Cabanting vs. BPI Family Savings Bank, Inc.

A waiver-of-demand clause in a promissory note is valid and enforceable even in a contract of adhesion, provided the party adhering thereto is not disadvantaged, ignorant, or deprived of equal bargaining power, and such waiver effectively renders prior demand unnecessary to make the obligation due and payable.

Vicente and Lalaine Cabanting purchased a 2002 Mitsubishi Adventure on installment basis from Diamond Motors Corporation on January 14, 2003. To secure the payment of P836,032.00 in monthly installments, they executed a Promissory Note with Chattel Mortgage over the vehicle. On the same day, Diamond Motors assigned its rights to the instrument to BPI Family Savings Bank, Inc. without objection from the petitioners. After allegedly defaulting on three consecutive monthly payments, the petitioners faced suit for replevin and damages.

• The Purchase and Mortgage: On January 14, 2003, petitioners Vicente and Lalaine Cabanting purchased a 2002 Mitsubishi Adventure SS MT from Diamond Motors Corporation on installment basis. They executed a Promissory Note with Chattel Mortgage, jointly and severally obligating themselves to pay P836,032.00 in monthly installments, secured by the motor vehicle. On the same day, Diamond Motors assigned all its rights, title, and interest in the note to BPI Family Savings Bank, Inc., with notice to petitioners.

• The Default and Complaint: BPI Family alleged that petitioners failed to pay three consecutive monthly installments. Despite written demand sent through registered mail, petitioners neither paid the arrears nor surrendered the vehicle. Consequently, BPI Family filed a Complaint for Replevin and damages on October 16, 2003, before the RTC of Manila, praying for payment of the unpaid balance, accrued interest at 36% per annum, 25% attorney's fees, and 25% liquidated damages. BPI Family failed to file a bond for the writ of replevin, which was never issued.

• Defense of Third-Party Assumption: In their Answer, petitioners claimed they sold the vehicle to Victor S. Abalos, who agreed to assume the obligation to pay the remaining installments. Petitioners alleged that Abalos made payments through post-dated personal checks that BPI Family accepted, and that checks for May to October 2003 were honored, but subsequent checks were dishonored. They contended that BPI Family should have sued Abalos instead of them.

• Trial Proceedings and Waiver of Evidence: During trial, BPI Family presented its documentary evidence and dispensed with witness testimony. Petitioners were scheduled to present their witness, Jacobina T. Alcantara, but failed to do so despite the issuance of a subpoena duces tecum ad testificandum. Several hearing dates were cancelled due to the failure of counsel to appear. On February 13, 2008, the RTC granted BPI Family's motion deeming petitioners to have waived their right to present evidence, noting petitioners' absence and failure to prosecute their case. The case was submitted for decision. Petitioners did not move for reconsideration of this order.

• Lower Courts' Decisions: The RTC ruled in favor of BPI Family on April 14, 2008, ordering petitioners to pay P742,022.92 with 24% interest per annum from the filing of the complaint and P20,000.00 in attorney's fees. The Court of Appeals affirmed the liability but modified the award, fixing the principal at P740,155.18, reducing interest to 12% per annum as legal interest, and deleting the attorney's fees award for lack of basis.

• Invalidity of Waiver Clause: Petitioners maintained that the stipulation in the Promissory Note waiving the necessity of notice or demand to make the obligation due and payable should be deemed invalid as it was contained in a contract of adhesion, wherein BPI Family imposed a ready-made form contract leaving petitioners no opportunity to bargain on equal footing.

• Necessity of Prior Demand: Petitioners argued that BPI Family failed to prove prior demand as a condition precedent to the acceleration of the obligation and the filing of the replevin action, contending that without such demand, their liability could not be deemed due and payable.

• Due Process Violation: Petitioners asserted that they were deprived of their right to due process when the trial court deemed them to have waived their right to present evidence, claiming they were not given adequate opportunity to be heard.

• Validity of Contractual Stipulations: Respondent countered that the waiver-of-demand clause was valid and binding, citing precedents establishing that parties may expressly waive demand under Article 1169 of the Civil Code, and that contracts of adhesion are not invalid per se where the adhering party is free to reject the contract.

• Sufficiency of Opportunity to Be Heard: Respondent argued that petitioners were not deprived of due process, having been given several opportunities to present evidence through hearings and pleadings, and their failure to utilize these opportunities constituted a valid waiver of their right to present evidence.

• Waiver of Demand: Whether respondent is entitled to payment of the obligation without proof of prior demand notwithstanding the contractual waiver clause.

• Validity of Contract of Adhesion: Whether the waiver-of-demand clause is invalid as part of a contract of adhesion.

• Due Process: Whether petitioners were deprived of due process when the trial court deemed them to have waived their right to present evidence.

• Waiver of Demand: Prior demand was not necessary to make petitioners' obligation due and payable. The Promissory Note expressly stipulated that in case of failure to pay any sum when due, the entire outstanding sum shall immediately become due and payable without necessity of notice or demand, which petitioners waived. This waiver is sanctioned by Article 1169(1) of the Civil Code allowing parties to expressly waive demand.

• Validity of Contract of Adhesion: The waiver clause was not rendered invalid merely because it appeared in a contract of adhesion. A contract of adhesion is as binding as ordinary contracts where the adhering party is free to reject it entirely; absent proof that petitioners were disadvantaged, uneducated, or inexperienced in dealing with financial institutions, the courts will not step in to protect the supposed weaker party under Article 24 of the Civil Code.

• Due Process: No deprivation of due process occurred. Due process requires merely an opportunity to be heard through hearings or pleadings; petitioners were given several opportunities to present evidence but frittered them away by failing to present their witness despite a subpoena and by not appearing at hearings. The failure to move for reconsideration of the February 13, 2008 order waiving their right to present evidence constituted glaring proof of their propensity to waste opportunities.

• Interest Rates: The stipulated interest rate of 36% per annum and the trial court's award of 24% were unconscionable and against public policy. Pursuant to Nacar v. Gallery Frames and BSP-MB Circular No. 799, Series of 2013, the rate was modified to 12% per annum from the filing of the complaint until June 30, 2013, and 6% per annum from July 1, 2013 until full satisfaction.

• Contracts of Adhesion — A contract of adhesion, wherein one party imposes a ready-made form of contract on the other, is not strictly against the law and is as binding as ordinary contracts, provided the adhering party is free to reject it entirely. The validity of such contracts depends on the peculiar circumstances of each case and the situation of the parties; courts must be vigilant for the protection of a party disadvantaged by moral dependence, ignorance, indigence, mental weakness, tender age, or other handicap under Article 24 of the Civil Code.

• Waiver of Demand — Parties may expressly waive the necessity of demand under Article 1169(1) of the Civil Code. Where such waiver is stipulated in a promissory note, the entire obligation becomes due and payable immediately upon default without prior notice or demand. Furthermore, prior demand is not a condition precedent to an action for a writ of replevin under Section 2, Rule 60 of the Rules of Court.

• Due Process in Civil Cases — Due process is satisfied when a party is given an opportunity to be heard, not only through hearings but through pleadings, allowing one to explain one's side or seek reconsideration of the action or ruling assailed. There is no deprivation of due process when a party, after being given reasonable opportunities to present evidence, fails to do so and is consequently deemed to have waived such right.

• Legal Interest Rates — Interest rates found to be iniquitous, unconscionable, and exorbitant (ranging from 26% to 35%) are void as if there were no express contract thereon. Pursuant to Bangko Sentral ng Pilipinas-Monetary Board Circular No. 799, Series of 2013, the legal rate of interest is 6% per annum effective July 1, 2013. For obligations breached consisting in the payment of a sum of money, the rate shall be 12% per annum from the filing of the complaint until June 30, 2013, and 6% per annum from July 1, 2013 until full satisfaction.

• "A contract of adhesion, wherein one party imposes a ready-made form of contract on the other, is not strictly against the law. A contract of adhesion is as binding as ordinary contracts, the reason being that the party who adheres to the contract is free to reject it entirely." — Articulating the principle that contracts of adhesion are not per se invalid.

• "In case of my/our failure to pay when due and payable, any sum which I/We x x x or any of us may now or in the future owe to the holder of this note x x x then the entire sum outstanding under this note shall immediately become due and payable without the necessity of notice or demand which I/We hereby waive." — The contractual stipulation upheld by the Court as a valid waiver of demand.

• "Time and again, the Court has stressed that there is no deprivation of due process when a party is given an opportunity to be heard, not only through hearings but even through pleadings, so that one may explain one's side or arguments; or an opportunity to seek reconsideration of the action or ruling being assailed." — Defining the scope of due process protection in civil litigation.

• Dia v. St. Ferdinand Memorial Park, Inc., 538 Phil. 944 (2006) — Followed for the proposition that contracts of adhesion are not invalid per se and are binding where the adhering party is free to reject them.

• Agner v. BPI Family Savings Bank, Inc., G.R. No. 182963, June 3, 2013, 697 SCRA 89 — Controlling precedent squarely applicable on the validity of waiver-of-demand clauses in promissory notes with chattel mortgage.

• Bank of the Philippine Islands v. Court of Appeals — Cited for the rule that parties may expressly waive demand under Article 1169 of the Civil Code.

• Navarro v. Escobido — Cited for the principle that prior demand is not a condition precedent to an action for a writ of replevin.

• New Sampaguita Builders Construction, Inc. v. Philippine National Bank, 479 Phil. 483 (2004) — Followed regarding the equitable reduction of unconscionable interest rates ranging from 26% to 35%.

• Nacar v. Gallery Frames, G.R. No. 189871, August 13, 2013, 703 SCRA 439 — Controlling precedent establishing the modified guidelines for legal interest rates pursuant to BSP-MB Circular No. 799.

• Article 1169(1), Civil Code — Provides that demand is not necessary to place an obligor in default when the parties have expressly stipulated that demand is not required. Applied to uphold the waiver-of-demand clause in the promissory note.

• Article 24, Civil Code — Mandates courts to be vigilant for the protection of a party disadvantaged by moral dependence, ignorance, indigence, mental weakness, tender age, or other handicap. Cited as the basis for scrutinizing contracts of adhesion, though found inapplicable due to lack of proof of petitioners' disadvantage.

• Section 2, Rule 60, Rules of Court — Governs the remedy of replevin; cited for the principle that nothing therein requires prior demand on the possessor before filing an action for a writ of replevin.

• BSP-MB Circular No. 799, Series of 2013 — Established the rate of legal interest at 6% per annum effective July 1, 2013, modifying the guidelines in Eastern Shipping Lines.

• Presbitero J. Velasco, Jr. (Chairperson)
• Jose Portugal Perez
• Bienvenido L. Reyes
• Francis H. Jardeleza