CIVIL LAW REVIEW DIGESTS Balane

Alcisso, Antonio, Arriola, Cajucom, Calalang, Claudio, Escueta, Fajardo, Imperial,

Juaquino, Martin, Martinez, Mendoza, Noel, Plazo Raso, Rosales,
Sia, Siron,Venzuela
ARTICLE 1308
SAMPAGUITA BUILDERS v PNB
Mini digest:
Sampaguita loaned money from PNB. PNB unilaterally increased rates
of interest
in the
loan w/o
informing
Sampaguita. PNB
claimed they were authorized to do it as there was a clause in the agreement that
they may do so. Besides, Usury law was no longer in force= SC said NO! PNB
cannot
do so;
it
will
violate mutuality
of
contracts
under1308. Besides, SC may intervene when amount of interest isunconscionabl
e.
Facts
Sampaguita secured a loan from PNB in an aggregate amount of 8M
pesos, mortgaging the properties of Sampaguitas president and chairman of the
board. Sampaguita also executed several promissory notes due on
different
dates (payment dates). The first promissory note had 19.5%interest rate. The 2nd
and 3rd had 21.5%. a uniform clause therein permitted PNB to increase the rate
within the limits allowed by law at any time depending on whatever policy it may
adopt in the future x x x, without even giving prior notice to petitioners. There
was also a clause in the promissory note that stated that if the same is not paid 2
years after release then it shall be converted to a medium term loan and the
interest rate for such loan would apply. Later on, Sampaguita defaulted on its
payments and failed to comply with obligations on promissory notes. Sampaguita
thus requested for a 90 day extension to pay the loan. Again they defaulted, so
they asked for loan restructuring. It partly paid the loan and promised to pay the
balance
lateron. AGAIN they failed to pay so PNB extrajudicially foreclosed themortgaged
properties. It was sold for 10M. PNB claimed that Sampaguita owed it 12M so
they filed a case in court asking sampaguita to pay for deficiency.RTC found that
Sampaguita was automatically entitled to the debt relief package of PNB and

ruled that the latter had no cause of action against the former. CA reversed,
saying Sampaguita was not entitled, thus ordered them to pay the deficiency
Appeal = Went to SC. Sampaguita claims the loan was bloated so they dont
really owe PNB anymore, but it just overcharged them.
Issues/Ruling:
W/N the loan accounts are bloated: YES. There is no deficiency; there is actually
an overpayment of more than 3M based on the computation of the SC.
Whether PNB could unilaterally increase interest rates: NO
Ratio:
Sampaguitas accessory duty to pay interest did not give PNB unrestrained
freedom to charge any rate other than that which was agreed upon. No interest
shall be due, unless expressly stipulated in writing. It would be the
zenith of farcicality to specify and agree upon rates that could be subsequently
upgraded
at
whim by
only
one
party
to
the agreement. The unilateral determination and imposition of increased rates i
sviolative of the principle of mutuality of contracts ordained in Article 1308of the
Civil Code. One-sided impositions do not have the force of law between
the parties, because such impositions are not based on the parties essential
equality. Although escalation clauses are valid in maintaining fiscal stability and
retaining the value of money on long-term contracts, giving respondent an
unbridled right to adjust the interest independently and upwardly would
completely take away from petitioners the right to assent to an important
modification in their agreement and would also negate the element of mutuality
in their contracts. The clause cited earlier made the fulfillment of the contracts
dependent exclusively upon the uncontrolled will of respondent and was
therefore void. Besides, the pro forma promissory notes have the character of a
contract
dadhsion,
where
the
parties
do
not bargain on equal footing, the weaker partys [the debtors] participation being
reduced to the alternative to take it or leave it.Circular that lifted
the ceiling of interest rates of usury law did not authorize either party to
unilaterally raise the interest rate without the others consent. The interest
ranging from 26 percent to 35 percent in the statements of account -- must be
equitably reduced for being iniquitous, unconscionable and exorbitant. Rates
found to be iniquitous or unconscionable are void, as if it there were no express

contract thereon. Above all, it is undoubtedly against public policy to charge

excessively for the use of money. It cannot be argued that assent to the
increases can be implied either from the June 18, 1991 request of petitioners for
loan restructuring or from their lack of response to the statements of account sent
by respondent. Such request does not indicate any agreement to an interest
increase; there can be no implied waiver of a right when there is no clear,
unequivocal and decisive act showing such purpose. Besides, the statements
were not letters of information sent to secure their conformity; and even if we
were to presume these as an offer, there was no acceptance. No one
receivinga proposal to modify a loan contract, especially interest -- a vitalcompon
ent -- is obliged to answer the proposal.Besides, PNB did not comply with its
own stipulation that should the loan not be paid 2 years after release of money
then it shall be converted to a medium term loan.*Court applied 12% interest rate
instead for being a forbearance of money(there were some pieces of
evidence presented by PNB in court that sampaguita objected to. Lower courts
overruled the objections but SC said the objections were correct and
the evidence should not have been admitted. i.e. contract wasnt signed by the
parties, a part of the contract wasnt properly annexed/no reference was made in
the main contract.)In addition to the preceding discussion, it is then useless to
labor
the
pointthat the increase in rates violates the impairment clause of theConstitution,
because the sole purpose of this provision is to safeguard the integrity of
valid contractual agreements against unwarranted interference by the State in
the form of laws. Private individuals intrusions on interest rates is governed by
statutory enactments like the Civil Code.