SPOUSES DANILO SOLANGON AND URSULA SOLANGON, PETITIONERS, VS. JOSE AVELINO SALAZAR, RESPONDENT.

Solangon versus Salazar

The Case

This is a petition for review on certiorari brought by spouses Danilo and Ursula Solangon against Jose Avelino Salazar, arising from an action for annulment of mortgage. The spouses mortgaged their parcel of land in Bulacan to Salazar to secure a series of loans, and when Salazar moved to foreclose, they sued to stop him, attacking the mortgages as void for unconscionable interest. The case matters for two reasons: it is a clean illustration of the rule that only questions of law may be raised in a petition for review under Rule 45, and it is the Court's pointed reminder that the lifting of the usury ceiling did not give lenders a license to impose outrageous interest rates.

Procedural History

The spouses filed a complaint for annulment of mortgage, with a prayer for a writ of preliminary injunction, before the Regional Trial Court of Malolos, Bulacan. The trial court issued a preliminary injunction, but after trial it ruled against the spouses. It dismissed the complaint, dissolved the injunction, ordered the spouses to pay ten thousand pesos in attorney's fees, and ordered them to pay the costs. The spouses appealed to the Court of Appeals, which affirmed the trial court's decision in full. From that affirmance, the spouses elevated the matter to the Supreme Court by petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure.

Facts

The spouses executed three deeds of real estate mortgage over the same parcel of land in Santa Maria, Bulacan, all in favor of Salazar. The first, on August 22, 1986, secured a loan of sixty thousand pesos payable in four months, with interest at six percent per month. The second, on May 27, 1987, secured a loan of one hundred thirty-six thousand five hundred twelve pesos payable in one year, with interest at the legal rate. The third, on December 29, 1990, secured a loan of two hundred thirty thousand pesos payable in four months, again with interest at the legal rate.

The spouses claimed they obtained only one loan, the sixty thousand peso loan secured by the first mortgage, and that the later mortgages were mere continuations of it. They alleged the first mortgage was void for unconscionable interest, and that Salazar had assured them he would not foreclose so long as they paid the stipulated interest upon maturity or within a reasonable time. They said they had already paid seventy-eight thousand pesos and tendered forty-seven thousand pesos more, yet Salazar initiated foreclosure proceedings for the two hundred thirty thousand peso loan plus interest.

Salazar answered that the three mortgages secured three separate loans, that the first two had been paid, and that only the third remained unpaid. He denied ever promising not to foreclose. The trial court found the spouses' testimony improbable, noting that both spouses signed the mortgage documents and the promissory note appended to them, and that signing a document without knowing its contents is contrary to common experience.

Issues

• Whether or not the Court of Appeals erred in holding that three separate mortgage contracts were executed by the parties instead of one.
• Whether or not the Court of Appeals erred in ruling that a loan secured by a real estate mortgage bearing interest of seventy-two percent per annum, or six percent per month, is not unconscionable.
• Whether or not the Court of Appeals erred in holding that the one hundred thirty-six thousand five hundred twelve peso loan had not been paid despite the mortgagee's own admission in his answer.
• Whether or not the Court of Appeals erred in failing to resolve the specific issues raised by the appellants.

Applicable Provisions

Rule 45 of the 1997 Rules of Civil Procedure, as amended, governs the petition and limits it to questions of law:

The petition shall raise only questions of law which must be distinctly set forth.

This confines the Supreme Court's review to legal error and bars the re-litigation of factual findings, which is precisely what the spouses attempted.

Article 1229 of the Civil Code supplies the remedy for iniquitous stipulations:

The courts shall reduce equitably liquidated damages, whether intended as an indemnity or a penalty if they are iniquitous or unconscionable.

The Court invokes this provision, through the reasoning of Medel versus Court of Appeals, to reduce the stipulated interest rather than strike it down entirely.

Ruling

On the first issue, the Court held that the spouses were raising questions of fact, which a petition under Rule 45 does not permit. Findings of fact of the lower courts, including the Court of Appeals, are final and conclusive and will not be reviewed on appeal, save in exceptional instances such as when the conclusion rests entirely on speculation, when the inference is manifestly mistaken, when there is grave abuse of discretion, when the judgment rests on a misapprehension of facts, when the findings conflict, or when the findings are contrary to the admissions of both parties. The Court found none of these instances present, and so affirmed the finding that three separate mortgages existed and that the second loan had been paid while the third had not.

On the second issue, the Court parted ways with the Court of Appeals. While the Usury Law ceiling was lifted by Central Bank Circular Number 905, the Court stressed that nothing in that 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. Following Medel versus Court of Appeals, the Court held that a stipulated interest of six percent per month, or seventy-two percent per annum, is outrageous and inordinate, and reduced it equitably to twelve percent per annum as fair and reasonable.

Doctrine

First, a petition for review on certiorari under Rule 45 raises only questions of law; findings of fact of the trial court and the Court of Appeals are final and conclusive unless one of the recognized exceptions applies.

Second, the repeal of the Usury Law by Central Bank Circular Number 905 did not authorize lenders to impose interest rates that are iniquitous, unconscionable, or contrary to morals. Such stipulations are void, and the courts shall reduce them equitably under Article 1229 of the Civil Code. A rate of seventy-two percent per annum is outrageous and inordinate; twelve percent per annum is fair and reasonable.

Disposition

The Court denied the petition and affirmed the decision of the Court of Appeals, but modified it by reducing the stipulated interest rate of seventy-two percent per annum to twelve percent per annum.

Remember This

Memorize this line: the lifting of the usury ceiling is not a license for lenders to enslave borrowers, and unconscionable interest shall be equitably reduced. Examiners use this case to test the Rule 45 limitation to questions of law and the reduction of iniquitous interest rates under Article 1229 of the Civil Code.