558 Phil. 654
The rate of interest and/or bank charges herein stipulated, during the term of this Promissory Note, its extension, renewals or other modifications, may be increased, decreased, or otherwise changed from time to time by the Bank without advance notice to me/us in the event of changes in the interest rate prescribed by law or the Monetary Board of the Central Bank of the Philippines, in the rediscount rate of member banks with the Central Bank of the Philippines, in the interest rates on savings and time deposits, in the interest rates on the bank's borrowings, in the reserve requirements, or in the overall costs of funding or money;On July 11, 1997, respondent bank started imposing higher interest rates on petitioner's loan which varied through the months, in fact, as high as 30.244% in October 1997. As a result, petitioner could no longer pay the high interest rates charged by respondent bank. Thus, he negotiated for the renewal of his loan. Respondent bank agreed provided petitioner would pay the arrears in interest amounting to the total sum of P163,138.33. Despite payment by petitioner, respondent bank, instead of renewing the loan, filed with the Office of the Clerk of Court and Provincial Sheriff, RTC, Cagayan de Oro City a petition for foreclosure of mortgage which was granted. On August 17, 1998, the auction sale was set.
I/We hereby expressly consent to any extension and/or renewal hereof in whole or in part and/or partial payment on account which may be requested by and/or granted to anyone of us for the payment of this note upon payment of the corresponding renewal or extension fee.
In order that an action for reformation of an instrument may prosper, the following requisites must occur:On the issue of the validity of the foreclosure of the real estate mortgage, the RTC ruled that:
1.) There must have been a meeting of the minds upon the contract;
2.) The instrument or document evidencing the contract does not express the true agreement between the parties; and
3.) The failure of the instrument to express the agreement must be due to mistake, fraud, inequitable conduct or accident. (National Irrigation Administration v. Gamit, G.R. No. 85869, November 5, 1992)
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A perusal further of the complaint and the evidences submitted by the parties convinced the court that there was certainly a meeting of the minds between the parties. Plaintiff and defendant bank entered into a contract of loan, the terms and conditions of which, especially on the rates of interest, are clearly and unequivocally spelled out in the promissory note. The court believes that there was absolutely no mistake, fraud or anything that could have prevented a meeting of the minds between the parties.
The RTC upheld the validity of the escalation clause, thus:
Escalation clauses are valid stipulations in commercial contract to maintain fiscal stability and to retain the value of money in loan term contracts, (Llorin v. CA, G.R. No. 103592, February 4, 1993).
x x x x x x x x x
x x x the Court has no other alternative to resolve Issue No. 1 that defendant bank is allowed to impose the interest rate questioned by plaintiff considering that Exhibit "B" and "B-1," which is Exhibit "1" and "1-A" of defendant bank is very clear that the rate of interest is 15.446% per annum for the first 30 days subject to upward/downward adjustment every 30 days thereafter.
It is a settled rule that in a real estate mortgage when the obligation is not paid when due, the mortgagee has the right to foreclose the mortgage and to have the property seized and sold in view of applying the proceeds to the payment of the obligation (Estate Investment House v. CA, 215 SCRA 734).On May 2, 2001, petitioner filed a motion for reconsideration but it was denied for lack of merit.
Article 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.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.
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 (Garcia v. Rita Legarda, Inc., 21 SCRA 555). Hence, even assuming that the P1.8 million loan agreement between the PNB and the 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" (Qua v. Law Union & Rock Insurance Co., 95 Phil. 85). Such a contract is a veritable trap for the weaker party whom the courts of justice must protect against abuse and imposition.In New Sampaguita Builders Construction, Inc. (NSBCI) v. Philippine National Bank, we ruled that while it is true that escalation clauses are valid in maintaining fiscal stability and retaining the value of money on long term contracts, however, giving respondent an unbridled right to adjust the interest independently and upwardly would completely take away from petitioner the right to assent to an important modification in their agreement, hence, would negate the element of mutuality in their contracts. Such escalation clause would make the fulfillment of the contracts dependent exclusively upon the uncontrolled will of respondent bank and is therefore void. In the present case, the promissory note gives respondent bank authority to increase the interest rate at will during the term of the loan. This stipulation violates the principle of mutuality between the parties. It would be converting the loan agreement into a contract of adhesion where the parties do not bargain on equal footing, the weaker party's (petitioner's) participation being reduced to the alternative "to take it or leave it. While the Usury Law ceiling on interest rate was lifted by Central Bank Circular No. 905, nothing therein could possibly be read as granting respondent bank carte blanche authority to raise interest rate to levels which would either enslave its borrower (petitioner herein) or lead to hemorrhaging of his assets.
It is basic that there can be no contract in the true sense in the absence of the element of agreement, or of mutual assent of the parties. If this assent is wanting on the part of one who contracts, his act has no more efficacy than if it had been done under duress or by a person of unsound mind.Under Article 1310 of the Civil Code, courts are granted authority to reduce/increase interest rates equitably, thus:
Similarly, contract changes must be made with the consent of the contracting parties. The minds of all the parties must meet as to the proposed modification, especially when it affects an important aspect of the agreement. In the case of loan contracts, it cannot be gainsaid that the rate of interest is always a vital component, for it can make or break a capital venture. Thus, any change must be mutually agreed upon, otherwise, it is bereft of any binding effect.
We cannot countenance petitioner bank's posturing that that escalation clause at bench gives it unbridled right to unilaterally upwardly adjust the interest on private respondents' loan. That would completely take away from private respondents the right to assent to an important modification in their agreement, and would negate the element of mutuality in contracts.
Article 1310. The determination shall not be obligatory if it is evidently inequitable. In such case, the courts shall decide what is equitable under the circumstances.In the other Philippine National Bank v. Court of Appeals case, we disauthorized petitioner bank from unilaterally raising the interest rate on the loan of private respondent from 18% to 32%, 41% and 48%. In Almeda v. Court of Appeals, where the interest rate was increased from 21% to as high as 68% per annum, we declared arbitrary "the galloping increases in interest rate imposed by respondent bank on petitioners' loan, over the latter's vehement protests." In Medel v. Court of Appeals, the stipulated interest of 5.5% per month or 66% per annum on a loan amounting to P500,000.00 was equitably reduced for being iniquitous, unconscionable and exorbitant. In Solangon v. Salazar, the stipulated interest rate of 6% per month or 72% per annum was found to be "definitely outrageous and inordinate" and was reduced to 12% per annum which we deemed fair and reasonable. In Imperial v. Jaucian, we ruled that the trial court was justified in reducing the stipulated interest rate from 16% to 1.167% or 14% per annum and the stipulated penalty charge from 5% to 1.167% per month or 14% per annum.