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Tuesday, January 16, 2018

The glory of justice and the
majesty of law are created not
DIGEST: Sps. Limso v. PNB, et. al, G.R. No. 158622, just by the Constitution - nor by

January 27, 2016 the courts - nor by the officers

of the law - nor by the lawyers -
but by the men and women
who constitute our society -
who are the protectors of the
law as they are themselves
Complaint for Reformation or Annulment of Contract protected by the law. -Robert
Kennedy

SPOUSES ROBERT ALAN L. AND NANCY LEE LIMSO,

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vs.
DIGEST: Coca-Cola v. Sps. Bernardo, G.R.
PHILIPPINE NATIONAL BANK AND THE REGISTER OF No. 190667, November 07, 2016

DEEDS OF DAVAO CITY, RESPONDENTS.; ET AL. DIGEST: Sps. Limso v. PNB, et. al, G.R.
No. 158622, January 27, 2016

G.R. No. 158622, 169441, 172958, 173194, 196958, DIGEST: Marie Callo-
Claridad v. Philip Esteban
197120, 205463 MARIE CALLO-CLARIDAD
v. PHILIP RONALD P.
Second Division ESTEBAN and TEODORA
ALYN ESTEBAN G.R. NO.
January 27, 2016 191567, March 20, 2013 FACTS: The p...

Leonen, J.
Categories

Facts: abuse of right

Article 1169

In 1993, Sps. Limso and Davao Sunrise took out a loan Article 1491
BP 880
secured by real estate mortgages from Philippine National By-law

Bank amounting to P700 Million. The loan contract was Canon 5

Child Abuse
subsequently restructured on January 1999. The provision Civil Law

under their loan contract on the interest rate states that the Coca-Cola
Code of Judicial Conduct
same shall be determined "at the rate per annum to be set Constitutional Law

by the Bank. The interest rate shall be reset by the Bank Corporation Code
dacion en pago
every month." Damages
Delay

The Sps. and Davao Sunrise were notified through a Demand

DIsbarment
letter that the interest rate approved by the top General Principles

management of PNB is 20.756% and as of December 1998, Labor Law

Legal Ethics
the interest on the loan amounted to P217 Million. However, Mercantile Law

due to their financial difficulties and despite repeated Moral Damages

Mutuality of Contracts
demands by PNB, Sps. Limso and Davao Sunrise failed to Net Earning Capacity

pay their debt. Novation

Political Law
RA 7610
The Sps. and Davao Sunrise files a complaint in court real-party in interest

praying for the declaration of nullity of unilateral imposition Remedial Law

Rule 43
and increases of interest rates. Rule 50
Rule 65

Issue: Rules of Court

Section 22
Tax Exemptions
Whether the provision under the loan contract regarding Taxation Law
the unilateral imposition and increases of interest rates Temperate Damages
Termination
violates the principle of mutuality of contract. unfair competition

Ruling: Blog Archive

▼ 2018 (21)
Yes. The SC held that the provision violates the principle ► May 2018 (4)

of mutuality of contract. ► March 2018 (8)

▼ January 2018 (9)

The SC held that the interest on the principal loan STRONGHOLD INSURANCE v.
CUENCA

obligation shall be at the rate of 12% per annum and VICTORIO DIAZ v. PEOPLE

computed from January 28, 1999, the date of the execution BAYAN v. ERMITA
DIGEST: Coca-Cola v. Sps. Bernardo,
of the Conversion, Restructuring and Extension Agreement. G.R. No. 19066...

Interest rate on the conventional interest shall be at the rate DIGEST: Ching v. Quezon City Sports
Club, G.R. No....

of 12% per annum from the date of judicial demand, to DIGEST: Cabanting v. BPI, G.R. No.
201927, Februar...
June 30, 2013. From July 1, 2013 until full satisfaction, the DIGEST: Zalamea v. Atty. De Guzman,
A.C. No. 7387,...
interest rate on the conventional interest shall be computed
DIGEST: Sps. Limso v. PNB, et. al, G.R.
at 6% per annum in view of this court's ruling in Nacar v. No. 158622...
DIGEST: Dacion en Pago (dation in
Gallery Frames. payment)

According to the SC, there was no mutuality of contract

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between the parties since the interest rates imposed were
based on the sole discretion of Philippine National Bank. Lorem ipsum

Further, the escalation clauses in the real estate mortgage "

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[did] not specify a fixed or base interest[.]" Thus, the interest
rates are invalid. About Me

Nash Magongcar
The principle of mutuality of contracts is stated in Article Follow 0

1308 of the Civil Code as follows: View my complete profile

Article 1308. The contract must bind both contracting

parties; its validity or compliance cannot be left to the will of CASE LISTS

one of them. POLITICAL LAW LABOR LAW

CIVIL LAW TAXATION LAW
MERCANTILE LAW CRIMINAL LAW
The importance of the principle of mutuality of contracts REMEDIAL LAW LEGAL ETHICS ...

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 1 8 8 8
is void. Any stipulation regarding the validity or compliance
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of the contract which is left solely to the will of one of the
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parties, is likewise, invalid.
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When there is no mutuality between the Email address... Subm

parties to a contract, it means that the parties it

were not on equal footing when the terms of the Home

contract were negotiated. Thus, the principle of POLITICAL LAW
CIVIL LAW
mutuality of contracts dictates that a contract TAXATION LAW
must be rendered void when the execution of its MERCANTILE LAW
REMEDIAL LAW
terms is skewed in favor of one party. LEGAL ETHICS
ABOUT ME

The Court of Appeals also noted that since the interest

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rates imposed were at the sole discretion of Philippine Home
National Bank, and that Spouses Limso and Davao Sunrise CASE DIGESTS

were merely notified when there were changes in the _POLITICAL LAW
ABOUT ME
interest rates, Philippine National Bank violated the
principle of mutuality of contracts. The Court of Appeals About Blogroll

ruled that:
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We cannot subscribe to appellant bank’s allegation that

plaintiffs-appellees agreed to these interest rates by
receiving various letters from PNB. Those letters cannot be
construed as agreements as a simple reading of those
letters would show that they are mere notices informing
plaintiffs-appellees that the bank, through its top
management, had already imposed interest rates on their
loan. The uniform wordings of the said letters go this way:

This refers to your existing credit facility in the principal

amount of P850.0 MM granted by the Philippine National
Bank by and under the terms and conditions of that Credit
Agreement dated 12.2.97 (Renewal of Credit Facility).

We wish to advise you that the top management has

approved an interest rate of 20.756% which will be used in
computing the interest due on your existing peso and
redenominated availments against the credit facility for the
period July 20 to August 19, 1998.

If you are amenable to this arrangement, please signify

your conformity on the space provided below and return to
us the original copy of the document. If we receive no
written objection by the end of 10 days from date of receipt
of this letter, we will take it to mean that you agree to the
new interest rate we quote. On the other hand, if you
disagree with the quoted rate, you will have to pay the loan
in full within the same ten-day period otherwise, the entire
loan will be considered due and demandable.

The contents of the letter quoted by the Court of Appeals

show that there was no room for negotiation among
Philippine National Bank, Spouses Limso, and Davao
Sunrise when it came to the applicable interest rate. Since
there was no room for negotiations between the parties with
regard to the increases of the rates of interest, the principle
of mutuality of contracts was violated. There was no
meeting of the minds between Spouses Limso, Davao
Sunrise, and Philippine National Bank because the
increases in the interest rates were imposed on them
unilaterally.

at January 16, 2018

Labels: Civil Law, Mutuality of Contracts

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