Case Digest (G.R. No. 228904)
Case Digest (G.R. No. 228904)
Facts:
Philippine National Bank v. AIC Construction Corporation, Spouses Rodolfo C. Bacani and Ma. Aurora C. Bacani, G.R. No. 228904, October 13, 2021, Supreme Court Third Division, Leonen, J., writing for the Court.The petitioner is Philippine National Bank (PNB); the respondents are AIC Construction Corporation and spouses Rodolfo C. Bacani and Ma. Aurora C. Bacani. In 1988 AIC opened a current account with PNB and in 1989 PNB granted an omnibus credit line of P10 million, secured by real estate mortgages and by the spouses' joint and several guaranty. The credit facility’s interest clause (clause 2.03) provided that interest on each availment would be charged "at the rate per annum which is determined by the Bank to be the Bank's prime rate plus applicable spread in effect as of the date of the relevant availment."
Over the years the loan grew through additional availments and capitalization of interest; by its September 1998 maturity the obligation had reached P65 million (P40 million principal and P25 million capitalized interest). AIC proposed to restructure the loan by dacion en pago of several properties, but the parties could not agree on valuation; PNB issued a final demand on April 30, 2001 for P140,837,511.29. Foreclosure proceedings followed with notices in January–February 2002.
On February 27, 2002 respondents filed suit in the Regional Trial Court (RTC), Mandaluyong City, for annulment of interest and penalty increases, accounting, exemption of the family home, and damages, alleging bad faith in PNB’s handling of dacion negotiations and that the interest and penalties were excessive, unconscionable and imposed unilaterally. PNB answered that it was not obliged to accept dacion en pago, that the mortgaged properties were not exempt, and that the interest and penalty charges were contractual, voluntarily assumed and supported by repeated renewals; it also pleaded estoppel.
The RTC (Presiding Judge Esteban A. Tacla, Jr.) dismissed the complaint for failure to prove that the interest and penalties were iniquitous or unconscionable. Reconsideration was denied on February 5, 2015. Respondents appealed to the Court of Appeals (CA-G.R. CV No. 105531). The Court of Appeals affirmed that no binding dacion en pago existed and that PNB acted in good faith, but modified the RTC’s decision by holding the applied interest formula unreasonable, usurious and unconscionable: the CA found the bank-determined prime-plus-spread clause violated the principle of mutuality under Article 1308 of the Civil Code and relied on prior Supreme Court decisions to strike it down, applied the legal rate of interest under Nacar v. Gallery Frames, ordered PNB to render a detailed accounting, set the applicable interest at 12% per annum for the relevant periods, and excluded the 24% per annum penalty from the mortgage-secured amount. The CA denied reconsideration in a December 28, 2016 resolution.
PNB filed a Petition for Review on Certiorari under Rule 45, challenging the CA’s finding that the interest charges were usurious and unconscionable and its imposition of the legal rate.
Issues:
- Did the Court of Appeals err in finding that the interest provision — which allowed PNB to determine rates as "prime rate plus applicable spread" — was usurious, iniquitous or unconscionable because it violated the principle of mutuality of contracts (Art. 1308, Civil Code)?
- Did the Court of Appeals correctly apply the legal rate of interest to the parties’ loan after invalidating the bank-determined interest provision?
Ruling:
- (Subscriber-Only)
Ratio:
- (Subscriber-Only)
Doctrine:
- (Subscriber-Only)