DIGEST: Sps. Limso v. PNB, et. al, G.R. No. 158622, January 27, 2016
SPOUSES ROBERT ALAN L. AND NANCY LEE LIMSO,
vs.
PHILIPPINE NATIONAL BANK AND THE REGISTER OF DEEDS OF DAVAO CITY, RESPONDENTS.;
ET AL.
G.R. No. 158622, 169441, 172958, 173194, 196958, 197120,
205463
Second Division
January 27, 2016
Leonen, J.
Facts:
In 1993, Sps. Limso and Davao Sunrise took out a loan
secured by real estate mortgages from Philippine National Bank amounting to
P700 Million. The loan contract was
subsequently restructured on January 1999. The provision under their loan
contract on the interest rate states that the same shall be determined "at
the rate per annum to be set by the Bank. The interest rate shall be reset by
the Bank every month."
The Sps. and Davao Sunrise were notified through a letter
that the interest rate approved by the top management of PNB is 20.756% and as
of December 1998, the interest on the loan amounted to P217 Million. However,
due to their financial difficulties and despite repeated demands by PNB, Sps.
Limso and Davao Sunrise failed to pay their debt.
The Sps. and Davao Sunrise files a complaint in court
praying for the declaration of nullity of unilateral imposition and increases
of interest rates.
Issue:
Whether the provision under the loan contract regarding
the unilateral imposition and increases of interest rates violates the
principle of mutuality of contract.
Ruling:
Yes. The SC held that the provision violates the
principle of mutuality of contract.
The SC held that the interest on the principal loan
obligation shall be at the rate of 12% per annum and computed from January 28,
1999, the date of the execution of the Conversion, Restructuring and Extension
Agreement. Interest rate on the conventional interest shall be at the rate of
12% per annum from the date of judicial demand, to June 30, 2013. From July 1,
2013 until full satisfaction, the interest rate on the conventional interest
shall be computed at 6% per annum in view of this court's ruling in Nacar v.
Gallery Frames.
According to the SC, there was no mutuality of contract
between the parties since the interest rates imposed were based on the sole
discretion of Philippine National Bank. Further, the escalation clauses in the
real estate mortgage "[did] not specify a fixed or base interest[.]"
Thus, the interest rates are invalid.
The principle of mutuality of contracts is stated in
Article 1308 of the Civil Code as follows:
Article 1308. The contract must bind both contracting
parties; its validity or compliance cannot be left to the will of one of them.
The importance of the principle of mutuality of contracts
was discussed in Juico v. China Banking Corporation:
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 of law between the parties; and (2) that there must be mutuality between the parties based on their essential equality. 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. Any stipulation regarding the validity or compliance of the contract which is left solely to the will of one of the parties, is likewise, invalid.
When there is no mutuality between the parties to a contract, it means that the parties were not on equal footing when the terms of the contract were negotiated. Thus, the principle of mutuality of contracts dictates that a contract must be rendered void when the execution of its terms is skewed in favor of one party.
The Court of Appeals also noted that since the interest
rates imposed were at the sole discretion of Philippine National Bank, and that
Spouses Limso and Davao Sunrise were merely notified when there were changes in
the interest rates, Philippine National Bank violated the principle of
mutuality of contracts. The Court of Appeals ruled that:
We cannot subscribe to appellant bank’s allegation that
plaintiffs-appellees agreed to these interest rates by receiving various
letters from PNB. Those letters cannot be construed as agreements as a simple
reading of those letters would show that they are mere notices informing
plaintiffs-appellees that the bank, through its top management, had already
imposed interest rates on their loan. The uniform wordings of the said letters
go this way:
This refers to your existing credit facility in the
principal amount of P850.0 MM granted by the Philippine National Bank by and
under the terms and conditions of that Credit Agreement dated 12.2.97 (Renewal
of Credit Facility).
We wish to advise you that the top management has
approved an interest rate of 20.756% which will be used in computing the
interest due on your existing peso and redenominated availments against the
credit facility for the period July 20 to August 19, 1998.
If you are amenable to this arrangement, please signify
your conformity on the space provided below and return to us the original copy
of the document. If we receive no written objection by the end of 10 days from
date of receipt of this letter, we will take it to mean that you agree to the
new interest rate we quote. On the other hand, if you disagree with the quoted
rate, you will have to pay the loan in full within the same ten-day period
otherwise, the entire loan will be considered due and demandable.
The contents of the letter quoted by the Court of Appeals
show that there was no room for negotiation among Philippine National Bank, Spouses
Limso, and Davao Sunrise when it came to the applicable interest rate. Since
there was no room for negotiations between the parties with regard to the
increases of the rates of interest, the principle of mutuality of contracts was
violated. There was no meeting of the minds between Spouses Limso, Davao
Sunrise, and Philippine National Bank because the increases in the interest
rates were imposed on them unilaterally.
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