Almeda vs CA 256 SCRA 292 (1996)

32.] Almeda vs CA 256 SCRA 292 (1996) FACTS 1. in 1981, Philippine National Bank granted to petitioners, spouses Ponciano Almeda and Eufemia Almeda, several loan/credit accommodations totaling P18 Million payable in 6 years at an interest rate of 21% per annum 2. to secure the loan, spouses executed a Real Estate Mortgage Contract covering a 3.5 K sq.m. parcel of land and the building erected thereon (the Marvin Plaza) located at Pasong Tamo, Makati 3. a credit agreement with the ff pertinent terms and conditions:  interest of 21% per annum, payable semi- annually in arrears, the first interest payment to become due and payable 6 months from date of initial release of loan  ”the Bank 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...the adjustment in the interest rate agreed upon shall take effect on the effectivity date of the increase/decrease of the maximum interest rate.” 4. between 1981 and 1984 petitioners made several partial payments on the loan totaling 7,735,004.66, a substantial portion of which was applied to accrued interest 5. March 31, 1984 the bank, over petitioners’ protests, raised the interest rate to 28% pursuant to their credit agreement; interest rate increased to a high of 68% between March 1984 to Sept 1986 before the loan was to mature in March 1988, the spouses filed a petition for declaratory relied with prayer for a writ of preliminary injunction and TRO—spouses sought clarification as to WON the PNB could unilaterally raise interest rates on the loan, pursuant to the credit agreement’s escalation clause 6. lower court issued TRO; by this time the spouses were already in default of their loan obligations---> invoking the law on Mandatory Foreclosure (Act 3135 and PD 385), PNB countered by ordering the extrajudicial foreclosure of petitioners’ mortgaged properties----> lower court, however, issued a supplemental writ of preliminary injunction 7. PNB posted a counterbond and the trial court dissolved the supplemental writ; PNB once more set a new date for the foreclosure of Marvin Plaza 8. spouses tendered to PNB the amount of 40,142,518 pesos (interest calculated at 21%); PNB refused to accept---> spouses formally consigned the amount with the RTC which granted the writ of preliminary injunction enjoining the foreclosure of Marvin Plaza 9. Judge Capulong refused to lift WPI 10. PNB filed petition for Certiorari, Prohibition and Mandamus with CA 11. On August 1993 CA rendered its decision setting aside the assailed orders and upholding respondent’s right to foreclose the mortgaged property pursuant to Act 12. 3135 and PD 385 ISSUES 1. WON PNB was authorized to raise its interest rates from 21% to as high as 68% under the credit agreement 2. WON PNB is granted the authority to foreclose the Marvin Plaza under the mandatory foreclosure provisions of PD385 HELD 1. 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.

2. In facilitating collection of debts through the automatic foreclosure provisions of PD 385, the government is, however, not exempted from observing basic principles of law, and ordinary fairness and decency under the due process clause of the Constitution. Reasoning 1. – the binding effect of any agreement between parties to a contract is premised on two settled principles: that any obligation arising from contract has the force of law between the parties; and that there must be mutuality between the parties based on their essential equality - PNB unilaterally altered the terms of its contract with petitioners by increasing the interest rates on the loan without prior assent of the latter - the manner of agreement is itself explicitly stipulated by the Civil Code in Art.1956 “no interest shall be due unless it has been expressly stipulated in writing”--- what has been stipulated in writing is that petitioners were bound merely to pay 21% interest, subject to possible escalation or de-escalation when the circumstances warrant it, it is within the limits allowed by law, and upon agreement - in PNB v. CA, PNB was disauthorized from unilaterally raising the interest rate partly because the increase violated the principle of mutuality of contracts expressed in Art.1308 of the CC “the contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them” - increases were arbitrary - escalation clauses in credit agreements are perfectly valid and do not contravene public policy. However, they are still subject to laws and provisions governing agreements between parties, which agreements implicitly incorporate provisions of existing law - the credit agreement requires that the increase be within the limits allowed by law—refers to legislative enactments not admin circulars (PNB relied on CB Circular No. 905) as shown in the credit agreement where there is a distinction made between “law or the Monetary Board Circulars” -Banco Filipino Savings and Mortgage Bank v. Navarro: distinction between a law and an admin regulation is recognized in the Monetary Board guidelines; guidelines thus presuppose that a Central Bank regulation is not within the term ‘any law’ - petitioners never agreed in writing to pay the increased interest rates demanded by PNB 2. – PD 385 was issued principally to guarantee that government financial institutions would not be denied substantial cash inflows necessary to finance the government’s development projects by large borrowers who resort to litigation to prevent or delay the government’s collection of their debts or loans - the dispute regarding the interest rate increases was never settled so the exact amount of petitioners’ obligations could not be determined - the foreclosure provisions could be validly invoked by PNB only after settlement of the question involving the interest rate on the loan, and only after the spouses refused to meet their obligations following such determination - PNB cannot claim that there was no honest-to-goodness attempt on the part of the spouses to settle their obligations Disposition The unilateral and progressive increases imposed by PNB were null and void. The decision and resolution of the CA is REVERSED AND SET ASIDE. The case is remanded to RTC for further proceedings.