PNB vs CA & PADILLA

PHILIPPINE NATIONAL BANK  petitioner , vs, THE HON. COURT OF "PEALS and AMBROSIO PADILLA, respondents. GR# 88880. 88880. April 30, 1991. GRIRO-AQUINO, J .: .:

FACTS: Private respondent (PR) Ambrosio Padilla, applied for and was granted a credit line of 321.8

million, by petitioner PNB. This was 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 with the RTC. The latter dismissed the case for lack of merit.  Appeal by PR to to CA resulted in in his favor. Hence the the petition for certiorari certiorari under Rule Rule 45 of ROC filed 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 RATIO:  Although under Sec. 2 of PD 116, the Monetary Board is authorized to prescribe 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 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.