Case Digest (G.R. No. 181045)
Facts:
In Spouses Eduardo and Lydia Silos vs. Philippine National Bank (G.R. No. 181045, July 2, 2014), the Siloses obtained a revolving credit line beginning in 1987, secured by a real estate mortgage over parcels in Kalibo, Aklan. The credit line was increased in 1988 and 1989, and the parties executed a Credit Agreement and Amendment thereto, along with twenty-six promissory notes. These documents contained clauses permitting PNB to modify the interest rate “depending on whatever policy the Bank may adopt in the future,” and allowed PNB to increase its spread over floating rates without further consent. The notes signed by the Siloses were left blank for PNB to insert prevailing rates, which escalated from 19.5% to as high as 32% per annum. In July 1997, the Siloses defaulted on Promissory Note No. 9707237 (P2.5 million principal), triggering foreclosure under the mortgage. After the auction sale in January 1999, the Siloses filed Civil Case No. 5975 in March 2000 to annul the forecCase Digest (G.R. No. 181045)
Facts:
- Loan transactions
- Spouses Eduardo and Lydia Silos obtained a one-year revolving credit line from Philippine National Bank (PNB), secured by real estate mortgages over TCT No. T-14250 (370 sqm) in 1987, increased to P1.8 M in 1988 and to P2.5 M plus an additional 134 sqm lot (TCT T-16208) in 1989.
- They executed:
- A July 1989 Credit Agreement stipulating 19.5% p.a. interest and granting PNB unilateral power to “increase or decrease its spread” at any time without notice.
- Eight promissory notes incorporating similar variable-rate clauses.
- An August 1991 Amendment to Credit Agreement providing interest at “prime rate plus applicable spread,” leading to 18 additional promissory notes (9th–26th).
- Performance and default
- From 1989 to 1997, petitioners paid interest rates set by PNB (ranging from 19.5% to 32% on Notes 1–8 and 16% to 26% on Notes 9–26) without protest.
- Note 9707237 (26th), dated July 30, 1997 at 25% p.a., matured October 28, 1997; petitioners defaulted. PNB imposed a 24% p.a. penalty, computed total due at ₱3,620,541.60.
- Foreclosure and lawsuit
- PNB foreclosed the mortgages and purchased both lots at auction on January 14, 1999 for ₱4,324,172.96.
- On March 24, 2000, petitioners filed Civil Case No. 5975 seeking annulment of sale, re-accounting (claiming ₱984,287.00 overpayment), application of only 12% p.a. legal interest, exclusion of penalties, and ₱200,000 attorney’s fees.
- RTC dismissed the case (Feb. 28, 2003) but ordered refund of excess attorney’s fees (₱356,589.90). CA partly granted petitioners’ appeal (May 8, 2007), fixed post-30-day rate at 12% p.a., reinstated 10% fees, and ordered ₱377,505.99 surplus refund.
Issues:
- Whether Credit Agreements (July 1989, Aug. 1991) permitting PNB unilateral interest rate setting violate Art. 1308 C.C. and public policy, rendering rates void and entitling petitioners to only 12% p.a. interest with refund of overpayments.
- Whether the 24% p.a. penalty under PN 9707237 is excluded from the mortgages’ secured amount absent express inclusion.
- Whether CA erred in restoring 10% attorney’s fees when RTC reduced them to 1% and petitioners did not appeal that issue.
Ruling:
- (Subscriber-Only)
Ratio:
- (Subscriber-Only)
Doctrine:
- (Subscriber-Only)