G.R. No.
96053 March 3, 1993 amount to be paid to petitioners and the refund to private respondent are
JOSEFINA TAYAG, RICARDO GALICIA, TERESITA GALICIA, EVELYN
GALICIA, JUAN GALICIA, JR. and RODRIGO GALICIA, Petitioners,
vs. COURT OF APPEALS and ALBRIGIDO LEYVA, Respondents.
Facundo T. Bautista for petitioners.chanrobles virtual law library
Jesus T. Garcia for private respondent.
MELO, J.:
The deed of conveyance executed on May 28, 1975 by Juan Galicia, Sr.,
prior to his demise in 1979, and Celerina Labuguin, in favor of Albrigido
Leyva involving the undivided one-half portion of a piece of land situated at
Poblacion, Guimba, Nueva Ecija for the sum of P50,000.00 under the
following terms:
1. The sum of PESOS: THREE THOUSAND (P3,000.00) is HEREBY
acknowledged to have been paid upon the execution of this
agreement;chanrobles virtual law library
2. The sum of PESOS: TEN THOUSAND (P10,000.00) shall be paid within
ten (10) days from and after the execution of this agreement;chanrobles
virtual law library
3. The sum of PESOS: TEN THOUSAND (P10,000.00) represents the
VENDORS' indebtedness with the Philippine Veterans Bank which is hereby
assumed by the VENDEE; andchanrobles virtual law library
4. The balance of PESOS: TWENTY SEVEN THOUSAND (P27,000.00.) shall
be paid within one (1) year from and after the execution of this instrument.
(p. 53, Rollo)
is the subject matter of the present litigation between the heirs of Juan
Galicia, Sr. who assert breach of the conditions as against private
respondent's claim anchored on full payment and compliance with the
stipulations thereof.chanroblesvirtualawlibrarychanrobles virtual law library
The court of origin which tried the suit for specific performance filed by
private respondent on account of the herein petitioners' reluctance to abide
by the covenant, ruled in favor of the vendee (p. 64, Rollo) while
respondent court practically agreed with the trial court except as to the
concerned (p. 46, Rollo).chanroblesvirtualawlibrarychanrobles virtual law li
There is no dispute that the sum of P3,000.00 listed as first installment
was received by Juan Galicia, Sr. According to petitioners, of the
P10,000.00 to be paid within ten days from execution of the instrument,
only P9,707.00 was tendered to, and received by, them on numerous
occasions from May 29, 1975, up to November 3, 1979. Concerning private
respondent's assumption of the vendors' obligation to the Philippine
Veterans Bank, the vendee paid only the sum of P6,926.41 while the
difference the indebtedness came from Celerina Labuguin (p. 73, Rollo).
Moreover, petitioners asserted that not a single centavo of the P27,000.00
representing the remaining balance was paid to them. Because of the
apprehension that the heirs of Juan Galicia, Sr. are disavowing the contract
inked by their predecessor, private respondent filed the complaint for
specific performance.chanroblesvirtualawlibrarychanrobles virtual law libray
In addressing the issue of whether the conditions of the instrument were
performed by herein private respondent as vendee, the Honorable
Godofredo Rilloraza, Presiding Judge of Branch 31 of the Regional Trial
Court, Third Judicial Region stationed at Guimba, Nueva Ecija, decided to
uphold private respondent's theory on the basis of constructive fulfillment
under Article 1186 and estoppel through acceptance of piecemeal
payments in line with Article 1235 of the Civil
Code.chanroblesvirtualawlibrarychanrobles virtual law library
Anent the P10,000.00 specified as second installment, the lower court
counted against the vendors the candid statement of Josefina Tayag who
sat on the witness stand and made the admission that the check issued as
payment thereof was nonetheless paid on a staggered basis when the
check was dishonored (TSN, September 1, 1983, pp. 3-4; p. 3, Decision; p.
66, Rollo). Regarding the third condition, the trial court noted that plaintiff
below paid more than P6,000.00 to the Philippine Veterans Bank
but Celerina Labuguin, the sister and co-vendor of Juan Galicia, Sr. paid
P3,778.77 which circumstance was construed to be a ploy under Article
1186 of the Civil Code that "prematurely prevented plaintiff from paying
the installment fully" and "for the purpose of withdrawing the title to the
lot". The acceptance by petitioners of the various payments even beyond
the periods agreed upon, was perceived by the lower court as tantamount
to faithful performance of the obligation pursuant to Article 1235 of the
Civil Code. Furthermore, the trial court noted that private respondent
consigned P18,520.00, an amount sufficient to offset the remaining
balance, leaving the sum of P1,315.00 to be credited to private
respondent.chanroblesvirtualawlibrarychanrobles virtual law library
On September 12, 1984, judgment was rendered:
1. Ordering the defendants - heirs of Juan Galicia, to execute the Deed of
Sale of their undivided ONE HALF (1/2) portion of Lot No. 1130, Guimba
Cadastre, covered by TCT No. NT-120563, in favor of plaintiff Albrigido
Leyva, with an equal frontage facing the national road upon finality of
judgment; that, in their default, the Clerk of Court II, is hereby ordered to
execute the deed of conveyance in line with the provisions of Section 10,
Rule 39 of the Rules of Court;chanrobles virtual law library
2. Ordering the defendants, heirs of Juan Galicia, jointly and severally to
pay attorney's fees of P6,000.00 and the further sum of P3,000.00 for
actual and compensatory damages;chanrobles virtual law library
3. Ordering Celerina Labuguin and the other defendants herein to
surrender to the Court the owner's duplicate of TCT No. NT-120563,
province of Nueva Ecija, for the use of plaintiff in registering the portion,
subject matter of the instant suit;chanrobles virtual law library
4. Ordering the withdrawal of the amount of P18,520.00 now consigned
with the Court, and the amount of P17,204.75 be delivered to the heirs of
Juan Galicia as payment of the balance of the sale of the lot in question,
the defendants herein after deducting the amount of attorney's fees and
damages awarded to the plaintiff hereof and the delivery to the plaintiff of
the further sum of P1,315.25 excess or over payment and, defendants to
pay the cost of the suit. (p. 69, Rollo)
and following the appeal interposed with respondent court, Justice Dayrit
with whom Justices Purisima and Aldecoa, Jr. concurred, modified the
fourth paragraph of the decretal portion to read:
4. Ordering the withdrawal of the amount of P18,500.00 now consigned
with the Court, and that the amount of P16,870.52 be delivered to the
heirs of Juan Galicia, Sr. as payment to the unpaid balance of the sale,
including the reimbursement of the amount paid to Philippine Veterans
Bank, minus the amount of attorney's fees and damages awarded in favor
of plaintiff. The excess of P1,649.48 will be returned to plaintiff. The costs
against defendants. (p. 51, Rollo)
As to how the foregoing directive was arrived at, the appellate court
declared:
With respect to the fourth condition stipulated in the contract, the period
indicated therein is deemed modified by the parties when the heirs of Juan
Galicia, Sr. accepted payments without objection up to November 3, 1979.
On the basis of receipts presented by appellee commencing from August 8,
1975 up to November 3, 1979, a total amount of P13,908.25 has been
paid, thereby leaving a balance of P13,091.75. Said unpaid balance plus
the amount reimbursable to appellant in the amount of P3,778.77 will
leave an unpaid total of P16,870.52. Since appellee consigned in court the
sum of P18,500.00, he is entitled to get the excess of P1,629.48. Thus,
when the heirs of Juan Galicia, Sr. (obligees) accepted the performance,
knowing its incompleteness or irregularity and without expressing any
protest or objection, the obligation is deemed fully complied with (Article
1235, Civil Code). (p. 50, Rollo)
Petitioners are of the impression that the decision appealed from, which
agreed with the conclusions of the trial court, is vulnerable to attack via the
recourse before Us on the principal supposition that the full consideration
of the agreement to sell was not paid by private respondent and, therefore,
the contract must be rescinded.chanroblesvirtualawlibrarychanrobles
virtual law library
The suggestion of petitioners that the covenant must be cancelled in the
light of private respondent's so-called breach seems to overlook petitioners'
demeanor who, instead of immediately filing the case precisely to rescind
the instrument because of non-compliance, allowed private respondent to
effect numerous payments posterior to the grace periods provided in the
contract. This apathy of petitioners who even permitted private respondent
to take the initiative in filing the suit for specific performance against them,
is akin to waiver or abandonment of the right to rescind normally conferred
by Article 1191 of the Civil Code. As aptly observed by Justice Gutierrez, Jr.
in Angeles vs. Calasanz (135 SCRA 323 [1985]; 4 Paras, Civil Code of the
Philippines Annotated, Twelfth Ed. [1989], p. 203:
. . . We agree with the plaintiffs-appellees that when the defendants-
appellants, instead of availing of their alleged right to rescind, have
accepted and received delayed payments of installments, though the
plaintiffs-appellees have been in arrears beyond the grace period
mentioned in paragraph 6 of the contract, the defendants-appellants have
waived, and are now estopped from exercising their alleged right of
rescission . . .
In Development Bank of the Philippines vs. Sarandi (5 CAR (25) 811; 817-
818; cited in 4 Padilla, Civil Code Annotated, Seventh Ed. [1987], pp. 212-
213) a similar opinion was expressed to the effect that:
In a perfected contract of sale of land under an agreed schedule of
payments, while the parties may mutually oblige each other to compel the
specific performance of the monthly amortization plan, and upon failure of
the buyer to make the payment, the seller has the right to ask for a
rescission of the contract under Art. 1191 of the Civil Code, this shall be
deemed waived by acceptance of posterior payments.
Both the trial and appellate courts were, therefore, correct in sustaining the
claim of private respondent anchored on estoppel or waiver by acceptance
of delayed payments under Article 1235 of the Civil Code in that:
When the obligee accepts the performance, knowing its incompleteness or
irregularity, and without expressing any protest or objection, the obligation
is deemed fully complied with.
considering that the heirs of Juan Galicia, Sr. accommodated private
respondent by accepting the latter's delayed payments not only beyond the
grace periods but also during the pendency of the case for specific
performance (p. 27, Memorandum for petitioners; p. 166, Rollo). Indeed,
the right to rescind is not absolute and will not be granted where there has
been substantial compliance by partial payments (4 Caguioa, Comments
and Cases on Civil Law, First Ed. [1968] p. 132). By and large, petitioners'
actuation is susceptible of but one construction - that they are now
estopped from reneging from their commitment on account of acceptance
of benefits arising from overdue accounts of private
respondent.chanroblesvirtualawlibrarychanrobles virtual law library
Now, as to the issue of whether payments had in fact been made, there is
no doubt that the second installment was actually paid to the heirs of Juan
Galicia, Sr. due to Josefina Tayag's admission in judicio that the sum of
P10,000.00 was fully liquidated. It is thus erroneous for petitioners to
suppose that "the evidence in the records do not support this conclusion"
(p. 18, Memorandum for Petitioners; p. 157, Rollo). A contrario, when the
court of origin, as well as the appellate court, emphasized the frank
representation along this line of Josefina Tayag before the trial court (TSN,
September l, 1983, pp. 3-4; p. 5, Decision in CA-G.R. CV No. 13339, p.
50, Rollo; p. 3, Decision in Civil Case No. 681-G, p. 66, Rollo), petitioners
chose to remain completely mute even at this stage despite the
opportunity accorded to them, for clarification. Consequently, the
prejudicial aftermath of Josefina Tayag's spontaneous reaction may no
longer be obliterated on the basis of estoppel (Article 1431, Civil
Code; Section 4, Rule 129; Section 2(a), Rule 131, Revised Rules on
Evidence).chanroblesvirtualawlibrarychanrobles virtual law library
Insofar as the third item of the contract is concerned, it may be recalled
that respondent court applied Article 1186 of the Civil Code on constructive
fulfillment which petitioners claim should not have been appreciated
because they are the obligees while the proviso in point speaks of the
obligor. But, petitioners must concede that in a reciprocal obligation like a
contract of purchase, (Ang vs. Court of Appeals, 170 SCRA 286 [1989];
4 Paras, supra, at p. 201), both parties are mutually obligors and also
obligees (4 Padilla, supra, at p. 197), and any of the contracting parties
may, upon non-fulfillment by the other privy of his part of the prestation,
rescind the contract or seek fulfillment (Article 1191, Civil Code). In short,
it is puerile for petitioners to say that they are the only obligees under the
contract since they are also bound as obligors to respect the stipulation in
permitting private respondent to assume the loan with the Philippine
Veterans Bank which petitioners impeded when they paid the balance of
said loan. As vendors, they are supposed to execute the final deed of sale
upon full payment of the balance as determined
hereafter.chanroblesvirtualawlibrarychanrobles virtual law library
Lastly, petitioners argue that there was no valid tender of payment nor
consignation of the sum of P18,520.00 which they acknowledge to have
been deposited in court on January 22, 1981 five years after the amount of
P27,000.00 had to be paid (p. 23, Memorandum for Petitioners; p.
162, Rollo). Again this suggestion ignores the fact that consignation alone
produced the effect of payment in the case at bar because it was
established below that two or more heirs of Juan Galicia, Sr. claimed the
same right to collect (Article 1256, (4), Civil Code; pp. 4-5, Decision in Civil
Case No. 681-G; pp. 67-68, Rollo). Moreover, petitioners did not bother to
refute the evidence on hand that, aside from the P18,520.00 (not
P18,500.00 as computed by respondent court) which was consigned,
private respondent also paid the sum of P13,908.25 (Exhibits "F" to "CC";
p. 50, Rollo). These two figures representing private respondent's payment
of the fourth condition amount to P32,428.25, less the P3,778.77 paid by
petitioners to the bank, will lead us to the sum of P28,649.48 or a refund
of P1,649.48 to private respondent as overpayment of the P27,000.00
balance.chanroblesvirtualawlibrarychanrobles virtual law library
WHEREFORE, the petition is hereby DISMISSED and the decision appealed
from is hereby AFFIRMED with the slight modification of Paragraph 4 of the
dispositive thereof which is thus amended to read:
4. ordering the withdrawal of the sum of P18,520.00 consigned with the
Regional Trial Court, and that the amount of P16,870.52 be delivered by
private respondent with legal rate of interest until fully paid to the heirs of
Juan Galicia, Sr. as balance of the sale including reimbursement of the sum
paid to the Philippine Veterans Bank, minus the attorney's fees and
damages awarded in favor of private respondent. The excess of P1,649.48
shall be returned to private respondent also with legal interest until fully
paid by petitioners. With costs against petitioners.
SO ORDERED.
 G.R. No. 171925 : July 23, 2010
SOLIDBANK CORPORATION, (now Metropolitan Bank and Trust
Company), Petitioner, v. ERMANENT HOMES,
INCORPORATED, Respondent.
DECISION
CARPIO, J.:
G.R. No. 171925 is a petition for review1cralaw assailing the
Decision2cralaw promulgated on 29 June 2005 by the Court of Appeals
(appellate court) as well as the Resolution3cralaw promulgated on 14 March
2006 in CA-G.R. CV No. 75926. The appellate court granted the petition
filed by Permanent Homes, Incorporated (Permanent) and reversed the
decision of the Regional Trial Court of Makati City, Branch 58 (trial court)
dated 5 July 2002 in Civil Case No. 98-654. The appellate court ordered
Solidbank Corporation (Solidbank) and Permanent to enter into an express
agreement about the applicable interest rates on Permanent's loan.
Solidbank was also ordered to render an accounting of Permanent's
payments, not to impose interest on interest upon Permanent's loans, and
to release the remaining amount available under Permanent's omnibus
credit line.
The Facts
The appellate court narrated the facts as follows:
The records disclose that PERMANENT HOMES is a real estate development
company, and to finance its housing project known as the "Buena Vida
Townhomes" located within Merville Subdivision, Parañaque City, it applied
and was subsequently granted by SOLIDBANK with an "Omnibus Line"
credit facility in the total amount of SIXTY MILLION PESOS. Of the entire
loan, FIFTY NINE MILLION as [sic] time loan for a term of up to three
hundred sixty (360) days, with interest thereon at prevailing market rates,
and subject to monthly repricing. The remaining ONE MILLION was
available for domestic bills purchase.
To secure the aforesaid loan, PERMANENT HOMES initially mortgaged three
(3) townhouse units within the Buena Vida project in Parañaque. At the
time, however, the instant complaint was filed against SOLIDBANK, a total
of thirty six (36) townhouse units were mortgaged with said bank.
Of the 60 million available to PERMANENT HOMES, it availed of a total of
41.5 million pesos, covered by three (3) promissory notes, which contain
the following provisions, thus:
"xxx
5. We/I irrevocably authorize Solidbank to increase or decrease at any time
the interest rate agreed in this Note or Loan on the basis of, among others,
prevailing rates in the local or international capital markets. For this
purpose, We/I authorize Solidbank to debit any deposit or placement
account with Solidbank belonging to any one of us. The adjustment of the
interest rate shall be effective from the date indicated in the written notice
sent to us by the bank, or if no date is indicated, from the time the notice
was sent.
6. Should We/I disagree to the interest rate adjustment, We/I shall prepay
all amounts due under this Note or Loan within thirty (30) days from the
receipt by anyone of us of the written notice. Otherwise, We/I shall be
deemed to have given our consent to the interest rate adjustment."
Contrary, however, to the specific provisions as afore-quoted, there was a
standing agreement by the parties that any increase or decrease in interest
rates shall be subject to the mutual agreement of the parties.
For the first loan availment of PERMANENT HOMES on March 20, 1997, in
the amount of 19.6 MILLION, from the initial interest rate of 14.25% per
annum (p.a.), the same was increased 15% p.a. effective May 19, 1997; it
was again increased to 26% p.a. effective July 18, 1997. It was thereafter
reduced to 20% p.a. effective August 18, 1997, and then increased
to 24% p.a. effective September 17, 1997. The rate was increased further
to 30% p.a. effective October 17, 1997, then decreased to 27% p.a. on
November 17, 1997, and again increased to 34% p.a. effective December
17, 1997. The rate then decreased to 30% p.a. on January 16, 1998.
For the second loan availment in the amount of 18 million, the rate was
initially pegged at 15.75% p.a. on June 24, 1997. A month later, the rate
increased to 23.5% p.a. It thereafter decreased to 20% p.a. effective
August 24, 1997, but again increased to 22.5% p.a. effective September
24, 1997. For the next month, the rate surged to 30% p.a., and
decreased to 27% p.a. for the month of November. The rate again surged
to 34% p.a. for the month of December, and was decreased to 30%
p.a. from January 22, 1998 to February 20, 1998.
For the third loan availment on July 15, 1997, in the amount of 3.9 million, loans, they had to ensure that they will not be at the losing end of the deal,
the interest rate was initially pegged at 35% p.a., but this was decreased so to speak, by the repricing of the interest rates every month. SOLIDBANK
to 21% p.a. from August 14 until September 11, 1997. The rate increased insists that PERMANENT HOMES should not be allowed to renege on its
slightly to 23% p.a. on September 12, 1997, and surged to 27% p.a. on contractual obligations, as it freely and voluntarily bound itself to the
October 13, 1997. The rate went down slightly to 27% p.a. for the month provisions of the Omnibus Credit Line and the promissory notes.
of November, and to 26% p.a. for the month of December. The rate,
however, again surged to 30% p.a. on January 12, 1998 before settling
PERMANENT HOMES presented as witnesses Jacqueline S. Lim, its Vice
at 29% p.a. for the month of February.
President and Chief Financial Officer, Engr. Rey A. Romasanta, its Executive
Vice President and Chief Operating Officer, and Martha Julia Flores, its
It is [Permanent's] stand that SOLIDBANK unilaterally and arbitrarily Treasury Officer.
accelerated the interest rates without any declared basis of such increases,
of which PERMANENT HOMES had not agreed to, or at the very least, been
On March 24, 1998, the trial court issued a temporary restraining order
informed of. This is contrary to their earlier agreement that any interest
(TRO), after a summary hearing, which enjoined SOLIDBANK from
rate changes will be subject to mutual agreement of the parties.
implementing and collecting the increases in interest rates and from
PERMANENT HOMES further admits that it was not able to protest such
initiating any action, including the foreclosure of the mortgaged properties.
arbitrary increases at the time they were imposed by SOLIDBANK, for fear
that SOLIDBANK might cut off the credit facility it extended to PERMANENT
HOMES. Permanent was then in the midst of the construction of its project Ms. Lim's testimony centered on PERMANENT HOMES' allegations that the
in Merville, Parañaque City, and SOLIDBANK knew that it was relying repricing of the interest rates was done by SOLIDBANK without any written
substantially on the credit facility the latter extended to it. agreement entered into between the parties. In fact, Ms. Lim accounted
that SOLIDBANK will merely advise them of the interest rate for the period,
after said period had already commenced, and at times very late in the
[Permanent] thus filed a case before the trial court seeking the following:
period, by fax messages. When PERMANENT HOMES called SOLIDBANK's
(1) the annulment of the increases in interest rates on the loans it obtained
attention to the seemingly surging rates it imposed on its loan, SOLIDBANK
from SOLIDBANK, on the ground that it was violative of the principle of
will merely answer that it was the bank's policy, without offering any basis
mutuality of agreement of the parties, as enunciated in Article 1409 of the
for such increase. Furthermore, Ms. Lim also mentioned SOLIDBANK's
New Civil Code, (2) the fixing of the interest rates at the applicable interest
alleged practice of imposing interest on unpaid interest, at the highest rate
rate, and (3) for the trial court to order SOLIDBANK to make an accounting
of 30% p.a.. Ms. Lim also presented a tabulation, which presents the
of the payments it made, so as to determine the amount of refund
number of days their billing statements were sent late, from the time the
PERMANENT is entitled to, as well as to order SOLIDBANK to release the
interest period started. It is PERMANENT HOMES' stand that since the
remaining available balance of the loan it extended to PERMANENT. In
purpose of the billing statements was to inform them beforehand of the
addition, [Permanent] prays for the payment of compensatory, moral and
applicable interest rate for the period, the late billings will clearly show
exemplary damages.
SOLIDBANK's arbitrary imposition of the repriced interest rates, as well as
its indifference to PERMANENT HOMES' plight.
SOLIDBANK, on the other hand, avers that PERMANENT HOMES has no
cause of action against it, in view of the pertinent provisions of the
To illustrate, for the first loan availment in the amount of P19.6 million, the
Omnibus Credit Line and the promissory notes agreed to and signed by
billing statements which should have notified PERMANENT HOMES of the
PERMANENT HOMES. Thus, in accordance with said provisions, SOLIDBANK
repriced interest rates were faxed to PERMANENT HOMES between
was authorized to, upon due notice, periodically adjust the interest rates on
eighteen (18) to thirty-three (33) days late. For the second loan availment
PERMANENT HOMES' loan availments during the monthly interest repricing
in the amount of P18 million, the faxed billings were late between six (6) to
dates, depending on the changes in prevailing interest rates in the local
twenty-one (21) days, and one instance where PERMANENT HOMES
and international capital markets. In fact, SOLIDBANK avers that four (4)
received no billing at all. For the third loan availment in the amount of P3.9
days before July 15, 1997, the Bangko Sentral ng Pilipinas (BSP) declared
million, the faxed billings were late between seven (7) to twenty-nine (29)
that it could no longer support the Philippine currency from external
days, and also an instance where PERMANENT HOMES received no billing at
speculative forces, hence, the local currency was allowed to seek its own
all.
exchange rate level. As a result of the volatile exchange rate ratio, banks
were then hesitant to extend loans, and in some instances that it granted
This practice, according to Ms. Lim, clearly affected its operations, as the
completion of its construction project was unnecessarily delayed, to its
prejudice and its buyers. This was the import of the testimony of
PERMANENT HOMES' second witness, Engr. Rey A. Romasanta. According
to Engr. Rey, the target date of completion was August 1997, but in view
of the shortage of funds by reason of SOLIDBANK's refusal for PERMANENT
HOMES to make further availments on its omnibus credit line, the project
was completed only on February 1998.
PERMANENT HOMES' third and final witness was Martha Julia Flores, its
Treasury Officer, who explained that as such, it was her who received the
late billings from SOLIDBANK. She would also call up SOLIDBANK to ask
what the repriced interest rate for the coming interest period, to no avail,
as SOLIDBANK will merely fax its billings almost always, as
abovementioned, late in the period. Ms. Flores admitted that she prepared
the tabulation presented before the court, which showed how late
SOLIDBANK's billings were sent to PERMANENT HOMES, as well as the
computation of interest rates that SOLIDBANK had allegedly overcharged
on its loan, vis-a-vis the average of the high and the low published lending
rates of SOLIDBANK.
SOLIDBANK, to establish its defense, presented its lone witness, Mr. Cesar
Lugtu, who testified to the effect that, contrary to PERMANENT HOMES'
assertions that it was not promptly informed of the repriced interest rates,
SOLIDBANK's officers verbally advised PERMANENT HOMES of the
repriced rates at the start of the period, and even added that their
transaction[s] were based on trust. Aside from these allegations, however,
no written memorandum or note was presented by SOLIDBANK to support
their assertion that PERMANENT HOMES was timely advised of the repriced
interests.cra4
The Trial Court's Ruling
On 5 July 2002, the trial court promulgated its Decision in favor of
Solidbank. The trial court ratiocinated and ruled thus:chan robles virtual
law library
It becomes crystal clear that there is sufficient proof to show that the
instant case was instituted by [Permanent] as an after-thought and as an
obvious subterfuge intended to completely lay on the defendant the blame
for the debacle of its Buena Vida project. An afterthought because the
records of the case show that the complaint was filed in March 16, 1998,
already after it was having difficulty making the amortization payments,
the last of which being in February 1998. A subterfuge because plaintiff,
instead of blaming itself and its own business judgment that went sour,
would rather put the blame on [Solidbank], taking advantage of every
conceivable gray area of its contract with [Solidbank] to avoid its own
liabilities. In fact, this complaint was made the very basis for [Permanent]
to altogether stop the payment of its loan from [Solidbank] including the
interest payment (TSN, May 07, 1998, p. 60).
xxx
WHEREFORE, finding the complaint not impressed with merit, judgment is
hereby rendered dismissing the said complaint. The Counterclaim is
likewise dismissed for lack of evidence to support the same.
SO ORDERED.cra5
Permanent filed an appeal before the appellate court.
The Appellate Court's Ruling
The appellate court granted Permanent's appeal, and set aside the trial
court's ruling. The appellate court not only recognized the validity of
escalation clauses, but also underscored the necessity of a basis for the
increase in interest rates and of the principle of mutuality of contracts.
The dispositive portion of the appellate court's decision reads, thus:chan
robles virtual law library
THE FOREGOING CONSIDERED, the instant appeal is hereby GRANTED, the
assailed decision dated July 5, 2002 is REVERSED and SET ASIDE, and a
new one is hereby entered as follows:
(1) Unless the parties herein subsequently enter into
an express agreement regarding the applicable interest rates on
PERMANENT HOMES' loan availments subsequent to the initial thirty-day
(30) period, the legal rate of twelve percent (12%) per annum is
hereby FIXED, to be applied on the outstanding balance of the loan;
(2) SOLIDBANK is ordered to render an accounting of all the payments
made by PERMANENT HOMES, and in case there is excess payment by
reason of the wrongful imposition of the repriced interest rates, to apply
such amount to the interest payment at the legal rate, and thereafter to
the outstanding principal amount;
(3) SOLIDBANK is directed not to impose penalties, particularly interest on
interest, upon PERMANENT HOMES' loan, there being no evidence that the
latter was in default on its payments;
(4) SOLIDBANK is hereby ordered to release the remaining amount
available under the omnibus credit line, subject, however, to availability of
funds on the part of SOLIDBANK.
No pronouncement as to costs.
SO ORDERED.cra6
The appellate court resolved to deny Solidbank's Motion for
Reconsideration for lack of merit.cra7
The Issues
Solidbank raised the following issues in their petition:
(A) Whether the Honorable Court of Appeals was correct in ruling that the
increases in the interest rates on [Permanent's] loans are void for having
been unilaterally imposed without basis.
(B) Whether the Honorable Court of Appeals was correct in ordering the
parties to enter into an express agreement regarding the applicable
interest rates on Permanent's loan availments subsequent to the initial
thirty-day (30) period.
(C) Whether the Honorable Court of Appeals was correct in ruling that
[Permanent] is entitled to attorney's fees notwithstanding the absence of
bad faith or malice on the part of [Solidbank].cra8
The Court's Ruling
The petition has merit.
The Usury Law had been rendered legally ineffective by Resolution No. 224
dated 3 December 1982 of the Monetary Board of the Central Bank, and
later by Central Bank Circular No. 905 which took effect on 1 January
1983. These circulars removed the ceiling on interest rates for secured and
unsecured loans regardless of maturity. The effect of these circulars is to
allow the parties to agree on any interest that may be charged on a loan.
The virtual repeal of the Usury Law is within the range of judicial notice
which courts are bound to take into account.cra9cralaw Although interest
rates are no longer subject to a ceiling, the lender still does not have an
unbridled license to impose increased interest rates. The lender and the
borrower should agree on the imposed rate, and such imposed rate should
be in writing.
The three promissory notes between Solidbank and Permanent all contain
the following provisions:
5. We/I irrevocably authorize Solidbank to increase or decrease at any time
the interest rate agreed in this Note or Loan on the basis of, among others,
prevailing rates in the local or international capital markets. For this
purpose, We/I authorize Solidbank to debit any deposit or placement
account with Solidbank belonging to any one of us. The adjustment of the
interest rate shall be effective from the date indicated in the written notice
sent to us by the bank, or if no date is indicated, from the time the notice
was sent.
6. Should We/I disagree to the interest rate adjustment, We/I shall prepay
all amounts due under this Note or Loan within thirty (30) days from the
receipt by anyone of us of the written notice. Otherwise, We/I shall be
deemed to have given our consent to the interest rate adjustment.
The stipulations on interest rate repricing are valid because (1) the parties
mutually agreed on said stipulations; (2) repricing takes effect only upon
Solidbank's written notice to Permanent of the new interest rate; and (3)
Permanent has the option to prepay its loan if Permanent and Solidbank do
not agree on the new interest rate. The phrases "irrevocably authorize," "at
any time" and "adjustment of the interest rate shall be effective from the
date indicated in the written notice sent to us by the bank, or if no date is
indicated, from the time the notice was sent," emphasize that Permanent
should receive a written notice from Solidbank as a condition for the
adjustment of the interest rates.
In order that obligations arising from contracts may have the force of law
between the parties, there must be a mutuality between the parties based
on their essential equality.cra10cralaw A contract containing a condition
which makes its fulfillment dependent exclusively upon the uncontrolled
will of one of the contracting parties is void.cra11cralaw There was no
showing that either Solidbank or Permanent coerced each other to enter
into the loan agreements. The terms of the Omnibus Line Agreement and
the promissory notes were mutually and freely agreed upon by the parties.
Moreover, Solidbank's range of lending rates were consistent with
"prevailing rates in the local or international capital markets." Permanent
presented a tabulation12cralaw of the range of Solidbank's lending rates, as
reported to Bangko Sentral ng Pilipinas and compared the lending rates
with the interest rates charged by Solidbank on Permanent's loans, thus:

The repriced interest rates from 12 September to 21 November 1997

conformed to the range of Solidbank's lending rates to other borrowers.
The 12 December 1997 to 12 February 1998 repriced interest rates were
not unconscionably out of line with the upper range of lending rates to
other borrowers. The interest rate repricing happened at the height of the
Asian financial crises in late 1997, when banks clamped down on lendings
because of higher credit risks across industries, particularly the real estate
industry.

We also recognize that Solidbank admitted that it did not promptly send
Permanent written repriced rates, but rather verbally advised Permanent's
officers over the phone at the start of the period. Solidbank did not present
any written memorandum to support its allegation that it promptly advised
Permanent of the change in interest rates.cra13cralaw Solidbank advised
Permanent on the repriced interest rate applicable for the 30-day interest
period only after the period had begun. Permanent presented a tabulation
which showed that Solidbank either did not send a billing statement, or
sent a billing statement 6 to 33 days late.cra14cralaw We reproduce the
tabulation below:

We rule that Solidbank's computation of the interest due from Permanent

should be adjusted to take effect only upon Permanent's receipt of the
written notice from Solidbank.

WHEREFORE, we GRANT the petition in part. We SET ASIDE the Decision

of the Court of Appeals promulgated on 29 June 2005 as well as the
Resolution promulgated on 14 March 2006 in CA-G.R. CV No. 75926
and AFFIRM the decision of the Regional Trial Court of Makati City, Branch
58 dated 5 July 2002 in Civil Case No. 98-654 with
the MODIFICATION that the repricing of the interest rates should take
effect only upon Permanent Homes, Incorporated's receipt of the written
notice from Solidbank Corporation of the adjustment in interest rate. The
records of this case are therefore remanded to the trial court for the
computation of the proper interest payments based on the dates of receipt
of written notice.

SO ORDERED.