Ermeline J. Tampus 3.
5JD
TOPIC: Sweetheart Loan
SPS. MARIANO and GILDA FLORENDO, petitioners,
vs.
CA and LAND BANK OF THE PHILIPPINES, respondents.
G.R. No. 101771 December 17, 1996
PANGANIBAN, J.:
FACTS:
Petitioner Gilda Florendo was an employee of Respondent LandBank from May 17, 1976 until August 16, 1984
when she voluntarily resigned. Before her resignation, she applied for a housing loan of P148, 000.00, payable
within 25 years from LBP’s Provident Fund on July 20, 1983 in her capacity as employee of the LBP.
Florendo and LBP executed the Housing Loan Agreement altogether with Real Estate Mortgage and Promissory
Note.
On March 19, 1985, LBP increased the interest rate on Florendo's loan from 9% p.a. to 17% which Florendo
protested. The basis for the escalation were the provisions in the Housing Loan Agreement and the Real Estate
Mortgage.
Thereafter, LBP kept on demanding Florendo to pay the new monthly installments based on the increased
interest rate, but Florendo vehemently maintained that said increase is unlawful and unjustifiable. Because of
LBP’s repeated demands, Florendos were forced to file the instant suit for Injunction and Damages
Despite LBP’s demands, Florendos have faithfully paid and discharged their loan obligations in the originally
stipulated installment of P1, 248.72, and were presently up-to-date in the payments of their obligations under
the original contracts.
ISSUE:
May a bank unilaterally raise the interest rate on a housing loan granted an employee, by reason of the
voluntary resignation of the borrower?
RULING:
A. Basis for Increased Interest Rate
Home Loan Agreement cannot be read as an escalation clause. However, par. F of the mortgage contract is
clearly an escalation provision, therefore, the parties were and are bound by the said stipulation that "the rate
of interest charged on the obligation secured by this mortgage, shall be subject, during the life of this
contract, to such an increase/decrease in accordance with prevailing rules, regulations and circulars of the
Central Bank of the Philippines as the Provident Fund Board of Trustees of the Mortgagee (LBP) may prescribe
for its debtors".
B. Application of the Escalation to Petitioners
NO, LBP cannot unilaterally raise the interest rate by reason of the voluntary resignation.
In the case at bar, the loan was perfected on July 20, 1983.
CB issuances had already come into existence prior to the perfection of the housing loan agreement and
mortgage contract, and thus it may be said that these regulations had been taken into consideration by the
contracting parties when they first entered into their loan contract.
In the subject loan, LBP agreed that the interest rate shall remain at 9% p.a. unless a CB issuance is passed
authorizing an increase (or decrease) in the rate on such employee loans and the Provident Fund Board of
Trustees acts accordingly. Thus, as far as the parties were concerned, all other onerous factors, such as
employee resignations, which could have been used to trigger an application of the escalation clause were
considered barred or waived. If the intention were otherwise, the LBP should have included such factors in their
loan agreement.
On the other hand, it will not be amiss to point out that the unilateral determination and imposition of increased
interest rates by the herein respondent bank is obviously violative of the principle of mutuality of contracts
ordained in Article 1308 of the Civil Code.
To allay fears that LBP will be prejudiced by being stuck with this "sweetheart loan" at patently concessionary
interest rates, which according to LBP is the "sweetest deal" anyone could obtain and is an act of generosity
because the 1985 lending rates in the banking industry were peaking well over 30% p.a., the Court pointed out
that the bank had the option to impose in its loan contracts the condition that resignation of an employee-
borrower would be a ground for escalation. The fact was it did not.
Hence, LBP must live with such omission. And it would be totally unfair to now impose said condition, not to
mention that it would violate the principle of mutuality of consent in contracts. It goes without saying that
such escalation ground can be included in future contracts — not to agreements already validly entered into.
Finally, the Court understood the LBP's position that the concessional interest rate was really intended as a
means to remunerate its employees and thus an escalation due to resignation would have been a valid
stipulation. But no such stipulation was in fact made, and thus the escalation provision could not be legally
applied and enforced as against herein petitioners.
