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[G.R. No. 113412. April 17, 1996]

Spouses PONCIANO ALM !A "#$ %& MIA P. ALM !A, petitioners, vs. '( O& APP ALS "#$ P(ILIPPIN NA'IONAL )AN*,respondents. S+LLA)%S 1.

CO%R'

CI,IL LA-. CON'RAC'S. )IN!ING && C' O& AGR M N' ) '- N PAR'I S. PR MIS ! ON '( PRINCIPL O& M%'%ALI'+ AN! O)LIGA'OR+. / The binding effect of any agreement between parties to a contract is premised on two settled principles: (1) that any obligation arising from contract has the force of law between the parties; and (2) that there must be mutuality between the parties based on their essential equality. Any contract which appears to be hea ily weighed in fa or of one of the parties so as to lead to an unconscionable result is oid. Any stipulation regarding the alidity or compliance of the contract which is left solely to the will of one of the parties! is li"ewise! in alid. I!.. SP CIAL CON'RAC'S. LOAN. IN' R S' AR R 0%IR ! 'O ) 1PR SSL+ S'IP%LA' ! IN -RI'ING. / The manner of agreement is itself e#plicitly stipulated by the $i il $ode when it pro ides! in Article 1956 that %&o interest shall be due unless it has been e#pressly stipulated in writing.' (hat has been %stipulated in writing' from a perusal of interest rate pro ision of the credit agreement signed between the parties is that petitioners were bound merely to pay 21) interest! sub*ect to a possible escalation or de+escalation! when 1) the circumstances warrant such escalation or de+escalation; 2) within the limits allowed by law; and (,) upon agreement. I!.. I!.. I!.. LI&'ING O& %S%R+ C ILING. !O S NO' GRAN' )AN*S CARTE BLANCHE A%'(ORI'+ 'O RAIS IN' R S'. R%L %N! R C) CIRC%LAR 923. / (hile the -sury .aw ceiling on interest rates was lifted by $./. $ircular 905, nothing in the said circular could possibly be read as granting respondent ban" carte blanche authority to raise interest rates to le els which would either ensla e its borrowers or lead to a hemorrhaging of their assets. /orrowing represents a transfusion of capital from lending institutions to industries and businesses in order to stimulate growth. This would not! ob iously! be the effect of 0&/1s unilateral and lopsided policy regarding the interest rates of petitioners1 borrowings in the instant case. I!.. I!.. I!.. I!.. CANNO' ) IN,O* ! 'O 4%S'I&+ SCALA'ION CLA%S S, NO' ) ING A GRAN' O& SP CI&IC A%'(ORI'+. / Apart from iolating the principle of mutuality of contracts! there is authority for disallowing the interest rates imposed by respondent ban"! for the credit agreement specifically requires that the increase be %within the limits allowed by law.' 2n the case of PNB vs. Court of Appeals, cited abo e! this $ourt clearly emphasi3ed that $./. $ircular &o. 456 could not be properly in o"ed to *ustify the escalation clauses of such contracts! not being a grant of specific authority. I!.. I!.. I!.. SCALA'ION CLA%S S. ,ALI! AS LONG AS NO' SOL L+ PO' S'A'I, )%' )AS ! ON R ASONA)L AN! ,ALI! GRO%N!S. / 7scalation clauses are not basically wrong or legally ob*ectionable so long as they are not solely potestati e but based on reasonable and alid grounds. 8ere! as clearly demonstrated abo e! not only the increases of the interest rates on the basis of the escalation clause patently unreasonable and unconscionable! but also there are no alid and reasonable standards upon which the increases are anchored. I!.. I!.. MOR'GAG . A%'OMA'IC &OR CLOS%R PRO,ISIONS O& P! 385; CAN ) IN,O* ! A&' R S ''L M N' O& 0% S'ION IN,OL,ING IN' R S' AN! ONL+ A&' R ! )'OR R &%S 'O M ' O)LIGA'ION &OLLO-ING S%C( ! ' RMINA'ION. / 2n the first place! because of the dispute regarding the interest rate increases! an issue which was ne er settled on merit in the courts below! the e#act amount of petitioner1s obligations could not be determined. Thus! the foreclosure pro isions of 0.9. ,:6 could be alidly in o"ed by respondent only after settlement of the question in ol ing the interest rate on the loan! and only after the spouses refused to meet their obligations following such determination. S'A'%'OR+ CONS'R%C'ION. '( P(RAS 5-I'(IN '( LIMI'S ALLO- ! )+ LA-6 R & RS 'O L GISLA'I, NAC'M N'S NO' A!MINIS'RA'I, CIRC%LARS. /The escalation clause of the credit agreement requires that the same be

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made %within the limits allowed by law!' ob iously referring specifically to legislati e enactments not administrati e circulars. &ote that the phrase %limits imposed by law!' refers only to the escalation clause. 8owe er! the same agreement allows reduction on the basis of law or the ;onetary /oard. 8ad the parties intended the word %law' to refer to both legislati e enactments and administrati e circulars and issuances! the agreement would not ha e gone as far as ma"ing a distinction between %law or the ;onetary /oard $irculars' in referring to mutually agreed upon reductions in interest rates. APP ARANC S O& CO%NS L Cuevas De la Cuesta & De las Alas for petitioners. Cruz Cruz & Navarro collaborating counsel for petitioners. PNB !e"al Depart#ent for pri ate respondent. ! *AP%NAN, J.7 <n arious dates in 14:1! the 0hilippine &ational /an" granted to herein petitioners! the spouses 0onciano .. Almeda and 7ufemia 0. Almeda se eral loan=credit accommodations totaling 01:.5 ;illion pesos payable in a period of si# years at an interest rate of 21 ) per annum. To secure the loan! the spouses Almeda e#ecuted a >eal 7state ;ortgage $ontract co ering a ,!655 square meter parcel of land! together with the building erected thereon (the ;ar in 0la3a) located at 0asong Tamo! ;a"ati! ;etro ;anila. A credit agreement embodying the terms and conditions of the loan was e#ecuted between the parties. 0ertinent portions of the said agreement are quoted below: SP CIAL CON!I'IONS ### ### ### CISION

The loan shall be sub*ect to interest at the rate of twenty one per cent (21 )) per annum! payable semi+annually in arrears! the first interest payment to become due and payable si# (?) months from date of initial release of the loan. The loan shall li"ewise be sub*ect to the appropriate ser ice charge and a penalty charge of three per cent (,)) per annum to be imposed on any amount remaining unpaid or not rendered when due. ### 222. <T87> $<&92T2<&@ (c) 2nterest and $harges ### ###

(1) The /an" reser es the right to increase the interest rate $%th%n the l%#%ts allo$e& b' la$ at any time depending on whate er policy it may adopt in the future; pro ided! that the interest rate on this=these accommodations shall be correspondingly decreased in the e ent that the applicable ma#imum interest rate is reduced by law or by the ;onetary /oard. 2n either case! the ad*ustment in the interest rate agreed upon shall ta"e effect on the effecti ity date of the increase or decrease of the ma#imum interest rate. 1 /etween 14:1 and 14:A! petitioners made se eral partial payments on the loan totaling 0B!B,6!55A.??!2 a substantial portion of which was applied to accrued interest. , <n ;arch ,1! 14:A! respondent ban"! o er petitioners1 protestations! raised the interest rate to 2:)! allegedly pursuant to @ection 222+c (1) of its credit agreement. @aid interest rate thereupon increased from an initial 21) to a high of ?:) between ;arch of 14:A to @eptember! 14:?. A 0etitioners protested the increase in interest rates! to no a ail. /efore the loan was to mature in ;arch! 14::! the spouses filed on Cebruary ?! 14:: a petition for declaratory relief with prayer for a writ of preliminary in*unction and temporary restraining order with the >egional Trial $ourt of ;a"ati! doc"eted as $i il $ase &o. 1::B2. 2n said petition! which was raffled to /ranch 1,A presided by Dudge 2gnacio $apulong! the spouses sought clarification as to whether or not the 0&/ could unilaterally raise interest rates on the loan! pursuant to the credit agreement1s escalation clause! and in relation to $entral /an" $ircular &o. 456. As a preliminary measure! the lower court! on ;arch ,! 14::! issued a writ of preliminary in*unction en*oining the 0hilippine &ational /an" from enforcing an interest rate abo e the

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21) stipulated in the credit agreement. /y this time the spouses were already in default of their loan obligations. 2n o"ing the .aw on ;andatory Coreclosure (Act ,1,6! as amended and 0.9. ,:6)! the 0&/ countered by ordering the e#tra*udicial foreclosure of petitioners1 mortgaged properties and scheduled an auction sale for ;arch 1A! 14:4. -pon motion by petitioners! howe er! the lower court! on April 5, 14:4! granted a supplemental writ of preliminary in*unction! staying the public auction of the mortgaged property. <n Danuary 15, 1445! upon the posting of a counterbond by the 0&/! the trial court dissol ed the supplemental writ of preliminary in*unction. 0etitioners filed a motion for reconsideration. 2n the interim! respondent ban" once more set a new date for the foreclosure sale of ;ar in 0la3a which was ;arch 12! 1445. 0rior to the scheduled date! howe er! petitioners tendered to respondent ban" the amount of 0A5!1A2!61:.55! consisting of the principal (01:!555!555.55) and accrued interest calculated at the originally stipulated rate of 21). The 0&/ refused to accept the payment.6 As a result of 0&/1s refusal of the tender of payment! petitioners! on ;arch :! 1445! formally consigned the amount of 0A5!1A2!61:.55 with the >egional Trial $ourt in $i il $ase &o. 45+??,. They prayed therein for a writ of preliminary in*unction with a temporary restraining order. The case was raffled to /ranch 1AB! presided by Dudge Teofilo Euadi3. <n ;arch 16! 1445! respondent ban" sought the dismissal of the case. <n ;arch ,5! 1445 Dudge Euadi3 in $i il $ase &o. 45+??, issued an order granting the writ of preliminary in*unction en*oining the foreclosure sale of %;ar in 0la3a' scheduled on ;arch 12! 1445. <n April 1B! 1445 respondent ban" filed a motion for reconsideration of the said order. <n August 1?! 1441! $i il $ase &o. 45+??, was transferred to /ranch ?? presided by Dudge 7riberto >osario who issued an order consolidating said case with $i il $ase 1::B1 presided by Dudge 2gnacio $apulong. Cor Dudge 2gnacio $apulong1s refusal to lift the writ of preliminary in*unction issued ;arch ,5! 1445! respondent ban" filed a petition for $ertiorari! 0rohibition and ;andamus with respondent $ourt of Appeals! assailing the following orders of the >egional Trial $ourt: 1. <rder dated ;arch ,5! 1445 of Dudge Euadi3 granting the writ of preliminary in*unction restraining the foreclosure sale of ;ar in 0la3a set on ;arch 12! 1445; 2. <rder of Dudge 2gnacio $apulong dated Danuary 15! 1442 denying respondent ban"1s motion to lift the writ of in*unction issued by Dudge Euadi3 as well as its motion to dismiss $i il $ase &o. 45+??,; ,. <rder of Dudge $apulong dated Duly ,! 1442 denying respondent ban"1s subsequent motion to lift the writ of preliminary in*unction; and A. <rder of Dudge $apulong dated <ctober 25! 1442 denying respondent ban"1s motion for reconsideration. <n August 2B! 144,! respondent court rendered its decision setting aside the assailed orders and upholding respondent ban"1s right to foreclose the mortgaged property pursuant to Act ,1,6! as amended and 0.9. ,:6. 0etitioners1 ;otion for >econsideration and @upplemental ;otion for >econsideration! dated @eptember 16! 144, and <ctober 2:! 144,! respecti ely! were denied by respondent court in its resolution dated Danuary 15! 144A. 8ence the instant petition. This appeal by certiorari from the respondent court1s decision dated August 2B! 144, raises two principal issues namely: 1) (hether or not respondent ban" was authori3ed to raise its interest rates from 21) to as high as ?:) under the credit agreement; and 2) (hether or not respondent ban" is granted the authority to foreclose the ;ar in 0la3a under the mandatory foreclosure pro isions of 0.9. ,:6. 2n its comment dated April 14! 144A! respondent ban" igorously denied that the increases in the interest rates were illegal! unilateral! e#cessi e and arbitrary! it argues that the escalated rates of interest it imposed was based on the agreement of the parties. >espondent ban" further contends that it had a right to foreclose the mortgaged property pursuant to 0.9. ,:6! after petitioners were unable to pay their loan obligations to the ban" based on the increased rates upon maturity in 14:A.

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The instant petition is impressed with merit. The binding effect of any agreement between parties to a contract is premised on two settled principles:(1) that any obligation arising from contract has the force of law between the parties; and (2) that there must be mutuality between the parties based on their essential equality.? Any contract which appears to be hea ily weighed in fa or of one of the parties so as to lead to an unconscionable result is oid. Any stipulation regarding the alidity or compliance of the contract which is left solely to the will of one of the parties! is li"ewise! in alid. 2t is plainly ob ious! therefore! from the undisputed facts of the case that respondent ban" unilaterally altered the terms of its contract with petitioners by increasing the interest rates on the loan without the prior assent of the latter. 2n fact! the manner of agreement is itself e#plicitly stipulated by the $i il $ode when it pro ides! in Article 146? that %&o interest shall be due unless it has been e#pressly stipulated in writing.' (hat has been %stipulated in writing' from a perusal of interest rate pro ision of the credit agreement signed between the parties is that petitioners were bound merely to pay 21) interest! sub*ect to a possible escalation or de+escalation! when 1) the circumstances warrant such escalation or de+ escalation; 2) within the limits allowed by law; and ,) upon agreement. 2ndeed! the interest rate which appears to ha e been agreed upon by the parties to the contract in this case was the 21) rate stipulated in the interest pro ision. Any doubt about this is in fact readily resol ed by a careful reading of the credit agreement because the same plainly uses the phrase %interest rate agreed upon!' in reference to the original 21) interest rate. The interest pro ision states: (c) 2nterest and $harges (1) The /an" reser es the right to increase the interest rate $%th%n the l%#%ts allo$e& b' la$ at any time depending on whate er policy it may adopt in the future; pro ided! that the interest rate on this=these accommodations shall be correspondingly decreased in the e ent that the applicable ma#imum interest rate is reduced by law or by the ;onetary /oard. 2n either case! the ad*ustment in the %nterest rate a"ree& upon shall ta"e effect on the effecti ity date of the increase or decrease of the ma#imum interest rate. n Ph%l%pp%ne Nat%onal Ban( v. Court of Appeals, B this $ourt disauthori3ed respondent ban" from unilaterally raising the interest rate in the borrower1s loan from 1:) to ,2)! A1) and A:) partly because the aforestated increases iolated the principle of mutuality of contracts e#pressed in Article 1,5: of the $i il $ode. The $ourt held: $/ $ircular &o. 456! @eries of 14:2 (7#h. 11) remo ed the -sury .aw ceiling on interest rates F 1# # # increases in interest rates are not sub*ect to any ceiling prescribed by the -sury .aw.1 but it did not authori3e the 0&/! or any ban" for that matter! to unilaterally and successi ely increase the agreed interest rates from 1:) to A:) within a span of four (A) months! in iolation of 0.9. 11? which limits such changes to once e ery twel e months.1 /esides iolating 0.9. 11?! the unilateral action of the 0&/ in increasing the interest rate on the pri ate respondent1s loan! iolated the mutuality of contracts ordained in Article 1,5: of the $i il $ode: A>T. 1,5:. The contract must bind both contracting parties; its alidity or compliance cannot be left to the will of one of them. 2n order that obligations arising from contracts may ha e the force of law between the parties! there must be #utual%t' between the parties based on their essential equality. A contract containing a condition which ma"es its fulfillment dependent e#clusi ely upon the uncontrolled will of one of the contracting parties! is oid (Earcia vs. >ita .egarda! 2nc.! 21 @$>A 666). 8ence! e en assuming that the 01.: million loan agreement between the 0&/ and the pri ate respondent ga e the 0&/ a license (although in fact there was none) to increase the interest rate at will during the term of the loan! that license would ha e been null and oid for being iolati e of the principle of mutuality essential in contracts. 2t would ha e in ested the loan agreement with the character of a contract of adhesion! where the parties do not bargain on equal footing! the wea"er party1s (the debtor) participation being reduced to the alternati e Gto ta"e it or lease it1 (Hua vs. .aw -nion I >oc" 2nsurance $o.!

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46 0hil. :6). @uch a contract is a eritable trap for the wea"er party whom the courts of *ustice must protect against abuse and imposition. 0&/1s successi e increases of the interest rate on the pri ate respondent1s loan! o er the latter1s protest! were arbitrary as they iolated an e#press pro ision of the $redit Agreement (7#h. 1) @ection 4.51 that its terms Gmay be amended only by an instrument in writing signed by the party to be bound as burdened by such amendment.1 The increases imposed by 0&/ also contra ene Art. 146? of the $i il $ode which pro ides that Gno interest shall be due unless it has been e#pressly stipulated in writing.1 The debtor herein ne er agreed in writing to pay the interest increases fi#ed by the 0&/ beyond 2A) per annum! hence! he is not bound to pay a higher rate than that. That an increase in the interest rate from 1:) to A:) within a period of four (A) months is e#cessi e! as found by the $ourt of Appeals! is indisputable. $learly! the galloping increases in interest rate imposed by respondent ban" on pe8i8io#ers9 loan! o er the latter1s ehement protests! were arbitrary. ;oreo er! respondent ban"1s reliance on $./. $ircular &o. 456! @eries of 14:2 did not authori3e the ban"! or any lending institution for that matter! to progressi ely increase interest rates on borrowings to an e#tent which would ha e made it irtually impossible for debtors to comply with their own obligations. True! escalation clauses in credit agreements are perfectly alid and do not contra ene public policy. @uch clauses! howe er! (as are stipulations in other contracts) are nonetheless still sub*ect to laws and pro isions go erning agreements between parties! which agreements + while they may be the law between the contracting parties + implicitly incorporate pro isions of e#isting law. $onsequently! while the -sury .aw ceiling on interest rates was lifted by $./. $ircular 456! nothing in the said circular could possibly be read as granting respondent ban" carte blanche authority to raise interest rates to le els which would either ensla e its borrowers or lead to a hemorrhaging of their assets. /orrowing represents a transfusion of capital from lending institutions to industries and businesses in order to stimulate growth. This would not! ob iously! be the effect of 0&/1s unilateral and lopsided policy regarding the interest rates of petitioners1 borrowings in the instant case. Apart from iolating the principle of mutuality of contracts! there is authority for disallowing the interest rates imposed by respondent ban"! for the credit agreement specifically requires that the increase be %within the limits allowed by law.' 2n the case of PNB v. Court of Appeals, cited abo e! this $ourt clearly emphasi3ed that $./. $ircular &o. 456 could not be properly in o"ed to *ustify the escalation clauses of such contracts! not being a grant of specific authority. Curthermore! the escalation clause of the credit agreement requires that the same be made %within the limits allowed by law!' ob iously referring specifically to legislati e enactments not administrati e circulars. &ote that the phrase %limits imposed by law!' refers only to the escalation clause. 8owe er! the same agreement allows reduction on the basis of law or the ;onetary /oard. 8ad the parties intended the word %law' to refer to both legislati e enactments and administrati e circulars and issuances! the agreement would not ha e gone as far as ma"ing a distinction between %law or the ;onetary /oard $irculars' in referring to mutually agreed upon reductions in interest rates. This distinction was the sub*ect of the $ourt1s disquisition in the case of Banco )%l%p%no *av%n"s an& +ort"a"e Ban( v. Navarro: where the $ourt held that: (hat should be resol ed is whether /A&$< C2.202&< can increase the interest rate on the .<A& from 12) to 1B) per annum under the 7scalation $lause. 2t is our considered opinion that it may not. The 7scalation $lause reads as follows: 2=(e hereby authori3e /anco Cilipino to correspon&%n"l' %ncrease the interest rate stipulated in this contract without ad ance notice to me=us in the e ent. a law increasing

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the lawful rates of interest that may be charged on th%s part%cular (%n& of loan., (0aragraphing and italics supplied) 2t is clear from the stipulation between the parties that the interest rate may be increased Gin the e ent a la$ should be enacted increasing the lawful rate of interest that may be charged on th%s part%cular (%n& of loan., The 7scalation $lause was dependent on an increase of rate made by Glaw1 alone. $2>$-.A> &o. A4A! although it has the effect of law! is not a law. %Although a circular duly issued %s not str%ctl' a statute or a la$, it has! howe er! the force and effect of law.' (2talics supplied). %An administrati e regulation adopted pursuant to law has the force and effect of law.' %That administrati e rules and regulations ha e the force of law can no longer be questioned.' The distinction between a law and an administrati e regulation is recogni3ed in the ;onetary /oard guidelines quoted in the latter to the /<>><(7> of ;s. 0aderes of @eptember 2A! 14B? -supra.. According to the guidelines! for a loan1s interest to be sub*ect to the increases pro ided in $2>$-.A> &o. A4A! there must be an 7scalation $lause allowing the increase Gin the e ent that an' la$ or Central Ban( re"ulat%on is promulgated increasing the ma#imum rate for loans.1 The guidelines thus presuppose that a $entral /an" regulation is not within the term Gany law.1 The distinction is again recogni3ed by 0.9. &o. 1?:A! promulgated on ;arch 1B! 14:5! adding @ection B+a to the -sury .aw! pro iding that parties to an agreement pertaining to a loan could stipulate that the rate of interest agreed upon may be increased in the e ent that the applicable ma#imum rate of interest is increased /b' la$ or b' the +onetar' Boar&., To quote: @ec. B+a. 0arties to an agreement pertaining to a loan or forbearance of money! goods or credits may stipulate that the rate of interest agreed upon may be increased in the e ent that the applicable ma#imum rate of interest is increased by law or by the ;onetary /oard: 0ro ided! That such stipulation shall be alid onl' %f there is also a stipulation in the agreement that the rate of interest agreed upon shall be reduced in the e ent that the applicable ma#imum rate of interest is reduced by law or by the ;onetary /oard; 0ro ided! further! That the ad*ustment in the rate of interest agreed upon shall ta"e effect on or after the effecti ity of the increase or decrease in the ma#imum rate of interest.1 (0aragraphing and italics supplied). 2t is now clear that from ;arch 1B! 14:5! escalation clauses to be alid should specifically pro ide: (1) that there can be an increase in interest if increased by law or by the ;onetary /oard; and (2) in order for such stipulation to be alid! it must include a pro ision for reduction of the stipulated interest Gin the e ent that the applicable ma#imum rate of interest is reduced by law or by the ;onetary /oard.1 0etitioners ne er agreed in writing to pay the increased interest rates demanded by respondent ban" in contra ention to the tenor of their credit agreement. That an increase in interest rates from 1:) to as much as ?:) is e#cessi e and unconscionable is indisputable. /etween 14:1 and 14:A! petitioners had paid an amount equi alent to irtually half of the entire principal (0B!B,6!55A.??) $h%ch $as appl%e& to %nterest alone . /y the time the spouses tendered the amount of 0A5!1A2!61:.55 in settlement of their obligations! respondent ban" was demanding 06:!,BB!A:B.55 o er and abo e those amounts already pre iously paid by the spouses. 7scalation clauses are not basically wrong or legally ob*ectionable so long as they are not solely potestati e but based on reasonable and alid grounds. 4 8ere! as clearly demonstrated abo e! not only the increases of the interest rates on the basis of the

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escalation clause patently unreasonable and unconscionable! but also there are no alid and reasonable standards upon which the increases are anchored. (e go now to respondent ban"1s claim that the principal issue in the case at bench in ol es its right to foreclose petitioners1 properties under 0.9. ,:6. (e find respondent1s pretense untenable. 0residential 9ecree &o. ,:6 was issued principally to guarantee that go ernment financial institutions would not be denied substantial cash inflows necessary to finance the go ernment1s de elopment pro*ects all o er the country by large borrowers who resort to litigation to pre ent or delay the go ernment1s collection of their debts or loans. 15 2n facilitating collection of debts through its automatic foreclosure pro isions! the go ernment is howe er! not e#empted from obser ing basic principles of law! and ordinary fairness and decency under the due process clause of the $onstitution. 11 2n the first place! because of the dispute regarding the interest rate increases! an issue which was ne er settled on merit in the courts below! the e#act amount of petitioners1 obligations could not be determined. Thus! the foreclosure pro isions of 0.9. ,:6 could be alidly in o"ed by respondent ban" only after settlement of the question in ol ing the interest rate on the loan! and only after the spouses refused to meet their obligations following such determination. 2n )%l%p%nas +arble Corporat%on v. nter#e&%ate Appellate Court,12 in ol ing 0.9. ,:61s pro isions on mandatory foreclosure! we held that: (e cannot! at this point! conclude that respondent 9/0 together with the /ancom people actually misappropriated and misspent the 05 million loan in whole or in part although the trial court found that there is Gpersuasi e1 e idence that such acts were committed by the respondent. This matter should rightfully be litigated below in the main action. 0ending the outcome of such litigation! 0.9. ,:6 cannot automatically be applied for if it is really pro en that respondent 9/0 is responsible for the misappropriation of the loan! e en if only in part! then the foreclosure of the petitioner1s properties under the pro isions of 0.9. ,:6 to satisfy the whole amount of the loan would be a gross mista"e. 2t would unduly pre*udice the petitioner! its employees and their families. <nly after trial on the merits of the main case can the true amount of the loan which was applied wisely or not! for the benefit of the petitioner be determined. $onsequently! the e#tent of the loan where there was no failure of consideration and which may be properly satisfied by foreclosure proceedings under 0.9. ,:6 will ha e to await the presentation of e idence in a trial on the merits. 2n 1epubl%c Planters Ban( v. Court the &%ctu# in )%l%p%nas +arble Corporat%on! held: of Appeals 1, the $ourt reiterating

The enforcement of 0.9. ,:6 will Gsweep under the rug1 this iceberg of a scandal in the sugar industry during the ;arcos ;artial .aw years. This we can not allow to happen. Cor the benefit of future generations! all the dirty linen in the 082.@-$<;=&A@-T>A=>0/ closets ha e to be e#posed in public so that the same may &7J7> be repeated. 2t is of paramount national interest! that we allow the trial court to proceed with dispatch to allow the parties below to present their e idence. Curthermore! petitioners made a alid consignation of what they! in good faith and in compliance with the letter of the $redit Agreement! honestly belie ed to be the real amount of their remaining obligations with the respondent ban". The latter could not therefore claim that there was no honest+to+goodness attempt on the part of the spouses to settle their obligations. >espondent ban"1s rush to inequitably in o"e the foreclosure pro isions of 0.9. ,:6 through its legal machinations in the courts below! in spite of the unsettled differences in interpretation of the credit agreement was ob iously made in bad faith! to gain the upper hand o er petitioners. 2n the face of the unequi ocal interest rate pro isions in the credit agreement and in the law requiring the parties to agree to changes in the interest rate in writing! we hold that the unilateral and progressi e increases imposed by respondent 0&/ were null and oid. Their effect was to increase the total obligation on an eighteen million peso loan to an amount way o er three times that which was originally granted to the borrowers. That these increases! occasioned by crafty manipulations in the interest rates is unconscionable and neutrali3es the salutary policies of e#tending loans to spur business cannot be disputed. -( R &OR ! 0>7;2@7@ $<&@297>79! the decision of the $ourt of Appeals dated August 2B! 144,! as well as the resolution dated Cebruary 15! 144A is hereby

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>7J7>@79 A&9 @7T A@297. The case is remanded to the >egional Trial $ourt of ;a"ati for further proceedings. SO OR! R !. Bellos%llo and 2er#os%s%#a, 3r., 33., concur. Pa&%lla, 3., &o part! ha ing handled (while in law practice) se eral cases ad erse to petitioners. 4%tu", 3., &o part. <ne of the parties used to be a client.