[ G.R. No. 222448. November 24, 2021 ]
UNITED COCONUT PLANTERS BANK, PETITIONER, VS. EDITHA F. ANG AND VIOLETA M. FERNANDEZ, RESPONDENTS.
DISSENTING OPINION
ZALAMEDA, J.:
The ponencia grants the Petition for Review on Certiorari by United Coconut Planters Bank (UCPB) and sets aside the Decision dated 11 May 2015 and Resolution dated 04 December 2015 of the Court of Appeals.1 While the stipulations on the payment of interest in the Credit Agreement dated 30 April 1997, promissory notes, and disclosure statements are void, the ponencia still ruled that the foreclosure proceedings and the auction sale conducted were valid. Thus, the ponencia ultimately dismisses respondents Editha F. Ang and Violeta M. Fernandez's (respondents) Petition for Declaration of Nullity of Foreclosure, Auction Sale and Promissory Note & Fixing of True Account of Petitioners.
I respectfully dissent.
The provisions on interest rates are void for violating the principle of mutuality of contracts under Article 1308 of the Civil Code
The Credit Agreement states2:
ARTICLE II
INTEREST AND OTHER BANK CHARGES
Section 2.01. Interest Rate. Unless otherwise expressly stipulated, any availment of the Accommodation shall be subject to interest See Terms and Conditions for details.
In turn, the Credit Agreement refers to the Terms and Conditions for the interest rate, the relevant portion of which provides3:
Interest Rate: Prevailing market rate based on the Manila Reference Rate (MRR) or the Treasury Bill Rate (TBR) or other market-based reference rates then obtaining at the time of each availment and shall be subject to quarterly interest review and resetting at the option of the bank.4
The ponencia recognizes that pursuant to the Credit Agreement, UCPB can impose its interest rates based on any of the following: (1) the prevailing market rate of the Manila Reference Rate; (2) Treasury Bill Rates; or (3) other market-based reference rate obtaining at the time of each availment subject to the quarterly interest review and resetting at the option of the bank.5
Moreover, the uniformly worded promissory notes state that the bank can utilize - the following references. for the interest rates: (1) the prevailing market rate as determined by Consumers Credit Department - Visayas Lending Office based in Cebu City; or (2) the interest rates may be reviewed, increased, or decreased by the lender or bank considering (a) the prevailing financial and monetary conditions; (b) rate of interest or charges other banks or financial institutions charge or offer to charge for similar accommodation and/or; (3) the resulting profitability to the Lender or the Bank.6 The ponencia also noted that in case of conflict between the Credit Agreement and promissory notes, the interest stipulations in the former prevails.
While UCPB is given the option to review or reset on a quarterly basis the market references from which the interest rate to be imposed on respondents' debt, the references are determined independently of the participation of the bank and are ascertainable at the time the amortizations fall due. Moreover, the ponencia notes that a variable-rate stipulation is a common financial agreement, and here, respondents agreed to this arrangement. Clearly, the foregoing provisions on the unilateral imposition of interest rates violate the principle of mutuality of contracts.
To clarify, there may be instances where an interest rate scheme which does not specifically indicate a particular interest rate may be validly imposed. Such interest rate scheme refers to what is typically called a floating interest rate system.7
In Security Bank Corp. v. Spouses Mercado (Security Bank)8, this Court explained that floating rates of interest refer to the variable interest rates stated on a market-based reference rate agreed upon by the parties. Stipulations on floating rate of interest differ from escalation clauses. Escalation clauses are stipulations which allow for the increase of the original fixed interest rate. In contrast, a floating rate of interest pertains to the interest rate itself that is not fixed as it is dependent on a market-based reference that was agreed upon by the parties.9
Citing the Manual of Regulations for Banks of the Bangko Sentral ng Pilipinas (BSP), this Court, in Security Bank, discussed how the BSP allows banks and borrowers to agree on a floating rate of interest, provided that it must be based on market-based reference rates:
§ X305.3 Floating rates of interest. - The rate of interest on a floating rate loan during each interest period shall be stated on the basis of Manila Reference Rates (MRRs), T-Bill Rates or other market based reference rates plus a margin as may be agreed upon by the parties.10
We stated that "[t]his BSP requirement is consistent with the principle that the determination of interest rates cannot be left solely to the will of one party. It further emphasizes that the reference rate must be stated in writing, and must be agreed upon by the parties." In order for the concept of a floating rate of interest to apply, it presupposes that a market-based reference rate is indicated in writing arid agreed upon by the parties. Hence, in Security Bank, We did not deem the interest rate imposed therein as an imposable floating rate of interest because the "reference rates are not contained in writing as required by law and the BSP."11
Applying the foregoing in the instant case, the provisions on the interest rate violate the principle of mutuality of contracts under Article 1308 of the Civil Code and are therefore void. As to the promissory notes, it appears that the "prevailing market rate" will be determined internally by UCPB's Consumers Credit Department - Visayas Lending Office and not solely based on MRRs, T-Bill rates, or other market-based reference rates and without the agreement by the parties.12 In addition, the interest rates may be reviewed, increased, or decreased by UCBP and among the considerations is "[t]he resulting profitability to the Lender or the Bank."
However, the borrower's current financial state, his feedback or opinions, the nature and purpose of his borrowings, the effect of foreign currency values or fluctuations on his business or borrowing, among others, are not factors which influence the fixing of interest rates to be imposed on him.13 Thus, this one-sided, indeterminate, and subjective criteria of fixing interest rates, such as UCPB's profitability and financial or market conditions, is arbitrary for there is no fixed standard or margin above or below these considerations and thus violates the principle of mutuality of contracts.14
Even assuming that the Credit Agreement prevails over the promissory notes, the provision in the former allowing UCPB to reset the interest rate at its sole option is still void for violating Article 1308 of the Civil Code. As discussed above, the interest rates may be based on "other market-based reference rate obtaining at the time of each availment subject to the quarterly interest review and resetting at the option of [UCPB]." In other words, while it appears that some "market-based reference rate" will be the basis of interest rate at the time of each availment, UCPB has the sole option to review and reset the rate, without any consent from the borrower. This arrangement is clearly one-sided, unilateral, and violative of one of the essential characteristics of contract which is mutuality.
This Court has held that "[t]here is no mutuality of contracts when the determination or imposition of interest rates is at the sole discretion of a party to the contract."15
The provisions in a loan agreement that grant lenders unrestrained power to modify interest rates, penalties and other charges at the latter's sole discretion and without giving prior notice to and securing the consent of the borrowers reek of unilateral authority that is anathema to the mutuality of contracts and enable lenders to take undue advantage of borrowers.16 The rate of interest is a principal condition, if not the most important component, of a loan agreement. Thus, "any modification thereof must be mutually agreed upon; otherwise, it has no binding effect."17 Given these, the method of fixing the interest rate in the promissory notes and Credit Agreement is void.
The sale at public auction is void considering that respondents were not given an opportunity to settle their debt at the correct amount due to the imposition of a void interest rate scheme
As noted by the ponencia, the properties mortgaged by respondents were foreclosed by UCPB and the auction sale was conducted on 15 July 1999. Then, on 02 August 1999, Notary Public Immanuel L. Sodusta sold the mortgaged properties to UCPB as highest bidder for PhP21,895,000.00.18 However, considering that the provisions on interest rates are void, the sale at public auction should be nullified.
It would be unjust if the foreclosure sale of the properties was considered valid, as this would result in an inequitable situation where respondents would have his properties foreclosed for failure to pay a loan that was unduly inflated due to the unilateral and one-sided imposition of monetary interest.19
In a situation wherein a debtor was not given an opportunity to settle his/her debt at the correct amount due to the imposition of a null and void interest rate scheme, no foreclosure proceedings may be instituted. The registration of such foreclosure sale has been held to be invalid and cannot vest title over the mortgaged property.20
Given the foregoing, I respectfully dissent, and vote to deny UCPB's Petition for Review on Certiorari and affirm the CA's Decision dated 11 May 2015 and Resolution dated 04 December 2015.
Footnotes
1 Ponencia, pp. 19 and 15-19.
2 Id. at 11-12.
3 Id. at 12.
4 Emphasis supplied.
5 Ponencia, p. 12.
6 Id.
7 Vasquez v. Philippine National Bank, G.R. Nos. 228355 & 228397, 28 August 2019 [Per J. Caguioa].
8 Security Bank Corp. v. Spouses Mercado, G.R. Nos. 192934 & 197010, 27 June 2018 [Per J. Jardeleza].1a⍵⍴h!1
9 Vasquez v. Philippine National Bank, supra at note 7.
10 Emphasis supplied.
11 Vasquez v. Philippine National Bank, supra at note 7, citing Security Bank Corp. v. Spouses Mercado, supra at note 8.
12 Ponencia, p. 12.
13 Spouses Silos v. Philippine National Bank, 738 Phil. 156 (2014) [Per J. Del Castillo].
14 Vasquez v. Philippine National Bank, supra at note 7.
15 Id., citing Spouses Limso v. Philippine National Bank, 779 Phil. 287 (2016) [Per J. Leonen].
16 New Sampaguita Builders Construction v. Philippine National Bank, 479 Phil. 483 (2004) [Per J. Panganiban].
17 Vasquez v. Philippine National Bank, supra at note 7, citing Spouses Silos v. Philippine National Bank, supra at note 13.
18 Ponencia, p. 3.
19 Vasquez v. Philippine National Bank, supra at note 7.
20 Vasquez v. Philippine National Bank, supra at note 7, citing Heirs of Espiritu v. Spouses Landrito, 549 Phil. 180 (2007) [Per J. Chico-Nazario], Spouses Castro v. Tan, 620 Phil. 239 (2009) [J. Del Castillo], Spouses Albos v. Spouses Embisan, 748 Phil. 907 (2014) [Per J. Velasco], Spouses Andal v. Philippine National Bank, 722 Phil. 273 (2013) [Per J. Perez].
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