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 Besides, Usury law was no longer in force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 under
1308. Besides, SC may intervene when amount of interest is
unconscionable.
Facts:
Sampaguita secured a loan from PNB in an aggregate amount of 8M pesos,
mortgaging the properties of Sampaguita’s 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 later
on. AGAIN they failed to pay so PNB extrajudicially foreclosed the
mortgaged 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 don’t 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
1
Ratio:
Sampaguita’s 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 is
“violative of the principle of mutuality of contracts ordained in Article 1308
of 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 d’adhésion, “where the parties do
not bargain on equal footing, the weaker party’s [the debtor’s]
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
other’s 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
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

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 receiving
a proposal to modify a loan contract, especially interest -- a vital
component -- 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 wasn’t signed by the parties, a part of the contract
wasn’t properly annexed/no reference was made in the main contract.)

In addition to the preceding discussion, it is then useless to labor the point

that the increase in rates violates the impairment clause of the
Constitution, 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