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G.R. No. 101771 December 17, 1996 SPOUSES MARIANO and GILDA FLORENDO, petitioners, vs. OUR! OF APPEALS and LAND "AN# OF !$E P$ILIPPINES, respondents.
PANGANI"AN, J.:p May a bank unilaterally raise the interest rate on a housing loan granted an employee, by reason of the voluntary resignation of the borrower? Such is the query raised in the petition for review on certiorari now before us, which assails the Decision promulgated on June !, !! by respondent "ourt of #ppeals 1 in "#$%.&. "' (o. )*!+,, upholding the validity and enforceability of the escalation by private respondent -and .ank of the /hilippines of the applicable interest rate on the housing loan taken out by petitioner$ spouses. The Antecedent Facts /etitioners filed an action for 0n1unction with Damages docketed as "ivil "ase (o. 2,$32 *, before the &egional 4rial "ourt of Manila, .ranch 5500 against respondent bank. .oth parties, after entering into a 1oint stipulation of facts, submitted the case for decision on the basis of said stipulation and memoranda. 4he stipulation reads in part6 % . 4hat 7/etitioner8 %ilda 9lorendo 7was8 an employee of 7&espondent .ank8 from May :, !:, until #ugust ,, !2* when she voluntarily resigned. ;owever, before her resignation, she applied for a housing loan of / *2,<<<.<<, payable within )+ years from 7respondent bank=s8 /rovident 9und on July )<, !23> ). 4hat 7petitioners8 and 7respondent bank8, through the latter=s duly authori?ed representative, e@ecuted the ;ousing -oan #greement, . . .> 3. 4hat, together with the ;ousing -oan #greement, 7petitioners8 and 7respondent bank8, through the latter=s authori?ed representative, also e@ecuted a &eal Astate Mortgage and
Jr.)*2. 4hat on March !.> !. the borrower shall C 2 . . . Series of !2+8. . 4hat the loan . . was actually given to 7petitioner8 %ilda 9lorendo.ousing -oan #greement and the &eal Astate Mortgage referred to above as the basis for the escalation are6 a. . Disregarding 7respondent bank=s8 repeated demand for increased interest and monthly installment. .> 2. 2+$ <2. .. . 4hat thereafter. .> *.ousing -oan #greement. !2+ of 7respondent bank=s8 legal counsel. !2+. .. 4hat 7respondent bank8 first informed 7petitioners8 of the said increase in a letter dated June :./romissory (ote.. 1ust the same. /romissory (ote and &eal Astate Mortgage8 with 7respondent bank8> @@@ @@@ @@@ 4he clauses or provisions in the . . 9. Anclosed with the letter are a copy of the /9 Memo "ircular . despite 7respondent bank=s8 demands that 7petitioners8 pay the increased interest or increased monthly installments. 2+$ <2 dated March !.. .ecause of 7respondent bank=s8 repeated demands. . Anclosed with the letter is a Memorandum dated June ). . 4hat. !2+> . 4hat the details of the increase are embodied in 7-andbank=s8 Man"om &esolution (o. . . in her capacity as employee of 7respondent bank8> +. . . ... . 7respondent bank8 increased the interest rate on 7petitioner=s8 loan from !B per annum to :B. !2+.ousing -oan #greement. 7respondent bank8 kept on demanding that 7petitioner8 pay the increased interest or the new monthly installments based on the increased interest rate. . . and a Statement of #ccount as of May 3 . . the said increase to take effect on March !.:). . but /laintiff 1ust as vehemently maintained that the said increase is unlawful and un1ustifiable. !2+ to which 7respondent bank8 replied through a letter dated July . 4hat 7petitioners8 protested the increase in a letter dated June . and in a /9 7/rovident 9und8 Memorandum "ircular 7(o. !2+. . . . for as long as the loan or any portion thereof or any sum that may be due and payable under the said loan agreement remains outstanding.> :. they 7petitioners8 have faithfully paid and discharged their loan obligations. #. !2+. . 7petitioners8 are presently up$to$date in the payments of their obligations under the original contracts 7. 7petitioners8 were forced to file the instant suit for 0n1unction and Damages> <. . . !2+. . Section 0$9 of #rticle '0 of the . %aviola. more particularly the monthly payment of the original stipulated installment of / . & which provides that.
#mong the salient provisions of the mortgage is paragraph 7f8 which provides that the interest rate shall be sub1ect. &espondent bank likewise appealed and contested the propriety of having the increased interest rate apply only upon the finality of the 1udgment and not from March !.. inter alia. together with /9 7/rovident 9und8 Memorandum "ircular (o.:+ a month.ank of the /hilippines as the /rovident 9und .oard of 4rustees of the Mortgagee may prescribe for its debtors and sub1ect to the condition that the increaseDdecrease shall only take effect on the date of effectivity of said increaseDdecrease and shall only apply to the remaining balance of the loan. . upon the finality of this 1udgment.<.ank and as the /rovident 3 . which escalated the interest rates on outstanding housing loans of bank employees who voluntarily EsecedeE 7resign8 from the . the increased rate of interest is onerous and was imposed unilaterally.ank> the range of rates varied depending upon the number of years service rendered by the employees concerned.*. /aragraph 7f8 of the &eal Astate Mortgage ' which states6 4he rate of interest charged on the obligation secured by this mortgage. and held that the bank was vested with authority to increase the interest rate 7and the corresponding monthly amorti?ations8 pursuant to said escalation provisions in the housing loan agreement and the mortgage contract. during the life of this contract. !2+. . shall be sub1ect. regulations and circulars of the "entral .f8 "omply with all the rules and regulations of the program imposed by the -A(DA& and to comply with all the rules and regulations that the "entral . 4he dispositive portion of the said decision reads6 ( F. . 4he trial court ruled in favor of respondent bank. b. 4he respondent "ourt subsequently affirmed with modification the decision of the trial court. . without the consent of the borrower$spouses. holding that6 6 . to such increasesDdecreases as may be allowed under the prevailing rules andDor circulars of the "entral . to such an increaseDdecrease in accordance with prevailing rules.ank of the /hilippines has imposed or will impose in connection with the financing programs for bank officers and employees in the form of fringe benefits. @@@ @@@ @@@ /etitioners promptly appealed.A&A9G&A. during the term of the loan. 1udgment is hereby rendered denying the instant suit for in1unction and declaring that the rate of interest on the loan agreement in question shall be :B per annum and the monthly amorti?ation on said loan properly raised to /). 4he rates were made applicable to those who had previously resigned from the bank as well as those who would be resigning in the future. and Man"om 7Management "ommittee8 &esolution (o. 2+$<2. c. 2+$<2. arguing that.
. !2+. . Ascalation clauses have been ruled to be valid stipulations in contracts in order to maintain fiscal stability and to retain the value of money in long term contracts 70nsular . . . and does not include interest rates per se. . good customs. 7simply because of8 a bare and unqualified stipulation that the interest rate may be increased> ). .-# provision covers only administrative and other matters. a party feels he should not have agreed to in the first place. on the ground that the increase and the contractual provision that 7respondent bank8 relies upon for the increase are contrary to morals. .ank of #sia and #merica vs. Gne of the conditions for the validity of an escalation clause such as the one which refers to an increase rate is that the contract should also contain a proviso for a decrease when circumstances so warrant it. /aragraph 7f8 referred to above contains such provision. Such an agreement is a contractual one and the spouses are bound by it. on the ground that the increase violates Section :$# of the Hsury -aw> *. and disposed as follows6 7 F. 0n other words. Dissatisfied. public order and public policy. the dispositive part of the decision is MGD090AD in the sense that the interest of :B on the balance of the loan of the spouses shall be computed starting July . The Issues /etitioners ascribe to respondent "ourt Ea grave and patent errorE in not nullifying the respondent bank=s unilateral increase of the interest rate and monthly amorti?ations of the loan C . # contract is binding on the parties no matter that a provision thereof later proves onerous and which on hindsight.ank may prescribe for its borrowers. .9und of the . since #rticle '0 of the agreement deals with insurance on and 4 . Spouses Apifania Sala?ar and &icardo Sala?ar. . the petitioners had recourse to this "ourt. +! S"&# 338. .A&A9G&A. ) 4he key issue may be simply presented as follows6 Did the respondent bank have a valid and legal basis to impose an increased interest rate on the petitioners= housing loan? The Court's Ruling Basis for Increased Interest Rate /etitioners argue that the . the spouses agreed to the escalation of the interest rate on their original loan. . on the ground that the increase has no basis in the contracts between the parties> 3. .
1% Fhat is actually central to the disposition of this case is not really the validity of the escalation clause but the retroactive enforcement of the Man"om &esolution as against petitioner$employee.owever. 11 the "ourt reiterated the rule that escalation clauses are valid stipulations in commercial contracts to maintain fiscal stability and to retain the value of money in long term contracts. 4hey insist that the bank=s authority to escalate interest rates has not been shown to be Ecrystal$clear as a matter of factE and established beyond doubt. . 4he contracts being Econtracts of adhesion. act fi@ing an increased ma@imum rate of interest. paragraph 7f8 of the mortgage contract is clearly and indubitably an escalation provision. rules and regulations referred to therein are those prevailing at the time of the e@ecution of these contracts or at the time of the increase or decrease of the interest rate. .upkeep of the mortgaged property. speaking through Mme. Justice #meurfina M. it could not apply as to petitioner$employee because nowhere in the loan agreement or mortgage contract is it provided that petitioner$wife=s resignation will be a ground for the ad1ustment of interest rates. which is the very bedrock of and the raison d'etre specified in said Man"om &esolution.-# cannot be read as an escalation clause as it does not make any reference to increases or decreases in the interest rate on loans. . avarro. per #hilippine ational Bank vs. they claim that it is vague because it does not state if the EprevailingE ".errera.. disallowed the bank from increasing the interest rate on the sub1ect loan from )B to :B despite an 5 . to such an increaseDdecrease in accordance with prevailing rules. 2+$<2 authori?ed a rate increase for resigned employees. ). regulations and circulars of the "entral .ank rule. #s for the stipulation in the mortgage deed. there is no vagueness in the aforequoted proviso> even their own arguments 7below8 indicate that this provision is quite clear to them.ank of the /hilippines as the /rovident 9und . during the life of this contract. . Court of Appeals. the parties were and are bound by the said stipulation that E7t8he rate of interest charged on the obligation secured by this mortgage . . 0n the case at bar. 0n Banco Filipino. as amended8 which requires a law or M.E 9 "ontrary to petitioners= allegation. 0n Banco Filipino Savings & Mortgage Bank vs.E any vagueness in their provisions should be interpreted in favor of petitioners. Application of the "scalation to #etitioners /etitioners however insist that while Man"om &esolution (o. and therefore. .oard of 4rustees of the Mortgagee 7respondent bank8 may prescribe for its debtors . regulation or other issuance which would have triggered an application of the escalation clause as to her factual situation. and that escalation upon the will of the respondent bank is contrary to the principle of mutuality of contracts. 1& this "ourt. Spouses Sala!ar. 4hey additionally contend that the escalation is violative of Section :$# of the Hsury -aw 7#ct (o. petitioners have put forth a telling argument that there is in fact no "entral . 10 this "ourt in essence ruled that in general there is nothing inherently wrong with escalation clauses.++. . 0n IBAA vs. Fe note that Section $9 of #rticle '0 of the . shall be sub1ect.
Fe have already mentioned 7and now reiterate our holding in several cases 1(8 that by virtue of ". "irc. the loan was perfected on July )<. 0n the sub1ect loan. they C especially respondent bank C should have included such factors in their loan agreement. !23. Fithout such ". . was issued on July )!. issuances. 4hus. ". 0n the case at bar. "irc. as amended. *<$:!$2*. * . was promulgated in !2). the said escalation clause further provides that the increased interest rate Eshall only take effect on the date of effectivity of 7the8 increaseDdecreaseE authori?ed by the ". became effective on January )!.E 4he Banco Filipino and # B doctrines are applicable four$square in this case. and thus it may be said that these regulations had been taken into consideration by the contracting parties when they first entered into their loan contract. issuance. 0n # B vs. #s a matter of fact. all other onerous factors. since paragraph 7f8 of the mortgage contract very categorically specifies that any interest rate increase be in accordance with Eprevailing rules.a. ". +<* was issued 9ebruary .oard &esolution 7(o. /(.ank .escalation clause in the loan agreement authori?ing the bank to Ecorrespondingly increase the interest rate stipulated in this contract without advance notice to meDus in the event a la$ should %e enacted increasing the la$ful rates of interest that may be charged on this particular kind of loanE. 0n said case. !:.oard . ". as the /rovident 9und . cannot be used as basis for the escalation in lieu of ". the bank had relied upon a "entral . 0n light of the ". :<. 4hus. which is neither a rule nor a resolution of the Monetary . "ircular !<+. respondent bank was fully aware that it could have imposed an interest rate higher than !B per annum rate for the housing loans of its employees.oard. which were neither laws nor resolutions of the Monetary . "ircular (o. as far as the parties were concerned. Man"om &esolution (o. issuances had already come into e@istence prior to the perfection of the housing loan agreement and mortgage contract. among others. *!*. although it has the effect of law. is not a law. lifting any interest rate ceiling prescribed under or pursuant to the Hsury -aw. issuances in force at that time. . 4he "ourt ruled that ". on the ground. was issued December .ank circular as authority to up its rates. Court of Appeals. .. "irc. "ircular (o.oard. . any proposed increased rate will never become effective. !:!. the respondent bank knowingly agreed that the interest rate on petitioners= loan shall remain at !B p. but it did not. such as employee resignations. 2+$<2. 0f the intention were otherwise. the Hsury -aw has been rendered ineffective. unless a CB issuance is passed authori!ing an increase &or decrease' in the rate on such emplo(ee loans and the #rovident Fund Board of Trustees acts accordingl(.. !:3. 1' this "ourt disallowed the increases in interest rate imposed by the petitioner$bank therein. regulations and circulars of the "entral . that said bank relied merely on its own . which could have been used to trigger an application of the escalation clause were considered barred or waived. 4hese and other relevant ".2 8. may prescribe. "ircular (o. . /D (o. ". but an administrative regulation. . petitioners= contention that the escalation clause is violative of the said law is bereft of any merit. and /(. rule. !:*. . *<$ )!$2*. regulation or circular. !<+. "ircular (o.
+.ereb0 RE2ERSES and SE!S ASIDE +.ence. 0t goes without saying that such escalation ground can be included in future contracts C not to agreements already validly entered into. ./ . Such a contract is a veritable trap for the weaker party whom the courts of 1ustice must protect against abuse and imposition. 0nc. -et it be clear that this "ourt understands respondent bank=s position that the concessional interest rate was really intended as a means to remunerate its employees and thus an escalation due to resignation would have been a valid stipulation.n+ere/+ ra+e on +. 4he respondent bank tried to sidestep this difficulty by averring that petitioner %ilda 9lorendo as a former bank employee was very knowledgeable concerning respondent bank=s lending rates and procedures. where the parties do not bargain on equal footing./. . . . #nd it would be totally unfair to now impose said condition.on . and therefore.Gn the other hand.ence. and thus the escalation provision could not be legally applied and enforced as against herein petitioners. !+ /hil 2+8.e c. that license would have been null and void for being violative of the principle of mutuality essential in contracts. loan agreement between the /(.a. &ita -egarda. .ut no such stipulation was in fact made. 17 we need only point out that the bank had the option to impose in its loan contracts the condition that resignation of an employee$borrower would be a ground for escalation. there must be mutualit( between the parties based on their essential equality. a license 7although in fact there was none8 to increase the interest rate at will during the term of the loan. !.. it will not be amiss to point out that the unilateral determination and imposition of increased interest rates by the herein respondent bank is obviously violative of the principle of mutualit( of contracts ordained in #rticle 3<2 of the "ivil "ode.e -e+. petitioners were Eon an equal footingE with respondent bank as far as the sub1ect loan contract was concerned.e /1b6ec+ ! .e . where she had no voice at all in its preparation and application. . not to mention that it would violate the principle of mutuality of consent in contracts. ) S"&# +++8. is void 7%arcia vs. and the private respondent gave the /(. 4hat ma( have been true insofar as entering into the original loan agreement and mortgage contract was concerned.ereb0 GRAN!ED. !.owever. it must live with such omission. #s this "ourt held in # B6 16 0n order that obligations arising from contracts may have the force of law between the parties. 4he fact is it did not. that does not hold true when it comes to the determination and imposition of escalated rates of interest as unilaterally provided in the Man"om &esolution. # contract containing a condition which makes its fulfillment dependent e@clusively upon the uncontrolled will of one of the contracting parties. even assuming that the . -aw Hnion J &ock 0nsurance "o. *$EREFORE.on o5 +. 4o allay fears that respondent bank will inordinately be pre1udiced by being stuck with this Esweetheart loanE at patently concessionary interest rates. the weaker party=s 7the debtor8 participation being reduced to the alternative Eto take it or leave itE 7Iua vs. 0t would have invested the loan agreement with the character of a contract of adhesion.e o1r+ .a33en4ed Dec.+.e o1r+ o5 A--ea3/... which according to respondent bank is the Esweetest dealE anyone could obtain and is an act of generosity considering that in !2+ lending rates in the banking industry were peaking well over 3<B p.
.%').7%.e mon+.9a+.ne 798 -ercen+ per annum and +.o1/.30 amor+.on a+ P1.n/ a+ n.n4 3oan rema. " . SO ORDERED.