G.R. No. 171545 - Equitable PCI Bank vs. Ng Sheung Ngor

Case Summary (G.R. No. 171545)

Factual Background

Respondents alleged that Equitable PCI Bank induced them to avail of peso- and dollar-denominated credit facilities by offering low interest rates, and that they signed bank pre-printed promissory notes on various dates beginning in 1996. They asserted that they were unaware the notes contained identical escalation clauses granting the bank authority to increase interest rates without their consent. Equitable answered that respondents knowingly accepted the terms and conditions and continuously availed themselves of the bank's credit facilities for about five years.

Trial Court Proceedings and Disposition

After trial, the RTC upheld the validity of the promissory notes and found that in 2001 respondents had restructured loans amounting to US$228,200 and P1,000,000. The trial court, however, declared the escalation clause invalid for violating the principle of mutuality of contracts. The RTC took judicial notice of steep peso depreciation and concluded that extraordinary inflation intervened, directing computation of dollar obligations using the 1996 exchange rate. The RTC also awarded moral damages of P12 million and exemplary damages of P10 million to respondents, assessed damages of P2 million jointly and severally against the bank's employees, and ordered various other reliefs including attorney's fees and interests; it directed respondents to pay the unpaid loan principals and interest.

Post-judgment Proceedings and Execution

Both parties filed notices of appeal, but on March 1, 2004 the RTC denied due course to both notices for allegedly failing to submit proof of payment of appeal fees, and declared the February 5, 2004 decision final and executory "in so far as [Equitable, Aimee Yu and Bejan Lionel Apas] are concerned." Equitable moved for reconsideration asserting it had paid the appeal fees. Respondents moved for a writ of execution. On March 24, 2004 the RTC denied Equitable's motion for reconsideration and ordered issuance of a writ of execution, reasoning that respondents had not moved to reconsider the March 1, 2004 order and that the February 5, 2004 decision had become final and executory as to both parties. A writ issued and three real properties of Equitable were levied and later sold at public auction on July 1, 2004.

Proceedings in the Court of Appeals

Equitable filed a petition for certiorari in the Court of Appeals seeking to enjoin implementation of the RTC omnibus order and to annul the auction. The CA initially granted a writ of preliminary injunction on June 16, 2004. Notwithstanding the injunction, the auction proceeded on July 1, 2004 and respondents were declared highest bidders. On October 28, 2005 the CA dismissed Equitable's petition for certiorari, finding the bank guilty of forum shopping because Equitable filed the certiorari petition in the CA several hours before withdrawing its petition for relief in the RTC and failed to disclose the pending petition for relief in its certificate of non-forum shopping. Reconsideration was denied on February 3, 2006.

Issues Presented to the Supreme Court

Petitioners invoked Rule 45 and sought review of the CA decision and resolution. The material issues were whether Equitable engaged in forum shopping; whether the RTC committed grave abuse of discretion by denying due course to the notice of appeal and by issuing the March 24, 2004 omnibus order; whether the promissory notes and the escalation clause were valid; whether Article 1250 on extraordinary inflation or deflation applied; and whether the award of moral and exemplary damages, attorney's fees and litigation expenses had basis.

Petitioners' Contentions

Equitable contended that it was not guilty of forum shopping because it withdrew its petition for relief in the RTC on the same day it filed the petition for certiorari in the CA. Equitable also argued that the RTC erred in denying due course to its notice of appeal because the bank had in fact paid the appeal fees and that the RTC's orders effectively prevented it from appealing the February 5, 2004 decision, thus constituting grave abuse of discretion.

Court of Appeals' Ruling

The CA found that Equitable was guilty of forum shopping. The CA relied on the temporal sequence showing that the petition for certiorari in the CA was filed on March 30, 2004 at 9:00 a.m., while the motion to withdraw the petition for relief in the RTC was filed on the same day at 1:40 p.m., and on Equitable's failure to disclose the pending petition for relief in its certificate of non-forum shopping.

Supreme Court's Determination on Forum Shopping

The Supreme Court held that Equitable was not guilty of forum shopping. The Court explained that forum shopping requires identity of parties, facts, causes of action and reliefs in two or more pending actions. Equitable's petition for relief in the RTC and its petition for certiorari in the CA did not raise identical causes of action; the petition for relief sought due course of appeal under Rule 38 as a remedy against denial of an appeal by fraud, accident, mistake or excusable negligence, whereas the petition for certiorari under Section 1, Rule 65 attacked grave abuse of discretion amounting to lack or excess of jurisdiction. The Court found substantial compliance with the non-forum shopping rule where Equitable moved to withdraw the petition for relief in the RTC a few hours after filing the certiorari petition, a clear indication it had no intention to maintain both actions simultaneously.

Supreme Court's Determination on Grave Abuse of Discretion and Jurisdiction

The Supreme Court found that the March 1, 2004 and March 24, 2004 orders of the RTC were rendered with grave abuse of discretion amounting to lack or excess of jurisdiction. The March 1, 2004 order denied due course to the notices of appeal yet declared the judgment final and executory with respect to Equitable; the March 24, 2004 omnibus order denied reconsideration and ordered execution. The Court observed that those orders were plainly aimed at preventing Equitable from appealing the February 5, 2004 decision and that execution was undertaken with indecent haste, effectively defeating Equitable's legal remedies. Because the RTC repeatedly affirmed the denial of due course, no plain, speedy and adequate remedy in the ordinary course of law remained; Rule 38 relief is equitable and not an adequate substitute. The Court therefore granted certiorari and gave due course to Equitable's appeal.

Nature of Questions on Review

The Supreme Court recognized that its jurisdiction in a Rule 45 petition is limited to questions of law. The Court found that Equitable raised pure questions of law because it did not assail the trial court's factual findings but challenged the legal validity of the RTC decision, including alleged patently erroneous awards and inconsistent application of law and jurisprudence.

Validity of Promissory Notes and Contracts of Adhesion

The Court affirmed that the promissory notes were valid and rejected respondents' contention that they were void as contracts of adhesion. The Court recalled that a contract of adhesion is strictly construed against the drafting party but is not invalid per se. A contract of adhesion becomes void only when the drafting party takes advantage of the other's weakness, completely depriving the latter of the opportunity to bargain. The Court noted that respondents continuously availed themselves of the bank's facilities for five years and thus could have walked away if terms were truly oppressive. The Court, however, noted that the RTC failed to ascertain the total amounts due as of July 9, 2001 and therefore ordered a partial remand solely to determine the amount of actual damages.

Escalation Clause and Principle of Mutuality

The Supreme Court agreed with the RTC that the escalation clause in the promissory notes was void because it granted the creditor an unbridled right to adjust interest rates independently and upwardly without the debtor's assent, thereby violating the principle of mutuality of contracts embodied in Article 1308. The Court reiterated that a valid escalation clause must condition increases on lawful authority, such as a change in the applicable maximum rate by law or by the Monetary Board, and must provide for de-escalation when the applicable maximum is reduced. Because Equitable's clause allowed unilateral adjustments and lacked the requisite conditions, it was void.

Interest Rates and Computation

Because the escalation clause was annulled, the Court applied prevailing authorities and held that the principal should bear the originally stipulated interest rates for their initial period and, upon maturity, legal interest at 12% per annum. Concretely, the Court ordered respondents to pay interest at 12.66% per annum on dollar-denominated loans and 20% per annum on peso-denominated loans from January 10, 2001 to July 9, 2001. Thereafter, the total amount due on July 9, 2001 was to earn legal interest at 12% per annum from the time Equitable demanded payment, and following finality of the Supreme Court decision the applicable rate would remain 12% per annum until full satisfaction. The Court remanded to the RTC the computation of the exact amounts due as of July 9, 2001.

Article 1250 and Extraordinary Deflation

The Supreme Court held that Article 1250

Case Syllabus (G.R. No. 171545)

Parties and Procedural Posture

Equitable PCI Bank, together with Aimee Yu and Bejan Lionel Apas, filed a petition for review on certiorari under Rule 45 of the Rules of Court challenging the Court of Appeals decision and resolution in CA-G.R. SP No. 83112.
Ng Sheung Ngor, doing business as Ken Marketing, Ken Appliance Division, Inc., and Benjamin E. Go initiated the underlying action for annulment and/or reformation of documents and contracts in RTC, Branch 16, Cebu City docketed as Civil Case No. CEB-26983.
The Regional Trial Court rendered a February 5, 2004 decision that declared certain escalation clauses void, awarded respondents moral and exemplary damages, and directed computation of unpaid loans, and the RTC subsequently denied due course to the parties’ notices of appeal in orders dated March 1 and March 24, 2004.
Equitable sought relief by petition for certiorari in the Court of Appeals and obtained a preliminary injunction on June 16, 2004, but the CA later dismissed the petition for certiorari on October 28, 2005 for forum shopping and related failures of disclosure.
The Supreme Court granted the present Rule 45 petition, set aside the CA and RTC orders described supra, and entered new judgment with partial remand for computation.

Key Facts

Respondents claimed they were induced by Equitable to accept peso and dollar credit facilities by low advertised interest rates and signed bank pre-printed promissory notes beginning in 1996.
Respondents alleged they were unaware that the promissory notes contained identical escalation clauses granting Equitable authority to increase interest without their consent.
Equitable answered that respondents knowingly accepted the terms, repeatedly availed of credit facilities for five years, and benefited from them.
The RTC found respondents had dollar and peso loans which it quantified as US$228,200 and P1,000,000 for 2001 but did not explain the method of computation.
Despite a writ of preliminary injunction issued by the CA, three real properties of Equitable were levied and sold at public auction on July 1, 2004, with respondents as highest bidders.

Trial Court Findings

The RTC upheld the validity of the promissory notes in general but declared the escalation clause invalid for violating the principle of mutuality of contracts.
The RTC took judicial notice of the peso depreciation from P26.50 per US$1 in 1996 to roughly P55 per US$1 in 2001 and treated the change as extraordinary deflation/inflation for purposes of Article 1250 of the Civil Code.
The RTC ordered the use of the 1996 exchange rate in computing dollar obligations and awarded respondents P12 million as moral damages and P10 million as exemplary damages, plus attorney’s fees and litigation expenses.
The RTC found respondents defaulted on interest due from February 9, 2001 and on the principal and interest due July 9, 2001, and allowed set-off of deposits against indebtedness.

Issues Presented

Whether Equitable was guilty of forum shopping that warranted dismissal of its petition for certiorari in the Court of Appeals.
Whether the RTC committed grave abuse of discretion in its March 1 and March 24, 2004 orders that denied due course to the notices of appeal and ordered execution.
Whether the promissory notes were valid and whether the escalation clauses therein were enforceable.
Whether Article 1250 applied to permit using an earlier exchange rate as the basis for payment due to alleged extraordinary inflation or deflation.
Whether the award of moral and exemplary damages and attorney’s fees to respondents had evidentiary and legal basis.

Contentions of Parties

Equitable contended it was not guilty of forum shopping because it withdrew its RTC petition for relief on the same day it filed the CA petition for certiorari and that the RTC orders were erroneous because it had in fact paid appeal fees.
Respondents maintained the RTC judgment was proper, that the escalation clauses were void, that extraordinary currency depreciation supported application of Article 1250, and that the bank’s freezing of accounts justified moral and exemplary damages.
The Court of Appeals found forum shopping and non-disclosure by Equitable and dismissed its CA petition for certiorari.

Court of Appeals Disposition

The Court of Appeals dismissed Equitable’s petition for certiorari primarily on the ground of forum shopping because Equitable filed the CA petition before withdrawing its petition for relief in the RTC and failed to disclose the RTC petition in its certificate of non-forum shopping.
The CA’s dismissal was embodied in an October 28, 2005 decision and a February 3, 2006 resolution denying reconsideration.

Supreme Court Ruling