Case Summary (G.R. No. 186332)
Petitioner
Planters Development Bank
Respondents
Spouses Ernesto and Florentina Lopez, substituted by compulsory heirs Joseph Wilfred Joven, Joseph Gilbert Joven and Marlyn Joven after Florentina’s death
Key Dates
• Loan agreements and amendments: May 18, 1983 – April 25, 1984
• Complaint filed: October 13, 1984
• RTC decision: August 18, 1997 (amended September 1997)
• CA decision: November 27, 2006 (amended July 30, 2007)
• SC decision: October 23, 2013
Applicable Law
• 1987 Philippine Constitution
• Civil Code (Arts. 1169, 1191, 1308, 1311, 1385, 1956, 2209)
• Rules of Court (Rules 13, 52, 131)
• BSP Circulars No. 905-82 (12% legal interest) and No. 799-2013 (6% legal interest)
• Jurisprudence on equitable estoppel and interest rate moderation
Factual Background and Loan Amendments
• Original loan of ₱3 million at 21% p.a., payable over 14 years, secured by a real estate mortgage.
• First amendment (July 1983): rate increased to 23% p.a.; term shortened to three years.
• Second amendment (March 1984): rate increased to 25% p.a.; release subject to bank’s fund availability.
• Third amendment (April 1984): principal raised to ₱4.2 million; rate 27% p.a.; term set at one year; remaining balance only available until June 30, 1984.
• Unilateral rate hike to 32% p.a. by Planters Bank on August 15, 1984.
Loan Default and Foreclosure
When Planters Bank refused to release the final ₱700,000 balance, the Lopezes filed for rescission and damages. The bank counterclaimed for the unpaid ₱3.5 million plus interest and damages, then foreclosed and sold the mortgaged property in November 1984.
Regional Trial Court Ruling
The RTC (1997) held that the Lopezes were not entitled to rescind since they violated the loan terms (failed progress reports; deviation to six‐story construction) and the mortgaged property was already auctioned. It ordered the Lopezes to pay ₱3.5 million plus 27% interest from June 22, 1984, minus auction proceeds.
Court of Appeals Ruling
The CA (2006, amended 2007) reversed the RTC, finding a substantial breach by Planters Bank in refusing the balance, that progress reports were submitted, and that the bank was estopped from asserting the building deviation. It reduced interest to 12% p.a., declared the loan and accessory contracts rescinded, and ordered mutual restitution: the bank to return the foreclosed property; the Lopez heirs to refund ₱2,885,830.56 plus 12% interest.
Issues on Review
- Whether the CA’s July 30, 2007 amended decision is final and executory.
- Whether the Lopezes violated the loan agreement (reports; deviation).
- Whether Planters Bank substantially breached the agreement.
- Whether the CA’s award amounts and interest rates are proper.
Finality of the Amended CA Decision
An amended decision supersedes its predecessor; Planters Bank’s motion for reconsideration, received August 7, 2007 (per postal certifications), was timely under Rules 13 and 52. The amended CA decision is therefore not final and executory.
Submission of Progress Reports
Testimony of Engineer Fianza (November 1983–June 1984) and Planters Bank’s appraisal head confirms that the Lopezes consistently submitted the required progress reports as a condition for disbursements.
Equitable Estoppel
Planters Bank conducted multiple ocular inspections from 1983 to 1987, knew of the six‐story deviation, yet released funds without objection. Its silence and conduct induced the Lopezes to proceed; under Rule 131, Section 2, equitable estoppel bars the bank from raising the deviation defense.
Nature and Effect of Bank’s Breach
While Planters Bank delayed release of ₱700,000 (16.66% of the ₱4.2 million loan), this constituted only a slight breach insufficient to defeat the contract’s object. External economic factors and the Lopezes’ voluntary decision to expand to six stories also contributed to incomplete construction.
Rescission and Third-Party Rights
Even if breach were substantial, rescission under Civil Code Art. 1191 cannot impair third‐party rights: the mortgaged property was foreclosed and sold to bona fide purchasers without lis pendens annotation. Under Art. 1385, rescission is barred when the object is in good‐faith possession of third parties.
Obligation to Pay and Interest Rate
Reciprocal obligations survive slight breach; the Lopez heirs must pay the ₱3.5 million balance. Contractual stipulations that allow unilateral rate increases (32% p.a.) or impose iniquitous rates (27% p.a.) violate Civil Code Art. 1308 and public policy.
Adjustment of Monetary Interest Rate
Exercising equity jurisdiction and following jurisprudence (e.g., Trade & Investment Dev’t Corp. v. Roblett), the Court reduces the monetary intere
Case Syllabus (G.R. No. 186332)
Procedural History
- Petition for review on certiorari filed by Planters Development Bank under Rule 45, challenging:
- July 30, 2007 amended decision of the Court of Appeals in CA-G.R. CV No. 61358
- February 5, 2009 resolution of the Court of Appeals
- Underlying action commenced in 1984 as complaint for rescission and damages filed by spouses Lopez with the RTC of Makati City
- RTC decision of August 18, 1997 (amended November ?) granted bank’s counterclaim; ordered plaintiffs to pay P3,500,000 plus 27% interest
- CA reversal on November 27, 2006: held bank’s refusal to release remaining loan was substantial breach, applied estoppel, reduced interest to 12%, left contracts in force
- CA amended on July 30, 2007: declared entire loan agreement rescinded, ordered mutual restitution, directed return of auctioned property
- Planters Bank’s motion for reconsideration denied by CA (February 5, 2009); petition escalated to the Supreme Court
Factual Antecedents
- In 1983 spouses Ernesto and Florentina Lopez obtained a P3,000,000 real‐estate loan from Planters Development Bank to construct a four‐story dormitory
- May 18, 1983 loan agreement: 14‐year term, 21% p.a. interest, partial releases based on project completion and engineer’s accomplishment reports; secured by mortgage on TCT No. T-16233
- July 21, 1983 first amendment: term shortened to 3 years, interest raised to 23% p.a.
- March 9, 1984 second amendment: interest increased to 25% p.a., releases subject to bank’s funds availability
- April 25, 1984 third amendment: additional P1,200,000 added (total P4,200,000), interest 27% p.a., term cut to one year, releases only until June 30, 1984; mortgage coverage increased accordingly
- August 15, 1984 unilateral bank increase of interest to 32% p.a.
- Bank refused to release remaining P700,000; spouses Lopez filed for rescission and damages on October 13, 1984; bank counterclaimed for P3,500,000 plus interest and damages
- November 16, 1984 bank foreclosed mortgage and auctioned property to third parties as spouses Lopez defaulted
RTC Ruling
- August 18, 1997 decision in favor of Planters Bank:
- Spouses Lopez had no cause of action; not “injured parties” under Civil Code rescission provisions
- Found violations: failure to submit accomplishment reports; deviation from approved four‐story design to six stories
- Rescission barred by sale of mortgaged property to bona fide third parties
- Ordered payment of P3,500,000 plus 27% p.a. interest from June 22, 1994, less auction proceeds
- Amended decision clarified interest accrual from June 22, 1984
CA Ruling
- November 27, 2006 decision (modified February 2009):
- Ban