G.R. No. 174433 - Philippine National Bank vs. Spouses Manalo

In November 1993, Spouses Enrique Manalo and Rosalinda Jacinto obtained a P1,000,000 all-purpose credit facility from Philippine National Bank (PNB), secured by a real estate mortgage on their property (TCT No. S-23191).
On September 20, 1996, the credit facility was renewed and increased to P7,000,000. A supplemental mortgage added another property (TCT No. 171859), registered in the names of their children (Arnold, Arnel, Anthony, Arma Manalo).
The agreements provided for monthly interest payments at a rate “determined by the Bank,” without specifying a fixed percentage.

Last recorded interest payment was December 1997. PNB issued two demand letters for unpaid interest; Spouses Manalo failed to settle.
PNB foreclosed the mortgage; at the auction (Certificate of Sale dated November 13, 2000), PNB was highest bidder at P15,127,000.
More than a year later, Spouses Manalo filed suit to nullify foreclosure, alleging:

Misrepresentation that P1,000,000 loan from a private party would restructure their PNB account into a long-term loan.
Unilateral, iniquitous increases in interest rates without notice or consent.
Non-compliance with Section 3, Act 3135 (notice/publication requirements for sheriff’s sale).

The RTC upheld PNB’s foreclosure right; ruled Spouses Manalo estopped from attacking interest rates and mortgage procedures, and held notice under Act 3135 sufficient without personal notice.
On appeal, the CA:

Affirmed validity of foreclosure proceedings.
Held the credit agreements were contracts of adhesion; PNB’s failure to specify rates construed against it.
Declared unilateral increases in interest rates null for lack of mutuality (Art. 1308, Civil Code).
Fixed interest at 12% per annum from date of default.
Ordered recomputation of indebtedness; refund of any excess bid with interest.

Whether the CA erred in nullifying the imposed interest rates and fixing them at 12% per annum, when the issue was allegedly raised for the first time on appeal and excluded at pre-trial.

Whether there was mutual consent in the imposition and increase of interest rates despite continuous payment by Spouses Manalo.
Whether PNB’s unilateral determination of rates violated Act 3135 or the principle of mutuality of contracts.