Bulatao V Zenaida

G.R. No. 235020, | December 10, 2019 | CAGUIOA | Circular No.
Circular No. 905-82, which expressly removed the interest ceilings

prescribed under the Usury Law, leaving the parties with the liberty to
ATTY. LEONARD FLORENT O. BULATAO, PETITIONER, v. ZENAIDA C. mutually agree on an interest rate. Atty. Bulatao argues that the payment of
ESTONACTOC, RESPONDENT. the 5% monthly interest was voluntarily agreed upon by him and Zenaida
and absent fraud committed upon Zenaida, the stipulated interest rate
DECISION should stand.
CAGUIOA, J.: Issues:
1) WON the interest imposed was valid - NO
2) WON the foreclosure proceedings were valid – NO
Before the Court is the Appeal1 under Rule 45 of the Rules of Court filed by
petitioner Atty. Leonard Florent O. Bulatao (Atty. Bulatao) assailing the RATIO: As the interest rates were unconscionable, these were declared
Decision2 dated October 19, 2017 (Decision) of the Court of Appeals 3 (CA) in invalid by the SC and imposed legal interest instead. The foreclosure
CA-G.R. CV No. 105581. CA Decision partly granted the appeal of proceedings were also held invalid because the demand for payment did not
respondent Zenaida Estonactoc (Zenaida) resulting in the reversal and contain all the elements necessary for a valid demand, and consequently,
setting aside of the Decision4 dated May 4, 2015 rendered by the Regional default, due to the invalid amount stated therein brought about by the
Trial Court, Branch 31, Agoo, La Union (RTC) in Civil Case No. A-2715. invalidity of the imposed interest.
The Facts and Antecedent Proceedings 1) Interest Void: Unconscionable

Atty. Bulatao's argument of voluntariness in his and Zenaida's agreement on
The CA Decision narrates the factual antecedents as follows: the 5% monthly interest cannot be sustained.
On June 3, 2008, Zenaida executed a Deed of Mortgage of Real Property
[(DMRP)] in favor of Atty. Bulatao]covering a parcel of land located in The willingness of the parties to enter into a relation involving an
Pongpong, Sto. Tomas, La Union, as security for a loan in the amount of unconscionable interest rate is inconsequential to the validity of the
P200,000.00. stipulated rate:
The imposition of an unconscionable rate of interest on a money debt, even
The loan provided for a 5% interest per month, within a period of twelve if knowingly and voluntarily assumed, is immoral and unjust. It is tantamount
(12) months or one (1) year or before June 4, 2009. to a repugnant spoliation and an iniquitous deprivation of property, repulsive
to the common sense of man. It has no support in law, in principles of
When Zenaida defaulted in her obligation, Atty. Bulatao foreclosed the justice, or in the human conscience nor is there any reason whatsoever
mortgage and petitioned the court for the sale of the subject property in a which may justify such imposition as righteous and as one that may be
public auction. sustained within the sphere of public or private morals.
By reason of the impending sale of the subject property, Zenaida filed a The imposition of an unconscionable interest rate is void ab initio for being
Complaint for Injunction, Annulment of Deed of Real Estate Mortgage and "contrary to morals, and the law."
Damages against Atty. Bulatao.
She asserted that Atty. Bulatao] in grave abuse of her rights, took advantage Given that the agreement on the 5% monthly interest is void for being
of her financial distress and urgent financial needs by imposing in the unconscionable, the interest rate prescribed by the Bangko Sentral ng
[DMRP] an interest of five percent (5%) per month which is excessive, Pilipinas (BSP) for loans or forbearances of money, credits or goods will be
iniquitous, unconscionable, exorbitant and contrary to public policy, the surrogate or substitute rate not only for the one-year interest period
rendering the contract null and void. agreed upon but for the entire period that the loan of Zenaida remains
unpaid.
Atty. Bulatao denied that the interest is usurious on account of Central Bank
2) Foreclosure proceedings void to that effect, the creditor cannot be compelled partially to receive the
In a situation wherein null and void interest rates are imposed under a prestations in which the obligation consists. Neither may the debtor be
contract of loan, the non-payment of the principal loan obligation does not required to make partial payments. However, when the debt is in part
place the debtor in a stat of default, considering that under Article 1252 of liquidated and in part unliquidated, the creditor may demand and the debtor
the Civil Code, if a debt produces interest, payment of the principal shall not may effect the payment of the former without waiting for the liquidation of the
be deemed to have been made until the interests have been covered. latter."49 Since integrity of payment requires that the thing or service in which
Necessarily, since the obligation of making interest payments in the instant the obligation consists has been completely delivered or rendered as the
case is illegal and thus non-demandable, the payment of the principal loan case may be, the debtor must comply in its entirety with the prestation and
obligation was likewise not yet demandable. that the creditor is satisfied with the same.50
These characteristics of payment should mirror the demand made by the

In Sps. Castro v. Tan, on the basis of the nullity of the imposed interest rates creditor in order for the debtor to incur in delay under Article 1169 51 of the
due to their iniquity, the Court nullified the foreclosure proceedings "since the Civil Code. The demand must comply with the integrity, identity and
amount demanded as the outstanding loan was overstated. Consequently, it indivisibility characteristics as well. Since the debtor cannot compel the
has not been shown that the respondents have failed to pay the correct creditor to accept an incomplete delivery or an amount less than what is due,
amount of their outstanding obligation. x x x" it follows that the creditor cannot compel the debtor to pay more than what is
due. Thus, the characteristics of integrity and identity will be violated if the
creditor demands more than what is due.
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. As correctly observed by the CA:
However, while the terms of the Real Estate Mortgage remain effective, the
Based on the recent en banc case of Lara's Gifts & Decors, Inc. v. Midtown foreclosure proceedings held on September 8 and 15, 2011, cannot be given
Industrial Sales, Inc., the applicable interest is the BSP-prescribed rate of effect. In the Notice of Extra-Judicial Sale dated July 15, 2011, and in the
12% per annum from the execution of the DMRP on June 3, 2008, wherein Certificate of Sale dated October 10, 2011, the amount designated as
the parties agreed to the payment of interest, to June 30, 2013 and at the mortgage indebtedness amounted to P560,000.00. Likewise, in the demand
rate of 6% per annum from July 1, 2013 until full payment. Also, taking into letter dated April 15, 2011, defendant-appellee demanded from plaintiff-
account Article 2212 of the Civil Code, which provides that "[i]nterest due appellant the amount of P540,000.00 for the unpaid loan. Since the debt due
shall earn legal interest from the time it is judicially demanded, although the is limited to the principal of P200,000.00 with 12% per annum as legal
obligation may be silent upon this point," the interest due on the principal interest, the previous demand for payment of the amount of P540,000.00
amount (computed as mentioned above) accruing as of judicial demand (the cannot be considered as a valid demand for payment. For an obligation to
filing of the counterclaim, in this case) shall separately earn interest at the become due, there must be a valid demand. Nor can the foreclosure
rate prescribed by the BSP from time of judicial demand up to full payment. proceedings be considered valid since the total amount of the indebtedness
Thus, the CA Decision has to be modified in this respect. during the foreclosure proceedings was pegged at P560,000.00 which
included interest and which this Court now nullifies for being excessive,
For there to be a valid payment, the three characteristics of payment must iniquitous, and exorbitant. If the foreclosure proceedings were considered
be present. These are: (1) integrity of payment, which is provided for in valid, it would result in an inequitable situation wherein plaintiff-appellant will
Article 1233 of the Civil Code: "A debt shall not be understood to have been have her land foreclosed for failure to pay an over-inflated loan only a small
paid unless the thing or service in which the obligation consists has been part of which she was obligated to pay.52
completely delivered or rendered, as the case maybe;" (2) identity of
payment, which is provided for in Article 1244: "The debtor of a thing cannot
compel the creditor to receive different one, although the latter may be of the WHEREFORE, the Petition is hereby PARTLY GRANTED. Accordingly, the
same value as, or more valuable than that which is due. In obligations to do Decision dated October 19, 2017 of the Court of Appeals in CA-G.R. CV No.
or not to do, an act or forbearance cannot be substituted by another act or 105581 is AFFIRMED with MODIFICATION:
forbearance against the obligee's will;" and (3) indivisibility of payment,
which is provided for in Article 1248: "Unless there is an express stipulation
1. The Deed of Mortgage of Real Property dated June 3,
2008 is DECLARED VALID only with respect to the share
of Zenaida C. Estonactoc;
2. The monthly interest rate stipulated in the Deed of

Mortgage of Real Property is DECLARED VOID;
3. The Foreclosure Sale and the Certificate of Sale issued in

favor of Atty. Leonard Florent O. Bulatao are DECLARED
VOID;
4. Zenaida C. Estonactoc is ORDERED to pay Atty. Leonard

Florent O. Bulatao the amount of P200,000.00 that the
former borrowed from the latter with interest at the rate of
12% per annum from June 3, 2008 to June 30, 2013 and
at the rate of 6 % per annum from July 1, 2013 until full
payment; and,
5. Interest due on the principal amount of P200,000.00

accruing as of judicial demand (i.e., filing of the
counterclaim of Atty. Leonard Florent O. Bulatao) shall
separately earn legal interest at the rate of 12% per
annum until June 30, 2013 and at the rate of 6% per
annumfrom July 1, 2013 until full payment.
SO ORDERED.

Bulatao V Zenaida

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G.R. No. 235020, | December 10, 2019 | CAGUIOA | Circular No.

Circular No. 905-82, which expressly removed the interest ceilings

The Facts and Antecedent Proceedings 1) Interest Void: Unconscionable

These characteristics of payment should mirror the demand made by the

2. The monthly interest rate stipulated in the Deed of

3. The Foreclosure Sale and the Certificate of Sale issued in

4. Zenaida C. Estonactoc is ORDERED to pay Atty. Leonard

5. Interest due on the principal amount of P200,000.00

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