Silos vs. PNB

G.R. No. 181045

July 2, 2014

SPOUS OUSES EDU EDUARDO RDO and and LYDIA vs. PHILIPPINE NAIONAL !AN",  R. DEL #ASILLO,

or reduce interest rates 9within the limits allowed by law or by the 'onetary !oard.9 SIL SILOS,  Ps,

J.:

Do$%&'n() In loan agreements, it cannot be denied that  the rate of interest is a principal condition, if not the most  important important component. component. Thus, Thus, any modifica modification tion thereof  thereof  must must be mutual mutually ly agreed agreed upon; upon; otherw otherwise ise,, it has no binding effect. Moreover, the Court cannot consider a stipulation granting a party the option to prepay the loan if said party is not agreeable to the arbitrary interest  rates rates impos imposed. ed. Premium Premium may not be placed placed upon a stipulation in a contract which grants one party the right  to choose whether to continue with or withdraw from the agreement if it discovers that what the other party has been doing all along is improper or illegal. *a$%+) Ps have been in business business for about about two decade decades s of  operating operating a department department store and buying buying and selling of  ready-to-wear apparel. To secure a one-year revolving credit line of P150,000.0 P150,000.00 0 obtained obtained from P!, P!, Ps constitut constituted ed in  "ugust 1#$% a Real &state &state 'ortgage over a lot in in (alibo,  ")lan. *n +uly 1#$$,the credit line was increased to P1.$ million and the mortgage was correspondingly increased to P1.$ million.  "nd in +uly 1#$#, a upplement to the &isting Real &state 'ortgage was eecuted to cover the same credit line, which was increased to P.5 million, and additional security was given in the form of a 1/-suare meter lot. *n addi additi tion, on, Ps issu issued ed eigh eightt Prom Promis isso sory ry ote otes s and and sign signed ed a 2redi 2reditt "gree greeme ment nt.. This This +uly +uly 1#$# 1#$# 2redi 2reditt  "greement contained a stipulation on interest which provides as follows3 1.0/. *nterest. 4a The 6oan shall be sub7ect to interest at the rate of  1#.58 per annum. *nterest shall be payable in advance every one hundred twenty days at the rate prevailing at the time of the renewal. 4b The Borrower agrees that the Ban may modify the interest rate in the !oan depending on whatever policy the Ban may adopt in the future, including without limitation, the shifting from the floating interest  rate system to the fi"ed interest rate system, or vice versa. #here the Ban has imposed on the !oan interest at a rate per annum, which is e$ual to the Ban%s spread over the current floating interest rate, the Borrower hereby agrees that the Ban may, without need of notice to the Borrower, increase or decrease its spread over the floating interest  rate at any time depending on whatever policy it may adopt in the future.

The eigh eightt Prom Promis isso sory ry ote otes, s, on the the othe otherr hand hand,, contained a stipulation granting P! the right to increase

The Real &state 'ortgage agreement provided the same right to increase or reduce interest rates 9at any time depending on whatever policy P! may adopt in the future.9 *n "ugust 1##1, an "mendment to 2redit "greement "greement was eecuted by the parties, with the following stipulation regarding interest3 1.0/. *nterest *nterest on 6ine "vailmen "vailments. ts. 4a The !orrower !orrowers s agree to pay interest on each "vailment from date of  each "vailment up to but not including the date of full paym paymen entt ther thereo eoff at the the rate rate per per annu annum m which hich is determined by the !an) to be prime rate plus applicable spread in effect as of the date of each "vailment. The #th up to the 1%th promissory notes provide for the payment of interest at the 9rate the !an) may at any time without notice, raise within the limits allowed by law   . :n the other hand, the 1$th up to the ;th promissory note notes s < incl includ udin ing g P #%0% #%0%/ /%, %, which hich is the the ;th ;th promissory note < carried the following provision3    =or this purpose, *>?e agree that the rate of  inter nteres estt her herein ein stipu tipullated ated may be increased or  decreased for the subse$uent Interest Periods, with prior  notice to the Borrower in the event of changes in interest  rate prescribed by law or the Monetary Board of the Central Ban of the Philippines, or in the Ban%s overall  cost of funds. *>?e hereby agree that in the event *>we are are not not agre agreea eabl ble e to the the inte intere rest st rate rate fie fied d for for any *nterest Period, *>we shall have the option top repay the loan loan or credit credit facili facility ty witho without ut penalt penalty y withi within n ten 410 410 calendar days from the *nterest etting @ate. R regularly renewed the line from 1##0 up to 1##%, and Ps made made good good on the promis promissor sory y notes, notes, religi religiousl ously y paying paying the intere interests sts without without ob7ect ob7ection ion or fail. fail. !u% !u% 'n 1-, P+ al%(&(d /(n %( 'n%(&(+% &a%(+ +oa&(d du( %o %( A+'an 'nan$'al 'nan$'al $&'+'+. P+ +ol( ou%+%and'n ou%+%and'n  3&o 3&o'+ '++o +o&y &y no%( no%( o& o& P2.5 P2.5 'll 'll'o 'on n  PN -0-0-26 26(7($u%(d 'n July 1- and du( 120 day+ la%(& o& on O$%o(& 28, 1-  ($a( 3a+% du(, and d(+3'%( &(3(a%(d d(and+, P+ a'l(d %o a9( ood on %( no%(. *nci *ncide dent ntal ally ly,, P #%0% #%0%/ /% % prov provid ided ed for for the the pena penalt lty y euivalent to 8 per annum in case of default. P! prepared a tatement of "ccount as of :ctober 1, 1##$, detailing the amount due and demandable from Ps in the total amount of P/,;0,51.;0.

@espite demand, Ps failed to pay the foregoing amount. Thus, P! foreclosed on the mortgage, and on +anuary 1, 1###, the lots were sold at the auction. The sheriffAs certificate of sale was registered on 'arch 11, 1###.

?o P is estopped from uestioning the interest rates because of their continuous payment thereof w>o opposition- : Ra%'o)

'ore than a year later, or on 'arch , 000, Ps filed 2ivil 2ase o. 5#%5, see)ing annulment of the foreclosure sale and an accounting of the P! credit. Ps theoriBed that after the first promissory note where they agreed to pay 1#.58 interest, the succeeding stipulations for the payment of interest in their loan agreements with P! < which all((dly l(% %o %( la%%(& %( +ol( /'ll %o d(%(&'n( %( 'n%(&(+% &a%(  ($a( null and :o'd. Ps added that because the interest rates were fied by R without their prior consent or agreement, these rates are void, and as a result, Ps should only be made liable for interest at the legal rate of  18. They claimed further that they overpaid interests on the credit, and concluded that due to this overpayment of steep interest charges, their debt should now be deemed paid, and the foreclosure and sale of  T2Ts T-150 and T-1;0$ became unnecessary and wrongful. "s for the imposed penalty of P5$1,;;;.;;, Ps alleged that since the Real &state 'ortgage and the upplement thereto did not include penalties as part of  the secured amount, the same should be ecluded from the foreclosure amount or bid price, even if such penalties are provided for in the final Promissory ote. *n addition, Ps sought to be reimbursed an alleged overpayment of P$$,$5.00 made during the period  "ugust 1, 1##1 to 'arch 5, 1##$, resulting from RAs imposition of the alleged illegal and steep interest rates. They also prayed to be awarded P00,000.00 by way of  attorneyAs fees. *n its "nswer, P! denied that it unilaterally imposed or  fied interest ratesC that Ps agreed that without prior  notice, P! may modify interest rates depending on future policy adopted by itC and that the imposition of  penalties was agreed upon in the 2redit "greement. *t added that the imposition of penalties is supported by the all-inclusive clause in the Real &state 'ortgage agreement which provides that the mortgage shall stand as security for any and all other obligations of whatever  )ind and nature owing to R, which thus includes penalties imposed upon default or non-payment of the principal and interest on due date. RT23 Ruled in favor of R 2"3 Ruled in favor of R I++u(;H(ld) ?o the interest rates imposed by R are null and voidD&

2 cited and discussed numerous cases but the main point of all the cases is the doctrine stated above. Any od''$a%'on 'n %( $on%&a$%, +u$ a+ %( 'n%(&(+% &a%(+, u+% ( ad( /'% %( $on+(n% o %( $on%&a$%'n 3a&%'(+. ( 'nd+ o all %( 3a&%'(+ u+% ((% a+ %o %( 3&o3o+(d od''$a%'on, (+3($'ally /(n '% a($%+ an '3o&%an% a+3($% o %( a&(((n%. In %( $a+( o loan a&(((n%+, %( &a%( o 'n%(&(+% '+ a 3&'n$'3al $ond'%'on, ' no% %( o+% '3o&%an% $o3on(n%. u+, any od''$a%'on %(&(o u+% ( u%ually a&((d u3on< o%(&/'+(, '% a+ no 'nd'n (($%. *n the present case, the stipulations in uestion no longer provide that the parties shall agree upon the interest rate to be fiedC - 'n+%(ad, %(y a&( /o&d(d 'n +u$ a /ay %a% %( o&&o/(& +all a&(( %o /a%(:(&  'n%(&(+% &a%( R '7(+. *n credit agreements covered by the cited cases, it is provided that3 The !an) reserves the right to increase the interest rate within the limits allowed by law at an y time depending on whatever policy it may adopt in the future3 Provided, that, the interest rate on this accommodation shall be correspondingly decreased in the event that the applicable maimum interest rate is reduced by law or by the 'onetary !oard. *n either case, the ad7ustment in the interest rate agreed upon shall ta)e effect on the effectivity date of the increase or decrease in maimum interest rate. ?hereas, in the present credit agreements under  scrutiny, it is stated that3 * TE& +F6D 1#$# 2R&@*T "GR&&'&T 4b The !orrower agrees that the !an) may modify the interest rate on the 6oan depending on whatever policy the !an) may adopt in the future, including without limitation, the shifting from the floating interest rate system to the fied interest rate system, or vice versa. ?here the !an) has imposed on the 6oan interest at a rate per annum, which is eual to the !an)As spread over  the current floating interest rate, the !orrower hereby agrees that the !an) may, without need of notice to the !orrower, increase or decrease its spread over the floating interest rate at any time depending on whatever  policy it may adopt in the future. $; 4&mphases supplied * TE& "FGFT 1##1 "'&@'&T T: 2R&@*T  "GR&&'&T

1.0/. *nterest on 6ine "vailments. 4a The !orrowers agree to pay interest on each "vailment from date of  each "vailment up to but not including the date of full payment thereof at the rate per annum which is determined by the !an) to be prime rate plus applicable spread in effect as of the date of each  "vailment.$% 4&mphasis supplied Pla'nly, /'% %( 3&(+(n% $&(d'% a&(((n%, %( (l((n% o $on+(n% o& a&(((n% y %( o&&o/(& '+ no/ $o3l(%(ly la$9'n, /'$ a9(+ R+ unla/ul a$% all %( o&( &(3&((n+'l(. Re estoppel3  "ccordingly, Ps are correct in arguing that estoppel should not apply to them, for 9HeIstoppel cannot be predicated on an illegal act. "s between the parties to a contract, validity cannot be given to it by estoppel if it is prohibited by law or is against public policy.9 *t appears that by its acts, R :'ola%(d %( &u% 'n L(nd'n A$%, o& R(3ul'$ A$% No. 6-=5, /'$ /a+ (na$%(d >%o 3&o%($% 7 7 7 $'%'?(n+ &o a la$9 o  a/a&(n(++ o %( %&u( $o+% o $&(d'% %o %( u+(& y u+'n a ull d'+$lo+u&( o +u$ $o+% /'% a :'(/ o  3&(:(n%'n %( un'no&(d u+( o $&(d'% %o %( d(%&'(n% o %( na%'onal ($onoy. 9$# The law 9gives a detailed enumeration of the specific information reuired to be disclosed, among which are the interest and other  charges incident to the etension of credit.9 #0 ection  thereof provides that a disclosure statement must be furnished prior to the consummation of the transaction, thus3 &2. . "ny creditor shall furnish to each person to whom credit is etended, prior to the consummation of  the transaction, a clear statement in writing setting forth, to the etent applicable and in accordance with rules and

regulations prescribed by the !oard, the following information3 41 the cash price or delivered price of the property or service to be acuiredC 4 the amounts, if any, to be credited as down payment and>or trade-inC 4/ the difference between the amounts set forth under clauses 41 and 4C 4 the charges, individually itemiBed, which are paid or to be paid by such person in connection with the transaction but which are not incident to the etension of creditC 45 the total amount to be financedC 4; %( 'nan$( $a&( (73&(++(d 'n %(&+ o  3(+o+ and $(n%a:o+< and 4% the percentage that the finance bears to the total amount to be financed epressed as a simple annual rate on the outstanding unpaid balance of the obligation. Fnder ection 4;, 9finance charge9 represents the amount to be paid by the debtor incident to the etension of credit such as interest or discounts, collection fees, credit investigation fees, attorneyAs fees, and other  service charges. The total finance charge represents the difference between 41 the aggregate consideration 4down payment plus installments on the part of the debtor, and 4 the sum of the cash price and nonfinance charges. !y &(@u'&'n %( P+ %o +'n %( $&(d'% do$u(n%+ and %( 3&o'++o&y no%(+ 'n lan9, and %(n un'la%(&ally 'll'n %( u3 la%(& on, R :'ola%(d %( &u% 'n L(nd'n A$%, and /a+ &('++ 'n '%+ d'+$lo+u&( ol'a%'on+.