THE PHILIPPINE PRODUCERS COOPERATIVE MARKETING ASSOCIATION INC., PLAINTIFF-APPELLEE, VS. PHILIPPINE NATIONAL BANK, DEFENDANT-APPELLANT.
AZCARRAGA-JACOB, J.:
THE ANTECEDENTS
Civil Case No. 6711 involves a complaint[1] for “Cancellation of Mortgage and Release of Title and Refund of Overpayment with Writ of Preliminary Injunction”. The complaint, which was filed by the Cooperative on 8 October 1991, contained the following allegations: (1) from 30 August 1969 to February of 1972, the Cooperative obtained loans and credit accommodations from PNB in the total amount of Php 4,910,955.99; (2) as security for said loans, the Cooperative mortgaged to PNB a parcel of land covered by TCT No. T-88588, with an area of 5,000 square meters; (3) the Cooperative has long fully paid its loan obligations and is entitled to an overpayment of Php 362,239.67; (4) in view of its full payment, the Cooperative demanded the release of the mortgage and the refund of the overpayment; (5) PNB did not heed its demand and thus, the Cooperative was constrained to file the complaint.
On 2 January 1992, PNB filed its Answer with counterclaim[2] denying that full payment has been made by the Cooperative. PNB countered that: (1) the Cooperative maintained Letters of Credit/Trust Receipt Line and when availments became due, there was a balance of Php 3,891,500.00 which remained unpaid despite repeated demands; (2) in 1980, the Cooperative requested for the consolidation and restructuring of its accounts to be payable in five (5) equal installments and offered a parcel of land covered by TCT No. T-88588 as security; and (3) the Cooperative failed to settle its obligation which already amounted to Php 12,692,114.44 as of 31 May 1991.
On 24 June 1992, an amended complaint[3] was filed by the Cooperative claiming that PNB imposed a floating rate of interest on its loans without its consent.
After trial, the RTC rendered a Decision, the dispositive portion of which reads:
WHEREFORE, in the light of all the foregoing discussion, judgment is hereby rendered in favor of the plaintiff and against the defendant, to wit:
1. Declaring that plaintiff has fully paid the defendant bank of its Real Estate Mortgage obligation;
2. Ordering defendant to pay plaintiff the amount of P362, 239.67 representing over-payment with legal rate of interest;
3. Ordering defendant bank to execute and deliver to the plaintiff cooperatives a release of the Real Estate Mortgage (Exhibit “5”)constituted on Lot 1-A of the subdivision plan (LRC) Psd-245449 with Transfer Certificate of Title No. T-88588.
4. Ordering defendant to pay plaintiff P50,000.00 as attorney’s fees;
5. Ordering the Counterclaim DISMISSED;
6. No pronouncement as to costs.
SO ORDERED.[4]
Unsatisfied with the RTC Decision, PNB filed the instant appeal raising the following assignment of errors:
I.
THE LOWER COURT ERRED IN DECLARING THAT APPELLE[E] FULLY PAID ITS LOAN OBLIGATION
II.
THE LOWER COURT ERRED IN ORDERING APPELLANT TO PAY PHP 362,239.67 TO APPELLEE REPRESENTING OVERPAYMENT WITH LEGAL INTEREST
III.
THE LOWER COURT ERRED IN ORDERING APPELLANT TO EXECUTE AND DELIVER A RELEASE OF REAL ESTATE MORTGAGE AND TO RETURN TRANSFER CERTIFICATE OF TITLE NO. T-88588 TO APPELLEE
IV.
THE LOWER COURT ERRED IN ORDERING THE APPELLANT TO PAY APPELLEE THE AMOUNT OF PHP 50,000.00 AS ATTORNEY’S FEES
V.
THE LOWER COURT ERRED IN DISMISSING APPELLANT’S COUNTERCLAIM.[5]
In its Brief, PNB argues that the Cooperative, through its former Manager Oscar Coscolluella, acknowledged its outstanding loan obligation and even requested for its restructuring. Consequently, the Cooperative is considered to have willingly agreed to all the terms and conditions of the restructured loan and its ancillary contracts.[6]
On the other hand, the Cooperative asserts that based on its computation, it has fully settled its obligations to PNB. According to the Cooperative, “floating interests”[7] were imposed by PNB on its loans without its consent and thus, it appears on PNB’s computation that there still exists a balance of more than P12 Million.
The RTC ruled in favor of the Cooperative and noted that the respective computations by the parties differed because of the floating interest rates which were imposed by PNB without the Cooperative’s consent. The RTC held:
xxx The Court cannot legally recognize the imposition of floating interest rate as it has not been shown that plaintiff cooperative has given its written conformity.
xxx xxx xxxThe Court is of the considered view that and so holds that plaintiff’s Computation of Account (Exhibit “A”) is a fair computation of the loan obligation based on the rate of interest stipulated in the letters of credit/promissory notes.[8]
The Court agrees with the findings of the RTC.
It bears emphasis that in the Amended Complaint filed before the trial court, the Cooperative already added a specific allegation pertaining to “unilateral charges” in the form of “floating interests” made by PNB on its account. No Answer was filed by PNB in response to the Cooperative’s Amended Complaint. Said failure to specifically deny the allegation pertaining to “unilateral charges” is deemed an admission thereof.
Even a careful perusal of the Appellant’s Brief reveals that PNB never refuted that interests were imposed on the Cooperative’s account without prior consent. Instead, PNB focused its arguments and discussion on the fact that Mr. Coscolluella, the Cooperative’s former Managing Director signed the Promissory Notes and other pertinent documents and since Mr. Coscolluella was an authorized representative of the Cooperative, the latter is bound by his actions.
It has been categorically ruled that a request for loan restructuring cannot be considered as an implied consent to an interest increase. The Supreme Court has enunciated:
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.”[9] (Emphasis supplied.)
Thus, the Court cannot accord merit to PNB’s contention that because the Cooperative requested for restructuring, the same is considered to be an acknowledgment of indebtedness which includes all the interests and charges unilaterally imposed by PNB.
While We concede that the right of banks to impose interests has been recognized by the Supreme Court, as held in:
xxx. The charging of interest for loans forms a very essential and fundamental element of the banking business, which may truly be considered to be at the very core of its existence or being. It is inconceivable for a bank to grant loans for which it will not charge any interest at all.
We underscore however that such right is subject to certain limitations imposed by law. One of these limitations is Article 1956 of the Civil Code which states that “[n]o interest shall be due unless it has been expressly stipulated in writing.”
The right of banks to impose interests is also subject to the rule that in order for a contract to bind both parties, there must be mutuality between them. This is the principle of mutuality of contracts which is expressly provided in Article 1308 of the Civil Code:
Article 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.
The Supreme Court has elaborated on this principle in this wise:
The binding effect of any agreement between the parties to a contract is premised on two settled principles: (1) that obligations arising from contracts have the force of law between the contracting parties; and (2) that there must be mutuality between the parties based on their essential equality to which is repugnant to have one party bound by the contract leaving the other free therefrom. Any contract which appears to be heavily weighed in favor of one of the parties so as to lead to an unconscionable result is void. Any stipulation regarding the validity or compliance of the contract which is left solely to the will of one of the parties is likewise invalid.
The provision in the promissory note authorizing respondent bank to increase, decrease or otherwise change from time to time the rate of interest and/or bank charges “without advance notice” to petitioner, “in the event of change in the interest rate prescribed by law or the Monetary Board of the Central Bank of the Philippines,” does not give respondent bank unrestrained freedom to charge any rate other than that which was agreed upon. Here, the monthly upward/downward adjustment of interest rate is left to the will of respondent bank alone. It violates the essence of mutuality of the contract.[10]
With specific reference to the imposition of interest rates, it has been held that stipulations in contracts allowing an increase in the interest rate agreed upon by the contracting parties are not void per se. These stipulations, which are referred to as “escalation clauses” have been considered as valid stipulations in commercial contracts to maintain fiscal stability and to retain the value of money in long term contracts.[11]
However, jurisprudence has also established the rule that an escalation clause which grants the creditor an unbridled right to adjust the interest independently and upwardly, completely depriving the debtor of the right to assent to an important modification in the agreement is void.[12]
A perusal of the promissory note between the parties reveals that there is a provision which states:
Provided that the Bank reserves the right to raise the interest charges on this obligation at anytime depending on its policies.[13]
Such a stipulation is clearly void as it violates the principle of mutuality of contracts. Given such a void stipulation in the Promissory Note, the same cannot be the basis of the imposition of unilateral interests by PNB. Hence, even if the Cooperative is considered to have signified its conformity to the Promissory Note and other ancillary contracts, this conformity did not give PNB the authority to increase interest rates unilaterally since any stipulation to this effect is void.
PNB also contends that the set of rules that the bank should follow in extending loan accommodation to clients and transactions it made with the Cooperative were in accordance with well-established rules of the bank. Particularly, PNB points out that “ [t]he promissory Notes for the sums of P3,891,500.00 and P1,174,100.00, Agreement for Plan of Payment dated March 6, 1980, Deed of Assignment dated March 6, 1980, Real Estate Mortgage dated March 6, 1980, the account ledger and Statement of Account as of May 31, 1991 with a total amount of P12,692,114.50 xxx were all executed and entered into by the parties xxx in accordance with the latter’s time-tested set of rules”[14]
While the Court agrees with PNB on this matter, it should be borne in mind that any rule PNB should adopt must not be contrary to law and prevailing jurisprudence. In several instances, the Supreme Court invalidated stipulations which PNB incorporated in its commercial contracts. Thus, in New Sampaguita Builders Construction, Inc. v. Philippine National Bank,[15] the Supreme Court considered as void a uniform clause in the promissory notes which allowed 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 the borrowers. The Supreme Court ratiocinated:
xxx The Court holds that petitioners’ accessory duty to pay interest did not give respondent 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.
Similarly, in Philippine National Bank v. Rocamora,[16] it was held:
xxx As correctly found by the appellate court, even with a de-escalation clause, no matter how elaborately worded, an unconsented increase in interest rates is ineffective if it transgresses the principle of mutuality of contracts.
Precisely for this reason, we struck down in several cases – many of them involving PNB – the increase of interest rates unilaterally imposed by creditors. In the 1991 case of PNB v. CA and Ambrosio Padilla, we declared:
In order that obligations arising from contracts may have the force of law between the parties, there must be mutuality between the parties based on their essential equality. A contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties, is void. Hence, even assuming that the P1.8 million loan agreement between the PNB and private respondent gave the PNB a license (although in fact there was none) to increase the interest rate at will during the term of the loan, that license would have been null and void for being violative of the principle of mutuality essential in contracts. It would have invested the loan agreement with the character of a contract of adhesion, where the parties do not bargain on equal footing, the weaker party’s (the debtor) participation being reduced to the alternative “to take it or leave it.” Such a contract is a veritable trap for the weaker party whom the courts of justice must protect against abuse and imposition. (Emphasis and Italics in the Original)
In view of PNB’s imposition of unilateral interests, the Court cannot sustain its claim that the Cooperative still has a balance in the amount of more than 12 Million Pesos. The Court affirms the RTC’s finding that the computation made by the Cooperative is fair under the circumstances. Testimonial[17] and documentary[18] evidence for the Cooperative has shown that from the principal amount of Php 4,910,955.99, loan payments made to PNB on different dates already amounted to Php 7,970,705.44.
Significantly, no objection was made by PNB to all the documents offered in evidence by the Cooperative.[19] One of these documents is the Statement of Account showing that there is an overpayment in the amount of Php 362,239.62.[20]
As for the RTC’s award of Php 50,000.00 as attorney’s fees, the Court finds it unwarranted and without basis. Time and again, it has been repeatedly emphasized that the award of attorney’s fees is the exception rather than the general rule and they are not awarded every time a party prevails in a suit because of the policy that no premium should be placed on the right to litigate.[21] There has to be a finding that the grant of attorney’s fees falls under any of the exceptions enumerated in Article 2208 of the Civil Code.[22] In the case at bar, the RTC’s Decision made no such finding, as in fact, the award was made only in the dispositive portion thereof.
WHEREFORE, the instant appeal is DENIED.
Accordingly, the Decision dated 05 October 2005 rendered by Branch 49, Regional Trial Court of Bacolod City in Civil Case No. 6711 is AFFIRMED, subject to the MODIFICATION that the award of attorney’s fees is ordered DELETED.
PNB is also ORDERED to execute a release of mortgage constituted over the parcel of land covered by TCT No. 88588 and refund the Cooperative the sum of Php 362,239.62 representing the overpayment stated above, plus interest thereon at the legal rate of six percent (6%) per annum from the filing of the complaint on 8 October 1991 until the finality of this Decision. After this Decision becomes final and executory, the applicable rate shall be twelve percent (12%) per annum until its satisfaction.
SO ORDERED.
Ingles,* and Quijano-Padilla, JJ., concur.
* Acting Chairman per Office Order No. 14-14-GTI dated 26 June 2014 vice Justice Hernando.
[1] Records, pp. 1-4.
[2] Ibid., pp. 21-25.
[3] Ibid.,pp. 47-50.
[4] Ibid., p. 618.
[5] Rollo, pp. 29 and 31.
[6] Ibid., pp. 37-38.
[7] Defined as “an interest rate that is allowed to move up and down with the rest of the market or along with an index. This contrasts with a fixed interest rate, in which the interest rate of a debt obligation stays constant for the duration of the agreement.” (www.investopedia.com)
[8] Record, p. 617.
[9] New Sampaguita Builders Construction, Inc. v. Philippine National Bank, G.R. No. 148753, 30 July 2004 citing Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, Vol. I (1990), p. 29.
[10] Floirendo, Jr. v. Metropolitan Bank and Trust Company, G.R. No. 148325, 3 September 2007.
[11] Philippine National Bank v. Rocamora, G.R. No. 164549, 18 September 2009.
[12] Floirendo, Jr. v. Metropolitan Bank and Trust Company, supra.
[13] Record, p. 556.
[14] Rollo, p. 36.
[15] G.R. No. 148753, 30 July 2004.
[16] G.R. No. 164549, 18 September 2009.
[17] Testimonies of Helen Gradiola and Joselito Togle dated 9 June 1993 and 11 January 1996.
respectively.
[18] Record, p. 332.
[19] Ibid., p. 346.
[20] Ibid., p. 332.
[21] Andrada v. PILHINO Sales Corp., G.R. No. 156448, 23 February 2011.
[22] Article 2208 of the Civil Code reads: “In the absence of stipulation, attorney’s fees and expenses of litigation, other than judicial costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendant’s act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff’s plainly valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;
(8) In actions for indemnity under workmen’s compensation and employer’s liability laws;
(9) In a separate civil action to recover civil liability arising from a crime; (10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorney’s fees and expenses of litigation should be recovered. In all cases, the attorney’s fees and expenses of litigation must be reasonable.”