DARIO NACAR, petitioner, vs. GALLERY FRAMES and/or FELIPE BORDEY, JR.

,
respondents.

FACTS:

Nacar filed a complaint for constructive dismissal before the (NLRC) against respondents Gallery Frames
(GF) and/or Felipe Bordey, Jr

October 15, 1998, Labor Arbiter rendered a Decision 3 in favor of petitioner and found that he was
dismissed from employment without a valid or just cause
- awarded backwages and separation pay in lieu of reinstatement in the amount of P158,919.92.

Respondents appealed to the NLRC, but it was dismissed for lack of merit

NLRC sustained the decision of the Labor Arbiter. Respondents filed a motion for reconsideration

respondents filed a Petition for Review on Certiorari before the CA

CA issued a Resolution dismissing the petition. Respondents filed a Motion for Reconsideration, but it was
likewise denied

Respondents then sought relief before the Supreme Court, docketed as G.R. No. 151332. Finding no
reversible error on the part of the CA, this Court denied the petition in the Resolution dated April 17, 2002

An Entry of Judgment was later issued certifying that the resolution became final and executory on
May 27, 2002. 9 The case was, thereafter, referred back to the Labor Arbiter

November 5, 2002, petitioner filed a Motion for Correct Computation, praying that his backwages be
computed from the date of his dismissal on January 24, 1997 up to the finality of the Resolution of the
Supreme Court on May 27, 2002. 11 Upon recomputation, the Computation and Examination Unit of the
NLRC arrived at an updated amount in the sum of P471,320.31.

On December 2, 2002, a Writ of Execution 13 was issued by the Labor Arbiter ordering the Sheriff to
collect from respondents the total amount of P471,320.31. Respondents filed a Motion to Quash Writ of
Execution, arguing, among other things, that since the Labor Arbiter awarded separation pay of P62,986.56
and limited backwages of P95,933.36, no more recomputation is required to be made of the said awards.
They claimed that after the decision becomes final and executory, the same cannot be altered or amended
anymore

Respondents again appealed before the NLRC, which on June 30, 2003 issued a Resolution 17 granting the
appeal in favor of the respondents and ordered the recomputation

, the CA rendered a Decision 24 denying the petition. The CA opined that since petitioner no longer
appealed the October 15, 1998 Decision of the Labor Arbiter, which already became final and executory, a
belated correction thereof is no longer allowed.

ISSUE: WON HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN UPHOLDING THE

QUESTIONED RESOLUTIONS OF THE NLRC WHICH, IN TURN, SUSTAINED THE MAY 10, 2005
ORDER OF LABOR ARBITER MAGAT MAKING THE DISPOSITIVE PORTION OF THE OCTOBER
15, 1998 DECISION OF LABOR ARBITER LUSTRIA SUBSERVIENT TO AN OPINION EXPRESSED
IN THE BODY OF THE SAME DECISION

RULING:
Petitioner argues that notwithstanding the fact that there was a computation of backwages in the Labor
Arbiter's decision, the same is not final until reinstatement is made or until finality of the decision, in case
of an award of separation pay. Petitioner maintains that considering that the October 15, 1998 decision of
the Labor Arbiter did not become final and executory until the April 17, 2002 Resolution of the
Supreme Court in G.R. No. 151332 was entered in the Book of Entries on May 27, 2002, the
reckoning point for the computation of the backwages and separation pay should be on May 27, 2002
and not when the decision of the Labor Arbiter was rendered on October 15, 1998. Further, petitioner
posits that he is also entitled to the payment of interest from the finality of the decision until full
payment by the respondents.

On their part, respondents assert that since only separation pay and limited backwages were awarded to
petitioner by the October 15, 1998 decision of the Labor Arbiter, no more recomputation is required to be
made of said awards. Respondents insist that since the decision clearly stated that the separation pay and
backwages are "computed only up to [the] promulgation of this decision," and considering that petitioner
no longer appealed the decision, petitioner is only entitled to the award as computed by the Labor Arbiter in
the total amount of P158,919.92. Respondents added that it was only during the execution proceedings that
the petitioner questioned the award, long after the decision had become final and executory. Respondents
contend that to allow the further recomputation of the backwages to be awarded to petitioner at this point of
the proceedings would substantially vary the decision of the Labor Arbiter as it violates the rule on
immutability of judgments.

The petition is meritorious

Consequently, from the above disquisitions, under the terms of the decision which is sought to be executed
by the petitioner, no essential change is made by a recomputation as this step is a necessary consequence
that flows from the nature of the illegality of dismissal declared by the Labor Arbiter in that decision. 29 A
recomputation (or an original computation, if no previous computation has been made) is a part of the law
specifically, Article 279 of the Labor Code and the established jurisprudence on this provision that is
read into the decision. By the nature of an illegal dismissal case, the reliefs continue to add up until full
satisfaction, as expressed under Article 279 of the Labor Code. The recomputation of the consequences of
illegal dismissal upon execution of the decision does not constitute an alteration or amendment of the final
decision being implemented. The illegal dismissal ruling stands; only the computation of monetary
consequences of this dismissal is affected, and this is not a violation of the principle of immutability of
final judgments. 30

Finally, anent the payment of legal interest, SC cited of Eastern Shipping Lines, Inc. v. Court of Appeals

1. When the obligation is breached, and it consists in the payment of a sum of

money, i.e., a loan or forbearance of money, the interest due should be that
which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence
of stipulation, the rate of interest shall be 12% per annum to be computed
from default, i.e., from judicial or extrajudicial demand under and subject to
the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is

breached, an interest on the amount of damages awarded may be imposed at
the discretion of the court at the rate of 6% per annum.

No interest, however, shall be adjudged on unliquidated claims or damages

except when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the
interest shall begin to run from the time the claim is made judicially or
 extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall begin
to run only from the date the judgment of the court is made (at which time the
quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance
of credit

BUT the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution No. 796 dated May 16,
2013 issued Circular No. 799, 35 Series of 2013, effective July 1, 2013

, approved the following revisions governing the rate of interest in the absence of
stipulation in loan contracts, thereby amending Section 2 of Circular No. 905, Series
of 1982:

Section 1. The rate of interest for the loan or forbearance of any money, goods
or credits and the rate allowed in judgments, in the absence of an express
contract as to such rate of interest, shall be six percent (6%) per annum.

absence of an express stipulation as to the rate of interest that would govern the parties, the rate of legal
interest for loans or forbearance of any money, goods or credits and the rate allowed in judgments shall no
longer be twelve percent (12%) per annum, but will now be six percent (6%) per annum effective July
1, 2013.

However, those judgments that have become final and executory prior to July 1, 2013, said judgments shall
not be disturbed and shall continue to be implemented applying the rate of interest fixed therein

SC AWARDED:

(1) backwages computed from the time petitioner was illegally dismissed on January 24, 1997 up to May
27, 2002, when the Resolution of this Court in G.R. No. 151332 became final and executory;

(2) separation pay computed from August 1990 up to May 27, 2002 at the rate of one month pay per year of
service; and

(3) interest of twelve percent (12%) per annum of the total monetary awards, computed from May 27, 2002
to June 30, 2013 and six percent (6%) per annum from July 1, 2013 until their full satisfaction.
 SPOUSES EDUARDO and LYDIA SILOS, petitioners, vs. PHILIPPINE
NATIONAL BANK, respondent.

Doctrine: In loan agreements, it cannot be denied that the rate of interest is a principal condition,
if not the most important component. Thus, any modification thereof must be mutually agreed
upon; otherwise, it has no binding effect. Moreover, the Court cannot consider a stipulation
granting a party the option to prepay the loan if said party is not agreeable to the arbitrary interest
rates imposed. Premium may not be placed upon a stipulation in a contract which grants one
party the right to choose whether to continue with or withdraw from the agreement if it discovers
that what the other party has been doing all along is improper or illegal.

Facts:

Ps have been in business for about two decades of operating a department store and buying and
selling of ready-to-wear apparel.

To secure a one-year revolving credit line of P150,000.00 obtained from PNB, Ps constituted in
August 1987 a Real Estate Mortgage over a lot in Kalibo, Aklan. In July 1988,the credit line was
increased to P1.8 million and the mortgage was correspondingly increased to P1.8 million.

And in July 1989, a Supplement to the Existing Real Estate Mortgage was executed to cover the
same credit line, which was increased to P2.5 million, and additional security was given in the
form of a 134-square meter lot. In addition, Ps issued eight Promissory Notes and signed a Credit
Agreement. This July 1989 Credit Agreement contained a stipulation on interest which provides
as follows:

1.03. Interest. (a) The Loan shall be subject to interest at the rate of 19.5% per annum. Interest shall be payable in
advance every one hundred twenty days at the rate prevailing at the time of the renewal.

(b) The Borrower agrees that the Bank may modify the interest rate in the Loan depending on whatever policy the Bank
may adopt in the future, including without limitation, the shifting from the floating interest rate system to the fixed interest
rate system, or vice versa. Where the Bank has imposed on the Loan interest at a rate per annum, which is equal to the
Banks spread over the current floating interest rate, the Borrower hereby agrees that the Bank may, without need of
notice to the Borrower, increase or decrease its spread over the floating interest rate at any time depending on whatever
policy it may adopt in the future.

The eight Promissory Notes, on the other hand, contained a stipulation granting PNB the right to
increase or reduce interest rates "within the limits allowed by law or by the Monetary Board."

The Real Estate Mortgage agreement provided the same right to increase or reduce interest rates
"at any time depending on whatever policy PNB may adopt in the future."

In August 1991, an Amendment to Credit Agreement was executed by the parties, with the
following stipulation regarding interest:

1.03. Interest on Line Availments. (a) The Borrowers agree to pay interest on each Availment
from date of each Availment up to but not including the date of full payment thereof at the rate per
annum which is determined by the Bank to be prime rate plus applicable spread in effect as of the
date of each Availment.

The 9th up to the 17th promissory notes provide for the payment of interest at the "rate the Bank
may at any time without notice, raise within the limits allowed by law x x x.
On the other hand, the 18th up to the 26th promissory notes including PN 9707237, which is the
26th promissory note carried the following provision:

x x x For this purpose, I/We agree that the rate of interest herein stipulated may be increased or
decreased for the subsequent Interest Periods, with prior notice to the Borrower in the event of
changes in interest rate prescribed by law or the Monetary Board of the Central Bank of the
Philippines, or in the Banks overall cost of funds. I/We hereby agree that in the event I/we are not
agreeable to the interest rate fixed for any Interest Period, I/we shall have the option top repay
the loan or credit facility without penalty within ten (10) calendar days from the Interest Setting
Date.

R regularly renewed the line from 1990 up to 1997, and Ps made good on the promissory notes,
religiously paying the interests without objection or fail. But in 1997, Ps faltered when the
interest rates soared due to the Asian financial crisis. Ps sole outstanding promissory
note for P2.5 million PN 9707237 executed in July 1997 and due 120 days later or on
October 28, 1997 became past due, and despite repeated demands, Ps failed to make
good on the note.

Incidentally, PN 9707237 provided for the penalty equivalent to 24% per annum in case of
default.

PNB prepared a Statement of Account as of October 12, 1998, detailing the amount due and
demandable from Ps in the total amount of P3,620,541.60.

Despite demand, Ps failed to pay the foregoing amount. Thus, PNB foreclosed on the mortgage,
and on January 14, 1999, the lots were sold at the auction. The sheriffs certificate of sale was
registered on March 11, 1999.

More than a year later, or on March 24, 2000, Ps filed Civil Case No. 5975, seeking annulment of
the foreclosure sale and an accounting of the PNB credit. Ps theorized that after the first
promissory note where they agreed to pay 19.5% interest, the succeeding stipulations for the
payment of interest in their loan agreements with PNB which allegedly left to the latter the
sole will to determine the interest rate became null and void. Ps added that because the
interest rates were fixed by R without their prior consent or agreement, these rates are void, and
as a result, Ps should only be made liable for interest at the legal rate of 12%. They claimed
further that they overpaid interests on the credit, and concluded that due to this overpayment of
steep interest charges, their debt should now be deemed paid, and the foreclosure and sale of
TCTs T-14250 and T-16208 became unnecessary and wrongful. As for the imposed penalty
of P581,666.66, Ps alleged that since the Real Estate Mortgage and the Supplement thereto did
not include penalties as part of the secured amount, the same should be excluded from the
foreclosure amount or bid price, even if such penalties are provided for in the final Promissory
Note.

In addition, Ps sought to be reimbursed an alleged overpayment of P848,285.00 made during the

period August 21, 1991 to March 5, 1998, resulting from Rs imposition of the alleged illegal and
steep interest rates. They also prayed to be awarded P200,000.00 by way of attorneys fees.

In its Answer, PNB denied that it unilaterally imposed or fixed interest rates; that Ps agreed that
without prior notice, PNB may modify interest rates depending on future policy adopted by it; and
that the imposition of penalties was agreed upon in the Credit Agreement. It added that the
imposition of penalties is supported by the all-inclusive clause in the Real Estate Mortgage
agreement which provides that the mortgage shall stand as security for any and all other
obligations of whatever kind and nature owing to R, which thus includes penalties imposed upon
default or non-payment of the principal and interest on due date.
RTC: Ruled in favor of R

CA: Ruled in favor of R

Issue/Held:

WoN the interest rates imposed by R are null and void- YES

WoN P is estopped from questioning the interest rates because of their continuous payment
thereof w/o opposition- NO

Ratio:

SC cited and discussed numerous cases but the main point of all the cases is the doctrine stated
above.

Any modification in the contract, such as the interest rates, must be made with the
consent of the contracting parties. The minds of all the parties must meet as to the
proposed modification, especially when it affects an important aspect of the agreement. In
the case of loan agreements, the rate of interest is a principal condition, if not the most
important component. Thus, any modification thereof must be mutually agreed upon;
otherwise, it has no binding effect.

In the present case, the stipulations in question no longer provide that the parties shall agree
upon the interest rate to be fixed; -instead, they are worded in such a way that the borrower
shall agree to whatever interest rate R fixes. In credit agreements covered by the cited cases,
it is provided that:

The Bank reserves the right to increase the interest rate within the limits allowed by law at any
time depending on whatever policy it may adopt in the future: Provided, that, the interest rate on
this accommodation shall be correspondingly decreased in the event that the applicable
maximum interest rate is reduced by law or by the Monetary Board. In either case, the adjustment
in the interest rate agreed upon shall take effect on the effectivity date of the increase or
decrease in maximum interest rate.

Whereas, in the present credit agreements under scrutiny, it is stated that:

IN THE JULY 1989 CREDIT AGREEMENT

(b) The Borrower agrees that the Bank may modify the interest rate on the Loan depending on
whatever policy the Bank may adopt in the future, including without limitation, the shifting from the
floating interest rate system to the fixed interest rate system, or vice versa. Where the Bank has
imposed on the Loan interest at a rate per annum, which is equal to the Banks spread over the
current floating interest rate, the Borrower hereby agrees that the Bank may, without need of
notice to the Borrower, increase or decrease its spread over the floating interest rate at any time
depending on whatever policy it may adopt in the future.86 (Emphases supplied)

IN THE AUGUST 1991 AMENDMENT TO CREDIT AGREEMENT

1.03. Interest on Line Availments. (a) The Borrowers agree to pay interest on each Availment
from date of each Availment up to but not including the date of full payment thereof at the rate per
annum which is determined by the Bank to be prime rate plus applicable spread in effect as of the
date of each Availment.87 (Emphasis supplied)
Plainly, with the present credit agreement, the element of consent or agreement by the
borrower is now completely lacking, which makes Rs unlawful act all the more
reprehensible.

Re estoppel:

Accordingly, Ps are correct in arguing that estoppel should not apply to them, for "[e]stoppel
cannot be predicated on an illegal act. As between the parties to a contract, validity cannot be
given to it by estoppel if it is prohibited by law or is against public policy."

It appears that by its acts, R violated the Truth in Lending Act, or Republic Act No. 3765,
which was enacted "to protect x x x citizens from a lack of awareness of the true cost of
credit to the user by using a full disclosure of such cost with a view of preventing the
uninformed use of credit to the detriment of the national economy."89 The law "gives a
detailed enumeration of the specific information required to be disclosed, among which are the
interest and other charges incident to the extension of credit." 90 Section 4 thereof provides that a
disclosure statement must be furnished prior to the consummation of the transaction, thus:

SEC. 4. Any creditor shall furnish to each person to whom credit is extended, prior to the
consummation of the transaction, a clear statement in writing setting forth, to the extent
applicable and in accordance with rules and regulations prescribed by the Board, the following
information:

(1) the cash price or delivered price of the property or service to be acquired;
(2) the amounts, if any, to be credited as down payment and/or trade-in;
(3) the difference between the amounts set forth under clauses (1) and (2);
(4) the charges, individually itemized, which are paid or to be paid by such person in
connection with the transaction but which are not incident to the extension of credit;
(5) the total amount to be financed;
(6) the finance charge expressed in terms of pesos and centavos; and
(7) the percentage that the finance bears to the total amount to be financed expressed as
a simple annual rate on the outstanding unpaid balance of the obligation.

Under Section 4(6), "finance charge" represents the amount to be paid by the debtor incident to
the extension of credit such as interest or discounts, collection fees, credit investigation fees,
attorneys fees, and other service charges. The total finance charge represents the difference
between (1) the aggregate consideration (down payment plus installments) on the part of the
debtor, and (2) the sum of the cash price and non-finance charges.

By requiring the Ps to sign the credit documents and the promissory notes in blank, and
then unilaterally filling them up later on, R violated the Truth in Lending Act, and was
remiss in its disclosure obligations.
SPOUSES HUMBERTO P. DELOS SANTOS AND CARMENCITA M. DELOS SANTOS,
petitioners, vs. METROPOLITAN BANK AND TRUST COMPANY, respondent

FACTS:

petitioners took out several loans totaling P12,000,000.00 from Metrobank, Davao City Branch, the
proceeds of which they would use in constructing a hotel in Davao

They executed various promissory notes covering the loans, and constituted a mortgage over their parcel of
land to secure the performance of their obligation. The stipulated interest rates were 15.75% per annum for
the long term loans

The interest rates were fixed for the first year, subject to escalation or de-escalation in certain events
without advance notice to them. The loan agreements further stipulated that the entire amount of the loans
would become due and demandable upon default in the payment of any installment, interest or other
charges

Metrobank sought the extrajudicial foreclosure of the real estate mortgage 5 after the petitioners defaulted
in their installment payments. petitioners were notified of the foreclosure and of the forced sale. total
amount of the obligation was P16,414,801.36 as of October 26, 1999. 6 CSHcDT

prior to the scheduled foreclosure sale petitioners filed in the RTC a complaint (later amended) for
damages, fixing of interest rate, and application of excess payments (with prayer for a writ of preliminary
injunction). Alleging:
that Metrobank had no right to foreclose the mortgage because they were not in default of their obligations;
that Metrobank had imposed interest rates (i.e., 15.75% per annum for two long-term loans and 22.204%
per annum for the short term loan) on three of their loans that were different from the rate of 14.75% per
annum agreed upon;

that Metrobank had increased the interest rates on some of their loans without any basis by invoking the
escalation clause written in the loan agreement;

that they had paid P2,561,557.87 instead of only P1,802,867.00 based on the stipulated interest rates,
resulting in their excess payment of P758,690.87 as interest, which should then be applied to their accrued
obligation;

In its answer, Metrobank stated that the increase in the interest rates had been made pursuant to the
escalation clause stipulated in the loan agreements

the RTC issued a temporary restraining order to enjoin the foreclosure sale. 8 After hearing on notice, the
RTC issued its order dated May 2, 2000, 9 granting the petitioners' application for a writ of preliminary
injunction

Metrobank moved for reconsideration

RTC granted Metrobank's motion for reconsideration, holding:

Metro Bank pointed out that in all the promissory notes executed by the plaintiffs there
is typewritten inside a box immediately following the first paragraph the following:

"At the effective rate of 15.75% for the first year subject to upward/downward
adjustments for the next year thereafter."
 Moreover, in the form of the same promissory notes, there is the additional stipulation
which reads:

"The rate of interest and/or bank charges herein-stipulated, during the term of
this Promissory Note, its extension, renewals or other modifications, may be
increased, decreased, or otherwise changed from time to time by the bank
without advance notice to me/us in the event of changes in the interest rates
prescribed by law of the Monetary Board of the Central Bank of the
Philippines, in the rediscount rate of member banks with the Central Bank of
the Philippines, in the interest rates on savings and time deposits, in the
interest rates on the Bank's borrowings, in the reserve requirements, or in the
overall costs of funding or money;"

There being no opposition to the motion despite receipt of a copy thereof by the plaintiffs through counsel
and finding merit to the motion for reconsideration, this Court resolves to reconsider and set aside the
Order of this Court dated May 2, 2000

petitioners sought the reconsideration of the orde

the RTC denied the petitioners' motion for reconsideration,

record does not show that plaintiffs have updated their installment payments by
depositing the same with this Court, with the interest thereon at the rate they contend to
be the true and correct rate agreed upon by the parties.

Ruling of the CA
the CA rendered the assailed decision dismissing the petition
Issues

RULING

The appeal has no merit.

Secondly, the Court must find that the petitioners were not entitled to enjoin or prevent the extrajudicial
foreclosure of their mortgage by Metrobank. They were undeniably already in default of their obligations
the performance of which the mortgage had precisely secured. Hence, Metrobank had the unassailable right
to the foreclosure. In contrast, their right to prevent the foreclosure did not exist. Hence, they could not be
validly granted the injunction they sought. TcDAHS

The foreclosure of a mortgage is but a necessary consequence of the non-payment of an obligation secured
by the mortgage. Where the parties have stipulated in their agreement, mortgage contract and promissory
note that the mortgagee is authorized to foreclose the mortgage upon the mortgagor's default, the mortgagee
has a clear right to the foreclosure in case of the mortgagor's default

Thirdly, the petitioners allege that: (a) Metrobank had increased the interest rates without their assent and
without any basis; and (b) they had an excess payment sufficient to cover the amounts due. In support of
their allegation, they submitted a table of the interest payments, wherein they projected what they had
actually paid to Metrobank and contrasted the payments to what they claimed to have been the correct
amounts of interest, resulting in an excess payment of P605,557.81.
The petitioners fail to convince.

We consider to be unsubstantiated the petitioners' claim of their lack of consent to the escalation clauses.
They did not adduce evidence to show that they did not assent to the increases in the interest rates. The
records reveal instead that they requested only the reduction of the interest rate or the restructuring of their
loans. 28 Moreover, the mere averment that the excess payments were sufficient to cover their accrued
obligation computed on the basis of the stipulated interest rate cannot be readily accepted. Their
computation, as their memorandum submitted to the RTC would explain, 29 was too simplistic, for it
factored only the principal due but not the accrued interests and penalty charges that were also stipulated in
the loan agreements.

It is relevant to observe in this connection that escalation clauses like those affecting the petitioners were
not void per se, and that an increase in the interest rate pursuant to such clauses were not necessarily void.
In Philippine National Bank v. Rocamora, 30 the Court has said:

Escalation clauses are valid and do not contravene public policy. These clauses are common in credit
agreements as means of maintaining fiscal stability and retaining the value of money on long-term
contracts.

The validity of escalation clauses notwithstanding, we cautioned that these clauses do not give creditors the
unbridled right to adjust interest rates unilaterally. As we said in the same Banco Filipino case, any
increase in the rate of interest made pursuant to an escalation clause must be the result of an
agreement between the parties. Thus, any change must be mutually agreed upon, otherwise, the
change carries no binding effect

Nor do we discern any substantial controversy that had any real bearing on Metrobank's right to foreclose
the mortgage. The mere possibility that the RTC would rule in the end in the petitioners' favor by lowering
the interest rates and directing the application of the excess payments to the accrued principal and interest
did not diminish the fact that when Metrobank filed its application for extrajudicial foreclosure they were
already in default as to their obligations and that their short-term loan of P4,400,000.00 had already
matured. Under such circumstances, their application for the writ of preliminary injunction could not but be
viewed as a futile attempt to deter or delay the forced sale of their property.
RODELO G. POLOTAN, SR., petitioner, vs. HON. COURT OF APPEALS (Eleventh Division),
REGIONAL TRIAL COURT IN MAKATI CITY (Branch 132), and SECURITY DINERS
INTERNATIONAL CORPORATION, respondents

SYNOPSIS

Private respondent Security Diners International Corporation (Diners Club), a credit card company, extends
credit accommodations to its cardholders for the purchase of goods and other services from member
establishments. Payment for said goods and services are reimbursed later on by cardholders upon proper
billing. Petitioner Polotan, Sr. applied for membership thereof. The application form contained terms and
conditions governing the use and availment of the Diners Club card, among which is for the cardholder to
pay all charges made through the use of said card within the period indicated in the statement of account
and any remaining unpaid balance to earn 3% interest per annum plus prime rate of Security Bank and
Trust Company. Upon acceptance of his application, petitioner was issued the Diners Club card. Petitioner
incurred credit in the aggregate amount of P33,819.84 which had become due and demandable. Demands
for payment made against petitioner proved futile. Hence, private respondent filed a Complaint for
Collection of Sum of Money against petitioner. The lower court ruled in favor of herein private respondent,
which was affirmed by the Court of Appeals. Petitioner questions the provisions of the contract, being one
of adhesion. The Court finds nothing improper in the Contract signed by herein petitioner and thus, affirms
the decision in favor of the private respondent.

ISSUE:

In the first assignment of error, petitioner argues that the provision on interest rate is "obscure and
ambiguous and not susceptible of reasonable interpretation" particularly the terms "prime rate", "prevailing
market rate" and "guiding rate". In effect, there was no meeting of minds. As such, this being a contract of
adhesion, any ambiguity should be resolved against the one who caused it.

Petitioner added that the said provision was also illegal as it violated the laws and Central Bank Circulars.
While said proviso allowed for the escalation of interest, it did not allow for a downward adjustment of the
same.

RULING:

Be that as it may, this Court sees it fit and proper to discuss the merits of this petition based on petitioner's
claim that since the contract he signed with Diners Club was a contract of adhesion, the obscure provision
on interest should be resolved in his favor.

A contract of adhesion is one in which one of the contracting parties imposes a ready-made form of
contract which the other party may accept or reject, but cannot modify. One party prepares the stipulation
in the contract, while the other party merely affixes his signature or his "adhesion" thereto, giving no room
for negotiation and depriving the latter of the opportunity to bargain on equal footing. 3

Admittedly, the contract containing standard stipulations imposed upon those who seek to avail of its credit
services was prepared by Diners Club. There is no way a prospective credit card holder can object to any
onerous provision as it is offered on a take-it-or-leave-it basis. Being a contract of adhesion, any ambiguity
in its provisions must be construed against private respondent.

Indeed, the terms "prime rate", "prevailing market rate", "2% penalty charge", "service fee", and "guiding
rate" are technical terms which are beyond the ken of an ordinary layman. To be sure, petitioner hardly falls
into the category of an "ordinary layman." As aptly observed by the Court of Appeals:
Nevertheless, these types of contracts have been declared as binding as ordinary contracts, the reason being
that the party who adheres to the contract is free to reject it entirely. 5

In this case, petitioner, in effect, claims that the subject contract is one-sided in that the contract allows for
the escalation of interests, but does not provide for a downward adjustment of the same in violation of
Central Bank Circular 905.

The claim is without basis. First, by signing the contract, petitioner and private respondent agreed upon the
rate as stipulated in the subject contract. Such is now allowed by C.B. Circular 905. 8 Second, petitioner
failed to cite any particular provision of said Circular which was allegedly violated by the subject contract.

Be that as it may, there is nothing inherently wrong with escalation clauses. Escalation clauses are valid
stipulations in commercial contracts to maintain fiscal stability and to retain the value of money in long
term contracts. 9

Petitioner further argues that the interest rate was unilaterally imposed and based on the standards and rate
formulated solely by Diners Club.

The contractual provision in question states that "if there occurs any change in the prevailing market rates,
the new interest rate shall be the guiding rate in computing the interest due on the outstanding obligation
without need of serving notice to the Cardholder other than the required posting on the monthly statement
served to the Cardholder." This could not be considered an escalation clause for the reason that it neither
states an increase nor a decrease in interest rate. Said clause simply states that the interest rate should be
based on the prevailing market rate.

Interpreting it differently, while said clause does not expressly stipulate a reduction in interest rate, it
nevertheless provides a leeway for the interest rate to be reduced in case the prevailing market rates dictate
its reduction.

Admittedly, the second paragraph of the questioned proviso which provides that "the Cardholder hereby
authorizes Security Diners to correspondingly increase the rate of such interest in the event of changes in
prevailing market rates . . ." is an escalation clause. However, it cannot be said to be dependent solely on
the will of private respondent as it is also dependent on the prevailing market rates.

Escalation clauses are not basically wrong or legally objectionable as long as they are not solely potestative
but based on reasonable and valid grounds. 11 Obviously, the fluctuation in the market rates is beyond the
control of private respondent.
Imperial v. Jauciana

case for collection of money, filed by Alex A. Jaucian against Restituta Imperial, on October 26, 1989. The

Jauciana alleges Imperial obtained from plaintiff six (6) separate loans

Jauciana executed in favor of the latter six (6) separate promissory notes and issued several checks as
guarantee for payment.

When the said loans became overdue and unpaid, especially when the defendant's checks were dishonored,
plaintiff made repeated oral and written demands for payment.

"The loans were covered by six (6) separate promissory notes executed by defendant. The face value of
each promissory note is bigger [than] the amount released to defendant because said face value already
include[d] the interest from date of note to date of maturity. Said promissory notes, which indicate the
interest of 16% per month, date of issue, due date, the corresponding guarantee checks issued by defendant,
penalties and attorney's fees, are the following

"Although, admittedly, defendant made several payments, the same were not enough and she
always defaulted whenever her loans mature[d]. As of August 16, 1991, the total unpaid amount,
including accrued interest, penalties and attorney's fees, [was] P2,807,784.20.

"On the other hand, defendant claims that she was extended loans by the plaintiff on several
occasions, i.e., from November 13, 1987 to January 13, 1988, in the total sum of P320,000.00 at
the rate of sixteen percent (16%) per month. The notes mature[d] every four (4) months with
unearned interest compounding every four (4) months if the loan [was] not fully paid. The loan
releases [were] as follows:

"Defendant contends that from all perspectives the above excess payment of P121,780.00 is more
than the interest that could be legally charged, and in fact as of January 25, 1989, the total releases
have been fully paid.

Ruling of the Court of Appeals

On appeal, the CA held that without judicial inquiry, it was improper for the RTC to rule on the
constitutionality of Section 1, Central Bank Circular No. 905, Series of 1982. Nonetheless, the appellate
court affirmed the judgment of the trial court, holding that the latter's clear and detailed computation of
petitioner's outstanding obligation to respondent was convincing and satisfactory.

The Issues

"1. That the petitioner has fully paid her obligations even before filing of this case.

"2. That the charging of interest of twenty-eight (28%) per centum per annum without
any writing is illegal.
RULING: WHEREFORE, the Petition is DENIED. Costs against petitioner.

First Issue:
Computation of Outstanding Obligation

Arguing that she had already fully paid the loan before the filing of the case, petitioner alleges that the two
lower courts misappreciated the facts when they ruled that she still had an outstanding balance of P208,430.

This issue involves a question of fact. Such question exists when a doubt or difference arises as to the truth
or the falsehood of alleged facts; and when there is need for a calibration of the evidence, considering
mainly the credibility of witnesses and the existence and the relevancy of specific surrounding
circumstances, their relation to each other and to the whole, and the probabilities of the situation. 9

It is a well-entrenched rule that pure questions of fact may not be the subject of an appeal by certiorari
under Rule 45 of the Rules of Court, as this remedy is generally confined to questions of law. 10 The
jurisdiction of this Court over cases brought to it is limited to the review and rectification of errors of law
allegedly committed by the lower court. As a rule, the latter's factual findings, when adopted and affirmed
by the CA, are final and conclusive and may not be reviewed on appeal. 11

Generally, this Court is not required to analyze and weigh all over again the evidence already considered in
the proceedings below. 12 In the present case, we find no compelling reason to overturn the factual findings
of the RTC that the total amount of the loans extended to petitioner was P320,000, and that she paid a
total of only P116,540 on twenty-nine dates. These findings are supported by a preponderance of evidence.
Moreover, the amount of the outstanding obligation has been meticulously computed by the trial court and
affirmed by the CA. Petitioner has not given us sufficient reason why her cause falls under any of the
exceptions to this rule on the finality of factual findings. AcIaST

Second Issue:
Rate of Interest

The trial court, as affirmed by the CA, reduced the interest rate from 16 percent to 1.167 percent per month
or 14 percent per annum; and the stipulated penalty charge, from 5 percent to 1.167 percent per month or
14 percent per annum.

Petitioner alleges that absent any written stipulation between the parties, the lower courts should have
imposed the rate of 12 percent per annum only.

The records show that there was a written agreement between the parties for the payment of interest on the
subject loans at the rate of 16 percent per month. As decreed by the lower courts, this rate must be
equitably reduced for being iniquitous, unconscionable and exorbitant. "While the Usury Law ceiling on
interest rates was lifted by C.B. Circular No. 905, nothing in the said circular grants lenders carte blanche
authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging
of their assets." 13

In Medel v. CA, 14 the Court found the stipulated interest rate of 5.5 percent per month, or 66 percent per
annum, unconscionable. In the present case, the rate is even more iniquitous and unconscionable, as it
amounts to 192 percent per annum. When the agreed rate is iniquitous or unconscionable, it is considered
"contrary to morals, if not against the law. [Such] stipulation is void." 15

Since the stipulation on the interest rate is void, it is as if there were no express contract thereon. 16 Hence,
courts may reduce the interest rate as reason and equity demand. We find no justification to reverse or
modify the rate imposed by the two lower courtss.

CTS:
Petitioner obtained six (6) separate loans amounting to P 320,000.00 from the respondent. In the
written agreement, they agreed upon the 16% interest per month plus penalty charge of 5% per month and
the 25% attorneys fee, failure to pay the said loans on the stipulated date.
Petitioner executed six (6) separate promissory notes and issued several checks as guarantee for
payment. When the said loans become overdue and unpaid, especially when the petitioners checks issued
were dishonored, respondent made repeated oral and written demands for payment.
The petitioner was able to pay only P 116,540.00 as found by the RTC. Although she alleged that
she had already paid the amount of P 441,780.00 and the excess of P 121,780.00 is more than the interest
that could be legally charged, the Court affirms the findings of RTC that petitioner is still indebted to the
respondent.

ISSUE:
Whether or not the stipulated interest of 16% per month, 5% per month for penalty charge and
25% attorneys fee are usurious.

HELD:
YES. The rate must be equitably reduced for being iniquitous, unconscionable and exorbitant.
While the Usury Law ceiling on interest rates was lifted by C.B. Circular No. 905, nothing in the said
circular grants lenders carte blanche authority to raise interests rates to levels which will either enslave their
borrowers or lead to a hemorrhaging of their assets.
When the agreed rate is iniquitous or unconscionable, it considered contrary to morals, if not
against the law. Such stipulation is void. Since the stipulation is void, it is as if there was no express
contract thereon. Hence, courts may reduce the interest rate as reason and equity demand.
The interest rate of 16% per month was reduced to 1.167% per month or 14% per annum and the
penalty charge of 5% per month was also reduced to 1.167% per month or 14% per annum.
The attorneys fees here are in the nature of liquidated damages and the stipulation therefor is
aptly called a penal clause. So long as the stipulation does not contravene the law, morals, public order or
public policy, it is binding upon the obligor. Nevertheless, in the case at bar, petitioners failure to comply
fully with her obligation was not motivated by ill will or malice. The partial payments she made were
manifestations of her good faith. Hence the attorneys fees were reduced to 10% of the total due and
payable.