SPOUSES EDUARDO and LYDIA SILOS, V PHILIPPINE NATIONAL BANK
G.R. No. 181045 July 2, 2014
"In loan agreements, it cannot be denied that the rate of interest is a principal condition, if
not the most important component. Thus, any modification thereof must be mutually
agreed upon; otherwise, it has no binding effect. Moreover, the Court cannot consider a
stipulation granting a party the option to prepay the loan if said party is not agreeable to
the arbitrary interest rates imposed. Premium may not be placed upon a stipulation in a
contract which grants one party the right to choose whether to continue with or withdraw
from the agreement if it discovers that what the other party has been doing all along is
improper or illegal."
FACTS:
Spouses Eduardo and Lydia Silos (petitioners) have been in business for about two
decades of operating a department store and buying and selling of ready-to-wear
apparel. To secure a one-year revolving credit line of ₱150,000.00 obtained from PNB,
petitioners constituted in August 1987 a Real Estate Mortgage5 over a 370-square meter
lot. In addition, petitioners issued eight Promissory Notes8 and signed a Credit
Agreement. The Real Estate Mortgage agreement provided the same right to increase or
reduce interest rates "at any time depending on whatever policy PNB may adopt in the
future.
Respondent regularly renewed the line from 1990 up to 1997, and petitioners made good
on the promissory notes, religiously paying the interests without objection or fail. But in
1997, petitioners faltered when the interest rates soared due to the Asian financial crisis.
Incidentally, PN 9707237 provided for the penalty equivalent to 24% per annum in case
of default.
Despite demand, petitioners failed to pay the foregoing amount. Thus, PNB foreclosed on
the mortgage and sold for auction.
Petitioner filed a case seeking annulment of the foreclosure sale and an accounting of
pnb credit. Petitioners theorized that after the first promissory note where they agreed to
pay 19.5% interest, the succeeding stipulations for the payment of interest in their loan
agreements with PNB – which allegedly left to the latter the sole will to determine the
interest rate – became null and void. Petitioners added that because the interest rates
were fixed by respondent without their prior consent or agreement, these rates are void,
and as a result, petitioners should only be made liable for interest at the legal rate of
12%.
ISSUE: WHETHER OR NOT THE INTEREST RATES FIXED BY RESPONDENT WITHOUT
PRIOR CONSENT ARE VOID.
HELD:
YES. In a number of decided cases, the Court struck down provisions in credit documents
issued by PNB to, or required of, its borrowers which allow the bank to increase or
decrease interest rates "within the limits allowed by law at any time depending on
whatever policy it may adopt in the future." Thus, in Philippine National Bank v. Court of
Appeals,64 such stipulation and similar ones were declared in violation of Article 130865
of the Civil Code. In a second case, Philippine National Bank v. Court of Appeals,66 the
very same stipulations found in the credit agreement and the promissory notes prepared
and issued by the respondent were again invalidated.
PNB successively increased the interest from 18% to 32%, then to 41% and then to 48%.
This Court declared the increases unilaterally imposed by [PNB] to be in violation of the
principle of mutuality as embodied in Art.1308 of the Civil Code, which provides that
"[t]he contract must bind both contracting parties; its validity or compliance cannot be
left to the will of one of them. In order that obligations arising from contracts may have
the force of law between the parties, there must be mutuality between the parties based
on their essential equality. A contract containing a condition which makes its fulfillment
dependent exclusively upon the uncontrolled will of one of the contracting parties, is
void (Garcia vs. Rita Legarda, Inc., 21 SCRA 555). Hence, even assuming that the ₱1.8
million loan agreement between the PNB and the private respondent gave the PNB a
license (although in fact there was none) 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. It would have invested the loan agreement
with the character of a contract of adhesion, where the parties do not bargain on equal
footing, the weaker party’s (the debtor) participation being reduced to the alternative "to
take it or leave it" (Qua vs. Law Union & Rock Insurance Co., 95 Phil. 85). Such a contract
is a veritable trap for the weaker party whom the courts of justice must protect against
abuse and imposition.
