Jessette Amihope N.

Castor BL-5A

SPOUSES IGNACIO F. JUICO and ALICE P. JUICO, Petitioners,

vs.
CHINA BANKING CORPORATION, Respondent.
April 10, 2013
G.R. No. 187678

Principle: 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.

VILLARAMA, JR., J.

Facts:
Spouses Juico obtained a loan from China Banking Corporation as evidenced by two
Promissory Notes both dated October 6, 1998 for the sums of 6,216,000 and P4, 139,000,
respectively. The loan was secured by a Real Estate Mortgage (REM) over petitioners’ property.
Respondent demanded the full payment of the outstanding balance with accrued monthly
interests. As of February 2001, the amount due on the two promissory notes totaled P19,201,776.
On the same day, the mortgaged property was sold at public auction, with respondent China
bank as highest bidder for the amount of P10,300,000. Petitioners received a demand letter dated
May 2, 2001 from respondent for the payment of P8,901,776.63, the amount of deficiency after
applying the proceeds of the foreclosure sale. Respondent prayed that judgment be rendered
ordering the petitioners to pay jointly and severally: (1)P8,901,776.63 representing the amount of
deficiency, plus interests at the legal rate, from February23, 2001 until fully paid; (2) an additional
amount equivalent to 1/10 of 1% per day of the total amount, until fully paid, as penalty. Ms.
Annabelle Cokai Yu, its Senior Loans Assistant stated that as of now the outstanding balance of
petitioners was P15,190,961.48. Yu reiterated that the interest rate changes every month based on
the prevailing market rate. she notified petitioners of the prevailing rate by calling them monthly
.It was increased unilaterally. Petitioners insist that the increase in interest rates were unilaterally
imposed by the bank and thus violate the principle of mutuality of contracts.

Issue:
Whether the interest rates imposed upon them by respondent are valid and not violative
of the principle of mutuality of contract.

Held:
No. Modifications in the rate of interest for loans pursuant to an escalation clause must be
the result of an agreement between the parties. Unless such important change in the contract
terms is mutually agreed upon, it has no binding effect. In the absence of consent on the part of
the petitioners to the modifications in the interest rates, the adjusted rates cannot bind them. The
principle of mutuality of contracts is expressed in Article 1308 of the Civil Code that 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.