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Equitable PCI Bank vs. NG Sheung Ngor 541 SCRA 223 19dec2007 - Full Text
Equitable PCI Bank vs. NG Sheung Ngor 541 SCRA 223 19dec2007 - Full Text
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G.R. No. 171545. December 19, 2007.
**
EQUITABLE PCI BANK, AIMEE YU and BEJAN ***
LIONEL APAS, petitioners, vs. NG SHEUNG NGOR
doing business under the name and style “KEN
MARKETING,” KEN APPLIANCE DIVISION, INC. and
BENJAMIN E. GO, respondents.
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* FIRST DIVISION.
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withdraw its petition for relief in the RTC on the same day (in
fact just four hours and forty minutes after) it filed the petition
for certiorari in the CA. Even if Equitable failed to disclose that it
had a pending petition for relief in the RTC, it rectified what was
doubtlessly a careless oversight by withdrawing the petition for
relief just a few hours after it filed its petition for certiorari in the
CA–a clear indication that it had no intention of maintaining the
two actions at the same time.
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CORONA, J.:
1
This petition
2
for review on certiorari seeks to set aside the
decision of the Court of3 Appeals (CA) in CA-G.R. SP No.
83112 and its resolution denying reconsideration.
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4
On October 7, 2001, respondents Ng Sheung Ngor, Ken
Appliance Division, Inc. and Benjamin E. Go filed an action
for annulment
5
and/or reformation of documents and
contracts against petitioner Equitable PCI Bank
(Equitable) and its employees, Aimee Yu and Bejan Lionel
Apas,6 in the Regional Trial Court (RTC), Branch 16 of Cebu
City. They claimed that Equitable induced them to avail of
its peso
7
and dollar credit facilities by offering low interest
rates so they accepted Equitable’s proposal and signed the
bank’s preprinted promissory notes on various dates
beginning 1996. They, however, were unaware that the
documents contained identical escalation clauses granting
Equitable8
authority to increase interest rates without their
consent.
Equitable, in its answer, asserted that respondents
knowingly accepted all the 9
terms and conditions contained
in the promissory notes. In fact, they continuously availed
of and10 benefited from Equitable’s credit facilities for five
years.
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Respondents’ submission
Principal Interest Date Date of Amount
Availed Maturity Due
US$223,000 12.66%, p.a. 10 January 2001 9 July 2001 (total=)
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Note:
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“The evidence adduced during trial show [respondents] received the proceeds of
peso and dollar loans from defendant bank as follows: (a) US$228,200 in four (4)
different availments and the (b) principal amount of P1,000,000. x x x”
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15 Id., p. 190.
16 Id., pp. 188-189.
17 Id.
18 Penned by Judge Agapito L. Hontanosas, Jr. (dismissed from the
service per resolution in J. King and Sons Company, Inc. v. Judge Agapito
L. Hontanosas, Jr., A.M. No. RTJ-03-1802, 21 September 2004, 438 SCRA
525). Id., pp. 177-190.
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Equitable
20
and respondents filed their respective notices of
appeal.
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25 Id., p. 206.
26 Id., pp. 205-207.
27 Id., p. 205.
28 Id., p. 207.
29 Id., pp. 208-210.
30 Id., p. 218. Covered by TCT No. 124096, TCT No. 118031 and tax
declarations GR2K-06-038-00391 and GRK-06-038-00392.
31 Id., pp. 272-276.
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42 Id., p. 38.
43 Id., p. 55.
44 Id., pp. 62-68.
45 Ligon v. Court of Appeals, G.R. No. 127683, 7 August 1998, 294
SCRA 73, 88.
46 Id.
47 Supra note 31.
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exercised in an arbitrary
49
and despotic manner by reason of
passion or hostility.
The March 1, 2004 order denied due course to the
notices of appeal of both Equitable and respondents.
However, it declared that the February 5, 2004 decision
was final 50 and executory only with respect to
Equitable. As expected, the March 24, 2004 omnibus
order denied Equitable’s motion
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Escalation clauses are not void per se. However, one “which
grants the creditor an unbridled right to adjust the interest
independently and upwardly, completely depriving the
debtor of the right to assent to an important modification
in the agreement” is void. Clauses of that
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nature violate
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the principle of mutuality of contracts. Article 1308 of
the Civil Code holds that a contract must bind both
contracting parties; its
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validity
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or compliance cannot be left to the will of one of
them.
For this reason, we have consistently held that a valid
escalation clause provides:
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2. that the obligation was contractual in nature; and
3. that the parties expressly agreed to consider the 76
effects of the extraordinary inflation or deflation.
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1. Law;
2. Contracts;
3. Quasi-contracts;
4. Acts or omission punished by law; and
5. Quasi-delicts.
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For Article 1250 to apply, not only must the obligation be contractual,
the parties must more importantly agree to recognize the effects of
extraordinary inflation (or deflation, as the case may be). Here, despite
the fact that the obligation was contractual (i.e., a loan), neither the loan
agreement nor the promissory notes contained a provision stating that the
parties agreed to recognize the effects of extraordinary inflation or
deflation. For this reason, Article 1250 was inapplicable.
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The RTC found that respondents did not pay Equitable the
interest due on February 9, 2001 (or85any month thereafter
prior to the maturity of the loan) or the amount due 86
(principal plus interest) due on July 9, 2001.
Consequently, Equitable applied respondents’ deposits to
their loans upon maturity.
The relationship between87 a bank and its depositor is
that of creditor and debtor. For this reason, a bank has
the right to set-off the deposits
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in its hands for the payment
of a depositor’s indebtedness.
Respondents indeed defaulted on their obligation. For
this reason, Equitable had the option to exercise its legal
right to set-off or compensation. However, the RTC
mistakenly (or, as it now appears, deliberately) concluded
that Equitable acted “fraudulently or in bad faith or in
wanton disregard” of its contractual obligations despite the
absence of proof. The undeniable fact was that, whatever
damage respondents sustained was purely the
consequence of their failure to pay their loans. There
was therefore absolutely no basis for the award of moral
damages to them.
Neither was there reason to award exemplary damages.
Since respondents were not entitled to moral damages, 89
neither should they be awarded exemplary damages. And
if respondents were not entitled to moral and exemplary
dam-
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Petition granted.
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