Case Title

GR No. || Month XX, XXXX || Ponente: Name, J. || Topic: MUTUALITY OF CONTRACTS

Facts:
Spouses Limso and Davao Sunrise Investment and Development Corporation took out a loan of P700
million divided into two kinds (300 million revolving credit line and a P 400 million seen year long term
loan) with Philippine National Bank (PNB) and secured it with real estate mortgage.

After having difficulty in paying the loan they requested to restructure their loan. PNB then executed a
Conversion, Restructuring and Extension Agreement which totaled to 1.067 billion which included the
unpaid interest. A provision under the loan contract was that the interest rate shall be determined "at the
rate per annum to be set by the Bank. The interest rate shall be reset by the Bank every month." The
restructured loan was secured with the properties which are 4 parcels of land registered under Davao
Sunrise.

Spouses Limso and Davao Sunrise failed to pay even after PNB sent demand letters. On August 21,
2000 PNB filed a Petition for Extrajudicial Foreclosure of Real Estate Mortgage before the Sheriff's Office
in Davao. PNB was declare d the highest bidder.

Before the Sherriff could issue the provisional Certificate of Sale, spouses Limso and Davao Sunrise filed
a Complaint for reformation or Annulment of Contract against PNB and the sheriff of Davao City. After its
filling the executive judge of RTC Davao City issued a restraining order against PNB. The Sps. and
Davao Sunrise files a complaint in court praying for the declaration of nullity of unilateral imposition and
increases of interest rates.

Issue(s):
i. WoN the provision under the loan contract regarding the unilateral imposition and increases of
interest rates violates the principle of mutuality of contracts? YES

Ruling:
i. With regard (Issue i.):
a. The Supreme Court ruled that the provision violated the principle of mutuality of contracts.
There is no mutuality of contract when the determination of interest rates are at the
sole discretion of one party. It was further held that escalation clauses in contracts are
void when they allow the creditor to unilaterally adjust the interest rates without the
consent of the debtor. The principle of mutuality of contracts dictates that a contract
must be rendered void when the execution of its terms is skewed in favor of one party.
The importance of the principle of mutuality of contracts was discussed in Juico v. China
Banking Corporation. "The binding effect of any agreement between parties to a contract is
premised on two settled principles: (1) that any obligation arising from contract has the force
of law between the parties; and (2) that there must be mutuality between the parties based on
their essential equality. Any contract which appears to be heavily weighed in favor of
one of the parties so as to lead to an unconscionable result is void. Any stipulation
regarding the validity or compliance of the contract which is left solely to the will of one of the
parties, is likewise, invalid
b. Article 1318 of the Civil Code states that "there is no contract unless the following requisites
concur: (1) consent of the contracting parties; (2) object certain which is the subject matter of
the contract: (3) cause of the obligation which is established. When one of the elements is not
present the contract cannot be perfected. In this case, petitioner Sps. Limso and Davao
Sunrise gave no consent as to the increase in the interest rates. Since there was no room
for negotiation regarding the interest rates, the principal of mutuality of contracts was violated.
There was no meeting of the mind and consequently PNB 's unilateral imposition on the
increases in the interest rates are not valid.

Doctrine:
Dispositive Portion:

Parties:

SPOUSES ROBERT ALAN L. and NANCY LEE LIMSO, Petitioners, vs. PHILIPPINE NATIONAL BANK
and THE REGISTER OF DEEDS OF DAVAO CITY, Respondents.

DAVAO SUNRISE INVESTMENT AND DEVELOPMENT CORPORATION and SPOUSES ROBERT

ALAN and NANCY LIMSO, Petitioners, vs. HON. JESUS V. QUITAIN, in his capacity as Presiding Judge
of Regional Trial Court, Davao City, Branch 15 and PHILIPPINE NATIONAL BANK, Respondents.

DAVAO SUNRISE INVESTMENT AND DEVELOPMENT CORPORATION represented by its President

ROBERT ALAN L. LIMSO, and SPOUSES ROBERT ALAN and NANCY LEE LIMSO, Petitioners, vs.
HON. JESUS V. QUITAIN, in his capacity as Presiding Judge of Regional Trial Court, Davao City, Branch
15 and PHILIPPINE NATIONAL BANK, Respondents.

PHILIPPINE NATIONAL BANK, Petitioner, vs. DAVAO SUNRISE INVESTMENT AND DEVELOPMENT
CORPORATION and SPOUSES ROBERT ALAN LIMSO and NANCY LEE LIMSO, Respondents.

PHILIPPINE NATIONAL BANK, Petitioner, vs. DAVAO SUNRISE INVESTMENT AND DEVELOPMENT
CORPORATION and SPOUSES ROBERT ALAN L. LIMSO and NANCY LEE LIMSO, Respondents.

DAVAO SUNRISE INVESTMENT AND DEVELOPMENT CORPORATION and SPOUSES ROBERT

ALAN AND NANCY LEE LIMSO, Petitioners, vs. PHILIPPINE NATIONAL BANK, Respondent.

IN THE MATTER OF THE PETITION EX-PARTE FOR THE ISSUANCE OF THE WRIT OF
POSSESSION UNDER LRC RECORD NO. 12973, 18031 AND LRC RECORD NO. 317, PHILIPPINE
NATIONAL BANK,