to because I executed a loan.

Q. But the bank did not compel you to apply for a loan?

A. No, they did not compel me.

Q. And you are only asking this court to reduce?

A. Yes, if possible.³⁸(Emphasis supplied)

The records also reveal that petitioner offered to redeem the foreclosed property for P3 million but failed to tender or consign the same, to wit:

Q. Ms. Witness, you stated that based on your computation[,] the redemption price should be three million pesos (P3,000,000.00) more or less?

A. More or less.

Q. Do you have this amount right now? Do you have this three million (P3M) more or less, do you have this amount right now?

A. Not right now, but if we will be given a few days to produce it, we will give us [sic] that kind.

x x x x

Q. Did you tender this amount of three million pesos (P3M) more or less, to the bank?

A. No, because that is not the amount that they were asking for.

Q. Did you at least offer to pay this amount of three million pesos (P3M) more or less?

A. During the discussion with the manager, Ms. Lolita Carrido, I ask [sic] her if the deletion of the said [sic] is possible but she said it's not possible.

x x x x

Q. Did you also consign with this amount of three million pesos (P3M) more or less?

A. No, sir.39

Based on the foregoing, it is clear that petitioner did not file the instant case for judicial redemption in good faith. It was not filed for the purpose of determining the correct redemption price but to stretch the redemption period indefinitely, which is not allowed by law.

WHEREFORE, the instant Petition for Review on Certiorari is DENIED. The Decision of the Court of Appeals in CA-G.R. CV. No. 83794 dismissing the complaint for judicial redemption for lack of merit and the Resolution denying petitioner's motion for reconsideration are AFFIRMED.

SO ORDERED.

CONSUELO YNARES-SANTIAGO
Associate Justice

WE CONCUR:

MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice

(on leave) ROMEO J. CALLEJO, SR. Associate Justice

MINITA V. CHICO-NAZARIO Asscociate Justice

ANTONIO EDUARDO B. NACHURA
Associate Justice

A T T E S T A T I O N

I attest that the conclusions in the above decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division.

REYNATO S. PUNO
Chief Justice

Footnotes

¹ Rollo, pp. 8-32.

² Id. at 33-48; penned by Associate Justice Martin S. Villarama, Jr. and concurred in by Associate Justices Edgardo F. Sundiam and Japar B. Dimaampao.

³ Id. at 33-34.

⁴ Id. at 49.

⁵ Records, pp. 51-54, 99-101, also known as Homeowners' Credit Line.

⁶ Rollo, pp. 50-53.

⁷ Records, pp. 20-23.

⁸ Id. at 24.

⁹ Id. at 32.

¹⁰ Id. at 7-14.

¹¹ Id. at 102.

¹² Id. at 44-49.

¹³ TCT No. 15625, id. at 72.

¹⁴ Id. at 167-168.

¹⁵ CA Rollo, pp. 44-56.

¹⁶ Id. at 48.

¹⁷ South Pachem Development, Inc. v. Court of Appeals, G.R. No. 126260, December 16, 2004, 447 SCRA 85, 95.

¹⁸ Rizal Commercial Banking Corporation v. Court of Appeals, 364 Phil. 947, 953-954 (2002).

¹⁹ South Pachem Development, Inc. v. Court of Appeals, supra note 17 at 95-96.

²⁰ TSN, October 7, 2002, pp. 14-15.

²¹ Records, pp. 51-53.

²² Rollo, p. 40.

²³ An Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real Estate Mortgages (1924).

²⁴ Act No. 4118 (1933).

²⁵ Republic Act No. 337 (1948).

²⁶ Sy v. Court of Appeals, G.R. No. 83139, April 12, 1989, 172 SCRA 125, 133-134.

²⁷ Union Bank of the Philippines v. Court of Appeals, 412 Phil. 64, 76 (2001).

²⁸ G.R. No. 143896, July 8, 2005, 463 SCRA 64.

²⁹ Id. at 75.

³⁰ BPI Family Savings Bank, Inc. v. Veloso, G.R. No. 141974, August 9, 2004, 436 SCRA 1, 6.

³¹ Supra note 28.

³² 321 Phil. 185 (1995).

³³ Banco Filipino Savings and Mortgage Bank v. Court of Appeals, supra note 28 at 75.

³⁴ Lee Chuy Realty Corporation v. Court of Appeals, supra note 32 at 190-191.

³⁵ 437 Phil. 483 (2002).

³⁶ Id. at 493.

³⁷ Consing v. Court of Appeals, G.R. No. 143584, March 10, 2004, 425 SCRA 192, 203.

³⁸ TSN, October 7, 2002, pp. 16-19.

³⁹ TSN, September 22, 2000, pp. 33-35.

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