B-07

Solangon v. Salazar (2001)

Petitioner-spouses executed 3 real estate mortgages on a parcel of land situated in Bulacan, in favor of the same Respondent Salazar to secure payment of loans of P60 K, P136 K and P230 K payable within 4 months, 1 year, and 4 months in that order, with 6% monthly interest on the first loan, and legal interests on the others. This action was initiated by the Petitionerspouses to prevent the foreclosure of the mortgaged property. They alleged that they obtained only one loan from the Respondent which was the P60 K secured by the first mortgage. Also, Petitioner-spouses opined that the 6% monthly interest was unconscionable. The subsequent mortgages were merely continuations of the first one, which is null and void. Moreover, the Respondent assured them that he will not foreclose the mortgage as long as they pay the stipulated interest upon maturity or within a

Whether or not the 6% monthly interest is unconscionable?

Yes. The SC ruled that this is unconscionable. While the Usury Law ceiling on interest rates was lifted by C.B. Circular No. 905, nothing in the said circular grants lenders carte blanche authority to raise interest rates to levels which will either ENSLAVE THEIR BORROWERS OR LEAD TO A HEMORRHAGING OF THEIR ASSETS. In Medel v. Court of Appeals, the Court decreed that the 5.5% interest or 66% per annum was not usurious but held that the same must be equitably reduced for being INIQUITOUS, UNCONSCIONABLE AND EXORBITANT , and hence, CONTRARY TO MORALS (contra bonos mores), if not against the law. In the case at bench, Petitioner-spouses 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. Hence, the interest rate must be reduced equitably. An interest of 12% per annum is deemed fair and reasonable.

reasonable time thereafter. Petitioner-spouses substantially paid the loans with interest but were unable to pay it in full. On the other hand, the Respondent claimed that the mortgages were executed to secure 3 separate loans of 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 Petitioner-spouses pay interest. Lower courts ruled in favor of Respondent. Thus, this petition.