l\epubltt of tfii'llbiUpptnes

i>upreme Court
:fflanila
FIRST DIVISION

SECURITY BANK G.R. No. 192934

CORPORATION,
Petitioner,

-versus-

SPOUSES RODRIGO and

ERLINDA MERCADO,
Respondents.
x - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
SPOUSES RODRIGO and G.R. No. 197010
ERLINDA MERCADO,
Petitioners, Present:

-versus- LEONARDO-DE CASTRO,*

DEL CASTILLO, Acting
Chairperson**
SECURITY BANK and TRUST JARDELEZA,
COMPANY, TIJAM, and
Respondent.
GESMUNDO, *** JJ.

Promulgated:

JUN27 2018 ~
x----------------------- - - - - - - - - - - - - - - - - - - - - - ~ -~ - - -x
\
DECISION

JARDELEZA, J.:

These are consolidated petitions 1 seeking to nullify the Court of

Appeals' (CA) July 19, 2010 Decision2 and May 2, 2011 Resolution3 in CA-

On official leave.
•• Designated as Acting Chairperson of the First Division per Special Order No. 2562 dated June 20, 2018.
Designated as Acting Member of the First Division per Special Order No. 2560 dated May 1 L 2018.
Petition for review on certiorari filed by Security Bank Corporation (formerly known as Security Bank
and Trust Company, rollo (G.R. No. 192934), pp. 24-46; and petition for review on certiorari filed by the
spouses Rodrigo and Erlinda Mercado, rollo (G.R. No. 1970 I 0), pp. 9-22. We resolved to consolidate these
petitions in our Resolution dated January 18, 2012, see ro/lo (G.R. No. 192934), p. 183.
2
Rollo (G.R. No. 192934), pp. 9 - 2pnne2 ; r by Associate Justice Isaias Dicdican, with Associate Justices
Stephen C. Cruz and Danton Q. Bueser curring.
3
Rollo (G.R. No. 197010), pp. 49-50.
 Decision 2 G.R. Nos. 192934
& 197010

• .,.ij ~ • " ... "

"'
;G.R. CV No. 90031. The CA modified the February 26, 2007 Decision, 4 as
amended by the June 19, 2007 Amendatory Order5 (Amended Decision), of
Brarich 84, Regional Trial Court (RTC), Batangas City in the consolidated
cases of Civil Case No. 5808 and LRC Case No. N-1685. The RTC nullified
the extrajudicial foreclosure sales over petitioners-spouses Rodrigo and
Erlinda Mercado's (spouses Mercado) properties, and the interest rates
imposed by petitioner Security Bank Corporation (Security Bank).

On September 13, 1996, Security Bank granted spouses Mercado a

revolving credit line in the amount of Pl,000,000.00. 6 The terms and
conditions of the revolving credit line agreement included the following
stipulations:

7. Interest on Availments - I hereby agree to pay Security

Bank interest on outstanding Availments at a per annum rate
determined from time to time, by Security Bank and advised
through my Statement of Account every month. I hereby
agree that the basis for the determination of the interest rate
by Security Bank on my outstanding Availments will be
Security Bank's prevailing lending rate at the date of
availment. I understand that the interest on each availment
will be computed daily from date of availment until paid.

xx xx

17. Late Payment Charges - If my account is delinquent, l

agree to pay Security Bank the payment penalty of 2% per
month computed on the amount due and unpaid or in excess
of my Credit Limit. 7

On the other hand, the addendum to the revolving credit line agreement
further provided that:

I hereby agree to pay Security Bank Corporation (SBC)

interest on outstanding availments based on annual rate
computed and billed monthly by SBC on the basis of its
prevailing monthly rate. It is understood that the annual rate
shall in no case exceed the total monthly prevailing rate as
computed by SBC. I hereby give my continuing consent
without need of additional confirmation to the interests
stipulated as computed by SBC. The interests shall be due
on the first day of every month after date of availment. x x
xs

To secure the credit line, the spouses Mercado executed a Real Estate
Mortgage 9 in favor of Security Bank on July 3, 1996 over their properties
covered by Transfer Certificate of Title (TCT) No. T-103 519 (located in Lipa

t
Rollo (G.R. No. 192934), pp. 64-78; penned by Presiding Judge Paterno V. Tac-an.
Id at 79-82.
/d.at51,94.
Id at94.
Id. at 52; Records (Civil Case No. 580 , Vol.!, p. 26.
Rollo (G.R. No. 192934), pp. 95-98
 Decision 3 G.R. Nos. 192934
& 197010

City, Batangas), and TCT No. T-89822 (located in San Jose, Batangas). 10 On
September 13, 1996, the spouses Mercado executed another Real Estate
Mortgage 11 in favor of Security Bank this time over their properties located in
Batangas City, Batangas covered by TCT Nos. T-33150, T-34288, and T-
34289 to secure an additional amount of P7 ,000,000.00 under the same
revolving credit agreement.

Subsequently, the spouses Mercado defaulted in their payment under

the revolving credit line agreement. Security Bank requested the spouses
Mercado to update their account, and sent a final demand letter on March 31,
1999. 12 Thereafter, it filed a petition for extrajudicial foreclosure pursuant to
Act No. 3135, 13 as amended, with the Office of the Clerk of Court and Ex-
Officio Sheriff of the RTC of Lipa City with respect to the parcel of land
situated in Lipa City. Security Bank likewise filed a similar petition with the
Office of the Clerk of Court and Ex-Officio Sheriff of the RTC of Batangas
City with respect to the parcels of land located in San Jose, Batangas and
Batangas City. 14

The respective notices of the foreclosure sales of the properties were

published in newspapers of general circulation once a week for three
consecutive weeks as required by Act No. 3135, as amended. However, the
publication of the notices of the foreclosure of the properties in Batangas City
and San Jose, Batangas contained errors with respect to their technical
description. Security Bank caused the publication of an erratum in a
newspaper to correct these errors. The corrections consist of the following:
(1) TCT No. 33150 - "Lot 952-C-1" to "Lot 952-C-1-B;" and (2) TCT No.
89822 - "Lot 1931 Cadm- 164-D" to "Lot 1931 Cadm ~64-D." The erratum
was published only once, and did not correct the lack of indication of location
in both cases. 15

On October 19, 1999, the foreclosure sale of the parcel of land in Lipa
City, Batangas was held wherein Security Bank was adjudged as the winning
bidder. The Certificate of Sale 16 over it was issued on November 3, 1999. A
similar foreclosure sale was conducted over the parcels of land in Batangas
City and San Jose, Batangas where Security Bank was likewise adjudged as
the winning bidder. The Certificate of Sale 17 over these properties was issued
on October 29, 1999. Both Certificates of Sale were registered, respectively,
with the Registry of Deeds of Lipa City on November 11, 1999 and the
Registry of Deeds ofBatangas City on November 17, 1999. 18

10
Id. at 51, 99-101.
11
Id. at 102-105.
12
Id. at 66; Records (Civil Case No. 5808), Vol. I, p. 38.
13
An Act to Regulate the Sale of Property Under Special Powers Inserted in or Annexed to Real-Estate
Mortgages ( 1924 ).
14
Rollo (G.R. No. 192934), p. 52.
15
Id. at 53, 73.
16
Id at 114-115.
17
Id. at 112-lli
18
Id. at 53.
 Decision 4 G.R. Nos. 192934
& 197010

On September 18, 2000, the spouses Mercado offered to redeem the

foreclosed properties for Pl 0,000,000.00. However, Security Bank allegedly
refused the offer and made a counter-offer in the amount of Pl 5,000,000.00. 19

On November 8, 2000, the spouses Mercado filed a complaint for

annulment of foreclosure sale, damages, injunction, specific performance, and
&ccounting with application for temporary restraining order and/or
preliminary injunction20 with the RTC of Batangas City, docketed as Civil
Case No. 5808 and eventually assigned to Branch 84. 21 In the complaint, the
spouses Mercado averred that: (1) the parcel of iand in San Jose, Batangas
should not have been foreclosed together with the properties in Batangas City
because they are covered by separate real estate mortgages; (2) the
requirements of posting and publication of the notice under Act No. 3135, as
amended, were not complied with; (3) Security Bank acted arbitrarily in
disallowing ·the redemption of the foreclosed properties for Pl 0,000,000.00;
(4) the total price for all of the parcels of land only amounted to
P4, 723,620.00; and (5) the interests and the penalties imposed by Security
Bank on thefr obligations were iniquitous and unconsciOnable. 22

Meanwhile, Security Bank, after having consoiidated its ti.tle:-1 to the

foreciosed parcels· of land, filed an ex-parte petition for issuance of a •.vrit of
possession2 J over -the parcels of land located in Batangas City and San Jose,
Batangas with the RTC of Batangas City on June 9, 2005. The case was
docketed as LRC Case No. N-1685 and subsequently raffled to Branch 84
where Civil Case.No. 5808 was pending. 24

Thereafter, the two cases were consolidated before Branch 84 of .the

RTC ofBatangas City. . ·

In its February 26, 2007 Decision, 25 the RTC declared that: (l) the
foreclosure sales· of the five parcels of land void; (2) the interest rates
contained in the revolYing credit line agreement void for being potestative or
solely based on the will of Security Bank; and (3) the·sum of P8,000,000.0D
as the true and correct obligation of the spouses tv1ercado to Security Bank. 2(;

19 Id.
2
" Records (Civil Case r{o. 5808), Vol. I, pp. 1-11.
2
: Rnllo (G.R. No. 192934), pp. 28-29.
v R·;cNds (Civf! Case No. 5808), Vol. i, pp. 6-8.
20
Records (LRC Casi' No. N-16&5), pp. 1-5.
24
lfoflo (G.R. No 192934), p. 54.
25 Supra note 4. · .
:c Rblio (G.R. No. 192934), pp. 77 n. The foil disposifr.:e portion of which states:
\Vl:Y::REFORE,,Judgm.::nt is i1ereby ~endered in favor o~ [spouses Mercado] and aga.inst [Security Bank];
I Declaring as void the Foreclosure Sales con~'.erning the follov/inr; re1! propertie~: ·
I. rcr Ne. T 103519 - Lipa City · ' ·
2. TCT No. T 89822 - San Jos·~, Batangas
3. TCT No. 33 J 50 · Satar.gas City
4. TCT No. T- 34289 - Batll;;gil~ City
5. TCT No. 3428~ - Batanggs City
2. [D]eclaring the interest r:::tes contained in tlv'! addendum of the rea1 property mc,.i·tg,agor~,/prom;ssory /
.nc•tes as void a~ well a.~ the interest '.md penalties computed and charged aga.inst [spc1•Jses Mi~ri::adoj an':l,
declaring the sum d eight rnilhon (P8;000,GGO.OO) pesos as the true a11d correct ob!:2,ation cf [spoust:>
. . .
 Decision· 5 G.R. Nos. 192934
& 197010

· The RTC declared.

. . . _the forec:losure sales void because . "[t]he act of
' ' ' '

making only one corrective publication xx xis a fatal omission committed by

the· mortgagee bank." 27 It also found merit in the spouses Mercado's
contention that the parcel of land in San Jose, Batangas and the three parcels
of land in Batangas City should not be lumped together in a single foreclosure
sale. Not only does it make the .redemption onerous, it further violates Sections
1 and 5 of Act No. 3135 which do not envision and perrnit a single sal~. of
more than one real estate mortgage separately constituted. The notice of salt:
itself is also defoctive because the act of making only one corrective
publication is fataJ. 28

The RTC also 1uled that the stipulation as to the interest rate on •the
availments under the revolving credit line agreement "where the fixing of the
interest rate is the sole prerogative of the creditor/mortgagee, beloogs to the
class of potestative .condition which is null and void under [Article] 1308 of
the New Civil [C]ode." 29 It also violates Central Bank Circular No. 1191
which requires the interest rate for each re-pricing pe_riod to b~ subject to. a
mutual agreement between th~ borrower and bank. As such, n9 interest has
been expressly stipulated in writing as required under Article 1956 oftheNew
Civil Code. 30 The_RTC ruled that since the spouses l\t1ercado offered to pay
the higher amount of Pl0,000,000.00 and the bank unjustifiably refused to
accept it, no interest shall be due and demandable after the offer: 31

Security Bank. moved for reconsideratioq of the RTC~s P~cision.

9laiming that the trial court:. ( 1) does not have jurisdiction over. the parcels of
land in Lipa City, Batangas; and (2) erred in limiting the obligation to only
P~,000,000.00. 32

, The RTC modified its Decision in an Amendatory Ord~r3. 3 dated June

19, ioo7 where it declared-that: {l) only the foreclosure sales of th~ parcels
cif land in Batangas City and San Jose, Batangas are void .as it: has. no
jurisdiction over the properties in Lipa City,_ .Batangas; (2) the obligation of
the spouses Mercado is P7,500,000.00, after deducting P500,000.00 from the
principal loan of Pl,000,000.00; and (3) as. "cost of money," the obligation
shall bear the interest at the rate of 6o/o from· the time of date . of the
Amcndatory Order .until fully paid. 34

Mercado l to [Security Bank] wbich shall be the basis of payment to the bank and which amount may
be deposited by way of consignation should the bank refuse to accept it. ·
Such consignation with prior and subsequent notice to the Bank shall .automatically .extinguish the
PS,{)00,000.00 loan if seasonably made.
3. [O]rdering the payment of attorncy'5 fees of P50,00tJ.OO.
4: [M]ak1ng the injunction pennanent agc:inst the cliforcement of the rea; estate mortgages ahd thr
toreclo:rnre sales x xx[.)
5. Cost of suit.
r Id. dt 74.
23
Id. 'at 74- 76.
2Q Id at 74.
3j Id. at 75.
31 · Jd. at 77.
32
33

"
Records (Civil Case No. 5808), Vol. 11, pp. 83·-101.
Supra note 5. · · · .
Roliu (G.R. N~-_192934), pp 81.82. fhe dispositive po«ion ot"which prnvide}
;:/l/·
•

·I
 Decision 6 G.R. Nos. 192934
& 197010

Th.e CA, on appeal; affirm'ed with modifications the RTC Amendecl

Decision. It agreed that the error ill the technical description of the propert)r
rendered the·notice of foreclosure sale defective. Security Bank's subsequent
single publication of an erratum will not cure the defective notice; it is as if
no valld publication of the notice of the foreclosure sale was made. 35 The CA
also concluded that the provisos giving Security Bank the sole discretion to
determine the annual interest rate is violative of the p.::-inciple of mutua!ity of
contracts because there is no reference rate from which to pe.g the annual
interest rate to be imposed. 36 ·

The CA, however, disagreed with the trial court's findings as to the
amount of the outstanding obligation, the imposition· of interest, and the
penalty. As to the principal amount of the obligation and the legal interest, it
noted that .the liability of the spouses Mercado· from Security Bank i8
P7 ,516,880.00 or the principal oblig2.tion of P8,000,000.00 less the amount of
?483,120.00 for which the Lipa City property has been sold.~ 7 It also modified
the legal interestrate imposed from 6% to 12%.from the date of extrajudicial
demand, i.e., March 31, 1999. 3 ~ Last.ly, it imposed the stipulated 2% monthly
penalty under the revolving credit Une agreement. 39 Thus:

WHEREFORE, in view of the foregoing premises, the

Instant appeal is hereby . PARTIALLY GRANTED.
Accordingly, the assailed Decision 4ated February 26, 2007
and the Amendatory Order dated June 19, 2007 are hereby
MODIFIED. [Spouses Mercado] are hereby ordered to pay ..
[Security Bank] the sum of Seven Millio·n 'Fi\re Hur'i.dred ·
Sixteen Thousand Eight Hundred Eighty Pesos
(P7,5 l6,880.00) with interest at the rate of twelve percent
(12 ~;o) per annum from March 3 0, 1999, the. da~e of
extr4judicial demand, untii fully paid. [Spouses Mercado j
are further ordered to pay the stipulated penalty of two
percent (2%) per month on the amount due in favor of
Security Bank. The award of attorney's fees in favor of
[spouses Mercado] is hereby deltted for lack of merit. All

WHEREFORE, judgment is rendered in favor of[spouses Mercado] and <1gainst [Security Bank]:
I. Declaring as void the foreclosure sale concerning the following real properties: [] 1.) fCT No. f ·
89822 - San Jose, Batangas; 2.) TCT No. 33150 - Batangas City; 3.) TCT No. T-34289 - Batangas
City; 4.) TCT .No.. .34288 - Batangas City[};
xx xx
3. [D]eclaring tht· st1m of Phr 7 ,5'10,000 00 l'S the principci.l obligation of ~.he 5ai.d [sprypses Merccdo]
instead of Php ! 5,000,000.0C as demanded [by Security Bank] t.J which is being added from th~
date of this Amended Decisk•n the rate of cost of Ti"oi.)f1C) of 6% per annum. or 1/., percent per month
until folly paid:
4. [D]enying the petition for issuan.:e of writ of possession;
xx xx
6. [M]aking the injunct10n permanent against the enforcement of the real estate mNtgages and against
the foreclosure sales in respect to the above-named properties[.]
'' Id at 58-59.
36
Id at 60 61 . ·
c; Id. at 61. · /
:: Id.; ,Records (Civil Case No. 5"80w.~I. L p. 38.
· Rol10 (G R. No. 192934 J, p. 6L.. ~ . .
 "
Decision 7 G.R. Nos. 192934
& 197010

other . · dispositions of the .trial court are · hereby

AFFIRMED. 40

Hence, these .consolidated petitions.'

Security Bank argues that the CA erred in declaring: ( 1) the foreclosure

sale invalid; and (2) the provisions on interest rate violative of the principle
of mutuality of contracts. First, the foreclosure sale is valid because Security
Bank complied with the publication requirements of Act No. 3135, as
amended. The mistake in the original notice is inconsequential or minor since
it only pertains to a letter and number in the tec~ical description without
actually affecting the actual size, location, and/or description or title number
of the property. 41 It invokes Office of the Court Administrator (OCA) Circular
No. 1442 issued on May 29, 1984 governing the format of sale which allegedly
does not require that the complete technical description of the property be
published. 43 Second, Security Bank insists that the provision on the interest
rate observed the principle· of mutuality of contracts. Absolute discretion on
its part is \Vanting because a ceiling on the maximum applicable rate is' found
in the addendum. lt is the matket forces that dictate and establish the rate of
interest to be applied and takes into account various factors such as~ but not
iimited to, Singapore Rate, London Rate, Inter-Bank Rate which servt; a~
reference rates. This is acceptable, as held in Polotan, Sr. v. Court ofAppeals
(Eleventh Division). 4 ~· Further, the spouses Mercado are bound by the rate
because they were aware of, and had freely and voluntarily assented to it. 45

The spouses Mercado on the other hand, claim that the CA erred in
imposing interest and penalty from the. date. of extrajudicial demand until
finality ,of the. Decision. Under the doctrine· of operative facts laid <;lo\\'r). in
Spouses Carr;zig_ v Alday4 f1 and Anda/. v. Philippine National Bank, 47· the
1 ·

interest and. pe~alty. were considered paid by the auction sa1e:}8 As such,
interest should only run from the finality of this Oecision. They also assert
that they should be excused from paying .the penalty because of economic
crises, and their lack of bacj faith in this case. 49
., . .
Initially, we denied the spouses Mercado~s petition (G.R. No. 197010)
in our Rcsolution50 dated July 27, 2011. Upon the spouses Mercado's motion
for reconsideration,~ 1 we re~nstated the petition ~n April 18, 2012, 52

40
· fd at-62-o3.
41
Id. at.35.
'~ R.e~i-sion <ind'or l\fo<lit•cat10n of the Notice of Sale of Extra-Judic:al Foreclosure.
~3 Roiio (G.R. No. 192934), p. 37.
·~ G.R. No. 119379, September 25, i998, 296 SCRA 247:
45
Roilo (G.R. No. 192934), pp. 40-43.
46
CA-G.R. CV No. 76029, May 31, 2007.

v
4
: G.R. No. 194201, November 27, 2013, 711SCRA15.
4
~ Rullo (G.R. :No. 197010); pp. 59-60.
49
Id, at 17-19.
50

51
Id at52.
' '• 59-63.
-
1a. at
52
Id. at 68.
 Decision 8 G.R. Nos. 192934
& 197010

. . .
The following issues are presented for this Court's resolution:

I. Whether the foreclosure sales of the parcels of land in Batangas

City and San Jose, Batangas are valid.

II. Whether the provisions on interest rate in the revolving credit 1.ine
agreement and its addendum are void for being violative of the
principk of mutuality of contracts.

III. Whether interest and penalty are due and demandable from date of
auction sale until finality of the judgment declaring the foreclosure
void under the doctrine of operative facts.

We deny the petitions.

I
The foreclosure sales of thP properties in
Batangas City and San Jose, Batangas are void for
non-compliance with the publication requirement of
the notice ofsale.

Act No. 3135, as amended, provides for the statutory requirements for
a valid extrajudicial foreclosure sale. Among the requisites is a valid notice of
sale. Section 3, as amended, requires that when the value of the prope1ty
reaches a threshold, the notice of sale must be published once a week for at
least three consecutive weeks in a newspaper of general circulation:

Sec .. 3. Notice shall be given by posting notices of the

sale f:1r nrJt le~s than twenty days in at least three public
places of t.he municipality or city where the property is
situated, and if such property is worth more than fou:r
hundred pesos, such notice shall also be published once a
week for at least three consecutive weeks in a newspaper
of general circulation in the municipality or city.
(Emphasis. supplied.)·

We have time and again underscored the importance of the notice of

sale and its publication. Publication of the notice is required "to give the x x
x foreclosure sale a reasonably wide publicity such that those interested might
attend the public .sale." 53 It gives as much advertising to the sale as possible
a
ir1 order to secure bidders anci prevent s~crifice of the property. ~we !eiterated
this in Caubcmgv. Crisologo 54 where: we said:

The principal object of a notice of ·sale in a forec?osurc

of mortgage is' not so much to notify the motigagor a.;; to
inform the public generally of the nature and condition of the
property to be sold, and of the time, place, and terms of the
' .

~-;-;,~~·ip;~1e ;1a:;na1 Ba~ic v. Marayc:, J1·., G.R. No. 11:1:(september 11: 2009, 599.SCRA 394, !!OO.
'' G.R. No. 17·+581. F~hru:1ry4, 20i5, 749 SCRA 563. .
' .
 . Decision 9 G.R. Nos. 192934
& 197010

sale. Notices aie given to secure bidders and prevent a

sacrifice of the property. Therefore, statutory provisions
governing publication of notice of mortgage foreclosure
sales must be strictly complied with and slight deviations
therefrom will invalidate the notice and render the sale, at
the very least, voidable. Certainly, the statutory requirements
of posting and publication are mandated and imbued with
public policy considerations. Failure to advertise a mortgage
foreclosure sale in compliance with the statutory
requirements constitutes a jurisdictional defect, and any
substantial error in a notice of sale will render the notice
insufficient and will consequently vitiate the sale. 55 (Citation
omitted.) ·

Failure to advertise ·a niortg~ge foreclosure sale in compliance with

statutory requirements constitutes a Jurisdictional defect which hi validates the
sale. 56 This jurisdictienal requirement may not be waived by.the parties; to
allow them to do so would convert the required public sale into a ·private sale. 57
Thus, the statutory ·provisions governing publiqition ·of notice· of mortgage
foreclosure sal~s must be. strictly complied with~ and tliat even slight
deviations therefrom will ·invalidate the notice and render the sale at least
voidable. 58

To demonstrate the strictness of the rule, we have invalidated

foreclosure sales for lighter reasons. In one case, 59 we· declared a foreclo~ure
sale void for. failing to comply with· the requirement that.the·notice shall be
published once a week for at least three consecutive weeks. There, although
the notice·was published three times, the second publication of the notice was
done on the first day of the third week, and i:iot within .the period for the second
\:veek.60.

Nevertheless, the validity of a notice of sale is not affected b; 1

immaterial errors. 6 i Only a substantial error or omission in a notice of sale

will render the notice insufficient and vitiate the sale. 62 An error i:3 substantial
if it will deter .or mislead bidders, depreciate the value of the property or
prevent it from,bringing a fair price. 63

In this case, the errors in the notice consist of: (1) TCT No. T-33150 -·
"Lot 952-C-l" which should be "Lot 952-C-l-fu" (2) TCT No. T-89822 -
"Lot 1931 ~ Cadm- 164-D" which should be "Lot 1931 Cadm 164-D;''64 and

:.; Id. at 568 ..

50
fombunting v. Court ofAppeals, G .R. No. L-48278, !'bvember 8, 1988, 167 SCRA ! b, 23··24.
"' Phi:ippine 11/u.:tional Bank v. Mara;vu: ·Jr., sl.{pr'a note 53.
8
·' fombuntiiig v ·Court ofAppeals, supta at 23. Citation· omitted. . · . · ·.
5
" Philippine National f3an!r v. Court ofAppeals, G.R. No. 98382, May 17, 1993, 222 SCRA 134.
60 Id. at 140-143. . . . .
6
: K-Ph1l., Inc v Md.~opolitan Bank & Trust Company, G.R. No. ll:l'/500, October !7. 200~, 569 SCRA

°J
459, 466. . .
62
Tambuntinx v: CounofAppeals, supra note 56. . . · .. ·. . . /
6
~ K-Phfl., Inc. v. Mettopolita/1 Bank ana'Trust Company, supra 110tc 6 i at 465-466. ·
~41 ~ ~.- ~. ~.
0eeTCT No. m1 -1.i I
I '50, r<J,fo '
(G.R. ') ' •·
Ne'. 1. 9_9.itt), p. ,J. 06; see also· 1' CT. No
T
J-8981.2, '
1d ' ·· j.
at .:U(. ··
 Decision 10 G.R. Nos. 192934
& 197010

(3) the omission ofthe locati~m: 65 While the errors seem· iJ;lconsequential, they
in fact constitute• data important to prospective bidders when they decide
whether to acquire any of the lots announced to be auctioned. First, the
published notice misidentified the identity of the properties. Since the lot
numbers are misstated, the notice effectively identified lots other than the ones
sought to be sold. Second, the published notice omitted the exact locations of
the properties. As a result, prospective buyers are left completely unaware of
the type of neighborhood and conforming areas they may consider buying
into. With the properties misidentified and their locations omitted, the
properties' sizes and ultimately, the determination of their probable market
prices, are consequently compromised. The errors are of such nature that they
will significantly affect the public's decision on whether to participate in the
public auction. We find that the errors can deter or mislead bidders, depreciate
the value of the properties or prevent the process from fetching a fair price.

Our ruling finds support in San Jose v. Court of Appeals66 where we

nullified a foreclosure sale on the ground that the notice did not contain the
correct number of the TCT of the property to be sold. We rejected the
contention of the mortgagee-creditor that prospective bidders may still rely on
the technical description because it was accurate. We held that the notice must
contain the correct title number and technical description of the property to be
sold:

The Notice of Sheriff[']s Sale. in this case, did not state

the correct number of the transfer certificate of title of the
property to be sold. This is a substantial and fatal error which
resulted in invalidating the entire Notice. That the correct
technical description appeared on the Notice does not
constitute substantial compliance with the statutory
requirements. The purpose of the publication of the Notice
of Sheriff[']s Sale is to inform all interested parties of the
date, time and place of the foreclosure sale of the real
property subject thereof. Logically, this not only requires
that the correct date, time and place of the foreclosure sale
appear in the notice but also that any and all interested parties
be able to determine that what is about to be sold at the
foreclosure sale is the real property in which they have an
interest.

The Court is not unaware of the fact that the majority of

the population do not have the necessary knowledge to be
able to understand the technical descriptions in certificates
of title. It is to be noted and stressed that the Notice is not
meant only for individuals with the training to understand
technical descriptions of property but also for the layman
with an interest in the property to be sold, who normally
relies on the number of the certificate of title. To hold that
the publication of the correct technical description, with an
incorrect title number, of the property to be sold constitutes

65

'"
at
Id. 73. ;o/
G.R. No. 106953. August 19, 1993, 225 SCRA 45~
 Decision 11 G.R. Nos. 192934
& 197010

substantial compliance would certainly defeat the purpose of

the Notice. This is not to say that a correct statement of the
title number but with an incorrect technical description in the
notice of sale constitutes a valid notice of sale. The Notice
of Sheriff[']s Sale, to be valid, must contain the correct
title number and the correct technical description of the
property to be sold. 67 (Emphasis supplied.)

We do not agree with Security Bank's reliance on OCA Circular No.

14 (s. 1984). While it is true that the circular does not require the full technical
description of the properties, it still requires the inclusion of the salient
portions such as the lot number of the property and its boundaries. 68 In any
case, what is apparent is that Security Bank published incorrect data in the
notice that could bring about confusion to prospective bidders. In fact, their
subsequent publication of an erratum is recognition that the error is significant
enough to bring about confusion as to the identity, location, and size of the
properties.

The publication of a single erratum, however, does not cure the defect.
As correctly pointed out by the RTC, "[t]he act of making only one corrective
publication in the publication requirement, instead of three (3) corrections is
a fatal omission committed by the mortgagee bank." 69 To reiterate, the
published notices that contain fatal errors are nullities. Thus, the erratum is
considered as a new notice that is subject to the publication requirement for
once a week for at least three consecutive weeks in a newspaper of general
circulation in the municipality or city where the property is located. Here,
however, it was published only once.

While there are cases where we upheld foreclosure sales on the ground
that the mortgagor-debtor's act of redeeming the property amounts to
estoppel, we cannot apply this equitable principle here. For one, Security
Bank never raised the issue in its pleadings. Defenses and objections that are
not pleaded in the answer or motion to dismiss are deemed waived. 70 Second,
estoppel is a mere principle in equity. We cannot grant estoppel for the reason
that Security Bank itself denies that the spouses Mercado offered to redeem
the Batangas properties. 71 Thus, the element of reliance is absent.

II
The interest rate provisions in the parties'
agreement violate the principle of mutuality of
contracts.

67
Id. at 454.
68
The relevant portion of OCA Circular No. 14 provides:
NOTICE OF EXTRA-JUDICIAL SALE
xx xx
TRANSFER CERTIFICATE OF TITLE NO.
A parcel of land situated in _ _ containing an area , more or less ,_ _ x x x.
69
Rollo (G.R. No. 192934), p. 74.

11
70
RULES OF COURT, Rule 9, Sec. 1.
71
Rollo (G.R. No. 192934), p. 71.
 Decision 12 G.R. Nos. 192934
& 197010

a.

The principle of mutuality of contracts is found in Article 1308 of the

New Civil Code, which states that contracts must bind both contracting
parties, and its validity or compliance cannot be left to the will of one of them.
The binding effect of any agreement between parties to a contract is premised
on two settled principles: (1) that any obligation arising from contract has the
force oflaw between the parties; and (2) that there must be mutuality between
the parties based on their essential equality. 72 As such, any contract which
appears to be heavily weighed in favor of one of the parties so as to lead to an
unconscionable result is void. Likewise, any stipulation regarding the validity
or compliance of the contract that is potestative or is left solely to the will of
one of the parties is invalid. 73 This holds true not only as to the original terms
of the contract but also to its modifications. Consequently, any change in a
contract must be made with the consent of the contracting parties, and must
be mutually agreed upon. Otherwise, it has no binding effect. 74

Stipulations as to the payment of interest are subject to the principle of

mutuality of contracts. As a principal condition and an important component
in contracts of loan, 75 interest rates are only allowed if agreed upon by express
stipulation of the parties, and only when reduced into writing. 76 Any change
to it must be mutually agreed upon, or it produces no binding effect:

Basic is the rule that there can be no contract in its true

sense without the mutual assent of the parties. If this consent
is absent on the part of one who contracts, the act has no more
efficacy than if it had been done under duress or by a person
of unsound mind. Similarly, contract changes 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 contracts, the interest rate is
undeniably always a vital component, for it can make or
break a capital venture. Thus, any change must be mutually
agreed upon, otherwise, it produces no binding effect. 77
(Citation omitted.)

Thus, in several cases, we declared void stipulations that allowed for

the unilateral modification of interest rates. In Philippine National Bank v.
Court of Appeals,78 we disallowed the creditor-bank from increasing the

72
Almeda v. Court ofAppeals, G.R. No. 113412, April 17, 1996, 256 SCRA 292, 299-300.
73 Id
74
Silos v. Philippine National Bank, G.R. No. 181045, July 2, 2014, 728 SCRA 617, 646.
75
Id. at 660.
76
Article 1956 of the New Civil Code provides that: "[n]o interest shall be due unless it has been expressly
stipulated in writing."
See also Prisma Construction & Development Corporation v. Menchavez, G.R. No. 160545, March 9,
2010, 614 SCRA 590, 598.
77
Philippine Savings Bank v. Castillo, G.R. No. I 93r78/ ay 30, 2011, 649 SCRA 527, 537.
78
G.R. No. 88880, April 30, 1991, 196 SCRA 536.
 Decision 13 G.R. Nos. 192934
& 197010

stipulated interest rate at will for being violative of the principle of mutuality
of contracts. We said:

Besides violating P.D. 116, the unilateral action of the

PNB in increasing the interest rate on the private
respondent's loan, violated the mutuality of contracts
ordained in Article 1308 of the Civil Code:

"ART. 1308. The contract must bind both

contracting parties; its validity or compliance cannot
be left to the will of one of them."

In order that obligations arising from contracts may have

the force of law between the parties, there must
be mutuality between the parties based on their essential
equality. A contract containing a condition which makes its
fulfillment dependent exclusively upon the uncontrolled will
of one of the contracting parties, is void (Garcia vs. Rita
Legarda, Inc., 21 SCRA 555). Hence, even assuming that the
Pl.8 million loan agreement between the PNB and the
private respondent gave the PNB a license (although in fact
there was none) to increase the interest rate at will during the
term of the loan, that license would have been null and void
for being violative of the principle of mutuality essential in
contracts. It would have invested the loan agreement with
the character of a contract of adhesion, where the parties do
not bargain on equal footing, the weaker party's (the debtor)
participation being reduced to the alternative "to take it or
leave it" (Qua vs. Law Union & Rock Insurance Co., 95 Phil.
85). Such a contract is a veritable trap for the weaker party
whom the courts of justice must protect against abuse and
imposition. 79 (Italics in the original.)

The same treatment is given to stipulations that give one party the
unbridled discretion, without the conformity of the other, to increase the rate
of interest notwithstanding the inclusion of a similar discretion to decrease it.
In Philippine Savings Bank v. Castillo 80 we declared void a stipulation81 that
allows for both an increase or decrease of the interest rate, without subjecting
the modification to the mutual agreement of the parties:

Escalation clauses are generally valid and do not

contravene public policy. They are common in credit
agreements as means of maintaining fiscal stability and
retaining the value of money on long-term contracts. To
prevent any one-sidedness that these clauses may cause, we
have held in Banco Filipino Savings and Mortgage Bank v.
Judge Navarro that there should be a corresponding de-

79
Id. at 544-545.
80
Supra.
81
Id. at 529. The clause therein provided:
The rate of interest and/or bank charges herein stipulated, during the terms of this promissory note, its
extensions, renewals or other modifications, may be increased, decreased or otherwise changed from time
to time within the rate of interest and charges allowed under present or future lawrs a or government
regulation(s) as the PHILIPPINE SAVINGS BANK may prescribe for its debtors.
 Decision 14 G.R. Nos. 192934
& 197010

escalation clause that would authorize a reduction in the

interest rates corresponding to downward changes made by
law or by the Monetary Board. As can be gleaned from the
parties' loan agreement, a de-escalation clause is provided,
by virtue of which, petitioner had lowered its interest rates.

Nevertheless, the validity of the escalation clause did not

give petitioner the unbridled right to unilaterally adjust
interest rates. The adjustment should have still been
subjected to the mutual agreement of the contracting parties.
In light of the absence of consent on the part of respondents
to the modifications in the interest rates, the adjusted rates
cannot bind them notwithstanding the inclusion of a de-
escalation clause in the loan agreement. 82 (Underscoring
supplied; citation omitted.)

We reiterated this in Juico v. China Banking Corporation, 83 where we

held that the lack of written notice and written consent of the borrowers made
the interest proviso a one-sided imposition that does not have the force of law
between the parties:

This notwithstanding, we hold that the

escalation clause is still void because it grants respondent
the power to impose an increased rate of interest without a
written notice to petitioners and their written consent.
Respondent's monthly telephone calls to petitioners
advising them of the prevailing interest rates would not
suffice. A detailed billing statement based on the new
imposed interest with corresponding computation of the
total debt should have been provided by the respondent to
enable petitioners to make an informed decision. An
appropriate form must also be signed by the petitioners to
indicate their conformity to the new rates. Compliance with
these requisites is essential to preserve the mutuality of
contracts. For indeed, one-sided impositions do not have the
force of law between the parties, because such impositions
are not based on the parties' essential equality. 84 (Citation
omitted.)

In the case of Silos v. Philippine National Bank, 85 we invalidated the

following provisions:

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,

82
Id. at 537.
83
G.R. No. 187618,
ril IO, 2013, 695 SCRA 520.
84
Id. at 539.
85
Supra note 74.
 Decision 15 G.R. Nos. 192934
& 197010

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 Bank's 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 (Emphasis
and citation omitted, italics supplied.)

In Silos, an amendment to the above credit agreement was made:

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 and citation
omitted.)

In that case, we found that the method of fixing interest rates is based
solely on the will of the bank. The method is "one-sided, indeterminate, and
[based on] subjective criteria such as profitability, cost of money, bank costs,
etc. xx x." 88 It is "arbitrary for there is no fixed standard or margin above or
below these considerations." 89 More, it is worded in such a way that the
borrower shall agree to whatever interest rate the bank fixes. Hence, the
element of consent from or agreement by the borrower is completely lacking.

Here, the spouses Mercado supposedly: ( 1) agreed to pay an annual

interest based on a "floating rate of interest;" (2) to be determined solely by
Security Bank; (3) on the basis of Security Bank's own prevailing lending
rate; (4) which shall not exceed the total monthly prevailing rate as computed
by Security Bank; and ( 5) without need of additional confirmation to the
interests stipulated as computed by Security Bank.

Notably, stipulations on floating rate of interest differ from escalation

clauses. Escalation clauses are stipulations which allow for the increase (as
well as the mandatory decrease) of the original fixed interest rate. 90
Meanwhile, floating rates of interest refer to the variable interest rate stated
on a market-based reference rate agreed upon by the parties. 91 The former
refers to the method by which fixed rates may be increased, while the latter
pertains to the interest rate itself that is not fixed. Nevertheless, both are
contractual provisions that entail adjustment of interest rates subject to the
principle of mutuality of contracts. Thus, while the cited cases involve

86
Id. at 623.
87
Id. at 624.
88
Id at 659.
89
90 Jd (
Manual of Regulations for Banks, Vol. I,§ X305.2.
91
Manual of Regulations for Banks, Vol. 1, § X305.3.
 Decision 16 G.R. Nos. 192934
& 197010

escalation clauses, the principles they lay down on mutuality equally apply to
floating interest rate clauses.

The Banko Sentral ng Pilipinas (BSP) Manual of Regulations for Banks

(MORB) allows banks and borrowers to agree on a floating rate of interest,
provided that it must be based on market-based reference rates:

§ X305.3 Floating rates of interest. The rate of interest

on a floating rate loan during each interest period shaU
be stated on the basis of Manila Reference Rates (MRRs),
T-Bill Rates or other market based reference rates plus
a margin as may be agreed upon by the parties.

The MRRs for various interest periods shall be

determined and announced by the Bangko Sentral every
week and shall be based on the weighted average of the
interest rates paid during the immediately preceding week by
the ten ( 10) KBs with the highest combined levels of
outstanding deposit substitutes and time deposits, on
promissory notes issued and time deposits received by such
banks, of Pl 00,000 and over per transaction account, with
maturities corresponding to the interest periods for which
such MRRs are being determined. Such rates and the
composition of the sample KBs shall be reviewed and
determined at the beginning of every calendar semester on
the basis of the banks' combined levels of outstanding
deposit substitutes and time deposits as of 31 May or 30
November, as the case may be.

The rate of interest on floating rate loans existing and

outstanding as of 23 December 1995 shall continue to be
determined on the basis of the MRRs obtained in accordanc~
with the provisions cf the rules existing as of 01 January
1989: Provided, however, That the parties to such existing
floating rate loan agreements are not precluded from
amending or modifying their loan agreements by adopting a
floati.ng rate of interest determined on the basis of the TBR
or other market based reference rates.

Where the loan agreement provides for a floating interest

rate, the interest period, which shall be such period of time
for ~1hich the rate of interest is fixed, shall be such period as
may be agreed upon by the parties.

For the purpose 6f computing the MR.Rs, banks shail

accomplish the report forms, RS Form 2D and Form 2E
(BSP 5-17-34A). 9:: (Emphasis and underscoring supplied.)

This BSP requirement is consistent with the principle that the

determination of interest rates cannot be left solely to the will of one party. It
further emphasizes that the reference rate must be stated in writing, and must
be agreed upon by the parties.

'" Manua I of Regulation' foe B,,,k<, Vol". I , § X3d5 .3; Seo al'o BsP .Cicculac No. 99, Oecembcc 23, 191
 Decision 17 G.R. Nos. 192934
& 197010

b.

Security Bank argues that the subject provisions on the interest rate
observed the principle of mutuality of contracts. It claims that there is a ceiling
on the maximum applicable rate, and it is the market forces that dictate and
establish the rate of interest.

We disagree.

The R TC and CA were correct in holding that the interest provisions in

the revolving credit line agreement and its addendum violate the principle of
mutuality of contracts.

First, the authority to change the interest rate was given to Security
Bank alone as the lender, without need of the written assent of the spouses
Mercado. This unbridled discretion given to Security Bank is evidenced by
the clause "I hereby give my continuing consent without need of additional
confirmation to the interests stipulated as computed by [Security Bank]. "93
The lopsidedness of the imposition of interest rates is further highlighted by
the lack of a breakdown of the interest rates imposed by Security Bank in its
statement of account94 accompanying its demand letter.

Second, the interest rate to be imposed is determined solely by Security

Bank for lack of a stated, valid reference rate. The reference rate of "Security
Bank's prevailing lending rate" is not pegged on a market-based reference rate
as required by the BSP. In this regard, we do not agree with the CA that this
case is similar with Polotan, Sr. v. Court of Appeals (Eleventh Division). 95
There, we declared that escalation clauses are not basically wrong or legally
objectionable as long as they are . not solely potestative but based on
reasonable and valid grounds. We held that the interest rate based- on the
"prevailing market rate" is valid because it cannot be said to be dependent
solely on the will of the bank as it is also dependent on the prevailing market
rates. The fluctuation in the market rates is beyond the control of the bank. 96
Here~ however, the stipulated interest rate based on "Security Bank's
prevailing lending ·rate" is not synonymous with "prevailing market rate." For
one, Security Bank is still the one who determines its own prevailing lending
rate. More, the argument that Security Bank is guided by other facts (or
external factors sach as Singapore Rate, London Rate, Inter-Bank Rate) in
detem1ining its prevailing monthly rate fails because these reference rates are
not contained in writing as required by law. and the BSP. Thus, we find that
the interest stipulations here are akin to the ones invalidated in Silos and in
Philippine Savings Bank for being potestative.

93
Records (?C"vil~.fs'e No. 5808), Vol. I, p. 26.
94
Id. a.t 40.
95
Supra not .
% Id. at 258.
 Decision 18 G.R. Nos. 192934
& 197010

In striking out these provisions, both in the original and the addendum,
we note that there are no other stipulations in writing from which we can base
an imposition of interest. Unlike in cases involving escalation clauses that
allowed us to impose the original rate of interest, we cannot do the same here
as there is none. Nevertheless, while we find that no stipulated interest rate
may be imposed on the obligation, legal interest may still be imposed on the
outstanding loan. Eastern Shipping Lines, Inc. v. Court of Appeals 97 and
Nacar v. Galle1T Frames 98 provide that in the absence of a stipulated interest,
a loan obligation shall earn legal interest from the time of default, i.e., from
judicial or extrajudicial demand. 99

III

In Anda! v. Philippine National Bank, 100 the case cited by the spouses
Mercado, we declared the mortgagor-debtors therein liable to pay interest at
the rate equal to the legal interest rate from the time they defaulted in payment
until their loan is fully paid. We also said that default, for purposes of
determining when interest shall run, is to be counted from the· time of the
finality of decision determining the· rate of interest. Spouses iVIercado claim
that following Andal, they, too, could not be deemed to have been in default
from the time of the extrajudicial demand on March 31, 1991. They claim
anew that since the validity of the interest rates is still being determined in this
petition, interest should be imposed only after finality of this Decision.

They err. Andal is not squarely applicable to this case. In that case, there
was a finding by both the trial court and the CA that no default can be declared
because of the arbitrary, illegal, and unconscionable interest rates.and penalty
charges unilaterally imposed by the bank. There, the debtors qu~stio11ed the
period ofdef':mlt in relation to the interest imposed as it was an i8sue r,ecessary
for the determination of the validity of the foreclosure sales therein. In
contrast, here, the spouses Mercado never denied that they defaulted in the
payment of the principal obligation. They did not assert, from their complaint
or up to their petition before this Court, that they. would not have been in
default were it not for the bank's imposition of the interest rates. Theories
raised for the first time cannot be entertained in appeal.

Moreover, for purposes of computing when legal interest shall run, it is

enough that the debtor be in default on the principal obligation. To be
considered in default under the revolving credit line agreement~ the·borrower
need not be in default for the whole amount, but for any amount due. 101 The
9
' G.R. No. 97412, July 12, 1994, 234 SCRA 7 8.
98
UR. No. 189871,August 13,2013, 703 SCRA439.
99
/d at 457-458. ·
100
S:1pra note 47.
101
See Rollo (G.R. No. 192934), µ. 94. The revolving credit line er.umerates the following as e\'ents of
default:
14. Default - I shall be considered in dei'ault in the event that:
a) I am in default in any of these terms and conditions ard/or
I . the mortgagor am/is in default
under the terms and conditions of the Mortgage,
b) my outstanding A vailments exceed my Credit Limit, ·
. '' . '
 Decision 19 G.R. Nos. 192934
& 197010

spouses Mercado never challenged Security Bank's claim that they defaulted
as to the payment of the principal obligation of P8,000,000.00. Thus, we find
they have defaulted to this amount at the time Security Bank made an
extrajudicial demand on March 31, 1999.

We also find no merit in their argument that penalty charges should not
be imposed. \Vhile we see no legal basis to strike down the penalty stipulation,
however, we reduce the penalty of2% per month or 24% per annum for being
iniquitous and unconscionable as allowed under Article 1229 102 of the Civil
Code.

In MCMP Construction Corp. v. Monark Equipment Corp., 103 we

declared the rate of 36% per annum unconscionable and reduced it to 6% per
annum. We thus similarly reduce the penalty here from 24% per annum to 6%
per annum from the time of default, i.e., extrajudicial demand.

We also modify the amount of.the outstanding obligation of the spouses

:tv1ercado to Security Bank. To recall, the foreclosure· sale over the parcel of
land in Lipa City is not affected by the annulment proceedings. We thus find
that the proceeds of the foreclosure sale over the parcel of land in Lipa City
in the amount of P483,120.00 should be applied to the principal obligation of
P8,000,000.00 plus interest and penalty from extrajudicial demand (March 31,
1999) until date of foreclosure sale (October 19, 1999). 104 The resulting
deficiency shall earn legal interest at the rate of 12% from the filing of
Security Bank's answer with counterclaim 105 on January 5, 2001 until June
30, 2013, and shall earn legal interest at the present rate of 6% from July 1,
2013 until finality of judgment. 106 Thus, the outstanding obligation of the
spouses Mercado should be computed as follows:

Principal P8,000,000.00
Interest at 12% per annum 533.917.81

c) I default in payment of any amount due hereunder,

d) I am in default in any of the terms and conditions of any contracts/evidence of indebtedness
and related documents with Security Bank, or I am or the mortgagor is in default under the terms
and conditions of any Mortgage which may now be existing or may subsequently be granted to me
by Security Bank; ·
e) I violate terms and conditions of ar.y contract with any bank or other persons, corporations.
entities, for the payment of borrowed money, or any other ewnts cf defaults in such ~ontracts,
f) Any creditor tries by legal process to attach or levy on my money or any property with Security
Bank, . .
g) I apply for voluntary or involuntary relief under the bankruptcy or insolvency laws,
h) Security Bank believes on reasonable ground that it was mduced by fraudulent
misrepresentation on my part to grant me the MML. (Emphasis supplied.)
102
Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or
irregularly compiied wir.h by the debtor. Even if there has been no performance, the pe1mlty may also be
reduced by the courts if it is iniquitous or unconscionable.
3
1U G.R. No. 201001, November 10, 2014, 739 SCRA 432, 443.
4
il! See Juico v. China Banking C01pvration, sup1xfnote 83 at 541.
105
Records (Civil Case No. 5808), Vol. I, ppd-106.
106
Nacar v. Gallery Frames, supra note 98.
 Decision 20 G.R. Nos. 192934
& 197010

P8,000,000.00 x 0.12 x (203 days/365

days)101
Penalty at 6% per annum 266,958.90
P8,000,000.00 x 0.06 x (203 days/365 days)
P8,800,876. 71
Less: Bid price for Lipa City property 483,120.0Q
TOTAL DEFICIENCY PS,317, 756. 71

WHEREFORE, the petitions are DENIED. Accordingly, ::he Court of

Appeals' Decision dated July 19, 2010 and the Amendatory Order dated June
19, 2007 are hereby MODIFIED. Spouses Rodrigo and Erlinda Mercado are
hereby ordered to pay Security Bank Corporation the sum of P8,317,756.71
representing the amount of deficiency, inclusive of interest and penalty. Said
amount shall earn legal interest of 12% per annum from January 5, 2001 until
June 30, 2013, and shall earn the legal interest of 6% per annum from July 1,
2013 until finality of this Decision. The total amount shall thereafter earn
interest at the rate of 6% per annum from the finality of judgment until its full
satisfaction.

No costs.

SO ORDERED.

Associate Justice

WE CONCUR:

(On Qfficial Leave)

TERESITA J. LEONARDO-DE CASTRO
Associate Justice

_,,

~
~
~/ /
MARIANO C. DEL CASTILI.JO NOEL GI :th TIJAM
Associate Justice Ass e-~A<stice
Acting Chairperson

m This is the computed number of days from March 3 I, 1999, the datP- of extrajudic'al demand, umii
October 19. 1999, the date of the foreclosure sale.
 Decision 21 G.R. Nos. 1~2934
& 197010

ATTESTATION

I attest that the conclusions in the above Decision had been reached in
consultation before the cases were assigned to the writer of the opinion of the
Court's Division.

,,,
"///ff~~.?

MARIANO C. DEL CASTILLO

Acting Chairperson, First Division
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that

the conclusions in the above Decision had been reached in consultation before
the cases were assigned to the writer of the opinion of the Court's Division.

Senior Associate Justice****

"" p.,. Seo. 12 of Republk Act No. 296, The Judkiary Act of 1948, "' amendei