GR 252073; (July, 2022) (Digest)
G.R. No. 252073 . July 18, 2022
SPOUSES LOURDES V. RAFAEL AND RAUL I. RAFAEL, PETITIONERS, VS. GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS), RESPONDENT.
FACTS
Petitioners, spouses Lourdes and Raul Rafael, entered into a Deed of Conditional Sale with ARB Construction for a house and lot, with a purchase price payable in 180 monthly installments of ₱3,094.35. The deed explicitly stated a fixed monthly amortization and contained no provision for a graduated payment increase. ARB subsequently assigned its rights to respondent GSIS. Petitioners faithfully paid the stipulated amount via salary deduction from Lourdes’s employment at the Department of Budget and Management (DBM) from May 1991 to September 2005, totaling ₱532,248.20.
In 2005, GSIS unilaterally cancelled the deed, demanding payment of a purported outstanding balance of ₱384,354.72. GSIS claimed the loan was under a Graduated Payment Scheme (GPS), requiring increased amortizations every five years pursuant to an internal Board Resolution, and that deductions should have commenced earlier. GSIS applied petitioners’ consistent payments to accrued interests and penalties for the alleged unpaid graduated increases and the initial months, thereby creating a large deficiency. Petitioners filed a complaint for specific performance, arguing GSIS acted without legal authority and in bad faith.
ISSUE
Whether GSIS can unilaterally modify the fixed monthly amortization stipulated in the Deed of Conditional Sale and retroactively apply such increases to declare petitioners in default.
RULING
No. The Supreme Court ruled in favor of the petitioners, reinstating and modifying the RTC decision. The contract, embodied in the Deed of Conditional Sale, is the law between the parties. Its clear and unequivocal terms stipulated a fixed monthly amortization of ₱3,094.35 for 180 months. GSIS cannot unilaterally alter this fundamental obligation based on its internal Board Resolution, which was not incorporated into the contract nor expressly agreed upon by the petitioners. The principle of mutuality of contracts under Article 1308 of the Civil Code was violated.
The Court found that GSIS acted in bad faith. For over 14 years, it accepted the fixed payments without objection, leading petitioners to believe they were complying with their obligations. This consistent conduct estopped GSIS from suddenly imposing new terms and declaring a massive default. The application of payments to penalties instead of the principal was inequitable. Consequently, petitioners are ordered to pay the remaining 13 installments at the original fixed rate of ₱3,094.35, without interest or penalties. Upon full payment, GSIS must execute a Deed of Absolute Sale. The ruling prevents GSIS from being unjustly enriched at the expense of petitioners who relied in good faith on the contract’s terms.