THIRD DIVISION

G.R. No. 125944. June 29, 2001.

SPOUSES DANILO SOLANGON and URSULA SOLANGON, petitioners, vs. JOSE AVELINO SALAZAR, respondent.

Pedro Delgado Diwa for petitioners.

Ernesto P. Fernandez for respondent.

SYNOPSIS

Petitioners obtained from respondent three separate loans of P60,000.00, P136,512.00 and P230,000.00 secured by real estate mortgage with an interest of 6% per month or 72% per annum. For failure of petitioners to pay their third loan obligation in the amount of P230,000.00 plus the stipulated interest, respondent foreclosed the mortgage. Hence, petitioners filed a complaint for annulment of mortgage before the Regional Trial Court of Malolos, Bulacan. Petitioners contended, among others, that the real estate mortgage was executed to secure payment of the P60,000.00 loan and that the subsequent mortgages were merely continuations of the first one, which were null and void because it provided for unconscionable rate of interest. Petitioners further claimed that they signed the third mortgage contract in view of the respondent's assurance that the same will not be foreclosed as long as the stipulated interest was paid. The trial court did not give credence to the testimonies of the petitioners. Hence, it dismissed the complaint. Petitioners then elevated the case to the Court of Appeals. The appellate court affirmed the decision of the trial court, ruling, among others, that the stipulated interest rate of 72% per annum or 6% per month was not unconscionable. In sustaining the stipulated interest, the appellate court, ratiocinated that since the

The Supreme Court affirmed the decision of the Court of Appeals with modification.

The Court found that the petitioners raised issues of fact in their petition. The settled rule is that findings of fact of the lower courts including the Court of Appeals are final and conclusive and will not be reviewed on appeal. The rule is not without exceptions. The Court held that none of these exceptions were extant in the present case.

While the carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets. The Court, in the case (299 SCRA 481), decreed that the 5.5% per month on a loan amounting to P500,000.00 was not usurious, but ordered that the same be equitably reduced for being iniquitous, unconscionable and exorbitant. In the case at bar, petitioners were required to pay the stipulated interest rate of 6% per month or 72% per annum, which the Court found to be definitely outrageous and inordinate. Hence, the Court ordered that the interest be reduced equitably to 12% per annum.

SYLLABUS

1. REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF LOWER COURTS AND THE COURT OF APPEALS ARE FINAL AND CONCLUSIVE; EXCEPTIONS; NOT PRESENT IN CASE AT BAR. In a petition for review under Rule 45 of the aITDAE

2. COMMERCIAL LAW; CENTRAL BANK OF THE PHILIPPINES; C.B. CIRCULAR NO. 905; DOES NOT GRANT LENDERS CARTE BLANCHE AUTHORITY TO RAISE INTEREST RATES TO LEVELS WHICH WILL ENSLAVE THEIR BORROWERS OR LEAD TO HEMORRHAGING OF THEIR ASSETS. While the carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets.

3. CIVIL LAW; OBLIGATIONS AND CONTRACTS; INTEREST; STIPULATED INTEREST RATE OF 5.5% PER MONTH NOT USURIOUS BUT CONSIDERED INIQUITOUS, UNCONSCIONABLE AND EXORBITANT. In , this court had the occasion to rule on this question whether or not the stipulated rate of interest at 5.5% per month on a loan amounting to P500,000.00 is usurious. While decreeing that the aforementioned interest was not usurious, this Court held that the same must be equitably reduced for being iniquitous, unconscionable and exorbitant, thus: "We agree with petitioners that the stipulated rate of interest at 5.5% per month on the P500,000.00 loan is excessive, iniquitous, unconscionable and exorbitant. However, we can not consider the rate 'usurious' because this Court has consistently held that Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated upon by the parties in the promissory note iniquitous or unconscionable, and hence, contrary to morals ('contra bonos mores'), if not against the law. The stipulation is void. The courts shall reduce equitably liquidated damages, whether intended as an indemnity or a penalty if they are iniquitous or unconscionable."

4. ID.; ID.; ID.; STIPULATED INTEREST RATE OF 6% PER ANNUM IS OUTRAGEOUS AND INORDINATE; INTEREST OF 12% PER ANNUM DEEMED FAIR AND REASONABLE. In the case at bench, petitioners stand on a worse situation. They are required to pay the stipulated interest rate of 6% per month or 72% per annum which is definitely outrageous and inordinate. Surely, it is more consonant with justice that the said interest rate be reduced equitably. An interest of 12% per annum is deemed fair and reasonable.

D E C I S I O N

SANDOVAL-GUTIERREZ, J p:

Petition for review on certiorari under Rule 45 of the Spouses Danilo and Ursula Solangon vs. Jose Avelino Salazar" for annulment of mortgage. The dispositive portion of the RTC decision reads:

"WHEREFORE, judgment is hereby rendered against the plaintiffs in favor of the defendant Salazar, as follows:

1. Ordering the dismissal of the complaint;

2. Ordering the dissolution of the preliminary injunction issued on July 8, 1991;

3. Ordering the plaintiffs to pay the defendant the amount of P10,000.00 by way of attorney's fees; and

4. To pay the costs.

SO ORDERED."

The facts as summarized by the Court of Appeals in its decision being challenged are:

"On August 22, 1986, the plaintiffs-appellants executed a deed or real estate mortgage in which they mortgaged a parcel of land situated in Sta. Maria, Bulacan, in favor of the defendant-appellee, to secure payment of a loan of P60,000.00 payable within a period of four (4) months, with interest thereon at the rate of 6% per month (Exh. "B").

On May 27, 1987, the plaintiffs-appellants executed a deed of real estate mortgage in which they mortgaged the same parcel of land to the defendant-appellee, to secure payment of a loan of P136,512.00, payable within a period of one (1) year, with interest thereon at the legal rate (Exh. "1").

On December 29, 1990, the plaintiffs-appellants executed a deed of real estate mortgage in which they mortgaged the same parcel of land in favor of defendant-appellee, to secure payment of a loan in the amount of P230,000.00 payable within a period of four (4) months, with interest thereon at the legal rate (Exh. "2", Exh. "C").

This action was initiated by the plaintiffs-appellants to prevent the foreclosure of the mortgaged property. They alleged that they obtained only one loan from the defendant-appellee, and that was for the amount of P60,000.00, the payment of which was secured by the first of the above-mentioned mortgages. The subsequent mortgages were merely continuations of the first one, which is null and void because it provided for unconscionable rate of interest. Moreover, the defendant-appellee assured them that he will not foreclose the mortgage as long as they pay the stipulated interest upon maturity or within a reasonable time thereafter. They have already paid the defendant-appellee P78,000.00 and tendered P47,000.00 more, but the latter has initiated foreclosure proceedings for their alleged failure to pay the loan P230,000.00 plus interest. AcHCED

On the other hand, the defendant-appellee Jose Avelino Salazar claimed that the above-described mortgages were executed to secure three separate loans of P60,000.00, P136,512.00 and P230,000.00, and that the first two loans were paid, but the last one was not. He denied having represented that he will not foreclose the mortgage as long as the plaintiffs-appellants pay interest."

In their petition, spouses Danilo and Ursula Solangon ascribe to the Court of Appeals the following errors:

1. The Court of Appeals erred in holding that three (3) mortgage contracts were executed by the parties instead of one (1);

2. The Court of Appeals erred in ruling that a loan obligation secured by a real estate mortgage with an interest of 72% per cent per annum or 6% per month is not unconscionable;

3. The Court of Appeals erred in holding that the loan of P136,512.00 HAS NOT BEEN PAID when the mortgagee himself states in his ANSWER that the same was already paid; and

4. The Court of Appeals erred in not resolving the SPECIFIC ISSUES raised by the appellants.

In his comment, respondent Jose Avelino Salazar avers that the petition should not be given due course as it raises questions of facts which are not allowed in a petition for review on certiorari.

We find no merit in the instant petition.

The core of the present controversy is the validity of the third contract of mortgage which was foreclosed.

Petitioners contend that they obtained from respondent Avelino Salazar only one (1) loan in the amount of P60,000.00 secured by the first mortgage of August 1986. According to them, they signed the third mortgage contract in view of respondent's assurance that the same will not be foreclosed. The trial court, which is in the best position to evaluate the evidence presented before it, did not give credence to petitioners' corroborated testimony and ruled:

The testimony is improbable. The real estate mortgage was signed not only by Ursula Solangon but also by her husband including the Promissory Note appended to it. Signing a document without knowing its contents is contrary to common experience. The uncorroborated testimony of Ursula Solangon cannot be given weight."

Petitioners likewise insist that, contrary to the finding of the Court of appeals, they had paid the amount of P136,512.00, or the second loan. In fact, such payment was confirmed by respondent Salazar in his answer to their complaint. EISCaD

It is readily apparent that petitioners are raising issues of fact in this petition. In a petition for review under Rule 45 of the

None of these instances are extant in the present case.

Parenthetically, petitioners are questioning the rate of interest involved here. They maintain that the Court of Appeals erred in decreeing that the stipulated interest rate of 72% per annum or 6% per month is not unconscionable.

The Court of Appeals, in sustaining the stipulated interest rate, ratiocinated that since the .

The factual circumstances of the present case require the application of a different jurisprudential instruction. While the carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets. In , this court had the occasion to rule on this question whether or not the stipulated rate of interest at 5.5% per month on a loan amounting to P500,000.00 is usurious. While decreeing that the aforementioned interest was not usurious, this Court held that the same must be equitably reduced for being iniquitous, unconscionable and exorbitant, thus:

"We agree with petitioners that the stipulated rate of interest at 5.5% per month on the P500,000.00 loan is excessive, iniquitous, unconscionable and exorbitant. However, we can not consider the rate 'usurious' because this Court has consistently held that Circular No. 905 of the Central Bank, adopted on December 22, 1982, has expressly removed the interest ceilings prescribed by the Usury Law and that the Usury Law is now 'legally inexistent.'

In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61 the Court held that CB Circular No. 905 did not repeal nor in any way amend the Usury Law but simply suspended the latter's effectivity. Indeed, we have held that 'a Central Bank Circular can not repeal a law. Only a law can repeal another law. In the recent case of Florendo v. Court of Appeals, the Court reiterated the ruling that 'by virtue of CB Circular 905, the Usury Law has been rendered ineffective.' 'Usury Law has been legally non-existent in our jurisdiction. Interest can now be charged as lender and borrower may agree upon.'

Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated upon by the parties in the promissory note iniquitous or unconscionable, and hence, contrary to morals ('contra bonos mores'), if not against the law. The stipulation is void. The courts shall reduce equitably liquidated damages, whether intended as an indemnity or a penalty if they are iniquitous or unconscionable." (Italics supplied)

In the case at bench, petitioners stand on a worse situation. They are required to pay the stipulated interest rate of 6% per month or 72% per annum which is definitely outrageous and inordinate. Surely, it is more consonant with justice that the said interest rate be reduced equitably. An interest of 12% per annum is deemed fair and reasonable.

WHEREFORE, the appealed decision of the Court of Appeals is AFFIRMED subject to the MODIFICATION that the interest rate of 72% per annum is ordered reduced to 12% per annum.

SO ORDERED.

Melo, Vitug, Panganiban and Gonzaga-Reyes, JJ., concur.

Footnotes

1. Rollo, p. 85.

2. Decision p. 6; Rollo, 83.

3. , 258 SCRA 712 1996.

4. 129 SCRA 439 (1984).

"Moreover, for sometime now, usury has been legally non-existent. Interest can now be charged as lender and borrower may agree upon. The

5. , 256 SCRA 292 (1996).

6. 299 SCRA 481(1998).