PERSONS AND FAMILY RELATION

TOPIC: ARTICLE VII OF THE NEW CIVIL CODE

SOLANGON VS. SALAZAR We have held that a Central Bank Circular cannot repeal a law. Only a law can repeal another law. Ponente: Justice SANDOVAL-GUTIERREZ, 2001 FACTS: Petitioners executed a real estate mortgage of a parcel of land to private respondent to secure payment of a loan of P60,000.00 payable in 4 months, with 6% interest per month. The following year, petitioners executed another real estate mortgage of the same parcel of land to private respondent to secure payment of a loan of P136,512.00 payable in 1 year, with interest thereon at the legal rate (the maximum interest rate, set by statute that may be charged on a loan). The following year, petitioners executed another real estate mortgage of the same parcel of land to private respondent to secure payment of a loan of P230,000.00 payable in 4 months, with interest thereon at the legal rate. The action was initiated by the petitioners to prevent the foreclosure of the mortgaged property. They contend that they obtained only one loan from respondent for the amount of P60,000.00; and that the subsequent mortgages were merely continuations of the first one, which is null and void because it provided for unconscionable rate of interest. Moreover, private respondent assured them that he will not foreclose the mortgage as long as they pay the stipulated interest upon maturity or within a reasonable time thereafter. Private respondent allege that there were three separate loans, and that the first two was paid, but the last was not. He denied having said that he will not foreclose the mortgage. ISSUES: W/N the interest rate of 6% per annum is valid.

DECISION: The Court affirmed the decision of the Court of Appeals and modified the interest rate of 72% per annum to 12% per annum. Supplemental Information The Usury Law is Act 2655, as amended by PD 116, provides that in the absence of express contract as to the rate of interest in loans/mortgages, it shall be set in default at 12% per annum. Any amount in excess of that fixed by the law is considered usurious, therefore unlawful. However, pursuant to Central Bank Circular No. 905, the Supreme Court declared that the Usury law is now legally inexistent. It should be clarified that CB Circular No. 905 did not repeal nor in anyway amend the Usury Law but simply suspended the latter's effectivity. Interest can now be charged as lender and borrower may agree upon (Source: http://phbar.org/wikilaw/index.php?title=Usury) In the case at bar, the court held that the Usury Law ceiling on interest rates was lifted by C.B. Circular No. 905, nothing in the said 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. In the case at bar, the 6% interest rate per month cannot be considered usurious; nevertheless it is definitely outrageous and inordinate (exceeding reasonable limits).