G.R. No. 228904 - Philippine National Bank vs. AIC Construction Corp.

Parties and Loan Agreement
AIC Construction Corporation, owned by spouses Rodolfo C. Bacani and Ma. Aurora C. Bacani, opened a current account with Philippine National Bank (PNB) in 1988.
In 1989, PNB granted an omnibus credit line of ₱10 million, secured by a real estate mortgage over properties and joint and several liability of the Bacani spouses. Interest was stipulated as “Bank’s prime rate plus applicable spread” determined by PNB at each availment.

Availments, Capitalization, and Proposed Dacion en Pago
Over successive renewals, the credit line grew; by September 1998, the debt reached ₱65 million (₱40 million principal and ₱25 million capitalized interest).
AIC Construction offered to satisfy the loan by dacion en pago of mortgaged properties; negotiations failed due to disagreement over valuations.
On April 30, 2001, PNB made final demand for ₱140,837,511.29; foreclosed the mortgaged properties and scheduled their sale in February 2002.

Litigation and Procedural History
February 27, 2002: AIC Construction and the Bacani spouses filed a complaint for annulment of interest and penalty increases, accounting, exemption of family home, and damages, alleging bad faith, arbitrary valuations, inclusion of exempt family home, and unconscionable interest.
PNB answered that it was not bound to accept dacion en pago, the properties were not exempt, interest and penalties were validly stipulated, and estoppel applied given long-term renewals.
RTC Branch 208, Mandaluyong City, dismissed the complaint for lack of proof that the interest was iniquitous or unconscionable. The CA affirmed on dacion en pago and good-faith findings but held the interest provision violative of mutuality, applied the legal rate of 12% p.a., and struck the 24% p.a. penalty.
PNB filed a Petition for Review under Rule 45; the Supreme Court denied the petition and affirmed the CA decision and resolution.

Whether PNB’s variable interest provision—prime rate plus spread determined unilaterally—was usurious, excessive, and unconscionable, thus violating the principle of mutuality under Article 1308 of the Civil Code.
Whether the Court of Appeals erred in applying the statutory (legal) rate of interest (12% p.a.) and excluding the 24% p.a. penalty charge when the contractual rates were invalid.