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PHILIPPINE NATIONAL BANK v. CA

FACTS:

The private respondent, Ambrosio Padilla, applied for and was granted a credit line of P1.8 million by petitioner Philippine National Bank (PNB), secured by a real estate mortgage, for a term of two years with an 18% interest per annum. The credit agreement, promissory notes, and real estate mortgage contract executed by the private respondent contained provisions allowing PNB to increase the interest rate within the limits allowed by law and the policies of the bank. In June and July 1984, the private respondent made payments and requested the renewal of his credit line and an increase in the interest rate from 18% to either 21% or 24%. PNB informed the private respondent that his request could not be granted due to existing loan policies and increased its interest rate on his outstanding line/loan in September and October 1984. In December 1984, the private respondent filed a complaint against PNB, seeking, among others, a declaration that the increases in interest rates were illegal and a refund of excess interest payments. The trial court dismissed the complaint.

ISSUES:

  1. Whether the bank, within the term of the loan, may unilaterally change or increase the interest rate stipulated therein.

  2. Whether the circulars and resolutions relied upon by the bank are valid and can justify the increase in interest rates.

  3. Whether the unilateral increase in interest rates by the bank violates the mutuality of contracts.

RULING:

  1. No. The bank cannot unilaterally change or increase the interest rate stipulated in the loan. The increases made by the bank without authority from the Monetary Board are null and void.

  2. The circulars and resolutions relied upon by the bank are not valid and cannot justify the increase in interest rates. CB Circular No. 494 is not a law, while the bank's own resolutions and circulars are neither laws nor resolutions of the Monetary Board.

  3. The unilateral increase in interest rates by the bank violates the mutuality of contracts, as it makes the fulfillment of the contract dependent solely on the will of one party. This violates Article 1308 of the Civil Code, which requires mutuality between the parties in a contract.

PRINCIPLES:

  • The maximum interest rates prescribed by the Monetary Board can only be changed once every twelve months.

  • Banks, being subordinate to the Monetary Board, cannot make changes to interest rates more frequently than allowed by the Board.

  • Agreements between the borrower and the bank must comply with the law, and any changes or increases in interest rates must be within the limits allowed by law.

  • The borrower is obligated to execute and deliver the necessary documents to effectuate an increase in interest rate, as provided in the loan agreement.

  • Circulars and resolutions, even if they have the effect of law, cannot be used to justify unilateral increases in interest rates if they do not specifically provide for such increases or for reduction in the event of a decrease in the maximum rate of interest.

  • Unilateral increases in interest rates violate the mutuality of contracts and render the contract void, as such increases make the fulfillment of the contract dependent solely on the will of one party.