Credit Transaction Cases

Concepcion v. Court of Appeals, et al., G.R. No. 122079, June 27, 1997, 274 SCRA 614. FACTS: Home Savings Bank and Trust Company (now Insular Life) granted to the Concepcions a P1,400,000.00 loan. The latter executed in favor of the bank a promissory note and a real estate mortgage over their property in San Juan, Metro Manila. Thereafter, the bank unilaterally increased the interest rate from 16% to 21% effective 17 February 1980; from 21% to 30% effective 17 October 1984; and from 30% to 38% effective 17 November 1984. In 1985, the bank's President demanded from the Concepcions payment of the arrearages, but the latter failed to pay. The bank finally filed with the Sheriff of Pasig City a petition for extrajudicial foreclosure of the real estate mortgage that they executed. A notice of sale was issued on 15 May 1986. The Concepcions, unable to exercise their right of redemption, lost the property to the bank which consolidated the title over the property and had a new certificate of title issued in the name of Home Savings Bank and Trust Company. In 1987, the bank executed a Deed of Absolute Sale in favor of Asaje Realty Corporation and a new certificate of title was issued. Meanwhile, on 29 July 1987, the Concepcions filed an action against Home Savings Bank, for the cancellation of the foreclosure sale, the declaration of nullity of the consolidation of title in favor of the bank, and the declaration of nullity of the unilateral increases of the interest rates on their loan. ISSUE: WON the escalation clause in their mortgage contract valid? HELD: Some contracts contain what is known as an `escalator clause,' which is defined as one in which the contract fixes a base price but contains a provision that in the event of specified cost increases, the seller or contractor may raise the price up to a fixed percentage of the base. Attacks on such a clause have usually been based on the claim that, because of the open price-provision, the contract was too indefinite to be enforceable and did not evidence an actual meeting of the minds of the parties, or that the arrangement left the price to be determined arbitrarily by one party so that the contract lacked mutuality. However, the SC generally upheld its validity. Nonetheless, an escalation clause at bench which gives the bank unbridled right to unilaterally upwardly adjust the interest on private respondents' loan is unconscionable, as it would completely take away from mortgagees the right to assent to an important modification in their agreement, and would negate the element of mutuality in contracts. BancoFilipino Savings and Mortgage Bank vs. Hon. Navarro and Del Valle, G.R. No. L-46591, 28 July 1987, 152 SCRA 346. FACTS:

Del Valle, the borrower, obtained a loan secured by a real estate mortgage from Banco Filipino amounting to P41,300.00. Said loan still had more than 730 days to run by January 2, 1976, the date when CIRCULAR No. 494 was issued by the Central Bank. Stamped on the promissory note is an Escalation Clause based upon above mentioned Central Bank circular. In lieu of the said circular, Banco Filipino gave notice to Del Valle of the increase of interest rate on the loan from 12% to 17% per annum effective on March 1, 1976. Answering Del Valle’s query as to why was there an increase in the interest rate, Banco Filipino wrote a letter in September 24, 1976, stating that it was increased by virtue of the escalation clause attached to their contract and in lieu of CIRCULAR No. 494. ISSUE: WON Banco Filipino may validly increase the rate of its interest pursuant to the escalation clause in the contract and in light of Central Bank Circular No. 494, which was given a retroactive effect in this case? HELD: The substantial question in this case is not really whether the Escalation Clause is a valid or void stipulation, but whether the bank can increase the interest rate on the LOAN from 12% to 17% per annum under the Escalation Clause. The SC held in the negative. The escalation clause in the contract provides that the interest rate may be increased "in the event a lawshould be enacted increasing the lawful rate of interest that may be charged on this particular kind of loan." Said clause was dependent on an increase of rate made by "law" alone. Circular No. 494 of the Monetary Board was not the "law" contemplated by the parties, nor should said Circular be held as applicable to loans secured by registered real estate in the absence of any such specific indication and in contravention of the policy behind the Usury Law. Philippine National Bank vs. Court of Appeals and Ambrosio Padilla, G.R. No. 88880, 30 April 1991, 196 SCRA 536. FACTS: In July 1982, Padilla applied for and was granted by PNB, a credit line of 321.8 million, secured by a real estate mortgage, for a term of two (2) years, with 18% interest per annum. However, in a span of four months, PNB increased the interest rate, from 18% to 48%. Padilla, albeit complying with the bank’s conditions, registered his protests as regards the increase in the rates. PN insists that said increases are valid and in pursuant to the escalation clause in the contract which was acceded to by Padilla. ISSUE: Whether the bank, within the term of the loan which it granted to the private respondent, may unilaterally change or increase the interest rate stipulated therein at will and as often as it pleased? HELD:

The SC held in the negative. Although Section 2 of PD. No. 116 authorizes the Monetary Board to prescribe the maximum rate or rates of interest for loans or renewal thereof and to change such rate or rates whenever warranted by prevailing economic and social conditions, it expressly provides that "such changes shall not be made oftener than once every twelve months." In this case, PNB, over the objection of the private respondent, and without authority from the Monetary Board, within a period of only four (4) months, increased the 18% interest rate on the private respondent’s loan obligation three (3) times. As pointed out by CA, while Padilla did agree that the interest rate may be increased during the life of the contract, such increase must be within the rate allowed by law, but, no law was ever passed in July to November 1984 increasing the interest rates on loans or renewals thereof. Hence, the subsequent increases from the 18% interest rate benchmark is held invalid. BPI v. Court of Appeals, G.R. No. 97178, January 10, 1994, 299 SCRA 223 FACTS: BPI filed with RTC Pasig a complaint against Ruby Industrial Corporation (RUBY), for foreclosure of real estate mortgage. RUBY submitted to the trial court a motion for suspension of the proceedings on the ground that on 1984, SEC issued an Order placing RUBY under a rehabilitation plan. On 19 December 1984, the trial court issued an order granting the motion of RUBY and suspended the proceedings. On 31 July 1990, petitioner BPI filed a motion for reopening of the proceedings. However, on 22 August 1990, the trial court denied the motion of BPI, holding that the suspension of payment applies to all creditors, whether secured or unsecured, in order to place them on equal footing. On appeal, CA affirmed the trial court. ISSUE: Whether petitioner, which is a secured creditor of respondent RUBY, may still judicially enforce its claim against the latter which has already been placed by SEC under rehabilitation? HELD: The SC held in the negative. It was already established under existing jurisprudences that whenever a distressed corporation asks SEC for rehabilitation and suspension of payments, preferred creditors may no longer assert such preference, but shall stand on equal footing with other creditors. Foreclosure shall be disallowed so as not to prejudice other creditors or cause discrimination among them. The rationale behind PD 902-A, as amended, is to effect a feasible and viable rehabilitation. This cannot be achieved if one creditor is preferred over the others.

Quintos vs. Beck G.R. No. L-46240, Nov. 3, 1939, 69 Phil 108 FACTS:

Beck is a tenant of Quintos. In their contract of lease renewal, it was stipulated therein that Quintos gratuitously granted Beck the use of furniture that were specified, provided that the latter would return it to him once the former required him to do so. In 1936, Quintos sold the property to the Lopezes. When Quintos was demanding the furniture back, Beck stated that he could not return the three gas heaters and 4 electric lamps to Quintos until the end of their lease contract. Before vacating the house, Beck consigned the furniture to the sheriff when Quintos refused to receive all the furniture on the premise that they weren’t complete. ISSUE: What kind of contract exists and what are Beck’s obligations in relation to the said contract? HELD: A contract of commodatum—particulary, that of precarium—exists. In precarium, the permissive use of a movable was granted by the bailor to the bailee on the condition that the bailor may demand the property loaned at will. IN this case, the baliee’s obligation is to return the property loaned. In this case, Beck was ordered to deliver to the residence of Quintos all the furniture. All expenses in relation to the safekeeping and delivery of the furniture shall be borne by defendant. Emata vs. Intermediate Appellate Court et. Al.G.R. No. L-72714, June 29, 1989, 174 SCRA 464 FACTS: Emata purchased a car on installment from Violago Motor with a down payment of P 14,982.00 and executed in favor of the seller a promissory note and a chattel mortgage over the car as security for the payment of the note. The total amount that the petitioner was supposed to pay was P 72,186.00, with P 57,204.00 as the balance after deducting the down payment. The total amount payable was P 22,246.00 more than the "list cash price" of P 49,940.00 for said vehicle. Violago endorsed the promissory note and assigned the chattel mortgage to Filinvest Credit Corp. upon its payment of the unpaid balance of the car’s list price. Three years later, Filinvest assigned to private respondent Servicewide Specialists, Inc. the remaining installment balance. Alleging non-payment of five (5) consecutive installments, Servicewide initiated said case in the RTC for a writ of replevin or for the payment by petitioner of the remaining balance plus 14% interest per annum until fully paid. Emata disputes the veracity of the promissory note, stating that the same was made through fraud, deceit, trickery and misrepresentation; said chattel mortgage was executed to secure his remaining balance with Filinvest, and that he had already paid, albeit overpaid, his balance. He avers that the exorbitant rates given by Filnvest is violative of the Usury Law. ISSUS: WON the Law in Usury is still in effect?

HELD: Usury Law, Act No. 2655, is not applicable thereto. The amount added to the cash price of the car is what is commonly known as the "time price differential" and not interest within the meaning of the Usury Law. The law is applicable only in case of a loan or forbearance of money, goods or credit which is not the case here. The transaction involved here being admittedly a conditional sale based on an installment plan and not a loan, it has been held that the alleged increase in the price of the article sold cannot be considered a mere pretext to cover a usurious loan