GR 129227; (May, 2000) (Digest)
G.R. No. 129227. May 30, 2000.
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioner, vs. THE HON. COURT OF APPEALS, and CALVIN & ELSA ARCILLA, respondents.
FACTS
Spouses Calvin and Elsa Arcilla secured loans from Banco Filipino, secured by real estate mortgages, with a stipulated interest rate of 12% per annum. The mortgage contracts contained an escalation clause authorizing the bank to increase the interest rate “within the limits allowed by law.” Subsequently, the parties executed a Deed of Consolidation, amending the loan amount to P188,000.00 and retaining the 12% interest. In 1976, Central Bank Circular No. 494 was issued, allowing a maximum interest rate of 19% per annum for certain loans. Relying on this Circular, Banco Filipino unilaterally increased the interest rate on the Arcillas’ loan to 17% per annum. The spouses defaulted, and the bank extrajudicially foreclosed the mortgage, purchasing the property at auction.
The Arcillas filed a complaint seeking annulment of the foreclosure sale, arguing that the unilateral interest rate increase was invalid. The trial court ruled in favor of the Arcillas, ordering Banco Filipino to pay them a sum representing the excess interest collected. The Court of Appeals affirmed this decision.
ISSUE
Whether the escalation clause in the mortgage contracts authorized Banco Filipino to unilaterally increase the interest rate from 12% to 17% per annum based solely on Central Bank Circular No. 494.
RULING
No. The Supreme Court affirmed the Court of Appeals’ decision, denying the petition. The escalation clause permitted an interest rate increase “within the limits allowed by law.” The Court held that Central Bank Circular No. 494, while having the force and effect of law, is not a “law” within the contemplation of the parties’ contract. The clause contemplated an authorization by statute, not a central bank issuance. Therefore, the bank’s unilateral imposition of the 17% rate lacked contractual and legal basis.
The Court applied the doctrine of stare decisis, citing its prior ruling in Banco Filipino Savings & Mortgage Bank v. Navarro, which involved an identical escalation clause and the same Central Bank Circular. The legal principle established in that case—that such circulars do not constitute the “law” referenced in the clause—forms part of the legal system and serves as a binding precedent. Consequently, the escalation clause could not be validly invoked to increase the interest rate, rendering the foreclosure based on the inflated obligation defective. The Arcillas were entitled to recover the excess interest paid.