Philippine National Bank v. Spouses Manalo
REITERATIONFacts
The Antecedents: Respondent Spouses Enrique Manalo and Rosalinda Jacinto obtained an All-Purpose Credit Facility from Philippine National Bank (PNB) for ₱1,000,000.00, secured by a Real Estate Mortgage. The facility was renewed and increased several times, with additional properties mortgaged, some registered in the names of their children. Spouses Manalo allegedly failed to make monthly interest payments after December 1997. PNB sent two demand letters for the overdue account. Despite these, the Spouses Manalo failed to settle their account, leading PNB to foreclose the mortgage. PNB was the highest bidder at ₱15,127,000.00 during the foreclosure sale. Procedural History: More than a year after the Certificate of Sale was issued, the Spouses Manalo filed an action for the nullification of the foreclosure proceedings and damages, alleging they were misled into believing a loan from Benito Tan would restructure their debt and that PNB failed to comply with Act No. 3135. The Regional Trial Court (RTC) ruled in favor of PNB, holding that the Spouses Manalo were estopped from questioning the loan documents as contracts of adhesion and the interest rates, as they had paid them for three years without protest and had agreed to the foreclosure during pre-trial. The Court of Appeals (CA) affirmed the validity of the foreclosure but modified the liability for interest, finding the unilateral increase of interest rates by PNB void for violating the principle of mutuality of contracts. The CA fixed the interest rate at 12% per annum and ordered a recomputation of the indebtedness. The Petition: PNB appealed to the Supreme Court, raising procedural and substantive issues regarding the CA's nullification of interest rates and its ruling on the lack of mutuality of consent.
Issue(s)
Whether the Court of Appeals erred in nullifying the interest rates imposed on the loan and fixing them at 12% per annum, despite the issue not being raised in the complaint, during pre-trial, or formally offered as evidence. Whether the Court of Appeals correctly ruled that there was no mutuality of consent in the imposition of interest rates, despite the respondents' alleged assent to the rates.
Ruling
The Supreme Court affirmed the decision of the Court of Appeals, with modifications regarding the computation of interest on any amount to be refunded. The Court held that the issues regarding the validity of interest rates and lack of mutuality were validly raised and passed upon by the RTC due to implied consent, as PNB did not object to the presentation of evidence on these matters. The Court reiterated that unilateral imposition and increase of interest rates by a bank violate the principle of mutuality of contracts and render such stipulations void. The Court also clarified the application of legal interest rates based on Monetary Board Circular No. 799.
Ratio Decidendi
On the Procedural Issue of Raising Issues on Appeal: The Court ruled that the validity of the interest rates and the lack of mutuality were not raised for the first time on appeal. These issues were impliedly raised during the trial through Enrique Manalo's Judicial Affidavit, and PNB's failure to object to its presentation and cross-examination thereon constituted implied consent under Section 5, Rule 10 of the Rules of Court. The Court emphasized that when issues not raised in the pleadings are tried with the consent of the parties, they shall be treated as if they had been raised in the pleadings, and failure to amend does not affect the result. The Court cited Bernardo Sr. v. Court of Appeals and Talisay-Silay Milling Co., Inc. v. Asociacion de Agricultores de Talisay-Silay, Inc. to support the principle that a court may rule on issues based on evidence presented without objection, even if not pleaded. Therefore, the CA correctly considered these issues, and PNB's contention that the Judicial Affidavit was not offered to prove the nullity of interest rates was dismissed as a misappreciation of the proceedings. On the Substantive Issue of Mutuality of Contracts and Interest Rates: The Court affirmed the CA's ruling that the stipulation allowing PNB to unilaterally determine and increase interest rates contravened the principle of mutuality of contracts under Article 1308 of the Civil Code. The Court held that such a stipulation, where compliance is left to the will of one party, partakes of the nature of a contract of adhesion and is void. PNB's failure to specifically indicate the interest rates in the credit agreement meant that any obscurity should be construed against it as the drafting party. The Court rejected PNB's argument that the Spouses Manalo's continuous payment of interest without protest constituted assent, citing Philippine National Bank v. Court of Appeals, which held that a borrower is not estopped from assailing unilateral increases in interest rates. Furthermore, the credit agreements explicitly required prior notice before increasing interest rates, a stipulation PNB violated by failing to notify the Spouses Manalo. Consequently, the varying interest rates imposed by PNB were declared null and void, and an interest rate of 12% per annum was fixed from the date of default, consistent with Eastern Shipping Lines, Inc. v. Court of Appeals.
Main Doctrine
A stipulation on interest unilaterally imposed and increased by a bank is violative of the principle of mutuality of contracts and shall be struck down as void. Banks may not take advantage of borrowers' lack of familiarity with banking procedures. Issues not raised in the pleadings may be tried and decided if there is implied consent of the parties, as when evidence thereon is presented without objection.