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Sps. Juico vs. China Banking Corporation
Sps. Juico vs. China Banking Corporation
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.