SPOUSES ANDAL vs PNB

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, sheriffs 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.