New Sampaguita Builders Construction, et. al v.

PNB
G.R. No. 148753, July 30, 2004

Ponente: PANGANIBAN, J.

Facts:

Sampaguita secured a loan from PNB in an aggregate amount of 8M pesos, mortgaging the
properties of Sampaguita’s president and chairman of the board. Sampaguita also executed
several promissory notes due on different dates (payment dates). The first promissory note had
19.5% interest rate. The 2nd and 3rd had 21.5%. a uniform clause therein permitted PNB to
increase the rate “within the limits allowed by law at any time depending on whatever policy it
may adopt in the future x x x,” without even giving prior notice to petitioners. There was also a
clause in the promissory note that stated that if the same is not paid 2 years after release then it
shall be converted to a medium term loan – and the interest rate for such loan would apply.

Later on, Sampaguita defaulted on its payments and failed to comply with obligations on
promissory notes. Sampaguita thus requested for a 90 day extension to pay the loan. Again they
defaulted, so they asked for loan restructuring. It partly paid the loan and promised to pay the
balance later on. AGAIN they failed to pay so PNB extrajudicially foreclosed the mortgaged
properties. It was sold for 10M. PNB claimed that Sampaguita owed it 12M so they filed a case
in court asking Sampaguita to pay for deficiency.

RTC found that Sampaguita was automatically entitled to the debt relief package of PNB
and ruled that the latter had no cause of action against the former. CA reversed, saying
Sampaguita was not entitled, thus ordered them to pay the deficiency – Appeal = Went to SC.
Sampaguita claims the loan was bloated so they don’t really owe PNB anymore, but it just
overcharged them.

Issues:

1. Whether or not the loan accounts are bloated.

2. Whether PNB could unilaterally increase interest rates: NO

Ruling:

Sampaguita’s accessory duty to pay interest did not give PNB unrestrained freedom to
charge any rate other than that which was agreed upon. No interest shall be due, unless
expressly stipulated in writing. It would be the zenith of farcicality to specify and agree upon
rates that could be subsequently upgraded at whim by only one party to the agreement.
 The “unilateral determination and imposition” of increased rates is “violative of the
principle of mutuality of contracts ordained in Article 1308 of the Civil Code.” One-sided
impositions do not have the force of law between the parties, because such impositions are not
based on the parties’ essential equality.

Although escalation clauses are valid in maintaining fiscal stability and retaining the
value of money on long-term contracts, giving respondent an unbridled right to adjust the interest
independently and upwardly would completely take away from petitioners the “right to assent to
an important modification in their agreement” and would also negate the element of mutuality in
their contracts. The clause cited earlier made the fulfillment of the contracts “dependent
exclusively upon the uncontrolled will” of respondent and was therefore void. Besides, the pro
forma promissory notes have the character of a contract d’adhésion, “where the parties do not
bargain on equal footing, the weaker party’s [the debtor’s] participation being reduced to the
alternative ‘to take it or leave it.’”

Circular that lifted the ceiling of interest rates of usury law did not authorize either party
to unilaterally raise the interest rate without the other’s consent.

The interest ranging from 26 percent to 35 percent in the statements of account “must be
equitably reduced for being iniquitous, unconscionable and exorbitant.” Rates found to be
iniquitous or unconscionable are void, as if it there were no express contract thereon. Above all,
it is undoubtedly against public policy to charge excessively for the use of money.

It cannot be argued that assent to the increases can be implied either from the June 18,
1991 request of petitioners for loan restructuring or from their lack of response to the statements
of account sent by respondent. Such request does not indicate any agreement to an interest
increase; there can be no implied waiver of a right when there is no clear, unequivocal and
decisive act showing such purpose. Besides, the statements were not letters of information sent to
secure their conformity; and even if we were to presume these as an offer, there was no
acceptance. No one receiving a proposal to modify a loan contract, especially interest -- a vital
component -- is “obliged to answer the proposal.”

Besides, PNB did not comply with its own stipulation that should the loan not be paid 2
years after release of money then it shall be converted to a medium term loan.

*Court applied 12% interest rate instead for being a forbearance of money

There were some pieces of evidence presented by PNB in court that sampaguita objected
to. Lower courts overruled the objections but SC said the objections were correct and the
evidence should not have been admitted. i.e. contract wasn’t signed by the parties, a part of the
contract wasn’t properly annexed/no reference was made in the main contract.)

In addition to the preceding discussion, it is then useless to labor the point that the
increase in rates violates the impairment clause of the Constitution, because the sole purpose of
this provision is to safeguard the integrity of valid contractual agreements against unwarranted
interference by the State in the form of laws. Private individuals’ intrusions on interest rates is
governed by statutory enactments like the Civil Code.