23) PNB VS CA AND PADILLA

SYLLABUS
1.
COMMERCIAL LAW; BANKING LAWS; RATE OF INTEREST; INCREASE OF INTEREST RATE;
NOT TO BE MADE OFTENER THAN ONCE A YEAR. PNB, over the objection of the private
respondent, and without authority from the Monetary Board, within a period of only four (4) months,
increased the 18% interest rate on the private respondent's loan obligation three (3) times: (a) to 32% in
July 1984; (b) to 41% in October 1984; and (c) to 48% in November 1984. Those increases were null and
void. Although Section 2, P.D. No. 116 of January 29, 1973, authorizes the Monetary Board to prescribe
the maximum rate or rates of interest for loans or renewal thereof and to change such rate or rates
whenever warranted by prevailing economic and social conditions, it expressly provides that "such
changes shall not be made oftener than once every twelve months. "If the Monetary Board itself was not
authorized to make such changes oftener than once a year, even less so may a bank which is
subordinate to the Board.
2.
ID.; ID.; ID.; ID.; MAY BE INCREASED WITHIN LIMITS OF LAW; PNB CIRCULARS AND
RESOLUTION ARE NEITHER LAWS NOR RESOLUTIONS OF MONETARY BOARD. While the
private respondent-debtor did agree in the Deed of Real Estate Mortgage (Exh. 5) that the interest rate
may be increased during the life of the contract "to such increase within the rate allowed by law, as the
Board of Directors of the MORTGAGEE may prescribe" (Exh. 5-e-1) or "within the limits allowed by law"
(Promissory Notes, Exhs. 2, 3, and 4), no laws was ever passed in July to November 1984 increasing
the interest rates on loans or renewals thereof to 32%, 41% and 48% (per annum), and no documents
were executed and delivered by the debtor to effectuate the increases. The PNB relied on its own Board
Resolution No. 681 (Exh. 10), PNB Circular No. 40-79-84 (Exh. 13), and PNB Circular No. 40-129-84
(Exh. 15), but those resolution and circulars are neither laws nor resolutions of the Monetary Board.
3.
ID.; ID.; ID.; REMOVAL OF USURY LAW CEILING ON INTEREST RATES DOES NOT
AUTHORIZE BANKS TO UNILATERALLY AND SUCCESSIVELY INCREASE INTEREST RATES. CB
Circular No. 905, Series of 1982 (Exh. 11) removed the Usury law ceiling on interest rates but it did not
authorize the PNB, or any bank for that matter, to unilaterally and successively increase the agreed
interest rates from 18% to 48% within a span of four (4) months, in violation of P.D. 116 which limits such
changes to "once every twelve months."
4.
ID.; ID.; ID.; UNILATERAL ACTION TO INCREASE INTEREST RATES, A VIOLATION OF
ARTICLE 1308 OF CIVIL CODE. Besides violating P.D. 116, the unilateral action of the PNB in
increasing the interest rate on the private respondent's loan, violated the mutuality of contracts ordained
in Article 1308 of the Civil Code: "ART. 1308. The contract must bind both contracting parties; its validity
or compliance cannot be left to the will of one of them."
5.
ID.; ID.; ID.; SUCCESSIVE INCREASE OF INTEREST RATES, A VIOLATION OF ARTICLE 1956
OF CIVIL CODE. PNB's successive increases of the interest rate on the private respondent's loan,
over the latter's protest, were arbitrary as they violated an express provision of the Credit Agreement
(Exh. 1) Section 9.01 that its terms "may be amended only by an instrument in writing signed by the party
to be bound as burdened by such amendment." The increases imposed by PNB also contravene Art.
1956 of the Civil Code which provides that "no interest shall be due unless it has been expressly
stipulated in writing."
FACTS:

In July 1982, the private respondent applied for, and was granted by the petitioner PNB, a credit
line of 321.8M, secured by a real estate mortgage for a term of two years with 18% interest per annum.
Private respondent executed a favor of the PNB a Credit Agreement with two promissory noted in the
amount of P900,000.00 each and a Real estate mortgage contract.
Upon renewal of the loan, PNB unilaterally increased the interest rates from 18% to 32%, then to
41% and again to 48%. It rejected the request of the plaintiff that adjustment of his interest rate would be
fixed from 18% to 24%.
ISSUE: Whether or not the unilateral increase of interest rates from 18% to 32%, then to 41% and again
to 48% are null and void
RULING:
PNB, over the objection of the private respondent, and without authority from the Monetary
Board, within a period of only four (4) months, increased the 18% interest rate on the private respondent's
loan obligation three (3) times: (a) to 32% in July 1984; (b) to 41% in October 1984; and (c) to 48% in
November 1984. Those increases were null and void. Although Section 2, P.D. No. 116 of January 29,
1973, authorizes the Monetary Board to prescribe the maximum rate or rates of interest for loans or
renewal thereof and to change such rate or rates whenever warranted by prevailing economic and social
conditions, it expressly provides that "such changes shall not be made oftener than once every twelve
months. "If the Monetary Board itself was not authorized to make such changes oftener than once a year,
even less so may a bank which is subordinate to the Board