G.R. No. 194201 ; November 27, 2013
SPOUSES BAYANI H. ANDAL AND GRACIA G. ANDAL, Petitioners, vs. PHILIPPINE NATIONAL BANK, REGISTER OF DEEDS OF BATANGAS CITY, JOSE C. CORALES, Respondents.

FACTS

On September 7, 1995, petitioners Spouses Bayani H. and Gracia G. Andal obtained a loan of ₱21,805,000.00 from respondent Philippine National Bank (PNB), executing twelve promissory notes with varying interest rates of 17.5% to 27% per interest period. The agreement stipulated that the interest rate could be increased or decreased for subsequent periods with prior notice to the petitioners in the event of changes in interest rates prescribed by law or the Monetary Board, or in the bank’s overall cost of funds. The loan was secured by a real estate mortgage over five parcels of land. On July 17, 2001, the spouses paid ₱14,800,000.00 to avoid foreclosure, and PNB released the mortgage on two properties. Despite this payment, PNB proceeded to foreclose the mortgage on the three remaining properties. PNB emerged as the highest bidder at the public auction, consolidated its ownership, and new titles were issued. The spouses filed a complaint for annulment of mortgage, sheriff’s certificate of sale, declaration of nullity of the increased interest rates and penalty charges, plus damages. They alleged they signed the promissory notes in blank, that the exorbitant and unilaterally imposed interest rates prevented payment, and that the unilateral increases and penalty charges constituted unjust enrichment. PNB, in its answer, asserted the penalty charges were expressly stipulated and that despite the payment, the spouses still owed ₱33,960,633.87.

ISSUE

Whether the stipulation allowing PNB to unilaterally increase interest rates is valid and enforceable.

RULING

The Supreme Court affirmed the Court of Appeals’ decision with modification. The stipulation granting PNB the sole prerogative to increase or decrease interest rates is a potestative condition solely dependent on the will of the creditor, which is null and void under Article 1308 of the Civil Code. Furthermore, the imposition of increased interest rates without the express written consent of the borrower for each repricing period violated the requirement under Central Bank Circular No. 1191. Consequently, such unilateral increases are invalid. Since the stipulated interest was void, the foreclosure based on an obligation inflated by these invalid charges was also declared null and void. The Court imposed a legal interest rate of 12% per annum on the principal loan obligation, to be computed from the date of default. The case was remanded to the trial court for the proper computation of the spouses’ liability, accounting for payments made.