OBLICON
Citytrust or respondent BPI of the
Manolito De Leon and Lourdes e. De
Leon v Bank of the Philippines G.R. No.
184565 November 20, 2013 SECOND
DIVISION
Extinguishment of obligation
FACTS:
Spouses Manolito and Lourdes de leon
(petitioners) executed a promissory
note5 binding themselves to pay nissan
gallery ortigas with monthly
installments with a late payment charge
of five percent (5%) per month. to
secure the obligation under the
promissory note, spouses De leon
constituted a chattel mortgage7 over a
1995 nissan sentra. on the same day,
nissan gallery ortigas, with notice to
spouses De leon , executed a deed of
assignment9 of its rights and interests
under the promissory note with chattel
mortgage in favor of Citytrust banking
corporation (citytrust). on the
otherhand, citytrust was merged with
and absorbed by respondent Bank of
the Philippine Islands (BPI). Spouses
De leon , however, failed to pay their
monthly amortizations. BPI, thru
counsel, sent them a demand letter.
However, respondent BPI filed f or
Replevin and damages against spouses
De leon. Spouses De leon averred that
the case should be dismissed because
their obligation was extinguished due to
the mortgaged vehicle being stolen
while the insurance policy was still in
force.
The Metropolitan Trial Court ruled in
favor of respondent BPI and declared
petitioner-spouses liable to pay their
remaining obligation for failure to notify
alleged theft of the mortgaged vehicle
and to submit proof. The RTC gave
credence to the testimony of petitioner
Manolito that he informed Citytrust of
the theft of the mortgaged vehicle by
sending through fax all the necessary
documents. 7, the CA reversed and set
aside the RTC Order and reinstated the
MeTC Decision. Aggrieved, spouses De
Leon moved for reconsideration, which
was then granted.
RULING:
The Court ruled in favour of BPI. As
aptly pointed out by the MeTC, the
mere loss of the mortgaged vehicle does
not automatically relieve spouses De
leon of their obligation. Records shows
that under the Promissory Note with
Chattel Mortgage, the mortgagor must
notify and submit proof of loss to the
mortgagee.1âwphi1 Otherwise, the
mortgagee would not be able to claim
the proceeds of the insurance and apply
the same to the remaining obligation.
In this case, petitioner Manolito's
testimony that he sent notice and proof
of loss of the mortgaged vehicle to
Citytrust through fax lacks credibility
especially since he failed to present the
facsimile report evidencing the
transmittal. And despite repeated
demands from respondent BPI,
petitioner-spouses made no effort to
communicate with the bank in order to
clarify the matter. The absence of any
overt act on the part of spouses De leon
to protect their interest from the time
the mortgaged vehicle was stolen up to
the time they received the summons
defies reason and logic.
Spouses eduardo and Lydia silos v
Philippine National Bank G.R. No.
181045 July 2, 2014 SECOND
DIVISION
Mutuality of contracts
FACTS:
Spouses Eduardo and Lydia
Silos (petitioners) have been in business
for about two decades of operating a
department store and buying and
selling of ready-to-wear apparel,
secured a revolving credit line to
Respondent Philippine National Bank
(PNB). To secure such, spouses Silos
executed a a Real Estate Mortgage.
Spouses Silos then signed a Credit
Agreement, which was also amended
two years later, the said loan was
initially subjected to a 19.5% interest
rate per annum. In the Credit
Agreements, Spouses Silos bound
themselves to the power of PNB to
modify the interest rate depending on
whatever policy that PNB may adopt in
the future, without the need of notice
upon them.
Respondent PNB regularly
renewed the line from 1990 up to 1997,
and spouses Silos made good on the
promissory notes, religiously paying the
interests without objection or fail. But
in 1997, petitioners faltered when the
interest rates soared due to the Asian
financial crisis. Despite demand,
petitioners failed to pay the foregoing
amount. Thus, PNB foreclosed on the
mortgage. Spouses Silos instituted an
action to annul the foreclosure sale on
the ground that the interest rates were
fixed by respondent without their prior
consent or agreement.
The Regional Trial Court ruled
that such stipulation authorizing both
the increase and decrease of interest
rates as may be applicable is valid. The
Court of Appeals affirmed the RTC
decision.
RULING:
The Court ruled in favour of
Spouses Silos. Under P.D. No. 1684
also empowered the Central Bank’s
Monetary Board to prescribe the
maximum rates of interest for loans
and certain forbearances. Pursuant to
such authority, the Monetary Board
issued Central Bank (C.B.) Circular No.
905, series of 1982, Section 5. However,
the said law and circular did not
authorize either party to unilaterally
raise the interest rate without the
other’s consent. Similarly, contract
changes must be made with the
consent of the contracting parties. The
minds of all the parties must meet as to
the proposed modification, especially
when it affects an important aspect of
the agreement. In the case of loan
contracts, it cannot be gainsaid that the
rate of interest is always a vital
component, for it can make or break a
capital venture. Thus, any change must
be mutually agreed upon; otherwise, it
is bereft of any binding effect.
In Philippine National Bank v.
Court of Appeals, the Court ruled that
the unilateral action of the PNB in
increasing the interest rate on the
private respondent’s loan violated the
mutuality of contracts ordained in
Article 1308 of the Civil Code states
that The contract must bind both
contracting parties; its validity or
compliance cannot be left to the will of
one of them.
In order that obligations arising
from contracts may have the force of
law between the parties, there must be
mutuality between the parties based on
their essential equality. A contract
containing a condition which makes its
fulfillment dependent exclusively upon
the uncontrolled will of one of the
contracting parties, is void. Hence, in
loan agreements, it cannot be denied
that the rate of interest is a principal
condition, if not the most important
component. Thus, any modification
thereof must be mutually agreed upon;
otherwise, it has no binding effect.