In Cabanting v. BPI Family Savings Bank, the Supreme Court affirmed the enforceability of a waiver of demand clause in a promissory note. The Court held that when a borrower expressly waives the necessity of prior demand in a promissory note, the lender is not required to make a demand before filing a lawsuit to recover the debt. This ruling reinforces the principle that contracts are binding and that parties are expected to fulfill their obligations as agreed upon, especially when they have knowingly and voluntarily waived certain rights.

When is a Waiver Really a Waiver? Examining Contractual Obligations and Due Process

The case revolves around Vicente and Lalaine Cabanting who purchased a vehicle from Diamond Motors Corporation, executing a Promissory Note with Chattel Mortgage to finance the purchase. This note was subsequently assigned to BPI Family Savings Bank, Inc. (BPI Family). The Cabantings defaulted on their payments, leading BPI Family to file a suit for replevin and damages. The central legal question is whether BPI Family was required to make a prior demand for payment or surrender of the vehicle before filing the lawsuit, given a waiver clause in the promissory note.

The Cabantings argued that BPI Family should have first demanded payment or surrender of the vehicle before filing the case. They also contended that they were deprived of due process when the trial court deemed they had waived their right to present evidence. The Supreme Court, however, disagreed. The Court emphasized the presence of an explicit waiver in the Promissory Note with Chattel Mortgage, which stated that in case of failure to pay, “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 Court invoked the principle of contractual autonomy, noting that parties are free to stipulate the terms of their agreements, provided they are not contrary to law, morals, good customs, public order, or public policy. The waiver of demand was a clear and unambiguous term in the contract, and the Cabantings were bound by it.

The Supreme Court referenced Dio v. St. Ferdinand Memorial Park, Inc. to address the Cabantings’ argument that the promissory note was a contract of adhesion. The Court reiterated that contracts of adhesion are not inherently invalid. It stated:

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.

The Court further clarified that the validity of such contracts depends on the circumstances and the relative positions of the parties. In this case, there was no evidence that the Cabantings were disadvantaged or lacked the capacity to understand the terms of the contract. Therefore, the waiver clause was deemed valid and enforceable.

Building on this principle, the Court cited Agner v. BPI Family Savings Bank, Inc., a similar case where the borrower had waived the need for notice and demand. The Court reaffirmed that such waivers are legal and binding, citing Article 1169 of the Civil Code, which allows parties to waive demand. The provision states:

One incurs in delay or is in default from the time the obligor demands the fulfillment of the obligation from the obligee. However, the law expressly provides that demand is not necessary under certain circumstances, and one of these circumstances is when the parties expressly waive demand.

Moreover, the Court addressed the issue of due process, finding no merit in the Cabantings’ claim that they were deprived of their right to present evidence. The records showed that the Cabantings were given multiple opportunities to present their case but failed to do so. They also did not move for reconsideration of the order deeming their right to present evidence waived. The Court emphasized that due process requires only that a party be given an opportunity to be heard, not that they actually avail themselves of that opportunity.

Finally, the Supreme Court addressed the interest rate charged by BPI Family, finding it to be excessive and unconscionable. Citing New Sampaguita Builders Construction, Inc. (NSBCI) v. Philippine National Bank, the Court held that such rates should be equitably reduced. The Court also modified the legal interest rate, applying the guidelines set forth in Nacar v. Gallery Frames, which incorporated Bangko Sentral ng Pilipinas (BSP) Monetary Board Circular No. 799. This circular set the legal interest rate at 12% per annum from the filing of the complaint until June 30, 2013, and thereafter at 6% per annum from July 1, 2013, until full satisfaction.

This case underscores the importance of carefully reviewing and understanding the terms of contracts before signing them. Parties are generally bound by the terms they agree to, including waivers of certain rights. While the courts will protect vulnerable parties from oppressive contracts, they will also uphold the principle of freedom of contract when parties have knowingly and voluntarily entered into an agreement. The decision also highlights the courts’ power to intervene when interest rates are deemed excessive, ensuring fairness and preventing unjust enrichment.

FAQs

What was the key issue in this case?	The key issue was whether BPI Family Savings Bank was required to make a prior demand for payment or surrender of the vehicle before filing a lawsuit against the Cabantings, given the waiver of demand clause in the promissory note.
What is a waiver of demand clause?	A waiver of demand clause is a provision in a contract, such as a promissory note, where one party agrees to give up their right to receive a demand for payment or performance before the other party takes legal action.
Are contracts of adhesion inherently invalid?	No, contracts of adhesion are not inherently invalid. They are binding as long as the adhering party is free to reject the contract entirely and the terms are not unconscionable or against public policy.
What does due process require in a legal proceeding?	Due process requires that a party be given an opportunity to be heard and present their case. It does not guarantee that the party will actually avail themselves of that opportunity.
What is the legal interest rate as of July 1, 2013?	As of July 1, 2013, the legal interest rate was set at 6% per annum, according to Bangko Sentral ng Pilipinas (BSP) Monetary Board Circular No. 799.
Can courts intervene in contracts with excessive interest rates?	Yes, courts have the power to intervene and equitably reduce interest rates that are deemed excessive, iniquitous, unconscionable, or exorbitant.
What is Article 1169 of the Civil Code about?	Article 1169 of the Civil Code discusses when demand is necessary for an obligor to be considered in default. It also provides exceptions, such as when the parties expressly waive demand.
What was the final ruling of the Supreme Court in this case?	The Supreme Court affirmed the Court of Appeals’ decision with modification, ordering the Cabantings to pay BPI Family Savings Bank the outstanding amount with legal interest, adjusted to comply with BSP regulations.

In conclusion, Cabanting v. BPI Family Savings Bank reaffirms the importance of contractual obligations and the enforceability of waiver clauses. While courts are vigilant in protecting vulnerable parties, they also respect the principle of freedom of contract. This decision serves as a reminder to carefully review and understand the terms of any agreement before signing.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Cabanting v. BPI Family Savings Bank, G.R. No. 201927, February 17, 2016