Adhesion Contracts a.
CA found it necessary to pass upon the issues of PNB on failure to specify the
Bersamin J
Sps Manalo applied for credit and was granted by PNB. PNB unilaterally increased the
rates multiple times until the sps were in default. Property of the sps were foreclosed. The
sps assails the foreclosure, and raising for the first time on appeal the theory of mutuality
and contract of adhesion. RTC denied claim, CA affirmed but modified, agreeing on the
theory on the contract of adhesion. SC affirmed CA modifying the rates pursuant to the
cases Eastern Shipping and Nacar v Gallery Frames.
DOCTRINE
 A contract of adhesion is seen in contracts where no mutuality exists hence any
obscurity shall be construed against the party who prepared the contract since the
latter is presumed the stronger party to the agreement and one who caused the
obscurity.
FACTS
1. Respondent Sps Enrique and Rosalnida Manalo applied for All-purpose Credit
facility amounting to P1,000,000 with PNB to finance construction of their house.
Upon granted, they executed a Real Estate Mortgage IFO PNB over the property.
Said credit facility was renewed and increased together with supplemental and
amendment to the existing REM over the property. Additional security was registered
over the name of the sps children.
a. The agreement was that the sps would make monthly payment on interest.
b. Important in this series of events is that PNB unilaterally increased the interest
rates without prior notice to the spouses.
2. However it was claimed that the last payment was made on December 1997 hence
prompting the PNB to send a demand letter on overdue account. Sps failed to settle,
thus PNB foreclosed the mortgage with the PNB as the highest bidder.
3. More than a year after the certificate of sale issued to PNB, the Respondent Sps
Manalo filed this action for nullification of foreclosure proceedings and damages
claiming that they had obtained a loan for 1 Million from Benito Tan upon
arrangements made by Antoninus Yuvienco (GM of PNB Bangkal Branch where they
had transacted) and had been assured that the 1 Million would be used to update
their account and that the loan would be restructured and converted to a long
term loan.
a. However they were surprised to learn that they were declared instead in
default and their property were mortgage then sold. PNB was claimed to have
not complied with Section 3 of Act 3135 (notice requirements).
4. RTC ruled IFO of PNB. Important in said decision is that the Sps Manalo’s Contract
of adhesion argument was unfounded because they still accepted the terms and
conditions of the credit agreement with PNB and had exerted efforts to pay their
obligation hence they were estopped from questioning the interest rates unilaterally
imposed by PNB.
5. CA affirmed RTC insofar as the validity of the foreclosure proceedings but
modified the liability of interest directing the RTC to recomputed the amount of
interest.
applicable interest and the lack of mutuality in the execution of the credit
agreements. By Article 1956 of CC – PNB’s failure to indicate rate of interest
would not excuse the sps from their contract.
b. Still the CA ruled that because the credit agreements were contracts of
adhesion, the inadvertence of PNB to specify the interest rate should be
construed against it.
c. PNB cannot unilaterally increase the rate of interest especially since the
credit agreements required prior notice before an increase could take effect.
6. MR was denied hence this petition.
ISSUE with HOLDING
Procedural: That the claim of validity of interest rates and the lack of mutuality were
raised for the first time on appeal – NO – issues were impliedly raised during the trial and
PNB’s lack of vigilance on objecting amounts to estoppel.
Substantive
W/N said contract is in the nature of a contract of adhesion which is construed against the
party making the contract – YES
 Looking at the credit agreement, it stipulated that the loan would be subjected to
interest at a rate determined by the bank to be its prime plus applicable spread,
prebailing at the current month. Such unilateral determination amounts to a
contravention on the principle of mutuality of contracts in Article 1308 of CC.
 A contract of adhesion is seen in contracts where no mutuality exists hence any
obscurity shall be construed against the party who prepared the contract since
the latter is presumed the stronger party to the agreement and one who caused the
obscurity.
o PNB should thus suffer the consequences for failing to indicate the rates of
interest.
o PNB also cannot justify the increases raising merely the fact that the sps paid
interests without protest (and renewed the loan many times). Citing PNB v CA –
borrower is not estopped from assailing the unilateral increase in the interest
made by the lender since no one who receives a proposal to change a contract,
to which he is a party, is obliged to answer the same and said party’s silence
cannot be construed as an acceptance thereof.
 Also the agreements themselves expressly provided that prior notice is
necessary before an increase in rates, hence the varying interests by PNB are null
and void and should have an interest rate instead of 12% per annum from default
pursuant to Eastern Shipping Lines v CA. Also pursuant to said case, the amount
refunded and interest thereon should be computed from finality of judgment until full
refund made.
o But a correction of rates was applied in Nacar v Gallery Frames with MB
Circular 799 applying prospectively (6% not 12%) hence the application of the
rates should be as follows:
1. Any amount to be refunded to the Spouses Manalo shall bear interest of 12% per
annum computed from March 28, 2006, the date of the promulgation of the CA
decision, until June 30, 2013; and 6% per annum computed from July 1, 2013
until finality of this decision; and
2. The amount to be refunded and its accrued interest shall earn interest of 6% per
annum until full refund.
1
DISPOSITIVE PORTION
Affirms and modifies