CREDIT TRANSACTIONS CASE DIGEST EQUITABLE PCI BANK VS. NG SHEUNG NGOR, G. R. NO. 171545, 19 DECEMBER 2007
CREDIT TRANSACTIONS CASE DIGEST
EQUITABLE PCI BANK VS. NG SHEUNG NGOR,
G. R. NO. 171545, 19 DECEMBER 2007
TOPIC/DOCTRINE
For extraordinary inflation (or deflation) to affect an
obligation, the following requisites must be proven: 1. that there was an
official declaration of extraordinary inflation or deflation from the Bangko
Sentral ng Pilipinas (BSP); 2. that the obligation was contractual in nature;
and 3. that the parties expressly agreed to consider the effects of the
extraordinary inflation or deflation.
FACTS
respondents Ng Sheung Ngor,4
Ken Appliance Division, Inc. and Benjamin E. Go filed an action for annulment
and/or reformation of documents and contracts5 against petitioner Equitable PCI
Bank (Equitable) and its employees, Aimee Yu and Bejan Lionel Apas, in the
Regional Trial Court (RTC), Branch 16 of Cebu City.6 They claimed that
Equitable induced them to avail of its peso and dollar credit facilities by
offering low interest rates7 so they accepted Equitable’s proposal and signed
the bank’s preprinted promissory notes on various dates beginning 1996. They,
however, were unaware that the documents contained identical escalation clauses
granting Equitable authority to increase interest rates without their
consent. The RTC found that Equitable’s
promissory notes uniformly stated: If subject promissory note is extended,
the interest for subsequent extensions shall be at such rate as shall be
determined by the bank.
Despite the devaluation of the
peso, the Bangko Sentral ng Pilipinas (BSP) never declared a situation of
extraordinary inflation. Moreover, although the obligation in this instance
arose out of a contract, the parties did not agree to recognize the effects of
extraordinary inflation (or deflation). The RTC never mentioned that there was
a such stipulation either in the promissory note or loan agreement.
ISSUE
Whether the provision of Article 1250 is applicable in the
case.
Whether the escalation clause is not valid.
RULING
In the
firsts issue, the court held in the negative.
The court
held that for extraordinary inflation (or deflation) to affect an obligation,
the following requisites must be proven: 1. that there was an official
declaration of extraordinary inflation or deflation from the Bangko Sentral ng
Pilipinas (BSP); 2. that the obligation was contractual in nature; and 3. that
the parties expressly agreed to consider the effects of the extraordinary
inflation or deflation.
Here, the court held that
despite the devaluation of the peso, the Bangko Sentral ng Pilipinas (BSP)
never declared a situation of extraordinary inflation. Moreover, although the
obligation in this instance arose out of a contract, the parties did not agree
to recognize the effects of extraordinary inflation (or deflation). The RTC
never mentioned that there was a such stipulation either in the promissory note
or loan agreement. Therefore, respondents should pay their dollar-denominated
loans at the exchange rate fixed by the BSP on the date of maturity.
In the second issue, the court
ruled in the negative.
The court held that Escalation
clauses are not void per se. However, one “which grants the creditor an
unbridled right to adjust the interest independently and upwardly, completely
depriving the debtor of the right to assent to an important modification in the
agreement” is void. Clauses of that nature violate the principle of mutuality
of contracts.66 Article 130867 of the Civil Code holds that a contract must
bind both contracting parties; its validity or compliance cannot be left to the
will of one of them. For this reason, we have consistently held that a valid
escalation clause provides: 1. that the rate of interest will only be
increased if the applicable maximum rate of interest is increased by law or by
the Monetary Board; and 2. that the stipulated rate of interest will be
reduced if the applicable maximum rate of interest is reduced by law or by the
Monetary Board (de-escalation clause).
