Spouses Jonsay v.

MetroBank
Petititioners: Florante and Luzviminda

Facts:
 Momarco is an importer, manufacturer, and distributor of animal health and
feedmill products.
 It is controlled and managed by the Spouses Jonsay.
 Momarco obtained 2 loans from SolidBank (now metrobank) and to secure the
loan, they executed a blanket mortgage over 3 properties located in Laguna
which are registered under their own name.
Total Loan: 60 000 000
November 9, 1995 - 40 000 000 @ 18.75% per annum
April 28, 1997 - 20 000 000 @ 18.75% per annum
*included an escalation clause to increase Central Bank declared interest
rates, by which Solid Bank was able to unilaterally increase up to 30% per
annum.
 Momarco was able to keep up with the payment of interest until 1998. Due to
persistent demands from Solidbank, Momarco made its last monthly interest
payment on April 1998 in the amount of 1 000 000 which Solidbank applied to
the accrued interest for Feb. 1998.
 Solidbank proceeded to extrajudicially foreclose the mortgage at an auction sale
held on March 5, 1999, submitting the winning bid of 82,327,249.54,
representing Momarco’s outstanding loans, interest and penalties including
attourney’s fees.
 On March 9, 2000, The Spouse Jonsay, filed a complaint against Solidbank and
the Sheriff for the Annulment of the Extrajudicial Foreclosure of Mortgage,
Injuction, Accounting and Damages with preyer for the writ of preliminary
prohibitory injunction.
 Averring that its total loan obtain from the said bank is bloated and the
interest imposed is illegal for exceeding the legal rate of 12% per
annum.
 RTC: rendered a decision in favor of the petitioners. Declared the extrajudicial
foreclosure proceedings as null and void and ordered the interest rate on the
loan be reduced to 12%.
 Solidbank appealed. CA affirmed the judgement of the RTC in toto.
 CA added that Solidbank enjoyed unrestrained freedom to unilaterally
increase the interest rate any month without advance notice (after seeing
the escalation clause) without any advance notice thus violates the
mutuality of contracts embodied in the Civil code (1308)
 Solidbank filed for an MR, CA granted it however. The interest rates were still to
be reduced to 12%

Issue/s:
1. W/N the escalation clause in the loan agreement granting the lending bank
authority to unilaterally increase the interest rate without prior notice to and
consent from the borrower is valid.
2. W/N the 18.75% per annum interest imposed is valid.
Held:
(1)
 Yes .the accessory duty to pay interest did not give the respondent the
unrestrained freedom to charge any rate other than which was agreed upon. No
interest shall be due, unless expressly stipulated in writing. It would be the
zenith of farcicality to specify and agree upon the rates that could be
subsequently upgraded at the whim by only one party to the agreement.
 Although escalation clauses are valid in maintaining fiscal stability and retaining
the value of money in long term contracts, giving the respondent the unbridled
right to adjust the interest independently and upwardly would completely take
away from petitioners “the right to assent to an important modification in the
agreement” and would negate the element of mutuality in their contract. The
clause is therefore void.

(2)
 No. Court cited cases where it did not consider contractual interest rates of 23
or 24% per annum void. Court further cited the case of Advocates for Truth in
Lending Inc. V. Bangko Sentral Montary Board, that the banks’ prime lending
rates which they charged to their best borrowers ranged from 26-31%.
 However, any excess in either the interest payments of the petitioners or in the
action proceeds, over what is validly due to the solidbank on the loans, will be
refunded to the petitioners
 Court computed the cost of what the petitioners owed. It amounted to
68,226,728.73. versus the 82 327 000 winning bid of Solidbank. The excess
amount of 14 100 271. 05 must be returned to the spouses.