GR 103592; (February, 1993) (Digest)
G.R. No. 103592 February 4, 1993
IRENEO F. LLORIN, JR., petitioner, vs. COURT OF APPEALS and APEX MORTGAGE AND LOANS CORPORATION, respondents.
FACTS
On April 11, 1978, petitioner Ireneo F. Llorin, Jr. obtained a loan from private respondent Apex Mortgage and Loans Corporation (APEX) in the amount of P84,410.00, secured by a real estate mortgage. The loan was payable in 240 monthly installments at P1,142.08, with 12% annual interest, a 3% annual service charge, and a 1.5% monthly penalty for delayed payments. The promissory note contained an escalation clause authorizing APEX to increase the interest rate without notice in the event of a law, Presidential Decree, or Central Bank regulation increasing the lawful rate for such loans. Pursuant to Central Bank Circular Nos. 721 (1980) and 905 (1982), APEX increased the interest rate from 12% to 21% (Feb. 25, 1980), then to 25% (Aug. 1, 1984), and finally to 36% (Dec. 1, 1984). Despite the absence of a de-escalation clause, APEX later reduced the rates corresponding to CB-prescribed reductions: to 28% (Feb. 1, 1986), to 24% (Dec. 1, 1986), and to 21% (Feb. 1, 1987). Petitioner made payments totaling P79,462.27, which were applied to penalties, interest, and part of the principal. After demands for payment, APEX filed a collection case for P323,523.42. The trial court ruled in favor of APEX, ordering petitioner to pay P80,561.13 with 21% interest and 3% service charge per annum from September 12, 1981, plus attorney’s fees. The Court of Appeals affirmed the decision. Petitioner argues that the escalation clause is void, citing the Banco Filipino case, due to its one-sidedness and lack of a de-escalation clause.
ISSUE
Whether the decision in Banco Filipino Savings and Mortgage Bank vs. Navarro, which disallowed an escalation clause for being one-sided and lacking a de-escalation clause, is applicable to the present case, thereby rendering the escalation clause in petitioner’s promissory note null and void.
RULING
No. The Banco Filipino case is not applicable. The Supreme Court affirmed the decision of the Court of Appeals. The escalation clause in petitioner’s promissory note is valid. The Court distinguished the present case from Banco Filipino. In Banco Filipino, the escalation clause referred only to an increase by “law,” and the Court found Central Bank Circular No. 494 was not the “law” contemplated. In contrast, the clause in this case expressly refers to “a law or any applicable Presidential Decree and/or Central Bank regulation,” which necessarily includes Central Bank Circular Nos. 721 and 905. These circulars legally increased the interest rates for both secured and unsecured loans, providing a valid basis for APEX’s adjustments. Furthermore, the Court noted that APEX, despite the absence of a de-escalation clause, had voluntarily reduced the interest rates when Central Bank rates decreased, thereby negating the charge of one-sidedness and violation of mutuality of contracts under Article 1308 of the Civil Code. The validity of the escalation clause renders the issue of computation moot.