Philippine National Bank v. Court of Appeals
REITERATIONFacts
The Antecedents: Private respondents obtained a loan of P50,000.00 from petitioner Philippine National Bank (PNB) under the Cottage Industry Guaranty Loan Fund (CIGLF) on April 7, 1982, with a 12% annual interest rate, amortized over three years, ending March 29, 1985. They secured this loan with real estate and chattel mortgages. On February 17, 1983, they obtained an additional P50,000.00 loan, increasing the total to P100,000.00, with similar terms but a maturity date of April 1, 1985, secured by additional real estate mortgages. Procedural History: PNB unilaterally increased the interest rate on the CIGLF loan to 25% per annum on August 1, 1984, then to 30% on October 15, 1984, and further to 42% on October 25, 1984. As of December 1985, private respondents had an outstanding principal of P81,000.00, with a significant portion credited to interest and penalties. Private respondents' efforts to have PNB revert to the 12% interest rate and condone penalties were unsuccessful. They filed a suit for specific performance against PNB and NACIDA. The Regional Trial Court dismissed their complaint. The Court of Appeals reversed the dismissal, ordering PNB to re-apply the 12% interest rate and adjust charges accordingly. The Petition: PNB filed a petition for review, contending that the Court of Appeals erred in ruling that the interest rate increases were unauthorized, that the credit agreement and promissory notes were not the law between the parties, that Central Bank Circular No. 773 and No. 905 were inapplicable, and that private respondents were not estopped from questioning the rate increases.
Issue(s)
Whether the unilateral increase in interest rates by the petitioner bank was authorized. Whether the Court of Appeals erred in ruling that the credit agreement and promissory notes were not the law between the parties. Whether Central Bank Circular No. 773 and Central Bank Circular No. 905 are applicable. Whether private respondents are estopped from questioning the increase in interest rates made by the petitioner.
Ruling
The petition is denied for lack of merit. The decision of the Court of Appeals is affirmed.
Ratio Decidendi
On the issue of unilateral increase in interest rates: The Court held that while Presidential Decree (P.D.) No. 1684 and Central Bank (C.B.) Circular No. 905 allow parties to stipulate freely regarding subsequent adjustments in interest rates, they do not authorize unilateral increases without the other party's consent. The escalation clause in the credit agreement, which PNB relied upon, stated that the bank reserves the right to increase the interest rate within legal limits, but this right is not absolute. The principle of mutuality of contracts, enshrined in Article 1308 of the Civil Code, mandates that contracts must bind both parties and their compliance cannot be left to the will of one. A unilateral increase in interest rate by the bank negates the element of mutual assent, rendering such an adjustment void. The Court reiterated that even if the agreement granted a license to increase rates at will, such a license would be null and void for violating the principle of mutuality, making the contract a contract of adhesion. On whether the Credit Agreement and Promissory Notes are the law between the parties: The Court affirmed that while contracts are binding between the parties, this binding force is predicated on the presence of mutual assent. The unilateral increase in interest rates by PNB violated this fundamental principle. The Court emphasized that contract changes must be mutually agreed upon, especially concerning vital aspects like the interest rate. The escalation clause, as interpreted by PNB to allow unilateral increases, would render the contract one-sided and thus void. On the applicability of CB Circular No. 773 and CB Circular No. 905: The Court clarified that P.D. No. 1684 and C.B. Circular No. 905, series of 1982, merely allow parties to stipulate freely regarding subsequent adjustments in interest rates, whether upward or downward. They do not grant either party the authority to unilaterally alter the agreed-upon interest rate without the consent of the other. Therefore, these circulars did not authorize PNB's unilateral increase in interest rates. On whether private respondents are estopped from questioning the rate increases: The Court ruled that private respondents are not estopped from assailing the unilateral increases. Receiving a proposal to change a contract does not oblige a party to respond, and silence per se cannot be construed as acceptance. The circumstances did not show that private respondents implicitly agreed to the proposed increases, which were described as sudden and stiff.
Main Doctrine
A unilateral increase in the interest rate on a loan, even with an escalation clause, is void for violating the principle of mutuality of contracts, as such an adjustment requires the mutual consent of both parties.