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  • Sps. Juico vs. China Banking Corporation

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    Vian O.
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    The spouses obtained loans from China Banking Corporation and used their property as collateral. When they failed to repay over P19 million in principal, interest, penalties and fees, the property was auctioned but did not fully cover the amount owed. The RTC and CA ruled that the spouses must pay the remaining balance. The Supreme Court held that the escalation clause allowing increased interest rates without the spouses' consent was void. Interest rates above the initial 15% and penalty charges exceeding 1% per month were invalid. The spouses' total principal was P10 million but increased to over P19 million in only 16 months due to the unilateral interest rate hikes, which were not properly communicated or agreed to.

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    The spouses obtained loans from China Banking Corporation and used their property as collateral. When they failed to repay over P19 million in principal, interest, penalties and fees, the property was auctioned but did not fully cover the amount owed. The RTC and CA ruled that the spouses must pay the remaining balance. The Supreme Court held that the escalation clause allowing increased interest rates without the spouses' consent was void. Interest rates above the initial 15% and penalty charges exceeding 1% per month were invalid. The spouses' total principal was P10 million but increased to over P19 million in only 16 months due to the unilateral interest rate hikes, which were not properly communicated or agreed to.

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    © All Rights Reserved
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    222 views1 page

    Sps. Juico vs. China Banking Corporation

    Uploaded by

    Vian O.
    The spouses obtained loans from China Banking Corporation and used their property as collateral. When they failed to repay over P19 million in principal, interest, penalties and fees, the property was auctioned but did not fully cover the amount owed. The RTC and CA ruled that the spouses must pay the remaining balance. The Supreme Court held that the escalation clause allowing increased interest rates without the spouses' consent was void. Interest rates above the initial 15% and penalty charges exceeding 1% per month were invalid. The spouses' total principal was P10 million but increased to over P19 million in only 16 months due to the unilateral interest rate hikes, which were not properly communicated or agreed to.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as docx, pdf, or txt
    of 1

    SPS. JUICO VS.

    CHINA BANKING CORPORATION

    G.R. NO. 187678

    APRIL 10, 2013

    FACTS:

    Petitioner-spouses obtained P6, 216, 000 and P4, 139, 000 loan from respondent as evidenced by 2
    promissory notes and as security for the same, the spouses mortgaged their property in Quezon City.
    When petitioners failed to pay P19, 201, 776.23 representing the principal, interests, penalties and
    attorney’s fees after demand from respondent, the mortgaged property was auctioned and sold to
    respondent for P10, 300, 000. Respondent then demanded payment of the remaining P8, 901, 776.63
    but the same was unheeded, prompting the collection suit in the trial court.

    RTC-Makati ordered petitioners to pay P8, 901, 776.63 plus legal interest. CA affirmed the decision.
    Hence, the petition before the Supreme Court.

    ISSUE:
    Whether petitioner-spouses is liable to pay the interest rate as provided in the escalation clause of the
    agreement pursuant to Article 1308 and Article 1956 of the Civil Code

    RULING:
    No. We hold that the escalation clause is still void because it grants respondent the power to impose an
    increased rate of interest without a written notice to petitioners and their written consent.
    Respondent’s monthly telephone calls to petitioners advising them of the prevailing interest rates would
    not suffice. A detailed billing statement based on the new imposed interest with corresponding
    computation of the total debt should have been provided by the respondent to enable petitioners to
    make an informed decision. An appropriate form must also be signed by the petitioners to indicate their
    conformity to the new rates. Compliance with these requisites is essential to preserve the mutuality of
    contracts. For indeed, one-sided impositions do not have the force of law between the parties, because
    such impositions are not based on the parties’ essential equality.

    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. Hence, we consider as invalid
    the interest rates in excess of 15%, the rate charged for the first year.

    Based on the August 29, 2000 demand letter of China Bank, petitioners’ total principal obligation under
    the two promissory notes which they failed to settle is ₱10,355,000. However, due to China Bank’s
    unilateral increases in the interest rates from 15% to as high as 24.50% and penalty charge of 1/10 of 1%
    per day or 36.5% per annum for the period November 4, 1999 to February 23, 2001, petitioners’ balance
    ballooned to ₱19,201,776.63. Note that the original amount of principal loan almost doubled in only 16
    months. The Court also finds the penalty charges imposed excessive and arbitrary, hence the same is
    hereby reduced to 1% per month or 12% per annum.

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