Case Digest (G.R. No. 107569) Core Legal Reasoning Model
Core Legal Reasoning Model
Facts:
On April 7, 1982, Remedios Jayme-Fernandez and Amado Fernandez (private respondents), owners of a NACIDA-registered enterprise, secured a ₱50,000.00 loan from Philippine National Bank (PNB) under the Cottage Industry Guaranty Loan Fund, evidenced by a Credit Agreement and a Promissory Note stipulating a three-year amortization at 12% annual interest, with real estate and chattel mortgages as collateral. On February 17, 1983, they obtained an additional ₱50,000.00 loan under identical terms and executed a new Credit Agreement covering the combined ₱100,000.00 obligation. The agreements contained an escalation clause authorizing PNB to increase or decrease the interest rate “within the limits allowed by law” coincident with any change in the statutory maximum. In August 1984, PNB notified the respondents that their interest rate was raised to 25% per annum plus 6% penalty on past dues, then to 30% on October 15, 1984, and to 42% on October 25, 1984. By December 1985, respondents h Case Digest (G.R. No. 107569) Expanded Legal Reasoning Model
Expanded Legal Reasoning Model
Facts:
- Loan Agreements and Securities
- On April 7, 1982, private respondents, owners of a NACIDA-registered enterprise, obtained a ₱50,000 loan under the Cottage Industry Guaranty Loan Fund (CIGLF) from Philippine National Bank (PNB). The loan was evidenced by a Credit Agreement and a Promissory Note payable over three years (maturing March 29, 1985) at 12% annual interest.
- To secure the loan, respondents executed:
- A Real Estate Mortgage over 1.5542 ha of unregistered agricultural land in Toledo City (appraised at ₱1,062.52; loan value ₱531.26).
- A Chattel Mortgage over a thermo plastic-forming machine (appraised at ₱8,800; loan value ₱4,400).
- Subsequent Loan and Additional Security
- On February 17, 1983, PNB granted an additional ₱50,000 CIGLF loan, evidenced by a second Promissory Note (maturing April 1, 1985) and a new Credit Agreement increasing total loan to ₱100,000 but retaining prior terms.
- As further security, respondents constituted another Real Estate Mortgage over two registered parcels (311 m²) in Guadalupe, Cebu City (appraised at ₱40,000; loan value ₱28,000).
- Unilateral Interest Rate Increases
- Pursuant to an “escalation clause” in the Credit Agreement, Promissory Notes, and Mortgage contracts—which reserved PNB’s right to increase interest “within the limits allowed by law” and decrease it if statutory caps fell—PNB notified respondents:
- August 1, 1984: interest raised to 25% p.a. plus 6% penalty on past due.
- October 15, 1984: interest raised to 30% p.a.
- October 25, 1984: interest raised to 42% p.a.
- By December 1985, respondents’ ledger showed an outstanding principal of ₱81,000, of which ₱18,523.14 applied to principal, ₱57,488.89 to interest, and the balance to penalties—leaving an unpaid principal of ₱62,830.32. Respondents sought PNB’s readoption of 12% and condonation of excess interest and penalties to no avail.
- Litigation History
- On December 15, 1987, respondents filed Civil Case No. CEB-5610 for specific performance and damages, praying for:
- Release of mortgages.
- Pecuniary consequential damages.
- Moral and exemplary damages and costs.
- Other just and equitable relief.
- February 28, 1990: The Regional Trial Court dismissed the complaint.
- October 15, 1992: The Court of Appeals, in CA-G.R. CV No. 27195, reversed the dismissal as to PNB, set aside the interest hikes, and ordered PNB to reapply 12% interest on the ₱81,000 payment of December 26, 1985, and to charge any remaining balance at 12% p.a.
- PNB petitioned before the Supreme Court, contending:
- The unilateral increases were authorized.
- The Credit Agreement and Promissory Notes were binding law.
- Central Bank Circulars No. 773 and No. 905 permitted the hikes.
- Respondents were estopped from contesting the rate increases.
Issues:
- Whether PNB could unilaterally increase interest rates under the escalation clauses in the Credit Agreement, Promissory Notes, and Mortgage contracts.
- Whether Presidential Decree No. 1684 (amending the Usury Law) and Central Bank Circular No. 905 authorize unilateral interest adjustments.
- Whether the Credit Agreement and Promissory Notes constitute binding law between the parties such that unilateral modifications are permitted.
- Whether respondents are estopped—by silence or acquiescence—from assailing the increased interest rates.
Ruling:
- (Subscriber-Only)
Ratio:
- (Subscriber-Only)
Doctrine:
- (Subscriber-Only)