Philippine National Bank v. Maglasang
REITERATIONFacts
The Antecedents: Private respondents Spouses Fermin Maglasang and Antonia Sedigo obtained loans from petitioner Philippine National Bank (PNB), totaling P82,682.39, evidenced by promissory notes executed on various dates from February 5, 1976, to May 18, 1979. These loans were secured by real estate mortgages. The promissory notes stipulated a 12% annual interest and a 1% penalty charge for default. Due to a decline in sugar prices in 1977, the private respondents incurred deficits in their loan payments. Procedural History: On December 1, 1979, the Monetary Board issued CB Circular No. 705, increasing the interest rate ceiling to 21% per annum. PNB subsequently revised its lending rates, effective June 1, 1980. When the private respondents defaulted, PNB demanded payment of the outstanding obligation plus the new interest rate of 21% per annum. PNB foreclosed the mortgage, but the proceeds of P63,000.00 were insufficient to cover the outstanding obligation of P84,743.34. PNB then filed an action for deficiency judgment with the Court of First Instance of Leyte. The Regional Trial Court (RTC) rendered judgment in favor of PNB, ordering the defendants to pay P21,743.34 with 21% interest and 3% penalty. The private respondents appealed to the Intermediate Appellate Court (IAC), which affirmed the RTC decision with modification, ordering the defendants to pay P12,551.16 with 12% interest and 1% penalty, and disallowing attorney's fees and costs. The Petition: PNB filed a petition for review on certiorari with the Supreme Court, questioning the legality of the revised interest rate imposed on the loans of the private respondents.
Issue(s)
Whether the revised rate of interest imposed on the loans of the private respondents is legal. Whether the Court of Appeals committed a mathematical error in computing the 12% interest due on the deficiencies.
Ruling
The petition is denied for lack of merit, and the assailed decision of the Court of Appeals is affirmed.
Ratio Decidendi
On the legality of the revised interest rate: The Supreme Court held that for an escalation clause to be valid, it must satisfy three conditions: (1) the increased rate imposed or charged does not exceed the ceiling fixed by law or the Monetary Board; (2) the increase is made effective not earlier than the effectivity of the law or regulation authorizing such an increase; and (3) the remaining maturities of the loans are more than 730 days as of the effectivity of the law or regulation authorizing such an increase. Furthermore, the Court reiterated its ruling in Banco Filipino Savings and Mortgage Bank v. Navarro that an escalation clause must include a de-escalation clause. In this case, while CB Circular No. 705 authorized the increase in interest rates, the promissory notes executed by the private respondents were payable on demand, and the records did not show when payment was demanded. Even if payment was demanded on the effectivity of the law, the period of 730 days had not yet elapsed at the date the mortgaged properties were sold on November 27, 1981. Therefore, as of December 1, 1979, the remaining maturity days of the loans were less than 730 days, rendering the increased rate imposed invalid. The PNB board resolution dated May 26, 1980, did contain a de-escalation clause, but the condition regarding the remaining maturity of more than 730 days was not met. On the alleged mathematical error in computing interest: The Court ruled that the claim of mathematical error in computing the 12% interest due on the deficiencies is a factual issue. Absent any recognized exceptions, findings of fact of the Court of Appeals are conclusive on the parties and the Supreme Court. The Supreme Court's jurisdiction is limited to reviewing errors of law, not to re-evaluating evidence or making new findings of fact.
Main Doctrine
An escalation clause in a loan agreement is valid provided that the increased rate does not exceed the legal ceiling, the increase is made effective only after the law or regulation authorizing it takes effect, and the remaining maturities of the loan are more than 730 days at the time the law or regulation takes effect. Furthermore, for an escalation clause to be valid, it must include a de-escalation clause.