GR 148753; (July, 2004) (Digest)
G.R. No. 148753 July 30, 2004
NEW SAMPAGUITA BUILDERS CONSTRUCTION, INC. (NSBCI) AND SPOUSES EDUARDO R. DEE AND ARCELITA M. DEE, PETITIONERS, VS. PHILIPPINE NATIONAL BANK, RESPONDENT.
FACTS
Petitioner NSBCI obtained an P8 million loan from respondent PNB, secured by a real estate mortgage over properties owned by petitioner-spouses Eduardo and Arcelita Dee, who also signed a Joint and Solidary Agreement (JSA) making them jointly and severally liable. NSBCI subsequently defaulted on its obligations. PNB extrajudicially foreclosed the mortgaged properties. The petitioners filed an action for annulment of the foreclosure sale and accounting, arguing that the loan documents contained stipulations granting PNB unilateral authority to increase interest rates and impose penalties without their consent, which they claimed were void.
The Regional Trial Court ruled in favor of the petitioners, declaring the foreclosure sale void and ordering PNB to account for the loan application of the proceeds. The Court of Appeals reversed this decision, upholding the validity of the foreclosure and ordering the petitioners to pay the deficiency. The petitioners elevated the case to the Supreme Court via a Petition for Review.
ISSUE
Whether the stipulations in the loan documents granting PNB unilateral power to increase interest rates and impose charges are valid and enforceable.
RULING
The Supreme Court modified the CA decision. It held that while the foreclosure was valid, the stipulations granting PNB unilateral authority to increase interest rates and impose penalties were void for violating the principle of mutuality of contracts under Article 1308 of the Civil Code. A contract must bind both parties; its validity cannot be left to the will of one. Clauses allowing a lender to arbitrarily adjust interest at its sole discretion are unconstitutional. Furthermore, the Court ruled that excessive interests, penalties, and charges not properly disclosed in a Truth in Lending Act statement cannot be given effect. The case was remanded to the trial court for a proper computation of the petitioners’ liability, which must exclude any iniquitous or unconscionable charges and be based only on the originally stipulated 6% penalty rate and other valid charges. The Court affirmed that the petitioners, being solidary obligors under the JSA, were liable for any valid deficiency after the foreclosure.