14.

PNB vs CA
Facts:

 Private respondent (PR) Ambrosio Padilla, applied for and was granted a credit line of 321.8
million, by petitioner PNB. This was for a term of 2 years at 18% interest per annum and
was secured by real estate mortgage and 2 promissory notes executed in favor of Petitioner
by PR. The credit agreement and the promissory notes, in effect, provide that PR agrees to
be bound by “increases to the interest rate stipulated, provided it is within the limits
provided for by law”.
 Conflict in this case arose when Petitioner unilaterally increased the interest rate from 18%
to: (1) 32%[July 1984]; (2) 41% [October 1984]; and (3) 48% [November 1984], or 3 times
within the span of a single year. This was done despite the numerous letters of request
made by PR that the interest rate be increased only to 21% or 24%.
 PR filed a complaint against Petitioner with the RTC. The latter dismissed the case for lack
of merit. Appeal by PR to CA resulted in his favor. Hence the petition for certiorari under
Rule 45 of ROC filed by PNB with SC.
ISSUE:
Despite the removal of the Usury Law ceiling on interest, may the bank validly increase the
stipulated interest rate on loans contracted with third persons as often as necessary and against the
protest of such persons.
HELD:

 NO, Although under Sec. 2 of PD 116, the Monetary Board is authorized to prescribe the
maximum rate of interest for loans and to change such rates whenever warranted by
prevailing economic and social conditions, by express provision, it may not do so “oftener
than once every 12 months”. If the Monetary Board cannot, much less can PNB, effect
increases on the interest rates more than once a year. Based on the credit agreement and
promissory notes executed between the parties, although PR did agree to increase on the
interest rates allowed by law, no law was passed warranting Petitioner to effect increase on
the interest rates on the existing loan of PR for the months of July to November of
1984.Neither there being any document executed and delivered by PR to effect such
increase.
 For escalation clauses to be valid and warrant the increase of the interest rates on loans,
there must be:(1) increase was made by law or by the Monetary Board; (2) stipulation must
include a clause for the reduction of the stipulated interest rate in the event that the
maximum interest is lowered by law or by the Monetary board. In this case, PNB merely
relied on its own Board Resolutions, which are not laws nor resolutions of the Monetary
Board.
 Despite the suspension of the Usury Law, imposing a ceiling on interest rates, this does not
authorize banks to unilaterally and successively increase interest rates in violation of Sec. 2
PD 116.
 Increases unilaterally effected by PNB was in violation of the Mutuality of Contracts under
Art. 1308. This provides that the validity and compliance of the parties to the contract
 cannot be left to the will of one of the contracting parties. Increases made are therefore
void.
 Increase on the stipulated interest rates made by PNB also contravenes Art. 1956. It
provides that, “no interest shall be due unless it has been expressly stipulated in writing”.
PR never agreed in writing to pay interest imposed by PNB in excess of 24% per annum.
Interest rate imposed by PNB, as correctly found by CA, is indubitably excessive