SPOUSES ANDAL v.

PNB
G.R. No. 194201. November 27, 2013

FACTS:
Sept. 7, 1995, petitioners obtained a loan from respondent bank (P21.8M) for which 12
promissory notes were executed, with varying interest rates (17.5-27%). It was agreed that the
rate of interest may be increased or decreased with prior notice to the petitioners in the event
of changes in interest rates prescribed by law or the Monetary Board.

Petitioners also executed a real estate mortgage in favor of the respondent bank over 5 parcels
of lands, including all improvements thereon, covered by Transfer of Certificate Titles of the
Registry of Deeds.
Respondent bank advised petitioners to pay their loan, otherwise they would declare it due and
demandable. Petitioners paid P14.8M to avoid foreclosure. Respondent bank executed a release
of real estate mortgage over two of the parcels of land. Despite payment, respondent foreclosed
the remaining real estate mortgage over the remaining three parcels of land.

A public auction sale resulted in respondent bank as the winning bidder. A Certificate of sale of
the properties was issued.
Petitioners 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.

CONTENTION OF THE PETITIONERS:

1. They tried to pay their loan obligation but the exorbitant rate of interest
unilaterally determined and imposed by the respondent bank.
2. They signed the promissory notes in blank, relying on the representation that
they were bank requirements
3. The exobrbitant and unilateral interest rates are a form of unjust enrichment,
giving respondent
4. bank no right to foreclose the mortgages

RTC Ruling: In favor of petitioners, ordering that the rate of interest be reduced to 6% in
accordance with Art. 2209, NCC and declaring the foreclosure sales as void.

CA Ruling: Affirmed the RTC decision with the modification that the interest be 12% per
annum instead of 6%. Stipulations in a contract have the force of law between the parties so
long as they are not contrary to law, morals, etc. Since parties expressly stipulated in the
promissory notes that a rate of interest would be applied, the petitioners are bound thereby.

The CA finds it more credible that the petitioners had signed blank promissory notes which
respondent bank had filled with high interest rates. This violates the principle of mutuality of
contracts. Since the interest rates in the promissory notes are void, the rate of interest should
be 12% (since what is involved is a loan or forebearance of money).

Petitioners-spouses insist that "if the application of the doctrine of operative facts is
upheld, as applied in Caraig vs. Alday, interest in the instant case would be computed only
from the finality of judgment declaring the foreclosure sale null and void. If Mercado vs.
China Banking Corporation, applying by analogy the rule on void usurious interest to void
potestative interest rate, is further sustained, no interest is due when the potestative
interest rate stipulation is declared null and void, as in the instant case.

ISSUES: Whether interest should be imposed on the loan.

RULING: Yes. The petitioners had agreed to payment of interest on their loan obligation.
The subsequent declaration that the rate of interest was illegal does not entitle them to stop
payment of interest. Only the rate was declared void, but the stipulation requiring them to pay
interest remains valid and binding. They are liable to pay interest from the time they defaulted
until the obligation is fully paid.

Petition is DENIED and the CA decision is AFFIRMED with the MODIFICATION that the 12%
interest per annum shall be applied from the date of default until June 30, 2013, after which
date and until fully paid, the obligation shall earn interest at 6% per annum.