PNB v. CA GR No. 107569 November 8, 1994 Facts: Private reso!"e!ts, #$o are o#!ers o% a NAC&'A(re)istere" e!terrise, obtai!e" %rom etitio!er PNB a *oa! i!itia**+ e))e" at 1- er a!!m i!terest. /$e co!tract a)reeme!t i!c*"es, amo!) ot$ers, a c*ase #$ic$ a**o#s PNB to raise t$e rate o% i!terest "ee!"i!) o!! t$e ba!s %tre o*icies. 'ri!) t$e term o% t$e a)reeme!t, PNB o! severa* occasio!s imose" sbse2e!t raises to t$e a*icab*e rate ra!)i!) %rom t$e ori)i!a* 1- to 4-, imosi!) a*so a 6e!a*t+ er a!!m. &sse: Ca! a cre"itor raise t$e rate o% i!terest base" so*e*+ o! a certai! c*ase i! t$e co!tract a!" #it$ot co!se!t %rom t$e "ebtor as to t$e amo!t a!" rate o% i!crease3 e*": No. &t is basic t$at t$ere ca! be !o co!tract i! t$e tre se!se i! t$e abse!ce o% t$e e*eme!t o% a)reeme!t, or o% mta* asse!t o% t$e arties. &% t$is asse!t is #a!ti!) o! t$e art o% t$e o!e #$o co!tracts, $is act $as !o more e%%icac+ t$a! i% it $a" bee! "o!e !"er "ress or b+ a erso! o% !so!" mi!". imi*ar*+, co!tract c$a!)es mst be ma"e #it$ t$e co!se!t o% t$e co!tracti!) arties. /$e mi!"s o% a** t$e arties mst meet as to t$e roose" mo"i%icatio!, esecia**+ #$e! it a%%ects a! imorta!t asect o% t$e a)reeme!t. &! t$e case o% *oa! co!tracts, it ca!!ot be )ai!sai" t$at t$e rate o% i!terest is a*#a+s a vita* como!e!t, %or it ca! mae or brea a caita* ve!tre. /$s, a!+ c$a!)e mst be mta**+a )ree" o!, ot$er#ise, it is bere%t o% a!+ bi!"i!) e%%ect. /$e Cort ca!!ot co!te!a!ce etitio!er ba!s ostri!) t$at t$e esca*atio! c*ase at be!c$ )ives it !bri"*e" ri)$t to!i*atera**+ #ar"*+ a"st t$e i!terest o! rivate reso!"e!ts *oa!. /$at #o*" com*ete*+ tae a#a+ %rom rivate reso!"e!ts t$e ri)$t to asse!t to a! imorta!t mo"i%icatio! i! t$eir a)reeme!t, a!" #o*" !e)ate t$e e*eme!t o% mta*it+ i! co!tracts.
Private respondents are not also estopped from assailing the un ilateral increases in interest rate made by petitioner bank. the circumstances do not show that private respondents implicitly agreed to the proposed increases in interest rate which by any standard were too sudden and too stiff.
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G.R. No. 107569
Republic of the Philippines SUPREME COURT
Manila SECO! !"#"S"O G.R. No. 107569 November 8, 1994 PHILIPPINE NTIONL !N", petitioner$
vs. COURT O# PPELS, REME$IOS %&ME'#ERNN$E( )*+ M$O #ERNN$E(,
respondents. Vidad, Corpus & Associates for petitioner. Remedios Jayme-Fernandez for privaate respondents. PUNO, J.:
Petitioner bank seeks the review of the decision$ dated October %&$ %''($ of the Court of )ppeals 1 in C) *.R. C# o. (+%'&$ the dispositive portion of which reads as follows, -ERE/ORE$ the 0udgment appealed from is hereby SE1 )S"!E and a new one is entered ordering defendant2appellee P3 to re2apply the interest rate of %(4 per annum to plaintiffs2appellants5 6referring to herein private respondents7 indebtedness and to accordingly take the appropriate charges from plaintiffs2appellants5 6private respondents57 payment of P8%$999.99 made on !ecember (:$ %'8&. )ny balance on the indebtedness should$ likewise$ be charged interest at the rate of %(4 per annum. SO OR!ERE!. 1he parties do not dispute the facts as laid down by respondent court in its impugned decision$ viz ., On )pril +$ %'8($ 6private respondents7 as owners of a )C"!)2 registered enterprise$ obtained a loan under the Cottage "ndustry *uaranty ;oan /und 6C"*;/7 from the Philippine ational 3ank 6P37 in the amount of /ifty 1housand 6P&9$999.997 Pesos$ as evidenced by a Credit )greement.
7 years to end on March ('$ %'8&$ at twelve 6%(47 percent interest annually. 1o secure the loan$ 6private respondents7 e?ecuted a Real Estate Mortgage over a %.&&@(2hectare parcel of unregistered agricultural land located at Cambang2ug$ 1oledo City$ which was appraised by the P3 at P%$9:(.&(
and given a loan value of P&>%.(: by the 3ank. "n addition$ 6private respondents7 e?ecuted a Chattel Mortgage over a thermo plastic2forming machine$ which had an appraisal value of P8$899 and a loan value of P@[email protected]. 1he Credit )greement provided inter alia$ that A 6a7 1he 3)B reserves the right to increase the interest rate within the limits allowed by law at any time depending on whatever policy it may adopt in the future Provided $ that the interest rate on this accommodation shall be correspondingly decreased in the event that the applicable ma?imum interest is reduced by law or by the Monetary 3oard. "n either case$ the ad0ustment in the interest rate agreed upon shall take effect on the effectivity date of the increase or decrease in the ma?imum interest rate. 1he Promissory ote$ in turn$ authori=ed the P3 to raise the rate of interest$ at any time without notice$ beyond the stipulated rate of %(4 but only Dwithin the limits allowed by law.D 1he Real Estate Mortgage contract likewise provided that A 6k7 "CRE)SE O/ "1ERES1 R)1E, 1he rate of interest charged on the obligation secured by this mortgage as well as the interest on the amount which may have been advanced by the MOR1*)*E$ in accordance with the provision hereof$ shall be sub0ect during the life of this contract to such an increase within the rate allowed by law$ as the 3oard of !irectors of the MOR1*)*EE may prescribe for its debtors. On /ebruary %+$ %'8>$ 6private respondents7 were granted an additional )C"!) loan of /ifty 1housand 6P&9$999.997 Pesos by the P3$ for which 6private respondents7 e?ecuted another Promissory ote$ which was to mature on )pril %$ %'8&. Other than the date o f maturity$ the second promissory note contained the same terms and stipulations as the previous note. 1he parties likewise e?ecuted a new Credit )greement$ changing the amount of the loan from P&9$999.99 to P%99$999.99$ but otherwise preserving the stipulations contained in the original agreement. )s additional security for the loan$ 6private respondents7 constituted another real estate mortgage over ( parcels of registered land$ with a combined area of >%% suare meters$ located at *uadalupe$ Cebu City. 1he land$ upon which several buildings are standing$ was appraised by the P3 to have a value of P@9$999.99 and a loan value of P(8$999.99.
"n a letter dated )ugust %$ %'8@$ the P3 informed 6private respondents7 Dthat the interest rate of your C"*;/ loan accou nt with us is now (&4 per annum plus a penalty of :4 per annum on past dues.D 1he P3 further increased this interest rate to >94 on October %&$ %'8@ and to @(4 on October (&$ %'8@. 1he records show that as of !ecember %'8&$ 6private respondents7 had an outstanding principal account of P8%$999.99 of which P%8$&(>.%@ was credited to the principal$ [email protected]' to the interest$ and the rest to penalty and other charges. 1hus$ as of said date$ the unpaid principal obligation of 6private respondent7 amounted to P:($8>9.>(. 1hereafter$ 6private respondents7 e?erted efforts to get the P3 to re2adopt the %(4 interest and to condone the present interest and penalties due but to no avail. 6Citations omitted.7 On !ecember %&$ %'8+$ private respondents filed a suit for specific performance against petitioner P3 and the )C"!). "t was docketed as Civil Case o. CE32&:%9$ and raffled to the Regional 1rial Court$ +th Fudicial Region$ Cebu City$ 3r. +. - Private respondents prayed the trial court to order, %. 1he P3 and )C"!) to issue in 6private respondents57 favor$ a release of mortgage (. 1he P3 to pay pecuniary conseuential damages for the destruction of 6private respondents57 enterprise >. 1he P3 to pay moral and e?emplary damages as well as the costs of suit and @. *ranting 6private respondents57 such other relief as may be found 0ust and euitable in the premises. 4 On /ebruary (:$ %''9$ the trial court dismissed private respondents5 complaint in Civil Case o. CE32&:%9. On October %&$ %''($ the Court of )ppeals reversed the dismissal with respect to petitioner bank$ and disallowed the increases in interest rates. Petitioner bank now contends that Drespondent Court of )ppeals committed grave error when it ruled 6%7 that the increase in interest rates are unauthori=ed 6(7 that the Credit )greement and the Promissory otes are not the law between the parties 6>7 that C3 Circular o. ++> and C3 Circular o. '9& are not applicable and 6@7 that private respondents are not estopped from uestioning the increase of rate interest made by petitioner.D 5 1he petition is bereft of merit.
"n making the unilateral increases in interest rates$ petitioner bank relied on the escalation clause contained in their credit agreement which provides$ as follows, 1he 3ank reserves the right to increase the interest rate within the limits allowed by law at any time depending on whatever policy it may adopt in the future and provided $ that$ the interest rate on this accommodation shall be correspondingly decreased in the event that the applicable ma?imum interest rate is reduced by law or by the Monetary 3oard. "n either case$ the ad0ustment in the interest rate agreed upon shall take effect on the effectivity date of the increase or decrease in ma?imum interest rate. 1his clause is authori=ed by Section ( of Presidential !ecree 6P.!.7 o. %:8@ which further amended )ct o. (:&& 6D1he 9> of the Manual of Regulations 6for 3anks and Other /inancial "ntermediaries7 is hereby amended to read as follows, Sec. %>9>. Interest and t!er C!ar"es. A 1he rate of interest$ including commissions$ premiums$ fees and other charges$ on any loan$ or forbearance of any money$ goods or credits$ regardless of maturity and whether secured or unsecured$ shall not be sub0ect to any ceiling prescribed under or pursuant to the
the interest previously stipulated. owever$ contrary to the stubborn insistence of petitioner bank$ the said law and circular did not authori=e either party to unilaterally raise the interest rate without the other5s consent. "t is basic that there can be no contract in the true sense in the absence of the element of agreement$ or of mutual assent of the parties. "f this assent is wanting on the part of the one who contracts$ his act has no more efficacy than if it had been done under duress or by a person of unsound mind. 6 Similarly$ contract changes must be made with the consent of the contracting parties. 1he minds of all the parties must meet as to the proposed modification$ especially when it affects an important aspect of the agreement. "n the case of loan contracts$ it cannot be gainsaid that the rate of interest is always a vital component$ for it can make or break a capital venture. 1hus$ any change must be mutually agreed upon$ otherwise$ it is bereft of any binding effect. -e cannot countenance petitioner bank5s posturing that the escalation clause at bench gives it unbridled right to unilaterally upwardly ad0ust the interest on private respondents5 loan. 1hat would completely take away from private respondents the right to assent to an important modification in their agreement$ and would neg ate the element of mutuality in contracts. "n P!ilippine #ational $an% v. Court of Appeals, et al .$ %': SCR) &>:$ &@@2&@& 6%''%7 we held A . . . 1he unilateral action of the P3 in increasing the interest rate on the private respondent5s loan violated the mutuality of contracts ordained in )rticle %>98 of the Civil Code, )rt. %>98. 1he contract must bind both contracting parties its validity or compliance cannot be left to the will of one of them. "n order that obligations arising from contracts may have the force or law between the parties$ there must be mutuality between the parties based on their essential euality. ) contract containing a condition which makes its fulfillment dependent e?clusively upon the uncontrolled will of one of the contracting parties$ is void . . . . ence$ even assuming that the . . . loan agreement between the P3 and the private respondent gave the P3 a license 6although in fact there was none7 to increase the interest rate at will during the term of the loan$ that license would have been null and void for being violative of the principle of mutuality essential in contracts. "t would have invested the loan agreement with the character of a contract of adhesion$ where the parties do not bargain on eual footing$ the weaker party5s 6the debtor7 participation being reduced to the alternative Dto take it or leave itD . . . . Such a contract is a veritable trap for the weaker party whom the courts of 0ustice must protect against abuse and imposition. 6Citation omitted.7
Private respondents are not also estopped from assailing the un ilateral increases in interest rate made by petitioner bank. o one receiving a proposal to change a contract to which he is a party$ is obliged to answer the proposal$ and his silence per se cannot be construed as an acceptance. 7 "n the case at bench$ the circumstances do not show that private respondents implicitly agreed to the proposed increases in interest rate which by any standard were too sudden and too stiff. " #"E- 1EREO/$ the instant petition is !E"E! for lack of merit$ and the decision of the Court of )ppeals in C)2*.R. C# o. (+%'&$ dated October %&$ %''($ is )//"RME!. Costs against petitioner. SO OR!ERE!. #arvasa, C.J., Re"alado and endoza, JJ., concur. #oo/*o/e
% 1hrough its Second !ivision$ composed of )ssociate Fustices Santiago M. Bapunan 6chairman and ponente7$ Oscar M. errera$ and Serafin #.C. *uingona. ( Rollo$ pp. >(2>@. > Presided by Fudge *eneroso ). Fuaban. @ Rollo$ p. >&. & Petition$ p. ' Rollo$ p. %:. : 'ee Mutual ;ife "ns. Co. of ew Gork v. Goung5s )dm5rs$ (> ;.Ed. %&( oland Co. v. *raver 1ank H Mfg. Co.$ >9% /. (d @> Miller v. Miller$ %>@ /. (d &8>$ &88 'ee also ;inne v. Ronkienen$ >+ .-. (d (>+$ (>'. + 'ee Suitter v. 1hompson$ >&8 P. (d (:+ ;evy v. 3aet0er$ 8% ). (d :@@.
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