G.R. No. 101771 - SPOUSES MARIANO AND GILDA FLORENDO, VS. COURT OF APPEALS AND LAND BANK OF THE PHILIPPINES.

Ruling

WHEREFORE, judgment is hereby rendered denying the instant suit for injunction and declaring that the rate of interest on the loan agreement in question shall be 17% per annum and the monthly amortization on said loan properly raised to P2,064.75 a month, upon the finality of this judgment. x x x x x x x x x." Petitioners promptly appealed, arguing that, inter alia, the increased rate of interest is onerous and was imposed unilaterally, without the consent of the borrower-spouses. Respondent bank likewise appealed and contested the propriety of having the increased interest rate apply only upon the finality of the judgment and not from March 19, 1985. The respondent Court subsequently affirmed with modification the decision of the trial court, holding that: [6] "x x x Among the salient provisions of the mortgage is paragraph (f) which provides that the interest rate shall be subject, during the term of the loan, to such increases/decreases as may be allowed under the prevailing rules and/or circulars of the Central Bank and as the Provident Fund of the Bank may prescribe for its borrowers. In other words, the spouses agreed to the escalation of the interest rate on their original loan. Such an agreement is a contractual one and the spouses are bound by it. Escalation clauses have been ruled to be valid stipulations in contracts in order to maintain fiscal stability and to retain the value of money in long term contracts (Insular Bank of Asia and America vs. Spouses Epifania Salazar and Ricardo Salazar, 159 SCRA 133). One of the conditions for the validity of an escalation clause such as the one which refers to an increase rate is that the contract should also contain a proviso for a decrease when circumstances so warrant it. Paragraph (f) referred to above contains such provision. A contract is binding on the parties no matter that a provision thereof later proves onerous and which on hindsight, a party feels he should not have agreed to in the first place." and disposed as follows: [7] "WHEREFORE, the dispositive part of the decision is MODIFIED in the sense that the interest of 17% on the balance of the loan of the spouses shall be computed starting July 1, 1985." Dissatisfied, the petitioners had recourse to this Court. The Issues Petitioners ascribe to respondent Court "a grave and patent error" in not nullifying the respondent banks unilateral increase of the interest rate and monthly amortizations of the loan -- "1. x x x (simply because of) a bare and unqualified stipulation that the interest rate may be increased; 2. x x x on the ground that the increase has no basis in the contracts between the parties; 3. x x x on the ground that the increase violates Section 7-A of the Usury Law; 4. x x x on the ground that the increase and the contractual provision that (respondent bank) relies upon for the increase are contrary to morals, good customs, public order and public policy." [8] The key issue may be simply presented as follows: Did the res