Republic of the
Supreme Court
PHILIPPINE NATIONAL BANK,
Petitioner, -
versus - SPOUSES AGUSTIN and PILAR ROCAMORA, Respondents. |
G.R. No. 164549
Present: *YNARES-SANTIAGO, **CARPIO-MORALES, Acting Chairperson, BRION,
DEL CASTILLO, and
ABAD, JJ. Promulgated: September
18, 2009 |
|
|||
x ------------------------------------------------------------------------------------------x
|
|||||
|
|
||||
|
D E C I S I O N
|
||||
|
|
||||
|
BRION, J.: |
|
|||
We resolve in this
petition for review on certiorari[1]
the legal propriety of the deficiency judgment that the petitioner Philippine
National Bank (PNB) seeks against the respondents – the spouses Agustin
and Pilar Rocamora (spouses Rocamora).
THE FACTUAL ANTECEDENTS
On P100,000.00 under the Cottage Industry Guarantee
and Loan Fund (CIGLF). The loan
was payable in five years, under the following terms: P35,000 payable
semi-annually and P65,000 payable annually. In addition to the principal amount, the
spouses Rocamora agreed to pay interest at the rate of 12% per annum, plus a
penalty fee of 5% per annum in case of delayed payments. The spouses Rocamora signed two promissory
notes[2]
evidencing the loan.
To secure their loan obligations, the spouses Rocamora
executed two mortgages: a real estate mortgage[3]
over a property covered by Transfer Certificate of Title No. 7160 in the amount
of P10,000, and a chattel mortgage[4]
over various machineries in the amount of P25,000. Payment of the remaining P65,000 was
under the CIGLF guarantee, with the spouses Rocamora paying the required
guarantee fee.
Both the promissory note and the real estate mortgage deed
contained an escalation clause that allowed PNB to increase the 12%
interest rate at anytime without notice, within the limits allowed by law. The pertinent portion of the promissory note
stated:
For value
received, we, jointly and severally, promise to pay to the ORDER of the
PHILIPPINE NATIONAL BANK, at its office in Pto. Princesa City, Philippines, the
sum of xxx together with interest thereon at the rate of 12% per annum until
paid, which interest rate the Bank may at any time, without notice, raise
within the limits allowed by law, and I/we also agree to pay jointly and
severally, 5% per annum penalty charge, by way of liquidated damages, should
this note be unpaid or is not renewed on due date. [Emphasis supplied.]
While paragraph (k) of the real estate mortgage deed
provided:
(k) INCREASE OF INTEREST RATE
The MORTGAGEE reserves the right
to increase the interest rate charged on the obligation secured by this
mortgage including any amount which it may have advanced within the limits
allowed by law at any time depending on whatever policy it may adopt in the
future; Provided, that the interest rate on the accommodation/s secured by the
mortgage shall be correspondingly decreased in the event that the applicable
maximum interest rate is reduced by law or by the Monetary Board. In either case, the adjustment in the
interest rate agreed upon shall take effect on the effectivity date of the
increase or decrease in that maximum interest rate. [Emphasis supplied.]
The spouses
Rocamora only paid a total of P32,383.65[5]
on the loan. Hence, the PNB commenced
foreclosure proceedings in August and October 1990. The foreclosure of the
mortgaged properties yielded P75,500.00 as total proceeds.
After the
foreclosure, PNB found that the recovered proceeds and the amounts the spouses
Rocamora previously paid were not sufficient to satisfy the loan
obligations. PNB thus filed, on P206,297.47, broken down as follows:
|
Principal………………………………………............. |
|
|
Total interest due up to |
51,229.35 |
|
Total penalty due up to |
75,583.47 |
|
TOTAL AMOUNT DUE AND PAYABLE |
|
The PNB
claimed that the outstanding principal balance as of foreclosure date (P79,484.65,
plus interest and penalties, for a total due and demandable obligation of P250,812.10. Allegedly, after deducting the P75,500
proceeds of the foreclosure sale, the spouses Rocamora still owed the bank P206,297.47.
The spouses
Rocamora refused to pay the amount claimed as deficiency. They alleged that the PNB “practically
created” the deficiency by (a) increasing the interest rates from 12% to 42%
per annum, and (b) failing to immediately foreclose the mortgage pursuant to
Presidential Decree No. 385 (PD 385 or the Mandatory Foreclosure Law) to
prevent the interest and penalty charges from accruing.
The RTC
dismissed PNB’s complaint in its decision dated
Except for
modifications in the awarded damages, the Court of Appeals (CA) decision
of P206,297.47 deficiency claim; the bank’s
testimonial and documentary evidence did not support the deficiency claim that,
moreover, was computed based on bloated interest rates. The CA maintained these rulings despite the
motion for reconsideration PNB filed;[11]
hence, PNB’s present recourse to this Court.
THE PETITION
In
insisting that it is entitled to a deficiency judgment of P206,297.47,
PNB argues that the RTC and the CA erred in invalidating the escalation clause
in the parties’ agreement because it fully complied with the requirements for a
valid escalation clause under this Court’s following pronouncement in Banco Filipino Savings and Mortgage Bank
v. Navarro:[12]
It is now clear that from March 17, 1980 [the
effectivity date of Presidential Decree No. 1684 allowing the increase in the
stipulated rate of interest], escalation clauses, to be valid, should
specifically provide: (1) that there can be an increase in interest if
increased by law or by the Monetary Board; and (2) in order for such
stipulation to be valid, it must include a provision for reduction of the
stipulated interest "in the event that the applicable maximum rate of
interest is reduced by law or by the Monetary Board.” [Emphasis supplied.]
The PNB posits that the presence of a
“de-escalation clause” (referring to the second of the above requirements, which
was designed to prevent a resulting one-sided situation on the part of the
lender-bank) in the real estate mortgage deed rules out any violation of the principle
of mutuality of contracts.
The
PNB also contends that it did not unreasonably delay the institution of
foreclosure proceedings by acting three years after the spouses Rocamora
defaulted on their obligation. Under Article
1142 of the Civil Code, a mortgage action prescribes in 10 years; the same
10-year period is provided in Article 1144 (1) for actions based on written
contracts. Thus, the PNB alleges that it
had 10 years from 1987 (the time when the spouses Rocamora allegedly defaulted
from paying their loan obligation) to institute the foreclosure
proceedings. Its decision to foreclose
in 1990 – three years after the default – should not be taken against it,
especially since the delay was prompted by the bank’s sincere desire to assist
the spouses Rocamora.
Additionally, the PNB
claims that the decision to foreclose is entirely the bank’s prerogative. The
provisions of PD 385 should not be read as a limitation affecting the right of
banks to foreclose within the 10-year period granted under the Civil Code. While PD 385 requires government banks to
immediately foreclose mortgages under specified conditions, the provision does
not limit the period within which the bank can foreclose; to hold otherwise
would be contrary to the stated objectives of PD 385 to enhance the resources
of government financial institutions and to facilitate the financing of
essential development programs and projects.
On
the basis of these arguments, the PNB contests the damages awarded to the
spouses Rocamora, as the PNB had no malice, nor any furtive design: when it
increased the interest rates pursuant to the escalation clause; when it decided
to foreclose the mortgages only in 1990; and when it sought to claim the
deficiency. PNB claimed all these to be
proper acts made in the exercise of its rights.
Opposing
the PNB’s arguments, the spouses Rocamora allege the following:
a.
The PNB failed to sufficiently and satisfactorily prove the
amount of P250,812.10, claimed to be the total obligation due at the
time of foreclosure, against which the proceeds of the foreclosure sale (P75,500.00)
were deducted and which became the basis of the bank’s deficiency claim (P206,297.47);
b.
The “ballooning” of the spouses Rocamora’s loan obligation
was the PNB’s own doing when it increased the interest rates and failed to immediately foreclose the
mortgages;
c.
The PNB’s unilateral increase of interest rates violated the
principle of mutuality of contracts;
d.
The PNB failed to comply with the immediate and mandatory
foreclosure required under PD 385; and
e.
The PNB failed to call on the CIGLF which secured the payment
of P65,000.00 of the loan.
THE COURT’S RULING
We
find no basis to reverse the CA’s decision and, consequently, deny the
petition.
Proof of Deficiency
Claim Necessary
The
foreclosure of chattel and real estate mortgages is governed by Act Nos. 1508
and 3135, respectively. Although both
laws do not contain a provision expressly or impliedly authorizing the
mortgagee to recover the deficiency resulting after the foreclosure proceeds
are deducted from the principal obligation, the Court has construed the laws’
silence as a grant to the mortgagee of the right to maintain an action for the
deficiency; the mortgages are given merely as security, not as settlement or
satisfaction of the indebtedness.[13]
As in
any claim for payment of money, a mortgagee must be able to prove the basis for
the deficiency judgment it seeks. The
right of the mortgagee to pursue the debtor arises only when the proceeds of
the foreclosure sale are ascertained to be insufficient to cover the obligation
and the other costs at the time of the sale.[14] Thus, the amount of the obligation prior to
foreclosure and the proceeds of the foreclosure are material in a claim for
deficiency.
In this
case, both the RTC and the CA found that PNB failed to prove the claimed
deficiency; its own testimonial and documentary evidence in fact contradicted
one another. The PNB alleged that the spouses Rocamora’s obligation at the time
of foreclosure (September 19, 1990) amounted to P250,812.10, yet its own
documentary evidence[15]
showed that, as of that date, the total obligation was only P206,664.34;
the PNB’s own witness, Mr. Reynaldo Caso, testified that the amount due from
the spouses Rocamora was only P206,664.34.
At any
rate, whether the total obligation due at the time of foreclosure was P250,812.10
as PNB insisted or P206,664.34 as its own record disclosed, our own
computation of the amounts involved does not add up to the P206,297.47 PNB
claimed as deficiency.[16] We find it significant that PNB has been
consistently unable to provide a detailed and credible accounting of the
claimed deficiency. What appears clear is
that after adding up the spouses Rocamora’s partial payments and the proceeds
of the foreclosure, the PNB has already received a total of P107,883.68
as payment for the spouses Rocamora’s P100,000.00 loan; the claimed P206,297.47
deficiency consisted mainly of interests and penalty charges (or about 61.5% of
the amount claimed). The spouses
Rocamora posit that their loan would not have bloated to more than double the
original amount if PNB had not increased the interest rates and had it
immediately foreclosed the mortgages.
Escalation clauses do not
authorize the unilateral increase of interest rates
Escalation
clauses are valid and do not contravene public policy.[17]
These clauses are common in credit agreements as means of maintaining fiscal
stability and retaining the value of money on long-term contracts. To avoid any resulting one-sided situation
that escalation clauses may bring, we required in Banco Filipino[18]
the inclusion in the parties’ agreement of a de-escalation clause that would
authorize a reduction in the interest rates corresponding to downward changes
made by law or by the Monetary Board.
The
validity of escalation clauses notwithstanding, we cautioned that these clauses
do not give creditors the unbridled right to adjust interest rates unilaterally.[19] As we said in the same Banco Filipino
case, any increase in the rate of interest made pursuant to an escalation
clause must be the result of an agreement between the parties.[20] The minds of all the parties must meet on the
proposed modification as this modification affects an important aspect of the
agreement. There can be no contract in the true sense in the absence of the
element of an agreement, i.e., the
parties’ mutual consent. Thus, any
change must be mutually agreed upon, otherwise, the change carries no binding
effect.[21]
A stipulation on the validity or compliance with the contract that is left
solely to the will of one of the parties is void; the stipulation goes against
the principle of mutuality of contract under Article 1308 of the Civil Code.[22] As correctly found by the appellate court, even
with a de-escalation clause, no matter how elaborately worded, an unconsented
increase in interest rates is ineffective if it transgresses the principle of
mutuality of contracts.
Precisely
for this reason, we struck down in several cases – many of them involving PNB –
the increase of interest rates unilaterally imposed by creditors. In the 1991 case of PNB v. CA and Ambrosio
Padilla,[23]
we declared:
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, even assuming that the P1.8 million loan
agreement between the PNB and private respondent gave the PNB a license
(although in fact there was none) to increase the interest rate at will during
the term of the loan, that license would have been null and void for being
violative of the principle of mutuality essential in contracts. It would
have invested the loan agreement with the character of a contract of adhesion,
where the parties do not bargain on equal footing, the weaker party’s (the
debtor) participation being reduced to the alternative “to take it or leave
it.” Such a contract is a veritable trap for the weaker party whom the courts
of justice must protect against abuse and imposition.
We repeated this rule in the 1994
case of PNB v. CA and Jayme-Fernandez[24]
and the 1996 case of PNB v. CA and Spouses Basco. [25] Taking no heed of these rulings, the
escalation clause PNB used in the present case to justify the increased
interest rates is no different from the escalation clause assailed in the 1996 PNB
case;[26] in both, the interest rates were
increased from the agreed 12% per annum rate to 42%. We held:
PNB successively increased the stipulated interest so that what was
originally 12% per annum became, after only two years, 42%. In declaring the increases invalid, we held:
We cannot countenance petitioner bank's posturing that the escalation
clause at bench gives it unbridled right to unilaterally upwardly adjust
the interest on private respondents' loan.
That would completely take away from private respondents the
right to assent to an important modification in their agreement, and would
negate the element of mutuality in contracts.
x x x x
In this case no attempt was made by PNB to secure the conformity of
private respondents to the successive increases in the interest rate. Private respondents' assent to the increases
cannot be implied from their lack of response to the letters sent by PNB,
informing them of the increases. For as
stated in one case, no one receiving a proposal to change a contract is obliged to answer
the proposal.[27] [Emphasis supplied.]
On the
strength of this ruling, PNB’s argument – that the spouses Rocamora’s failure
to contest the increased interest rates that were purportedly reflected in the
statements of account and the demand letters sent by the bank amounted to their
implied acceptance of the increase – should likewise fail.
Evidently,
PNB’s failure to secure the spouses Rocamora’s consent to the increased
interest rates prompted the lower courts to declare excessive and illegal the
interest rates imposed. To go around this
lower court finding, PNB alleges that the P206,297.47 deficiency claim
was computed using only the original 12% per annum interest rate. We find this unlikely. Our examination of PNB’s own ledgers,
included in the records of the case, clearly indicates that PNB imposed
interest rates higher than the agreed 12% per annum rate.[28] This confirmatory finding, albeit based
solely on ledgers found in the records, reinforces the application in this case
of the rule that findings of the RTC, when affirmed by the CA, are binding upon
this Court.
PD 385 mandates
immediate foreclosure of collaterals and securities when the arrearages amount
to at least 20% of the
total outstanding
obligation
Another
reason that militates against the deficiency claim is PNB’s own admitted delay
in instituting the foreclosure proceedings.[29]
Section
1 of PD 385 states:
Section 1. It
shall be mandatory for government financial institutions, after the lapse
of sixty (60) days from the issuance of this Decree, to foreclose the
collaterals and/or securities for any loan, credit, accommodation, and/or
guarantees granted by them whenever the arrearages on such account, including
accrued interest and other charges, amount to at least twenty percent (20%) of
the total outstanding obligations, including interest and other charges, as
appearing in the books of account and/or related records of the financial
institution concerned. This shall be without prejudice to the exercise by the
government financial institutions of such rights and/or remedies available to
them under their respective contracts with their debtors, including the right
to foreclose on loans, credits, accommodations and/or guarantees on which the
arrearages are less than twenty percent (20%). [Emphasis supplied.]
Under PD 385, government
financial institutions – which was PNB’s status prior to its full privatization
in 1996 – are mandated to immediately foreclose the securities
given for any loan when the arrearages amount to at least 20% of the total
outstanding obligation.[30]
As stated in the narrated
facts, PNB commenced foreclosure proceedings in 1990 or three years after the
spouses defaulted on their obligation in 1987. On this factual premise, the PNB
now insists as a legal argument that its right to foreclose should not be
affected by the mandatory tenor of PD 385, since it exercised its right still
within the 10-year prescription period allowed under Articles 1142 and 1144 (1)
of the Civil Code.
PNB’s argument completely
misses the point. The issue before us is
the effect of the delay in commencing foreclosure proceedings on PNB’s right
to recover the deficiency, not on its right to foreclose. The delay in commencing foreclosure
proceedings bears a significant function in the deficiency amount being
claimed, as the amount undoubtedly includes interest and penalty charges which
accrued during the period covered by the delay.
The depreciation of the mortgaged properties during the period of delay
must also be factored in, as this affects the proceeds that the mortgagee can
recover in the foreclosure sale, which in turn affects its deficiency
claim. There was also, in this
case, the four-year gap between the
foreclosure proceedings and the filing of the complaint for deficiency judgment
– during which time interest, whether at the 12% per annum rate or higher, and
penalty charges also accrued. For the
Court to grant the PNB’s deficiency claim would be to award it for its delay
and its undisputed disregard of PD 385.
The
Award for Damages
Moral damages are not recoverable
simply because a contract has been breached. They are recoverable only if the
defendant acted fraudulently or in bad faith or in wanton disregard of his
contractual obligations.[31] The breach must be wanton, reckless, malicious
or in bad faith, and oppressive or abusive. Likewise, a breach of contract may give rise to
exemplary damages only if the guilty party acted in a wanton, fraudulent,
reckless, oppressive or malevolent manner.[32]
We are not sufficiently convinced that PNB acted
fraudulently, in bad faith, or in wanton disregard of its contractual
obligations, simply because it increased the interest rates and delayed the foreclosure
of the mortgages. Bad faith cannot be imputed simply because the defendant
acted with bad judgment or with attendant negligence. Bad faith is more than these; it pertains to
a dishonest purpose, to some moral obliquity, or to the conscious doing of a
wrong, a breach of a known duty attributable to a motive, interest or ill will
that partakes of the nature of fraud.[33] Proof of actions of this character is
undisputably lacking in this case. Consequently, we do not find the spouses Rocamora entitled to
an award of moral and exemplary damages.
Under these circumstances, neither should they recover attorney’s fees
and litigation expense.[34] These awards are accordingly deleted.
WHEREFORE, we DENY
the petitioner’s petition for review on certiorari, and MODIFY the
SO ORDERED.
ARTURO
D. BRION
Associate
Justice
WE CONCUR:
|
CONCHITA
CARPIO-MORALES Associate
Justice Acting Chairperson |
|
|
CONSUELO
YNARES-SANTIAGO Associate Justice |
MARIANO C. Associate
Justice |
ROBERTO
A. ABAD
Associate
Justice
ATTESTATION
I attest that the conclusions in the
above Decision had been reached in consultation before the case was assigned to
the writer of the opinion of the Court’s Division.
CONCHITA CARPIO-MORALES
Associate Justice
Acting
Chairperson
CERTIFICATION
REYNATO S. PUNO
Chief Justice
* Designated additional Member of the Second Division per Special
Order No. 691 dated
** Designated Acting Chairperson of the Second Division per Special
Order No. 690 dated
[1] Filed under Rule 45 of the Rules of Court; rollo, pp. 22-48.
[2] Promissory Note (PN) Nos. CIGLF 01/81 and 02/81; id., pp. 60-61.
[3]
[4]
[5] Listed below are the payments made by the spouses
Rocamora:
|
|
Date of Payment |
Amount Paid |
|
On
PN No. CIGLF 01/81for the |
|
|
|
|
7,176.00 |
|
|
On
PN No. CIGLF 02/81 for the |
|
18,031.65 |
|
TOTAL |
|
|
[6] Docketed as Civil Case No. 2675.
[7] Statement of Account as of
[8]
[9] The dispositive part of the RTC decision
of
WHEREFORE, premises considered, the instant complaint is hereby dismissed for lack of merit and finding the counterclaim meritorious, the [PNB] is ordered to pay the [spouses Rocamora] Two Hundred Thousand Pesos (P200,000.00) as damages for breach of contract and for acting contrary to law, justice, and morals, One Hundred Thousand Pesos (P100,000.00) as exemplary damages, One Hundred Thousand (P100,000.00) as moral damages and Fifty Thousand Pesos (P50,000.00) as attorney’s fees; and to pay the costs of suit.
[10] Rollo, pp. 10-16; the dispositive
part of the CA Decision of
WHEREFORE, in view of the foregoing
discussions, the assailed decision is hereby MODIFIED as follows:
1. The complaint is hereby ordered DISMISSED;
2. [PNB is] ordered to pay the [spouses
Rocamora] the sum of Thirty Thousand Pesos (P30,000.00) as moral
damages; Thirty Thousand Pesos as exemplary damages (P30,000.00); and
Fifty Thousand Pesos (P50,000.00) as attorney’s fees;
3.Cost of suit.
[11] CA Resolution dated
[12] G.R. No. L-46591,
[13] We also stated that when the law intends to foreclose the right of a creditor to sue for any deficiency resulting from a foreclosure of security given to guarantee an obligation, it so expressly provides such as with respect to the sale of the thing pledged (see Article 2115 of the Civil Code) and foreclosure of chattel mortgage on personal property sold on installment basis (see Article 1484, par. 3 of the Civil Code); Superlines Transportation Company v. ICC Leasing and Financing Corporation, G.R. No. 150673, February 28, 2003, 398 SCRA 508.
[14] See PNB v. CA, G.R. No. 121739,
[15] Statement of Account dated
[16] P250,812.10 less P75,500
(proceeds of foreclosure) is P175,312.10, while P206,664.34 less P75,500
is P131,164.34.
[17] Spouses Almeda v. CA and PNB, G.R.
No. 113412,
[18] Supra note 12.
[19] Ibid.
[20] PNB v. CA and Spouses Basco,
G.R. No. 109563,
[21] Floirendo v. Metropolitan Bank and Trust Company, G.R. No. 148325, September 3, 2007, 532 SCRA 43.
[22] The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.
[23] G.R. No. 88880,
[24] G.R.
No. 107569,
[25] Supra note 20.
[26] The pertinent portion of the promissory note in the 1996 PNB case read:
For value received, I/we, [private respondents] jointly and
severally promise to pay to the ORDER of the PHILIPPINE NATIONAL BANK, at its
office in San Jose City, Philippines, the sum of FIFTEEN THOUSAND ONLY
(P15,000.00), Philippine Currency, together with interest thereon at the rate
of 12 % per annum until paid, which interest rate the Bank may at any
time without notice, raise within the limits allowed by law, and I/we also
agree to pay jointly and severally ____% per annum penalty charge, by way of
liquidated damages should this note be unpaid or is not renewed on due dated.
[27] Ibid.
[28] Records, pp. 295-296.
[29]
[30] Records reveal that PNB admitted that the outstanding obligation of the spouses Rocamora before foreclosure was beyond the 20% requirement in PD 385; see records, pp. 209 and 359.
[31] CIVIL CODE, Article 2220.
[32] Pilipinas Shell Petroleum Corporation v. John Bordman Ltd. of Iloilo, Inc., G.R. No. 159831, October 14, 2005, 473 SCRA 151.
[33] Francisco v. Ferrer, G.R. No. 142029, February 28, 2001, 353 SCRA 261; Cojuangco, Jr. v. CA, G.R. No. 119398, July 2, 1999, 309 SCRA 602.
[34] Equitable PCI Bank v. Ng Sheung Ngor, G.R. No. 171545, December 19, 2007, 541 SCRA 223.