G.R. No. 235020, December 10, 2019.

FACTS:

Zenaida executed a  Deed of Mortgage of Real Property [(DMRP)] in favor of [Atty. Bulatao] covering a parcel of land as security for a loan in the amount of P200,000.00. When [Zenaida] defaulted in her obligation, [Atty. Bulatao] foreclosed the mortgage and petitioned the court for the sale of the subject property in a public auction. 

Zenaida filed a Complaint for Injunction, Annulment of Deed of Real Estate Mortgage and Damages against Atty. Bulatao seeking to declare the [DMRP] as illegal, inexistent and null and void because the interest (5%/month) imposed is excessive, iniquitous, unconscionable, exorbitant and contrary to public policy.  In addition, she raised that the sale is invalid because she  falsely indicated that she is the registered owner of the subject property despite the fact that it is co-owned by her late husband, Adolfo T. Estonactoc.

ISSUE/S: 

1. Whether the payment of the 5% monthly interest was voluntarily agreed upon by him and Zenaida and absent fraud committed upon Zenaida, the stipulated interest rate should stand.

2. Whether the DMRP must be held invalid since the interest rate agreed upon is void

3. Since Zenaida is a co­-owner to the extent of 3/4 (1/2 portion representing her share in the conjugal property and 1/4 portion as her legitime in the estate of her husband Adolfo Estonactoc) of the subject property and the remaining 1/4 portion being co-­owned by her son Jose Rafael Estonactoc, Atty. Bulatao has the right to foreclose Zenaida’s 3/4 share.

HELD:

1. NO. SC affirmed the finding of the Court of Appeals (CA) that five percent (5%) per month or sixty percent (60%) per annum interest rate is highly iniquitous and unreasonable; and since the interest rate agreed upon is void, the rate of interest should be twelve percent (12%) per annum (the then prevailing interest rate prescribed by the Central Bank of the Philippines for loans or forbearances of money) from the date of judicial or extrajudicial demand. The interest rate prescribed by the Bangko Sentral ng Pilipinas (BSP) for loans or forbearances of money, credits or goods will be the surrogate or substitute rate not only for the one-year interest period agreed upon but for the entire period that the loan of Zenaida remains unpaid.

2.  The invalidity of the 5% per month interest rate does not affect the obligation of Zenaida to repay her loan of P200,000.00 from Atty. Bulatao. The applicable interest is the BSP-prescribed rate of 12% per annum from the execution of the DMRP on June 3, 2008, wherein the parties agreed to the payment of interest, to June 30, 2013 and at the rate of 6% per annum from July 1, 2013 until full payment. Taking into account Article 2212 of the Civil Code, which provides that “[i]nterest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point,” the interest due on the principal amount (computed as mentioned above) accruing as of judicial demand (the filing of the counterclaim, in this case) shall separately earn interest at the rate prescribed by the BSP from time of judicial demand up to full payment.

3. While Article 493 of the Civil Code may not squarely cover the situations wherein a co-owner, without the consent of the other co-owners, alienate, assign or mortgage: (1) the entire co-owned property; (2) a specific portion of the co-owned property; (3) an undivided portion less than the part pertaining to the disposing co-owner; and (4) an undivided portion more than the part pertaining to the disposing co-owner, the principle of estoppel bars the disposing co-owner from disavowing the sale to the full extent of his undivided or pro indiviso share or part in the co-ownership, subject to the outcome of the partition. The CA was correct when it limited the validity of the DMRP only to the portion belonging to Zenaida.

As to the share of Zenaida, Atty. Bulatao is correct that Zenaida is a co-owner to the extent of 3/4 undivided portion (1/2 portion representing her share in the conjugal property and 1/4 portion as her legitime in the estate of her husband Adolfo Estonactoc) of the subject property, with the remaining 1/4 undivided portion being co-owned by her son Jose Rafael Es