Equitable PCI Bank v. Ng
REITERATIONFacts
The Antecedents: Respondents Ng Sheung Ngor, Ken Appliance Division, Inc., and Benjamin E. Go (collectively, respondents) filed an action for annulment and/or reformation of documents against Equitable PCI Bank (Equitable) and its employees, Aimee Yu and Bejan Lionel Apas. Respondents claimed they were induced to avail of credit facilities by Equitable, signing promissory notes with identical escalation clauses that allowed Equitable to increase interest rates without their consent. Equitable asserted that respondents knowingly accepted all terms and conditions and benefited from the facilities for five years. Procedural History: The Regional Trial Court (RTC) upheld the validity of the promissory notes but invalidated the escalation clause for violating the principle of mutuality of contracts. The RTC also took judicial notice of extraordinary deflation and ordered the use of the 1996 dollar exchange rate for dollar-denominated loans. It awarded moral and exemplary damages to respondents due to the alleged freezing of their accounts. Both parties appealed. The RTC denied due course to both appeals for failure to pay appeal fees, declaring the decision final and executory as to Equitable. The RTC denied Equitable's motion for reconsideration and granted respondents' motion for execution. Equitable filed a petition for relief, which it later withdrew to file a petition for certiorari with injunction in the Court of Appeals (CA). The CA granted the injunction, but Equitable's properties were still sold at auction. The CA dismissed Equitable's petition for certiorari, finding it guilty of forum shopping. Equitable filed the present petition for review on certiorari. The Petition: Equitable asserts it was not guilty of forum shopping and that the RTC committed grave abuse of discretion in issuing its orders, preventing Equitable from appealing a patently erroneous decision.
Issue(s)
Whether Equitable was guilty of forum shopping. Whether the RTC committed grave abuse of discretion in issuing its March 1, 2004 and March 24, 2004 orders. Whether Equitable raised pure questions of law in its petition for review. Whether the promissory notes were valid. Whether the escalation clause violated the principle of mutuality of contracts. Whether there was extraordinary deflation. Whether the award of moral and exemplary damages was proper.
Ruling
The petition is meritorious. The Court of Appeals' decision and resolution are reversed and set aside. The RTC's March 24, 2004 omnibus order is annulled for grave abuse of discretion, and all proceedings pursuant thereto are declared null and void. The RTC's March 1, 2004 order is set aside, and Equitable's appeal is given due course. The RTC's February 5, 2004 decision is set aside, and a new judgment is entered ordering respondents to pay Equitable the principal and stipulated interest on their loans, with legal interest thereafter.
Ratio Decidendi
On the issue of forum shopping: The Court held that Equitable was not guilty of forum shopping. Forum shopping requires the filing of multiple actions involving the same transactions, essential facts, and circumstances, raising identical issues, subject matter, and causes of action. Equitable's petition for relief in the RTC and its petition for certiorari in the CA had different causes of action. The petition for relief sought to set aside a judgment or final order due to fraud, accident, mistake, or excusable negligence, while the petition for certiorari sought to correct grave abuse of discretion amounting to lack or excess of jurisdiction. Furthermore, Equitable substantially complied with the non-forum shopping rule by withdrawing its petition for relief on the same day it filed the certiorari petition, demonstrating no intention to pursue both actions simultaneously. On the RTC's grave abuse of discretion: The Court found that the RTC committed grave abuse of discretion in issuing its March 1, 2004 and March 24, 2004 orders. The March 1, 2004 order denied due course to Equitable's notice of appeal for non-payment of appeal fees, despite Equitable's claim of payment. The March 24, 2004 omnibus order denied Equitable's motion for reconsideration and granted respondents' motion for execution, effectively preventing Equitable from appealing the February 5, 2004 decision. This denial of the right to appeal, coupled with the "indecent haste" in executing the decision, constituted grave abuse of discretion amounting to lack or excess of jurisdiction. The Court also noted that there was no plain, speedy, and adequate remedy in the ordinary course of law for Equitable, as its appeal was denied. On whether pure questions of law were raised: The Court affirmed that Equitable raised pure questions of law. Equitable did not assail the factual findings of the RTC but focused on the alleged nullity and erroneous nature of the RTC's February 5, 2004 decision, particularly the exorbitant award of damages, which it argued was inconsistent with law and jurisprudence. On the validity of the promissory notes: The Court upheld the validity of the promissory notes, despite respondents' claim that they were contracts of adhesion. A contract of adhesion is not void per se and is binding unless the dominant party takes advantage of the weaker party's weakness. The respondents' continuous availing of Equitable's credit facilities for five years indicated their acceptance of the terms. However, the Court noted that the RTC failed to ascertain the total amount due, remanding the case for this determination. On the escalation clause: The Court declared the escalation clause void for violating the principle of mutuality of contracts (Article 1308 of the Civil Code). The clause granted Equitable an unbridled right to increase interest rates without the debtors' consent and lacked provisions for de-escalation. A valid escalation clause must provide for increases only when allowed by law or the Monetary Board and for decreases when the maximum rate is reduced by law or the Monetary Board. On extraordinary deflation: The Court ruled that there was no extraordinary deflation as contemplated by Article 1250 of the Civil Code. The requisites for extraordinary inflation or deflation to affect an obligation are: (1) an official declaration from the BSP, (2) a contractual obligation, and (3) an express agreement by the parties to consider its effects. None of these were met. Therefore, respondents should pay their dollar-denominated loans at the exchange rate fixed by the BSP on the date of maturity. On the award of moral and exemplary damages: The Court found no basis for the award of moral and exemplary damages. Moral damages in breach of contract cases are recoverable only if the defendant acted fraudulently or in bad faith, which was not proven. The RTC's finding that Equitable acted fraudulently or in bad faith was mistaken, as Equitable merely exercised its legal right to set-off respondents' deposits against their unpaid loans after respondents defaulted. Since respondents were not entitled to moral damages, they were also not entitled to exemplary damages, attorney's fees, or litigation expenses.
Main Doctrine
A petition for certiorari under Rule 65 is the proper remedy to assail an RTC order issued with grave abuse of discretion amounting to lack or excess of jurisdiction, especially when there is no plain, speedy, and adequate remedy in the ordinary course of law. Furthermore, an escalation clause in a promissory note is void if it grants the creditor an unbridled right to increase interest rates without the debtor's consent and lacks provisions for de-escalation. Lastly, moral and exemplary damages are not awardable in a breach of contract case unless the debtor acted fraudulently or in bad faith, which was not proven when the bank exercised its right to set-off deposits against an unpaid loan.