PSB v. Castillo (G.R. No. 193178; May 30, 2011)


FACTS: Respondents obtained a loan with face value of P2,500,000.00 and 17% interest rate per annum from petitioner with real estate mortgage over lots they owned in Tondo, Manila.

From the release of the loan, the highest interest was 29% and the lowest was 15.5% per annum. Respondents were notified in writing.They neither gave their confirmation thereto nor did they formally question the changes.However, respondent Castillo sent several letters to petitioner requesting for the reduction of the rates.

Respondents defaulted due to financial constraints.

Thus, petitioner initiated an extrajudicial foreclosure sale of the mortgaged properties which were auctioned. A certificate of sale was then issued and submitted to the Clerk of Court and to the Ex-Officio Sheriff ofManila. The same, sansthe approval of the Executive Judge of the RTC, was registered with the Registry of Deeds.

Respondents failed to redeem the property.

Respondents filed a case before the RTC. After trial, the RTC decided that the questioned increases of the interest were unreasonable, excessive, and arbitrary; that Petitioner should refund Respondents of the amount of interest collected in excess of 17% per annum; that the Extrajudicial Foreclosure conducted by the defendants are voidab initio;that the Register of Deeds is ordered to cancel the corresponding annotations at the back of TCTs; that defendant is to pay plaintiffs moral and exemplary damages, and attorneys fees.

Petitioner filed an MR.The RTC partially granted the motion by modifying the interest rate from 17% to 24% per annum.

The case was appealed to the CA which modified the decision of the RTC ordering PSB to refund to the plaintiffs the amount of interest collected in excess of 17% per annum; declaring the Extrajudicial Foreclosure conducted by the defendants as valid; and modifying the damages awarded to plaintiff.

ISSUE: Did the CA err in (1) declaring that the modifications in the interest rates are unreasonable; and (2) sustaining the award of damages and attorneys fees?HELD: Here, the increase or decrease of interest rates hinge solely on the discretion of petitioner, violated the principle of mutuality of contracts, and is unconscionable; therefore void.Any stipulation regarding the validity or compliance of the contract left solely to the will of one of the parties is likewise invalid.

Petitioner cannot claim that respondent recognized the legality of the changes. Respondents exhibits readily shows that the conformity letter signed by them pertain only to the amendment of the interest rate review period from 90 days to 30 days.This is separate from the modification of the interest rate itself. Moreover, respondents assent cannot be implied from their lack of response to the memos sent by petitioner.No one receiving a proposal to change a contract is obliged to answer the proposal; assent is therefore not implied.

Likewise, it cannot be said that respondents recognized the rates legality when it requested for a reduction its reduction. This does not translate into consent. Further, the letters were actually questioning the propriety of the interest rates.


Here, we are not sufficiently convinced that fraud, bad faith, or wanton disregard of contractual obligations can be imputed to petitioner simply because it unilaterally imposed the changes in interest rates. Thus, the award of moral and exemplary damages is unwarranted.In the same vein, respondents cannot recover attorneys fees and litigation expenses.

As regards the award for refund to respondents of their interest payments in excess of 17% per annum, the same should include legal interest.We have held that when an obligation is breached, and it consists in the payment of a sum of money, the interest on the amount of damages shall be at the rate of 12%per annum, reckoned from the time of the filing of the complaint.