G.R. No. 159912 ; August 17, 2007
UNITED COCONUT PLANTERS BANK, Petitioner, vs. SPOUSES SAMUEL and ODETTE BELUSO, Respondents.

FACTS

Petitioner United Coconut Planters Bank (UCPB) granted respondents Spouses Beluso a credit line secured by promissory notes and a real estate mortgage. The spouses availed of the credit, and the promissory notes contained a provision stating the interest rate would be the prevailing market rate as determined solely by UCPB, subject to periodic changes. UCPB imposed varying interest rates from 18% to 34% and, upon the spouses’ default, applied additional penalty charges. The bank subsequently foreclosed on the mortgaged properties. The spouses Beluso filed a petition for annulment, arguing the interest rate provision was void and the foreclosure was invalid due to incorrect computation of their indebtedness.
The Regional Trial Court ruled in favor of the spouses, declaring the interest rate void and annulling the foreclosure. It ordered UCPB to return the properties and computed the spouses’ remaining principal obligation at ₱1,560,308.00 after crediting their payments. The Court of Appeals affirmed the RTC decision with modifications, removing the award of attorney’s fees to the spouses. UCPB elevated the case via a petition for review on certiorari.

ISSUE

The core issue is whether the stipulation on interest rates in the promissory notes, which allowed UCPB to unilaterally determine and adjust the rates, is valid.

RULING

The Supreme Court denied the petition and affirmed the Court of Appeals. The stipulation granting UCPB the sole authority to determine and increase interest rates is void for being potestative, violating Article 1308 of the Civil Code on mutuality of contracts. A contract must bind both parties; its validity cannot be left to the will of one. The clause made the interest rate dependent solely on UCPB’s discretion, depriving the spouses of any right to assent to subsequent increases. Citing Philippine National Bank v. Court of Appeals, the Court held such a stipulation is a “blanket authority” that nullifies the interest agreement. Consequently, the foreclosure based on an obligation bloated by these void interest charges was also invalid. The Court upheld the recomputation of the debt using the legal interest rate of 12% per annum from judicial demand, affirming the principal sum of ₱1,560,308.00 as the valid remaining obligation. The ruling reinforces that contracts require mutual consent on essential terms like price or interest, which cannot be dictated by one party alone.