GR 148541; (November, 2004) (Digest)
G.R. No. 148541 November 11, 2004
Development Bank of the Philippines, petitioner, vs. Bonita O. Perez and Alfredo Perez, respondents.
FACTS
On April 28, 1978, petitioner Development Bank of the Philippines (DBP) approved an industrial loan for respondents Bonita and Alfredo Perez totaling P235,000.00, secured by a mortgage. Due to payment defaults, the loan was restructured. On May 6, 1982, respondents executed a new promissory note for P231,000.00 at 18% interest per annum, payable in quarterly installments over ten years. This note contained a provision allowing DBP to unilaterally increase interest rates.
The respondents made only three payments totaling P35,000.00, all of which were late and incomplete. DBP initiated foreclosure. The Perezes filed a complaint to nullify the new promissory note, alleging DBP acted in bad faith by not crediting prior payments and by failing to provide a disclosure statement as required by the Truth in Lending Act ( R.A. No. 3765 ). The Regional Trial Court dismissed the complaint but reduced the interest rate to 12% per annum. The Court of Appeals affirmed but also declared the interest rate escalation clause void.
ISSUE
The core issue is whether the promissory note executed during the loan restructuring is valid, particularly concerning the interest rate escalation clause and compliance with disclosure requirements.
RULING
The Supreme Court affirmed the Court of Appeals’ decision with modification. The promissory note’s provision granting DBP the unilateral right to increase interest rates is void for being potestative. A stipulation that leaves the determination of an essential contract element, like the interest rate, solely to the will of one party is contrary to law and public policy. It lacks mutuality and binds the borrower to an uncertain obligation.
Furthermore, DBP failed to comply with the Truth in Lending Act. The law mandates creditors to disclose the finance charge and the effective interest rate in writing before the transaction is consummated. DBP’s failure to provide this disclosure statement renders the stipulated interest rates without effect. Consequently, the legal rate of interest applies. The case was remanded to the trial court to recompute the respondents’ total obligation using the reduced interest rate of 12% per annum, as correctly ordered by the lower courts, from the time of judicial demand. The foreclosure proceedings were upheld due to the respondents’ clear default.