G.R. No. 125944 . June 29, 2001
SPOUSES DANILO SOLANGON and URSULA SOLANGON, petitioners, vs. JOSE AVELINO SALAZAR, respondent.

FACTS

Petitioners Spouses Danilo and Ursula Solangon filed a complaint for annulment of mortgage to prevent the foreclosure of their property by respondent Jose Avelino Salazar. The parties executed three separate real estate mortgages over the same parcel of land: (1) on August 22, 1986, to secure a loan of P60,000.00 payable within four months with 6% monthly interest; (2) on May 27, 1987, to secure a loan of P136,512.00 payable within one year with legal interest; and (3) on December 29, 1990, to secure a loan of P230,000.00 payable within four months with legal interest. Petitioners alleged they obtained only one loan of P60,000.00, and the subsequent mortgages were mere continuations of the first, which was void for unconscionable interest. They claimed respondent assured them he would not foreclose as long as they paid interest, that they had already paid P78,000.00 and tendered P47,000.00 more, and that the loan of P136,512.00 had been paid. Respondent contended the mortgages secured three separate loans, the first two were paid, but the third loan of P230,000.00 was unpaid, and he denied making any assurance against foreclosure. The Regional Trial Court dismissed the complaint and dissolved the preliminary injunction, ordering petitioners to pay attorney’s fees and costs. The Court of Appeals affirmed the decision. Petitioners elevated the case via a petition for review on certiorari.

ISSUE

1. Whether the Court of Appeals erred in holding that three separate mortgage contracts were executed instead of one.
2. Whether the Court of Appeals erred in ruling that an interest rate of 72% per annum (6% per month) is not unconscionable.
3. Whether the Court of Appeals erred in holding that the loan of P136,512.00 had not been paid.
4. Whether the Court of Appeals erred in not resolving the specific issues raised by petitioners.

RULING

The Supreme Court DENIED the petition but MODIFIED the interest rate. The core controversy was the validity of the third mortgage contract subject to foreclosure.
1. On the number of mortgage contracts and payment of the second loan: The Court held that petitioners were raising questions of fact, which are not permissible in a petition for review under Rule 45. The findings of fact by the lower courts are final and conclusive. The trial court found petitioners’ testimony that they signed the third mortgage without knowing its contents as improbable and contrary to common experience. The alleged payment of the second loan (P136,512.00) also involved a factual issue. None of the exceptions warranting a review of factual findings were present.
2. On the unconscionability of the interest rate: The Court ruled that while the Usury Law’s interest ceiling was lifted by Central Bank Circular No. 905, lenders do not have unbridled authority to impose excessive rates. Citing Medel v. Court of Appeals, the Court held that an interest rate of 6% per month or 72% per annum is “outrageous and inordinate,” hence iniquitous, unconscionable, and exorbitant. Although not usurious due to the suspension of the Usury Law, such a stipulation is void for being contrary to morals. The Court equitably reduced the interest rate to 12% per annum, deemed fair and reasonable.
The dispositive portion of the Court of Appeals’ decision was AFFIRMED subject to the MODIFICATION that the interest rate of 72% per annum is reduced to 12% per annum.