Facts:

The case involves Atty. Leonard Florent O. Bulatao as the petitioner and Zenaida C. Estonactoc as the respondent. The events leading to the case began on June 3, 2008, when Zenaida executed a Deed of Mortgage of Real Property (DMRP) in favor of Atty. Bulatao, covering a parcel of land in Pongpong, Sto. Tomas, La Union, as security for a loan amounting to P200,000.00. The DMRP stipulated that if Zenaida paid the loan within twelve months, the mortgage would be discharged; otherwise, it would remain enforceable. Zenaida defaulted on her obligation, prompting Atty. Bulatao to initiate foreclosure proceedings, with a Notice of Sale issued on July 15, 2011. In response, Zenaida filed a complaint against Atty. Bulatao and others, seeking to annul the DMRP, claiming it was illegal and unconscionable due to the excessive interest rate of 5% per month. She also alleged that she only received P80,000.00 instead of the full loan amount. Atty. Bulatao denied these allegations, asserting ...

Facts:

The Mortgage and Loan Agreement

• On June 3, 2008, Zenaida executed a Deed of Mortgage of Real Property in favor of Atty. Leonard Florent O. Bulatao covering a 42,727‑square‑meter parcel of land in Pongpong, Sto. Tomas, La Union.
• The mortgage served as security for a loan amounting to P200,000.00 and contained a stipulation that full payment (principal plus an interest of 5% per month) within 12 months would discharge the mortgage; otherwise, the mortgage would remain effective and enforceable.

Default, Foreclosure, and Relief Sought

• Zenaida defaulted on her payment obligations under the agreement, prompting Atty. Bulatao to foreclose the mortgage.
• Following the default, the foreclosure process was initiated and a Notice of Sale for an extra‑judicial foreclosure was issued on July 15, 2011.
• Zenaida filed a Complaint seeking:
• An injunction, annulment of the Deed of Mortgage, and damages against Atty. Bulatao (and other officers) alleging that the mortgage was illegal, inexistent, and null and void;
• Relief based on claims that the 5% monthly interest was excessive, iniquitous, unconscionable, and contrary to public policy;
• Allegations that she received only P80,000.00 instead of the contracted P200,000.00 and that irregularities existed regarding the registration and notarization of the mortgage.
• In his Answer, Atty. Bulatao denied all allegations, asserting that:
• The interest rate was mutually agreed upon and was not usurious, relying on the provisions of Central Bank Circular No. 905‑82;
• Zenaida misrepresented her ownership status and her financial capacity, leading to the agreed terms;
• He was entitled to recover actual, moral, and exemplary damages as well as attorney’s fees via a counterclaim.

Trial Court Proceedings

• The trial court conducted hearings with documentary and testimonial evidence and rendered a Decision on May 4, 2015.
• The RTC Decision dismissed Zenaida’s complaint, holding her bound by the mortgage terms and awarding damages in favor of Atty. Bulatao.
• Zenaida’s motion for reconsideration was denied, and she subsequently filed a Notice of Appeal.

Court of Appeals (CA) Decision

• On October 19, 2017, the CA partially granted Zenaida’s appeal by:
• Recognizing that as a co‑owner, Zenaida was entitled to convey only her share; hence, the mortgage was valid only with respect to her portion of the property;
• Declaring that the 5% monthly interest was excessive and unconscionable, effectively voiding that stipulation;
• Equitably reducing the interest to 1% per month (or 12% per annum) from the execution of the mortgage;
• Holding that the foreclosure proceedings were invalid because the demand for payment was based on an inflated and illegitimate calculation of the indebtedness.
• The CA further denied the award of damages against Zenaida and modified the mortgage’s effect in light of her status as co‑owner.

Subsequent Appeals and Pleadings

• Atty. Bulatao filed an appeal challenging the CA decision, arguing that the 5% interest was a voluntary term and that his method of computation was proper.
• Zenaida filed comments and responses asserting that the CA correctly modified the interest and that the foreclosure was premature given the void interest clause.

Issue:

• Whether the Court of Appeals erred in reversing and setting aside the RTC Decision regarding the mortgage, interest rate, and foreclosure sale.
• Whether the stipulated interest rate of 5% per month, though mutually agreed upon, is legally valid given its designation as excessive, unconscionable, and contrary to public policy.
• Whether the foreclosure proceedings can be justified when the demand for payment was based on an inflated amount arising from an illegal interest clause.
• Whether the characteristic rights of a co‑owner in mortgaging or selling her undivided share were properly considered in limiting the effect of the mortgage to Zenaida’s share only.
• Whether the correct and equitable computation of the debt (principal and adjusted interest) was undertaken in light of the void nature of the original interest stipulation.

Ruling:

• (Subscriber-Only)

Ratio:

• (Subscriber-Only)

Doctrine:

• (Subscriber-Only)