Spouses Robert Alan L. and Nancy Lee Limso vs. Philippine National Bank

Interest-rate stipulations and escalation clauses that allow a creditor bank to determine and increase interest rates at its sole discretion, without any reasonable means for the debtor to determine the applicable rate and without the debtor’s written consent, violate the mutuality of contracts under Article 1308 of the Civil Code and are void as to the stipulated rate; the nullity of the rate does not nullify the obligation to pay interest on the principal loan obligation. The Court also held that the 1999 restructuring agreement novated the 1993 loan agreements, but void interest-rate provisions cannot be ratified, and that entry of an involuntary instrument in the Primary Entry Book constitutes registration under Section 56 of Presidential Decree No. 1529.

Davao Sunrise Investment and Development Corporation and Spouses Robert Alan L. and Nancy Lee Limso were borrowers of Philippine National Bank under a credit and loan arrangement secured by real estate mortgages over four parcels of land in Davao City. In 1999, the parties executed a Conversion, Restructuring and Extension Agreement that converted and restructured the obligations into Loan I and Loan II. The dispute implicated Act No. 3135, Republic Act No. 8791, Presidential Decree No. 1529, and the Civil Code provisions on mutuality of contracts, novation, legal interest, and reduction of penalties and attorney’s fees.

In 1993, Spouses Robert Alan L. Limso and Nancy Lee Limso and Davao Sunrise Investment and Development Corporation took out a loan from Philippine National Bank in the total amount of ₱700 million, divided into a revolving credit line of ₱300 million and a seven-year long-term loan of ₱400 million. To secure the loan, real estate mortgages were constituted on four parcels of land registered with the Registry of Deeds of Davao City. The parcels covered by TCT Nos. T-147820, T-151138, and T-147821 were registered in the name of Davao Sunrise, while the parcel covered by TCT No. T-140122 was registered in the name of Spouses Limso. In 1995, Spouses Limso sold the parcel covered by TCT No. T-140122 to Davao Sunrise.

Spouses Limso and Davao Sunrise had difficulty paying their loan. In 1999, they requested restructuring. After negotiations, the parties executed a Conversion, Restructuring and Extension Agreement. The principal obligation in the restructured agreement totalled ₱1.067 billion, including ₱217.15 million unpaid interest. The restructured loan was divided into Loan I, with a principal amount of ₱583.18 million, and Loan II, with a principal amount of ₱483.78 million. The restructured loan was secured by the same real estate mortgage over the four parcels of land, all registered in the name of Davao Sunrise. The agreement provided that interest on Loan I and Loan II would be at the rate per annum “to be set by the Bank,” with the interest rate “reset by the Bank every month.” Spouses Limso and Davao Sunrise executed promissory notes dated January 5, 1999, in PNB’s favor, bearing the amounts of ₱583,183,333.34 and ₱483,811,798.93. The promissory note for Loan II included interest charges because the preambular clauses of the restructuring agreement acknowledged outstanding obligations consisting of a credit line of ₱583.18 million, a loan of ₱266.67 million, and interest of ₱217.15 million.

Spouses Limso and Davao Sunrise still encountered financial difficulties and were unable to pay despite the restructuring. PNB sent demand letters, but no payment followed. On August 21, 2000, PNB filed a Petition for Extrajudicial Foreclosure of Real Estate Mortgage before the Sheriff’s Office in Davao City. The Notice of Foreclosure was published. The auction sale was held on October 26, 2000. Ball Park Realty Corporation submitted a bid of ₱1,521,045,331.49, while PNB bid ₱1,521,055,331.49. PNB was declared the highest bidder.

After the foreclosure sale, but before the Sheriff could issue the Provisional Certificate of Sale, Spouses Limso and Davao Sunrise filed a Complaint for Reformation or Annulment of Contract against PNB, the Ex-Officio Provincial Sheriff of Davao City, and the Register of Deeds of Davao City. The Complaint was filed on October 30, 2000, raffled to Branch 17 of the Regional Trial Court of Davao City, and docketed as Civil Case No. 28,170-2000. It prayed for nullity of the unilateral imposition and increases of interest rates, elimination of illegal interests and penalties, reduction of the loan accounts, nullity of the auction sale and foreclosure proceedings, reformation or annulment of contract, reconveyance, damages, and injunction. A 72-hour restraining order was initially issued, and after proceedings, Branch 17 eventually issued a writ of preliminary injunction on December 4, 2000. PNB assailed the injunction before the Court of Appeals in CA G.R. SP No. 63351. On January 10, 2002, the Court of Appeals set aside the injunction and dissolved the writ. Spouses Limso and Davao Sunrise elevated the matter to the Supreme Court in G.R. No. 152812, but the petition was denied on procedural grounds.

In view of the dissolution of the writ of preliminary injunction, the Sheriff issued a Provisional Certificate of Sale dated February 4, 2002, in the amount of ₱1,521,055,331.49. The certificate did not state the applicable redemption period and the redemption price payable by the mortgagor or redemptioner. On the same date, PNB presented the certificate to the Register of Deeds of Davao City for consolidation and registration. The presentation was recorded in the Primary Entry Book under Entry Nos. 4762 to 4765. On February 5, 2002, the Acting Register of Deeds elevated the registration en consulta to the Land Registration Authority, docketed as Consulta No. 3405. On May 21, 2002, the Land Registration Authority issued a Resolution stating that the Sheriff’s Provisional Certificate of Sale was registrable on the specified titles provided all other registration requirements were complied with. Meanwhile, on March 25, 2002, Spouses Limso filed a Petition for Declaratory Relief with Prayer for Temporary Restraining Order/Injunction against PNB, the Sheriff, and the Register of Deeds, docketed as Civil Case No. 29,036-2002 and raffled to Branch 14. They alleged that the certificate did not state any redemption price or period and that Republic Act No. 8791’s shorter redemption period for juridical persons should not apply to them as natural persons. Branch 14 issued a temporary restraining order on April 10, 2002, but recalled it on April 16, 2002. On May 3, 2002, Branch 14 granted a writ of preliminary injunction enjoining registration of the certificate. The writ was later dissolved on May 23, 2002 by the pairing judge, then reinstated on June 24, 2002. PNB filed a Petition for Certiorari, Prohibition and Mandamus before the Court of Appeals, docketed as CA G.R. SP No. 71527. On December 11, 2002, the Court of Appeals granted PNB’s petition, set aside the May 3 and June 24, 2002 Orders, dismissed Civil Case No. 29,036-2002, and ordered the Register of Deeds to register PNB’s Sheriff’s Provisional Certificate of Sale.

Meanwhile, Branch 17 of the Regional Trial Court of Davao City promulgated its Decision on June 19, 2002 in Civil Case No. 28,170-2000. It found the interest rate provisions in the loan agreement unreasonable and unjust because the imposable interest rates were solely determined by PNB. The arbitrary imposition of interest rates had the effect of increasing the total loan obligation beyond the borrowers’ capacity to pay. The trial court declared the unilateral imposition of increased interest rates null and void, reduced the principal obligation, and reduced penalties and attorney’s fees. On August 13, 2002, Branch 17 clarified that the correct remaining balance was ₱205,084,682.61. PNB appealed to the Court of Appeals, docketed as CA-G.R. CV No. 79732. On August 13, 2009, the Court of Appeals in CA-G.R. CV No. 79732-MIN held that there was no mutuality between the parties because the interest rates were unilaterally determined and imposed by PNB. It found that the contracts did not specify the applicable interest rates and merely stated rates “to be set by the Bank.” It also found that PNB unilaterally increased the already arbitrarily imposed interest rates on numerous occasions, within intervals of only seven days and/or one month. The Court of Appeals nullified the interest rate provisions and applied 12% legal interest, while affirming the reduction of penalties and attorney’s fees.

In the writ of possession case, PNB filed an Ex-Parte Petition for Issuance of a Writ of Possession on July 3, 2002, docketed as Other Case No. 124-2002 and raffled to Branch 15. The trial court dismissed the petition on February 16, 2007, finding that PNB should complete the entire process in extrajudicial foreclosure and that the Certificate of Sale had not been registered with the Registry of Deeds because there was no annotation thereof. PNB appealed under Rule 41 to the Court of Appeals, docketed as CA-G.R. CV No. 01464-MIN. On January 21, 2013, the Court of Appeals dismissed the appeal on the ground that PNB availed itself of the wrong remedy; the proper remedy was a petition for review under Rule 45. During the pendency of the cases, PNB filed administrative and criminal complaints against Atty. Florenda T. Patriarca, the Acting Register of Deeds. In Administrative Case No. 02-13, the Land Registration Authority found Atty. Patriarca guilty of grave misconduct and dismissed her from service. The Resolution stated that registration became complete when she affixed her signature below the annotations and that she could not unilaterally erase her signature. PNB also filed applications before the Court of Appeals to hold the injunction bond liable for damages and to be appointed as receiver. On March 2, 2006, the Court of Appeals denied both applications. It ruled that PNB’s application for damages on the injunction bond was filed out of time and that PNB could not be appointed receiver because it was a party and not impartial or disinterested. PNB’s motion for reconsideration was denied on May 26, 2006.

• PNB — Timeliness of Injunction-Bond Damages Application (G.R. No. 173194): PNB argued that its application to hold the injunction bond liable for damages was filed on time because the phrase “before the judgment becomes executory” in Section 20 of Rule 57 refers to the judgment in the main case, which was CA-G.R. CV No. 79732.
• PNB — Receivership (G.R. No. 173194): PNB argued that the Court of Appeals erred in denying its application to be appointed receiver because, although the Sheriff’s Provisional Certificate of Sale was not registered, the certificate provided the basis for PNB to claim ownership over the foreclosed properties, and as highest bidder it had the right to receive rental income.
• PNB — Mutuality and Escalation Clauses (G.R. No. 196958): PNB argued that the principle of mutuality of contracts was not violated because Spouses Limso and Davao Sunrise were notified of the applicable interest rates and their consent was obtained before the effectivity of the agreement; the rates depended on prevailing market rates; and loan agreements with escalation clauses do not violate mutuality.
• PNB — Novation (G.R. No. 196958): PNB contended that the Conversion, Restructuring and Extension Agreement novated the previous contracts and that the alleged infirmities in the previous contracts were set aside upon its execution.
• PNB — Rule 41 Remedy and Registration/Writ of Possession (G.R. No. 205463): PNB argued that Rule 41 was the proper remedy because its petition raised questions of fact and of law, including whether there was an annotation of encumbrance on the titles; that registration was completed upon entry in the Primary Entry Book; that Atty. Patriarca’s erasure of her signature could not revoke registration; and that it was entitled to a writ of possession.
• Spouses Limso and Davao Sunrise — Interest Stipulation and Overpayment (G.R. No. 197120): Spouses Limso and Davao Sunrise argued that the interest rates were not stipulated in writing in violation of Article 1956 of the Civil Code; that the letters sent by PNB were mere notices, not agreements; that some letters were received by unauthorized employees or not received at all; and that they had overpaid PNB in the amount of ₱15,915,588.89.
• Spouses Limso and Davao Sunrise — Redemption Period (G.R. No. 158622): Spouses Limso and Davao Sunrise alleged that the Sheriff’s Provisional Certificate of Sale did not state the redemption period and price, and that as natural persons who were principal mortgagors and owners, they were entitled to the one-year redemption period under Act No. 3135.

• Spouses Limso and Davao Sunrise — Injunction Bond and Receivership (G.R. No. 173194): They countered that the Court of Appeals did not err in denying PNB’s applications; the claim for damages for wrongful issuance of injunction must be filed before the finality of the decree dissolving the writ; PNB filed out of time; and PNB cannot claim damages because it did not secure a favorable judgment in Civil Case No. 28,170-2000. They also argued that PNB, as a party, cannot be appointed receiver.
• Spouses Limso and Davao Sunrise — Forum Shopping (G.R. No. 173194): They alleged that PNB was guilty of forum shopping because its ex-parte Petition for Issuance of a Writ of Possession and its application to be appointed receiver had the same purpose of obtaining possession of the properties.
• PNB — Reply on Damages and Forum Shopping (G.R. No. 173194): PNB replied that San Beda College was decided under the 1964 Rules and was no longer applicable; that Hanil Development Co., Ltd. vs. Intermediate Appellate Court allowed the judgment against the attachment bond to be included in the final judgment of the main case; that under the 1997 Rules the applicant for damages need not be the winning party; and that there was no forum shopping because there was no identity of parties, causes of action, and reliefs.
• PNB — Interest Rates and Letters (G.R. No. 196958): PNB countered that the promissory notes contained a provision allowing interest rate changes with prior notice and giving the borrower the option to prepay without penalty; that the letters were received by Davao Sunrise’s Chief Finance Officer, Chairman, and President; and that any unauthorized receipt was ratified when the borrowers used the loan proceeds.
• Spouses Limso and Davao Sunrise — Penalties and Attorney’s Fees (G.R. No. 196958): They argued that the Court of Appeals did not err in reducing penalties and attorney’s fees because Article 2227 of the Civil Code allows equitable reduction of iniquitous or unconscionable liquidated damages.
• Spouses Limso and Davao Sunrise — Registration (G.R. No. 205463): As intervenors-oppositors, they argued that registration in the Primary Entry Book is only a preliminary step; that PNB withdrew the documents; that entry is not equivalent to registration under Section 56 of Presidential Decree No. 1529; and that the signature of the Register of Deeds is crucial to complete registration.
• Office of the Solicitor General — Registration (G.R. No. 205463): The Office of the Solicitor General argued that when all requirements for registration of annotation have been complied with, it is ministerial for the Register of Deeds to register; the Register is not authorized to appraise proofs outside the documents sought to be registered; and the refusal to annotate should not preclude completion of registration.

• Remedy in G.R. No. 173194: Whether PNB’s Petition for Review on Certiorari in G.R. No. 173194 is the wrong remedy to assail the March 2, 2006 Court of Appeals Resolution denying its applications to hold the injunction bond liable for damages and to be appointed receiver.
• Forum Shopping: Whether PNB committed forum shopping when it filed an ex-parte Petition for Issuance of a Writ of Possession and an Application to be Appointed as Receiver.
• Interest Rates: Whether the Court of Appeals erred in ruling that the interest rates imposed by PNB were usurious and unconscionable.
• Novation: Whether the Conversion, Restructuring and Extension Agreement executed in 1999 novated the original Loan and Credit Agreement executed in 1993.
• Rule 41 Appeal: Whether the Court of Appeals erred in dismissing the Rule 41 appeal filed by PNB, assailing the Court of Appeals Decision dated January 21, 2013 in CA-G.R. CV No. 01464-MIN, for being the wrong remedy.
• Registration of Certificate of Sale: Whether the Sheriff’s Provisional Certificate of Sale should be considered registered in view of the entry made by the Register of Deeds in the Primary Entry Book.
• Writ of Possession: Whether PNB is entitled to a writ of possession.
• Redemption Period: Whether the applicable redemption period is one year under Act No. 3135 or three months under Section 47 of Republic Act No. 8791 where the mortgaged properties are owned by a juridical person but the loan has natural-person co-debtors.

• Remedy in G.R. No. 173194: No. The assailed Court of Appeals Resolutions are interlocutory and not appealable; the proper remedy was a Rule 65 petition or to await the outcome of the main case and assign the denial as error. The petition is denied.
• Forum Shopping: No. There is no identity of parties, causes of action, or reliefs between the writ of possession petition and the receivership application.
• Interest Rates: No. The Court of Appeals correctly ruled that the interest rates were invalid for violating mutuality of contracts and for being unconscionable; only the stipulated rate is void, not the obligation to pay interest.
• Novation: Yes. The Conversion, Restructuring and Extension Agreement novated the 1993 agreements; the obligation must be computed on the restructured amounts, but the void interest-rate provisions cannot be ratified.
• Rule 41 Appeal: No. The issue involved a pure question of law, so the proper remedy was a Rule 45 petition, not a Rule 41 appeal.
• Registration of Certificate of Sale: Yes. Entry in the Primary Entry Book is equivalent to registration under Section 56 of Presidential Decree No. 1529; the Register’s refusal to annotate does not defeat registration.
• Writ of Possession: Yes, but not as a matter of right until requirements are complied with; PNB must file the required bond under Section 7 of Act No. 3135.
• Redemption Period: Three months under Section 47 of Republic Act No. 8791. The right to redeem belongs to the owner of the mortgaged property, Davao Sunrise, a juridical person.

• Remedy in G.R. No. 173194: The assailed Court of Appeals Resolutions dated March 2, 2006 and May 26, 2006 denied PNB’s applications for damages on the injunction bond and appointment as receiver. These were interlocutory because they did not dispose of the merits of the main case, which involved the interest rates. Under Rule 41, Section 1, no appeal may be taken from an interlocutory order; the aggrieved party may file a special civil action under Rule 65. Rule 45, Section 1 allows appeal by certiorari only from a judgment, final order, or resolution. The proper remedy was Rule 65 or to await the main case and assign the denial as error. Nonetheless, the Court resolved the arguments. On the injunction-bond damages, Section 20, Rule 57 allows the application before the judgment becomes executory; the judgment referred to is the main case. PNB filed its application on January 12, 2005 during the pendency of CA-G.R. CV No. 79732-MIN, which was decided only on August 13, 2009. Hence, the Court of Appeals erred in ruling that the application was filed out of time. The denial of the applications was nevertheless affirmed. On receivership, Rule 59, Section 1 requires, among others, that the property or fund be in danger of being lost, removed, or materially injured. The general rule is that neither party to a litigation should be appointed receiver without the consent of the other because a receiver must be impartial and disinterested. PNB was a party and was objected to by Spouses Limso and Davao Sunrise; the properties were earning approximately ₱12,000,000.00 per month and were not shown to be in danger; and appointment would be premature pending appeal.
• Forum Shopping: The elements are identity of parties, identity of rights asserted and relief prayed for founded on same facts, and identity such that judgment in one would amount to res judicata in the other. There was no identity of parties because the writ of possession petition involved PNB only, while the receivership application involved PNB and Spouses Limso and Davao Sunrise. The causes of action were different: the writ of possession was based on PNB’s right as winning bidder, while receivership was for preservation of the properties pending appeal. Thus, no forum shopping.
• Interest Rates: Article 1308 provides that a contract must bind both parties and its validity or compliance cannot be left to the will of one. The interest provisions in the original agreements and the Conversion, Restructuring and Extension Agreement stated that the rate would be “set by the Bank” and reset monthly, leaving PNB sole discretion. There was no reasonable means for the borrowers to determine the applicable rate. The escalation clauses in the real estate mortgage and promissory notes likewise allowed PNB to increase rates without the borrowers’ written consent. The letters sent by PNB were mere notices, not agreements; they gave no room for negotiation. No meeting of minds or consent to the increases existed under Article 1318. Even assuming agreement, the rates were unconscionable. The suspension of the Usury Law by Central Bank Circular No. 905 did not give creditors an unbridled right to impose arbitrary rates. The Court nullified only the stipulated interest rate, not the stipulation that the loan shall earn interest. The obligation to pay interest on the principal subsisted. Since the parties did not specify a valid rate, the legal rate at the time of the agreement applied. The Conversion, Restructuring and Extension Agreement was executed on January 28, 1999, so the principal loan obligation earned 12% per annum from that date. Interest on conventional interest earned 12% per annum from August 21, 2000 (date of judicial demand) to June 30, 2013, and 6% per annum from July 1, 2013 until full satisfaction under Nacar vs. Gallery Frames. The Court of Appeals’ reduction of penalties and attorney’s fees under Article 1229 was affirmed.
• Novation: Article 1292 requires that novation be declared in unequivocal terms or that the old and new obligations be incompatible on every point. The requisites are a previous valid obligation, agreement to a new contract, extinguishment of the old contract, and a valid new contract. The original Credit Agreement was executed on September 1, 1993; the Conversion, Restructuring and Extension Agreement on January 28, 1999. The previous obligation was the payment of a ₱700 million loan plus interest. Upon the borrowers’ request, PNB agreed to restructure. The principal obligation became ₱1.067 billion; penalty charges were waived; terms of payment were extended; and the borrowers acknowledged the restructured obligation. These changes show that the restructuring agreement novated the original agreement. The Court of Appeals erred in not declaring novation and in computing the obligation on the original agreement. The outstanding obligation should be computed on the basis of the Conversion, Restructuring and Extension Agreement. However, the interest-rate provisions and escalation clauses in that agreement remained void insofar as they allowed PNB to unilaterally determine and increase rates. Under Article 1409, void contracts cannot be ratified; the void interest provisions in the original agreement could not have been ratified by the restructuring agreement.
• Rule 41 Appeal: Rule 45, Section 1 allows a petition for review on certiorari from a judgment, final order, or resolution on pure questions of law. A question of law exists when the doubt is as to what the law is on a certain state of facts; a question of fact exists when the doubt is as to the truth or falsity of alleged facts. The test is whether the appellate court can determine the issue without reviewing or evaluating the evidence. PNB was not questioning the probative value of the evidence but the conclusion of the trial court that registration had not been perfected based on the evidence. The issue was what completes registration, a question of law. The Court of Appeals correctly dismissed the Rule 41 appeal as the wrong remedy.
• Registration of Certificate of Sale: Section 56 of Presidential Decree No. 1529 provides that the Register of Deeds shall keep a Primary Entry Book and, as a preliminary process in registration, note the date, hour, and minute of reception of all instruments; “They shall be regarded as registered from the time so noted.” PNB filed the Sheriff’s Provisional Certificate of Sale, duly approved by the Executive Judge, with the Registry of Deeds of Davao City, and entries were made in the Primary Entry Book. Under Autocorp Group and Autographics, Inc. vs. Court of Appeals, a sheriff’s certificate of sale is an involuntary instrument; the law does not require presentation of the owner’s duplicate certificate, and annotation upon the entry book is sufficient to affect the real estate. It is a ministerial duty of the Register of Deeds to annotate the instrument after a valid entry in the Primary Entry Book; such entry is equivalent to registration. The refusal of the Register of Deeds to annotate the registration on the titles should not affect PNB’s right to possess. The Land Registration Authority administrative finding that Atty. Patriarca had affixed her signature and later erased it supports the conclusion that registration was completed.
• Writ of Possession: PNB applied for the writ as the winning bidder, not because it had consolidated titles. Section 47 of Republic Act No. 8791 provides that the purchaser at the auction sale shall have the right to enter upon and take possession of the property immediately after the date of confirmation of the auction sale and administer it in accordance with law. Section 7 of Act No. 3135 provides that the purchaser may petition the court to give him possession during the redemption period, furnishing a bond equivalent to the use of the property for twelve months to indemnify the debtor. Under Nagtalon vs. United Coconut Planters Bank, during the redemption period, the purchaser may apply for a writ of possession by ex parte motion under oath; a bond is required. A writ of possession may be issued as a matter of right when title has been consolidated in the buyer’s name due to nonredemption. Here, the Sheriff’s Provisional Certificate of Sale is deemed registered, but PNB must still file the required bond before the writ may issue.
• Redemption Period: Act No. 3135 provides a one-year redemption period, while Section 47 of Republic Act No. 8791 provides a shorter period of three months for juridical persons whose property is sold in an extrajudicial foreclosure, until but not after registration of the certificate of sale, which shall in no case be more than three months after foreclosure, whichever is earlier. The provision states “the mortgagor or debtor whose real property has been sold” and “juridical persons whose property is being sold.” The right to redeem belongs to the owner of the property mortgaged. All mortgaged properties were owned by Davao Sunrise, a juridical person. Thus, the applicable redemption period is three months. Granting a longer period because a co-debtor is a natural person would defeat the purpose of Republic Act No. 8791. The properties appear to be used for commercial purposes.

• Mutuality of Contracts (Article 1308, Civil Code) — A contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. The Court applied this doctrine to nullify interest-rate stipulations that allowed PNB to set and reset the rate at its sole discretion, and escalation clauses that allowed PNB to increase rates unilaterally without the borrowers’ written consent. The Court emphasized that there must be mutuality based on the parties’ essential equality and that a contract heavily weighed in favor of one party to the point of unconscionability is void.
• Void Interest Rate Does Not Nullify Obligation to Pay Interest — The nullity of the stipulated interest rate does not automatically nullify the provision requiring payment of interest, nor the obligation to pay the principal loan. Only the rate is void and deemed not written; the agreement that the loan shall earn interest remains. Where the parties fail to specify a valid rate, the legal rate at the time of the agreement applies.
• Escalation Clause — An escalation clause fixes a base price but allows the seller or creditor to raise the price upon specified cost increases. It is not always void, but it is void when it grants the creditor an unbridled right to adjust the interest independently and upwardly, completely depriving the debtor of the right to assent to an important modification. The Court held that PNB’s escalation clauses were void because they allowed unilateral increases without written notice and written consent.
• Novation (Article 1292, Civil Code) — Novation may be express when the new obligation declares in unequivocal terms that the old obligation is extinguished, or implied when the new obligation is on every point incompatible with the old one. The requisites are: (1) a previous valid obligation; (2) agreement to a new contract; (3) extinguishment of the old contract; and (4) a valid new contract. The Court held that the 1999 Conversion, Restructuring and Extension Agreement novated the 1993 Credit Agreement and Loan Agreement because the principal obligation changed, penalties were waived, and terms of payment were extended.
• Void Contracts Cannot Be Ratified (Article 1409, Civil Code) — Void contracts are inexistent from the beginning and cannot be ratified. The Court held that the void interest-rate provisions in the original loan agreement could not have been legitimized, ratified, or set aside by the execution of the Conversion, Restructuring and Extension Agreement.
• Interlocutory vs. Final Orders; Remedies — An interlocutory order does not finally dispose of the case and may not be appealed except as part of an appeal from the final judgment. The proper remedy against an interlocutory order is a special civil action under Rule 65. A petition for review on certiorari under Rule 45 is the proper remedy to assail a final judgment, order, or resolution on pure questions of law. The Court applied these rules to deny PNB’s G.R. No. 173194 petition and to affirm the dismissal of its Rule 41 appeal in G.R. No. 205463.
• Forum Shopping — The elements are: (a) identity of parties, or at least such parties as represent the same interests in both actions; (b) identity of rights asserted and relief prayed for, the relief being founded on the same facts; and (c) identity of the two preceding particulars such that any judgment rendered in the other action will amount to res judicata. The Court found no forum shopping because the writ of possession petition and the receivership application had different parties, causes of action, and reliefs.
• Receivership — The general rule is that neither party to a litigation should be appointed receiver without the consent of the other because a receiver should be a person indifferent to the parties and impartial and disinterested. Rule 59, Section 1 also requires that the property or fund be in danger of being lost, removed, or materially injured. The Court held that PNB, as a party, could not be appointed receiver, especially where the properties were earning income and not shown to be in danger.
• Claim for Damages on Injunction Bond (Section 20, Rule 57) — The application for damages on account of improper, irregular, or excessive attachment or injunction must be filed before the trial or before appeal is perfected or before the judgment becomes executory, with due notice to the attaching party and surety. The judgment referred to is the judgment in the main case. The Court held that PNB’s application was timely because it was filed during the pendency of the main case appeal, although the denial of the applications was affirmed.
• Registration under the Primary Entry Book (Section 56, Presidential Decree No. 1529) — The Register of Deeds shall keep a Primary Entry Book and, as a preliminary process in registration, note the date, hour, and minute of reception of all instruments. Instruments are regarded as registered from the time so noted. For involuntary instruments such as a sheriff’s certificate of sale, the law does not require presentation of the owner’s duplicate certificate, and annotation upon the entry book is sufficient to affect the real estate. It is a ministerial duty of the Register of Deeds to annotate the instrument after a valid entry in the Primary Entry Book; such entry is equivalent to registration.
• Writ of Possession in Extrajudicial Foreclosure — Under Section 7 of Act No. 3135, during the redemption period, the purchaser may petition the court for possession by ex parte motion under oath, furnishing a bond equivalent to the use of the property for twelve months to indemnify the debtor. Under Section 47 of Republic Act No. 8791, the purchaser at the auction sale has the right to enter upon and take possession of the property immediately after the date of confirmation of the auction sale. A writ of possession may be issued as a matter of right when title has been consolidated in the buyer’s name due to nonredemption. The Court held that PNB must still comply with the bond requirement.
• Redemption Period for Juridical Persons (Section 47, Republic Act No. 8791) — Juridical persons whose property is sold in an extrajudicial foreclosure have the right to redeem until, but not after, the registration of the certificate of foreclosure sale with the applicable Register of Deeds, which shall in no case be more than three months after foreclosure, whichever is earlier. The right to redeem belongs to the owner of the property mortgaged. The Court held that because all mortgaged properties were owned by Davao Sunrise, a juridical person, the three-month redemption period applied.
• Legal Interest and Conventional Interest — Where the parties fail to specify the applicable interest rate, the legal rate of interest applies as a surrogate for the parties’ intent, and the applicable legal rate is the prevailing rate at the time the agreement was executed. Interest due on conventional interest earns legal interest from the time it is judicially demanded. Under Nacar vs. Gallery Frames, the rate is 12% per annum until June 30, 2013, and 6% per annum thereafter. The Court applied these rules to compute interest on the principal loan obligation and on conventional interest.
• Reduction of Penalties and Attorney’s Fees — Article 1229 of the Civil Code allows the court to equitably reduce the penalty when it is iniquitous or unconscionable. Article 2227 allows reduction of liquidated damages if they are iniquitous or unconscionable. The Court affirmed the Court of Appeals’ reduction of penalties and attorney’s fees.

• “There is no mutuality of contract when the interest rate in a loan agreement is set at the sole discretion of one party. Nor is there any mutuality when there is no reasonable means by which the other party can determine the applicable interest rate. These types of interest rates stipulated in the loan agreement are null and void. However, the nullity of the stipulated interest rate does not automatically nullify the provision requiring payment of interest. Certainly, it does not nullify the obligation to pay the principal loan obligation.” — This passage states the core ratio decidendi on mutuality of contracts and clarifies that only the stipulated rate is void, not the obligation to pay interest or principal.
• “The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.” — This is the Court’s quotation of Article 1308 of the Civil Code, the controlling provision used to nullify PNB’s unilateral interest-rate stipulations and escalation clauses.
• “They shall be regarded as registered from the time so noted, and the memorandum of each instrument, when made on the certificate of title to which it refers, shall bear the same date.” — This is from Section 56 of Presidential Decree No. 1529, quoted by the Court to hold that entry in the Primary Entry Book completes registration of the Sheriff’s Provisional Certificate of Sale.
• “The proper remedy to assail a decision on pure questions of law is to file a petition for review on certiorari under Rule 45, not an appeal under Rule 41 of the 1997 Rules of Civil Procedure.” — This passage encapsulates the Court’s ruling that PNB availed itself of the wrong remedy in appealing the dismissal of its writ of possession petition.

• United Coconut Planters Bank vs. Spouses Samuel and Odette Beluso — Cited by the Court of Appeals and relied upon by the Supreme Court for the rule that when only the stipulated rate of interest is voided, a 12% legal interest may be imposed because the stipulation that the loan shall earn interest remains.
• Juico vs. China Banking Corporation, G.R. No. 187678, April 10, 2013, 695 SCRA 520 — Cited for the doctrine that any contract heavily weighed in favor of one party so as to lead to an unconscionable result is void, and any stipulation leaving the validity or compliance of the contract solely to the will of one party is invalid.
• Allied Banking Corporation vs. Court of Appeals, 348 Phil. 382 (1998) — Cited for the principle that absence of mutuality means the parties were not on equal footing, and a contract skewed in favor of one party is void.
• Banco Filipino Savings and Mortgage Bank vs. Judge Navarro, 236 Phil. 370 (1987) — Cited for the definition of an escalation clause as one that fixes a base price but allows the seller or contractor to raise the price upon specified cost increases.
• Philippine National Bank vs. Court of Appeals, 273 Phil. 789 (1991) — Cited as a prior case where PNB’s unilateral increase of interest rates violated the mutuality of contracts under Article 1308.
• Philippine National Bank vs. Court of Appeals, G.R. No. 107569, November 8, 1994, 238 SCRA 20 — Cited as a case where the Court nullified PNB’s interest-rate provisions that allowed unilateral increases.
• Philippine National Bank vs. Court of Appeals, 328 Phil. 54 (1996) — Cited as another case nullifying PNB’s interest-rate provisions and discussing that contract changes must be mutually agreed upon.
• Philippine National Bank vs. Manalo, G.R. No. 174433, February 24, 2014, 717 SCRA 254 — Cited among cases where PNB’s interest-rate provisions were nullified.
• Silos vs. Philippine National Bank, G.R. No. 181045, July 2, 2014, 728 SCRA 617 — Cited among cases where PNB’s interest-rate provisions were nullified.
• Spouses Abella vs. Spouses Abella, G.R. No. 195166, July 8, 2015 — Cited for the rule that where the parties fail to specify the applicable interest rate, the legal rate of interest applies, and the applicable legal rate is the prevailing rate at the time the agreement was executed.
• Nacar vs. Gallery Frames, G.R. No. 189871, August 13, 2013, 703 SCRA 439 — Cited for the modified guidelines on legal interest: 12% per annum until June 30, 2013, and 6% per annum thereafter.
• St. James College of Parañaque vs. Equitable PCI Bank, 641 Phil. 452 (2010) — Cited for the requisites of novation: previous valid obligation, agreement to a new contract, extinguishment of the old contract, and a valid new contract.
• PH Credit Corporation vs. Court of Appeals, 421 Phil. 821 (2001) — Cited for the rule that where there is a conflict between the dispositive part and the body of the decision, the dispositive part prevails.
• United Overseas Bank vs. Judge Ros, 556 Phil. 178 (2007) — Cited for the distinction between a final order and an interlocutory order.
• Carlos vs. Sandoval, 508 Phil. 260 (2005) — Cited for the rule that an application for damages under Section 20, Rule 57 may be filed at any time before the judgment becomes executory and must be filed in the same main action.
• Commodities Storage & Ice Plant Corporation vs. Court of Appeals, 340 Phil. 551 (1997) — Cited for the rule that neither party to a litigation should be appointed receiver without the consent of the other because a receiver must be impartial and disinterested.
• Ortigas & Company Limited Partnership vs. Velasco, G.R. No. 109645, January 21, 2015 — Cited for the elements of forum shopping.
• Land Bank of the Philippines vs. Yatco Agricultural Enterprises, G.R. No. 172551, January 15, 2014, 713 SCRA 370 — Cited for the distinction between questions of law and questions of fact in a Rule 45 petition.
• National Housing Authority vs. Basa, Jr., 632 Phil. 471 (2010) — Cited for the rule that once the certificate of sale is entered in the Primary Entry Book and the registrant has paid all required fees and complied with registration requirements, registration is complete.
• Autocorp Group and Autographics, Inc. vs. Court of Appeals, 481 Phil. 298 (2004) — Cited for the rule that for an involuntary instrument, the law does not require presentation of the owner’s duplicate certificate, and annotation upon the entry book is sufficient; entry in the Primary Entry Book is equivalent to registration.
• Nagtalon vs. United Coconut Planters Bank, G.R. No. 172504, July 31, 2013, 702 SCRA 615 — Cited for the rule that during the redemption period, a purchaser may apply for a writ of possession by ex parte motion under oath, and a bond is required.
• Tolosa vs. United Coconut Planters Bank, G.R. No. 183058, April 3, 2013, 695 SCRA 138 — Cited for the rule that a writ of possession may be issued as a matter of right when title has been consolidated in the buyer’s name due to nonredemption.
• Goldenway Merchandising Corporation vs. Equitable PCI Bank, G.R. No. 195540, March 13, 2013, 693 SCRA 439 — Cited for the policy behind the shorter redemption period for juridical persons under Republic Act No. 8791.

• Article 1308, Civil Code — Provides that a contract must bind both contracting parties and its validity or compliance cannot be left to the will of one of them. The Court applied this to void PNB’s unilateral interest-rate stipulations and escalation clauses.
• Article 1318, Civil Code — Provides the requisites of a contract: consent of the contracting parties, object certain, and cause of the obligation. The Court applied this to hold that no consent was given by the borrowers to the increases in interest rates.
• Article 1292, Civil Code — Provides that an obligation may be extinguished by another if it is so declared in unequivocal terms or if the old and new obligations are on every point incompatible. The Court applied this to hold that the 1999 restructuring agreement novated the 1993 agreements.
• Article 1409, Civil Code — Provides that void contracts are inexistent from the beginning and cannot be ratified. The Court applied this to hold that the void interest-rate provisions in the original loan agreement could not be ratified by the restructuring agreement.
• Article 2212, Civil Code — Provides that interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point. The Court applied this to award interest on conventional interest from August 21, 2000.
• Article 1229, Civil Code — Provides that the judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with, or even if there has been no performance, if the penalty is iniquitous or unconscionable. The Court affirmed the reduction of penalties.
• Article 2227, Civil Code — Provides that liquidated damages, whether intended as indemnity or penalty, shall be equitably reduced if they are iniquitous or unconscionable. The Court affirmed the reduction of penalties and attorney’s fees.
• Article 1956, Civil Code — Cited by Spouses Limso and Davao Sunrise in arguing that the interest rates were not stipulated in writing. The Court did not rely on this provision in its ruling.
• Section 20, Rule 57, Rules of Court — Governs claims for damages on account of improper, irregular, or excessive attachment or injunction. The Court applied this to hold that PNB’s application for damages on the injunction bond was filed on time because it was filed before the judgment in the main case became executory.
• Rule 41, Section 1, Rules of Court — Provides that an appeal may be taken only from a judgment or final order that completely disposes of the case, and no appeal may be taken from an interlocutory order. The Court applied this to deny PNB’s G.R. No. 173194 petition and to affirm the dismissal of its Rule 41 appeal.
• Rule 45, Section 1, Rules of Court — Provides that a party may appeal by certiorari from a judgment, final order, or resolution of the Court of Appeals or other courts. The Court applied this to hold that the proper remedy in G.R. No. 205463 was a Rule 45 petition, not a Rule 41 appeal.
• Rule 59, Section 1, Rules of Court — Provides the grounds for appointment of a receiver, including that the property or fund is in danger of being lost, removed, or materially injured. The Court applied this to affirm the denial of PNB’s application to be appointed receiver.
• Section 56, Presidential Decree No. 1529 — Provides for the Primary Entry Book and states that instruments shall be regarded as registered from the time so noted. The Court applied this to hold that the Sheriff’s Provisional Certificate of Sale was deemed registered upon entry in the Primary Entry Book.
• Section 117, Presidential Decree No. 1529 — Provides the procedure for consulta when the Register of Deeds is in doubt. Cited by Spouses Limso and Davao Sunrise in arguing that registration in the Primary Entry Book is only a preliminary step.
• Section 108, Presidential Decree No. 1529 — Cited by PNB for the argument that only a court order can revoke registration. The Court did not rely on this provision in its ruling.
• Section 47, Republic Act No. 8791 — Provides for foreclosure of real estate mortgage, the right of the purchaser to possession after confirmation of the auction sale, and the three-month redemption period for juridical persons. The Court applied this to hold that the three-month redemption period applied and that PNB’s right to possession was subject to compliance with requirements.
• Section 7, Act No. 3135 — Provides that the purchaser may petition the court for possession during the redemption period, furnishing a bond equivalent to the use of the property for twelve months. The Court applied this to hold that PNB must file the required bond before a writ of possession may issue.
• Section 6, Act No. 3135, as amended by Act No. 4118 — Provides the one-year redemption period for extrajudicial foreclosure sales. The Court discussed this in relation to the shorter three-month period under Republic Act No. 8791.
• Central Bank Circular No. 905, Series of 1982 — Suspended the Usury Law. The Court noted that the suspension did not give creditors an unbridled right to impose arbitrary interest rates.

Antonio T. Carpio, Arturo D. Brion, Diosdado M. Peralta, and Mariano C. Del Castillo concurred.