### Facts:
Calvin and Elsa Arcilla secured multiple loans from Banco Filipino Savings and Mortgage Bank, secured by real estate mortgages on their properties in Parañaque. Initially borrowing P107,946.00, this later increased to P188,000.00 with a consolidation arrangement in 1975, carrying a 12% per annum interest rate. Following a Central Bank Circular on interest rates in 1976, Banco Filipino unilaterally increased the interest to 17% per annum.
The Arcillas also secured a loan from the Bank of the Philippine Islands, backed by FGU Insurance Corporation, using the same properties as collateral. Due to unpaid amortizations, Banco Filipino initiated extrajudicial foreclosure in 1979, buying the properties at auction. FGU Insurance later redeemed the properties from Banco Filipino.
In 1985, the Arcillas sought legal relief against Banco Filipino’s actions, arguing the loan contracts and foreclosure were void due to the unilateral interest rate increase and alleged usury. Their case referenced the Supreme Court’s decision in “Banco Filipino vs. Hon. Miguel Navarro,” which held similar actions by the bank as illegal.
The Regional Trial Court (RTC) sided with the Arcillas, ordering Banco Filipino to refund P126,139.00 with 12% interest per annum from the complaint filing. The Court of Appeals affirmed this decision, prompting Banco Filipino to escalate the case to the Supreme Court, alleging errors in the consideration of prescription and entitlements to refunds.
### Issues:
1. Whether the Arcillas’ action had prescribed.
2. Whether the Arcillas were entitled to a refund of alleged interest overpayments.
### Court’s Decision:
The Supreme Court denied Banco Filipino’s petition and affirmed the Court of Appeals’ decision. It held that the action had not prescribed, as the cause of action accrued not at the time of the contract’s execution but when the unilateral interest rate increase was discovered in 1978. Regarding the refund, the court also sided with the Arcillas, ruling the absence of a corresponding de-escalation clause in the loan agreement made the unilateral interest rate increase invalid, entitling them to a refund of the overpaid interest.
### Doctrine:
This case reiterated the necessity for a valid escalation clause in loan agreements to include a provision for de-escalation, reflecting changes in law or Monetary Board adjustments. It also confirmed that a cause of action accrues when an aggrieved party becomes aware of their rights being violated, not necessarily at the contract’s execution.
### Class Notes:
– A valid escalation clause must include provisions for both escalation and de-escalation to adjust for changes in interest rates as per law or Monetary Board directives.
– Prescription of action is counted from the day the cause of action accrues, which is when the aggrieved party becomes aware of the breach or violation of their rights.
– Material allegations in a complaint, not the specific relief sought, determine the relief entitled to a plaintiff.
### Historical Background:
This case came amidst a period of significant economic changes and shifts in legal interpretations around loan agreements and foreclosure practices in the Philippines. It underscored the evolving understanding of consumer protection laws, specifically regarding bank loans secured by mortgages and the discretionary powers of lending institutions in adjusting interest rates against the backdrop of changing economic policies.
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