Title
Bulatao vs. Estonactoc
Case
G.R. No. 235020
Decision Date
Dec 10, 2019
Zenaida mortgaged land for a P200,000 loan at 5% monthly interest, defaulted, and faced foreclosure. Courts ruled the interest excessive, reduced it to 12% annually, nullified the foreclosure, and limited the mortgage to her 3/4 share in the co-owned property.
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Case Digest (G.R. No. 235020)

Facts:

  • Execution of Mortgage: On June 3, 2008, Zenaida C. Estonactoc executed a Deed of Mortgage of Real Property (DMRP) in favor of Atty. Leonard Florent O. Bulatao, mortgaging a parcel of land in Pongpong, Sto. Tomas, La Union, as security for a loan of P200,000.00. The DMRP stipulated a 5% monthly interest rate and a one-year loan term, with the mortgage to be discharged upon payment within that period.

  • Default and Foreclosure: Zenaida defaulted on her obligation, prompting Atty. Bulatao to foreclose the mortgage and initiate a public auction of the property. The Notice of Sale on Extra Judicial Foreclosure was issued on July 15, 2011.

  • Complaint Filed by Zenaida: Zenaida filed a Complaint for Injunction, Annulment of Deed of Real Estate Mortgage, and Damages, arguing that the 5% monthly interest rate was excessive, unconscionable, and contrary to public policy. She also claimed she only received P80,000.00, not the full P200,000.00, and raised issues regarding the property's ownership and registration.

  • Trial Court Decision: The Regional Trial Court (RTC) ruled in favor of Atty. Bulatao, dismissing Zenaida’s complaint and ordering her to pay damages, attorney’s fees, and costs of suit.

  • CA Decision: The Court of Appeals (CA) partly granted Zenaida’s appeal, declaring the mortgage void only with respect to the share of Zenaida’s late husband, reducing the interest rate to 1% per month (12% per annum), and nullifying the foreclosure sale.

Issue:

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Ruling:

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Ratio:

  1. Unconscionable Interest Rate: A 5% monthly interest rate (60% per annum) is excessive, unconscionable, and void. Courts may equitably reduce such rates to protect borrowers from iniquitous terms.

  2. Validity of Foreclosure: Foreclosure proceedings are invalid if based on an over-inflated demand that includes void interest rates. A valid demand must reflect the correct principal and legal interest due.

  3. Co-Ownership and Mortgage: Under Article 493 of the Civil Code, a co-owner may validly mortgage their undivided share in a co-owned property. However, the mortgage is limited to the co-owner’s share and does not bind the shares of other co-owners.


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