14. Reformina v.

Tomol, 139 SCRA 260 (1985)

FACTS:
Petitioners suffered as a result of fire and claim its insurance. In the computation of the "legal
interest" decreed in the judgment sought to be executed, petitioners claim that the "legal interest"
should be at the rate of twelve (12%) percent per annum, invoking in support of their aforesaid
submission, Central Bank 01 the Philippines Circular No. 416. Upon the other hand, private
respondents insist that said legal interest should be at the rate of six (6%) percent per annum
only, pursuant to and by authority of Article 2209 of the New Civil Code in relation to Articles
2210 and 2211 thereof.

ISSUE:
Petitioner can have the 12% interest per annum

RULING:

Circular No. 416 of the Central Bank which took effect on July 29, 1974 pursuant to P.D. 116,
which amended, Act 2655 (Usury Law), which raised the legal rate of interest from 6% to 12%
per annum applies only to forbearances of money, goods or credit and court judgments thereon,
but not to court judgments for damages arising from injury to persons and loss of property which
does not involve a loan in which cases the rate remains at 6%.

The judgments spoken of and referred to are judgments in litigation involving loans or
forbearance of any money, goods or credits, or to cases where money is transferred from one
person to another and the obligation to return the same or a portion thereof is adjudged. Any
other kind of monetary judgments which has nothing to do with nor involving loans or
forbearance of any money, goods and credits does not fall within the coverage of the Usury Law
for it is not within the ambit of the authority granted by the Central Bank.

Thus, where the decision sought to be executed is one rendered in an action for damages for
injury to persons and loss of property, the law applicable is Article 2209 of the Civil Code.
15. Liam Law v. Olympic Sawmill Co., 129 SCRA 439 (1984)

FACTS:
Due to failure to pay a loan with an initial amount of P10,000, plaintiff’s obligation increased by
P6,000 to answer fo attorney’s fess, legal interests, and other costs upon termination of
agreement.. He admitted to the principal obligation, but claimed the additional P6,000 as
usurious. The Trial Court ruled against defendants, ordering them to pay plaintiff both the
principal and the additional obligation, with legal rate of interest on both amounts from April 30,
1960. On appeal, the CA endorsed to the Supreme Court stating that the issue involved was one
of law.

ISSUE:
Whether the additional P6,000 obligation is illegal for being usurious?

RULING:
No. Under Article 1354 of the Civil Code, in regards to the agreement of the parties relative to
the P6,000.00 obligation, “it is presumed that it exists and is lawful, unless the debtor proves the
contrary”. No evidentiary hearing having been held, it has to be concluded that defendants had
not proven that the P6,000.00 obligation was illegal. 

Moreover, for sometime now, usury has been legally non-existent. Interest can now be charged
as lender and borrower may agree upon. The Rules of Court in regards to allegations of usury,
procedural in nature, should be considered repealed with retroactive effect.
16. Banco Filipino v. Navarro, 152 SCRA 346 (1987)

FACTS:
Navarro’s loan secured with a mortgage from Banco Filipino had an escalation clause based on
Circular No. 494 of the Central Bank providing as follows: I/We hereby authorize Banco
Filipino to correspondingly increase the interest rate stipulated in this contract without advance
notice to me/us in the event law should be enacted increasing the lawful rates of interest that may
be charged on this particular kind of loan.

On the strength of Circular No. 494 of the Central Bank gave notice to the Borrower on June 30,
1976 of the increase of interest rate on the loan from 12% to 17% per annum effective on March
1, 1976.

Contending that Circular no. 494 is not the law contemplated in the Escalation Clause of the
promissory note, the Borrower filed suit against Banco Filipino for "Declaratory Relief" and pray
that the escalation clause be null and void.

Banco Filipino maintained that the Escalation Clause signed by the Borrower authorized it to
increase the interest rate once a law was passed increasing the rate of interest and that its
authority to increase was provided for by Circular No. 494. In its judgment, respondent Court
nullified the Escalation Clause and ordered Banco Filipino to desist from enforcing the increased
rate of interest on the borrower's loan. It reasoned out that P.D. No. 116 does not expressly grant
the Central Bank authority to maximize interest rates with retroactive effect and that Banco
Filipino cannot legally impose a higher rate of interest before the expiration of the 15-year period
in which the loan is to be paid other than the 12% per annum in force at the time of the execution
of the loan.

ISSUE:
Whether BANCO FILIPINO can increase the interest rate on the LOAN from 12% to 17% per
annum under the Escalation Clause..

RULING:

he Court rules that while an escalation

clause like the one in question can ordinarily be held valid,
nevertheless, petitioner Banco Filipino cannot rely thereon
to raise the interest on the borrower's loan from 12% to
17% per annum because Circular No. 494 of the Monetary
Board was not the "law" contemplated by the parties, nor
should said Circular be held as applicable to loans secured
by registered real estate in the absence of any such specific
indication and in contravention of the policy behind the
Usury Law. The judgment appealed from is, therefore,
hereby affirmed in so far as it orders petitioner Banco
Filipino to desist from enforcing the increased rate of
interest on petitioner's loan
SC held Banco Filipino may not increase the interest rate. The Court rules that while an
escalation clause like the one in question can ordinarily be held valid, nevertheless, petitioner
Banco Filipino cannot rely there onto raise the interest on the borrower's loan from 12% to
17% per annum because Circular No. 494 of the Monetary Board was not the "law"
contemplated by the parties, nor should said Circular be held as applicable to loans secured by
registered real estate in the absence of any such specific indication and in contravention of the
policy behind the Usury Law. The judgment appealed from is, therefore, hereby affirmed in so
far as it orders petitioner Banco Filipino to desist from enforcing the increased rate of interest on
petitioner's loan
17. PNB v. IAC and Maglasang, 183 SCRA 133 (1990)

FACTS:
Petitioner, PNB, extended financial assistance to the private respondents (Magsalang&Sedigo) in
the form of loans, in total of P82,682.39 as embodied in the promissory notes that the latter have
executed on various dates from February 5, 1976 to May 18, 1979. The promissory notes bore
12% interest per annum plus 1% interest as penalty charge in case of default in the payments.
The private respondents mortgaged several real estate properties in favor of the petitioner as
security of their loans.

On December 1, 1979, the Monetary Board of the Central Bank, by virtue of Presidential Decree
No. 116, issued CB Circular No. 705 increasing the ceiling on the rate of interest on both secured
and unsecured loans up to no more than 21% per annum.

In view of this development, the PNB Board of Directors revised its lending interest rates on the
medium and long-term loans effective June 1, 1980, per PNB board resolution dated May 26,
1980.

Eventually, when the private respondents defaulted in the payments of their loans. The petitioner
demanded not only the settlement of their outstanding obligation but also the payment of the new
interest rate of 21% per annum beginning June 1, 1980 per the PNB board resolution.

For failure of the private respondents to settle their obligation, then in the amount of P84,743.34,
the petitioner foreclosed the mortgage. Since the proceeds of the auction sale, P63,000.00 was
not enough to satisfy private respondents' outstanding obligation, the petitioner filed an action
for deficiency judgment with the Court of First Instance of Leyte against the private respondents.

Trial Court ruled in favor of the PNB. On appeal, the Appellate Court affirmed the decision of
the trial court with modification: Ordering the defendants to pay the plaintiff the amount of
P12,551.16 which shall earn interest at 12% per annum and 1% penalty charge starting
November 27, 1981 until fully paid. Hence, PNB filed a petition at Supreme Court with
contention that pursuant to Presidential Decree No. 116, the Monetary Board issued Central
Bank Circular No. 705 on December 1, 1979, prescribing the maximum rate of interest on loan
transactions with maturities of more than seven hundred thirty (730) days and shall not exceed
twenty-one percent (21%) per annum.

Hence, the upward revision of interest rate as stipulated in the Promissory Notes and
Amendment of Real Estate Mortgage dated February 12, 1975, is in accordance with Presidential
Decree No. 116 promulgated on January 29, 1973 and Central Bank Circular No. 705 issued on
December 1, 1979, and the imposition of 21% rate of interest on the loan obligations of private
respondents is within the limits prescribed by law.

ISSUE:
Whether or not the revised rate of interest imposed on the loans of the private respondents is
legal.
RULING:
No. There is no question that PNB board resolution dated May 26, 1980 contains such
deescalation clause, under paragraph 8 thereof, to wit: (8) To enable us to adjust interest rates in
accordance with CB Circular letter of March 19, 1980, the covering promissory note for all
short/medium/long terms loans shall include the following conditions: The Bank reserves the
right to increase the interest rate within the limits allowed by law or by the Monetary Board,
provided, that the interest rate agreed upon shall be reduced in the event that the applicable
maximum interest rate is reduced by law or by the Monetary Board: Provided, further, that the
adjustment in the interest rate shall take effect on or after the effectivity of the increase or
increase in the maximum rate of interest. Central Bank Circular No. 705, authorizing the
increase from 12% to 21% was issued on December 1, 1979. The promissory notes executed by
the private respondents show that they are all payable on demand but the records do not show
when payment was demanded. Even granting that it was demanded on the effectivity of law, it is
obvious that the period of 730 days has not yet elapsed at the date the mortgaged properties were
sold at the public auction on November 27, 1981 (Certificate of Sheriff's Sale, Records of
Exhibits, p. 84). Accordingly, as of December 1, 1979, the remaining maturity days of the loans
were less than 730 days. Hence, the increased rate imposed or charged is not valid.

18. PNB v. CA and Padilla, 196b SCRA 536 (1991)

FACTS:

Private respondent executed in favor of the PNB a Credit Agreement, 2 promissory notes in the
amount of P900,000.00 each, and a Real Estate Mortgage Contract The Promissory Notes,
uniformly authorized the PNB to increase the stipulated 18% interest per annum "within the
limits allowed by law at any time depending on whatever policy it [PNB] may adopt in the
future; Provided, that, the interest rate on the note shall be correspondingly decreased in the
event that the applicable maximum interest rate is reduced by law or by the Monetary Board."

However, subsequently, PNB within the period of only four months has increased the 18%
interest rate on the borrower’s loan obligation three times: (a) to 32% in July 1984,; (b) to 41%
in October 1984; and (c) to 48% in November 1984.

Several letters were sent by Padilla to PNB requesting the latter to increase the interest rate from
18% but to be fixed at 21% or 24% per annum. However, PNB despite the objection of Padilla
and without authority from the Monetary Board still effected such increases of interest rates
within the aforesaid intervening period. For this reason, Padilla was compelled to file a
complaint with the RTC praying to declare that the unilateral increase of interest rates by PNB is
illegal and not valid nor binding upon Padilla.

ISSUE:
Whether PNB, within the term of the loan which it granted to Padilla, may unilaterally change or
increase the interest rate stipulated therein at will and as often as it pleased.
RULING:
No. Those increases were null and void. Central Bank Circular No. 905, Series of 1982 removed
the Usury law ceiling on interest rates, however, 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. For if the Monetary Board itself was not authorized to make such changes
oftener once a year, even less so may a bank, which is subordinate to the Board.

While the debtor did agree in the Deed of Real Estate Mortgage 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" or "within the limits allowed by law,"
no law 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. To unilaterally and successively increase the
agreed rate of interest from 18% to 48% within a span of four months is a clear violation of PD
116 which limits such changes to once every 12 months.

The Court further held, 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." A contract containing a condition which
makes its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting
parties is void. Likewise, the increases imposed by PNB contravene Art. 1956 of the Civil Code
which provides that no interest shall be due unless it has been expressly stipulated. Here, the
debtor never agreed in writing to pay the interest increases fixed by PNB beyond the 24% per
annum; hence, he is not bound to pay a higher rate than that. The petition for review was denied
for lack of merit.
19. PNB v. CA and Fernandez, 238 SCRA 80 (1994)

FACTS:
Private respondents as owners of a NACIDA-registered enterprise, obtained a loan under the
Cottage Industry Guaranty Loan Fund (CIGLF) from the Philippine National Bank (PNB) in the
amount of Fifty Thousand (P50,000.00) Pesos, as evidenced by a Credit Agreement. Under the
Promissory Note covering the loan, the loan was to be amortized over a period of three (3) years
to end on March 29, 1985, at twelve (12%) percent interest annually. To secure the loan, (private
respondents) executed a Real Estate Mortgage and a Chattel Mortgage. The agreement herewith
authorized the PNB to raise the rate of interest, at any time without notice, beyond the stipulated
rate of 12% but only "within the limits allowed by law."

During the term of the agreement, PNB on several occasion imposed interest rate of 25% per
annum to 30% to 42% on Private Respondents plus a penalty of 6% per annum on past dues."
Private respondents filed a suit for specific performance against petitioner PNB and the
NACIDA.

The trial court dismissed private respondents' complaint. The Court of Appeals reversed the
dismissal with respect to petitioner bank, and disallowed the increases in interest rates. Petitioner
bank now contends that "respondent Court of Appeals committed grave error when it ruled (1)
that the increase in interest rates are unauthorized.

ISSUE:
Whether or not a creditor may raise the rate of interest based solely on a certain clause in the
contract and without the consent of the debtor as to the amount and rate of such increase

RULING
No. We cannot countenance petitioner bank's posturing that the escalation clause at bench gives
it unbridled right to unilaterally upwardly adjust the interest on private respondents' loan. That
would completely take away from private respondents the right to assent to an important
modification in their agreement, and would negate the element of mutuality in contracts.
In Philippine National Bank v. Court of Appeals, et al., 196 SCRA 536, 544-545 (1991) we held
—
. . . 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.

In order that obligations arising from contracts may have the force or law between
the parties, there must be mutuality between the parties based on their essential
equality. A contract containing a condition which makes its fulfillment dependent
exclusively upon the uncontrolled will of one of the contracting parties, is
void . . . . Hence, even assuming that
 the . . . loan agreement between the PNB and the private respondent gave the PNB
a license (although in fact there was none) to increase the interest rate at will
during the term of the loan, that license would have been null and void for being
violative of the principle of mutuality essential in contracts. It would have
invested the loan agreement with the character of a contract of adhesion, where
the parties do not bargain on equal footing, the weaker party's (the debtor)
participation being reduced to the alternative "to take it or leave it" . . . . Such a
contract is a veritable trap for the weaker party whom the courts of justice must
protect against abuse and imposition.

Private respondents are not also estopped from assailing the unilateral increases in interest rate
made by petitioner bank. No one receiving a proposal to change a contract to which he is a party,
is obliged to answer the proposal, and his silence per se cannot be construed as an
acceptance.7 In the case at bench, the circumstances do not show that private respondents
implicitly agreed to the proposed increases in interest rate which by any standard were too
sudden and too stiff.
20. Florendo v. CA, 265 SCRA 678 (1996)

FACTS:

Gilda Florendo was an employee of Land Bank from May 17, 1976 until August 16, 1984 when
she voluntarily resigned. However, before her resignation, she applied for a housing loan
payable within 25 years from Land Bank’s Provident Fund on July 20, 1983;

On March 19, 1985, Land Bank increased the interest rate on Florendo’s loan from 9% per
annum to 17%, the said increase to take effect on March 19, 1985 The details of the increase are
embodied in Landbank's ManCom Resolution No. 85-08 and in a Provident Fund Memorandum
Circular.

Land Bank kept on demanding that Florendo pay the increased interest or the new monthly
installments based on the increased interest rate, but Florendo just as vehemently maintained that
the said increase is unlawful and unjustifiable insisting that while ManCom Resolution No. 85-
08 authorized a rate increase for resigned employees, it could not apply as to petitioner-employee
because nowhere in the loan agreement or mortgage contract is it provided that petitioner-
wife's resignation will be a ground for the adjustment of interest rates

ISSUE:
Whether or not Land Bank has a valid and legal basis to impose an increased interest rate on the
petitioners' housing loan?

RULING:
NO. What is actually central to the disposition of this case is not really the validity of the
escalation clause but the retroactive enforcement of the ManCom Resolution as against
petitioner-employee. In the case at bar, petitioners have put forth a telling argument that there is
in fact no Central Bank rule, regulation or other issuance which would have triggered an
application of the escalation clause as to her factual situation.

I n the case at bar, the loan was perfected on July 20, 1983. PD No. 116 became effective on
January 29, 1973. CB Circular No. 416 was issued on July 29, 1974. CB Circ. 504 was issued
February 6, 1976. CB Circ. 706 was issued December 1, 1979. CB Circ. 905, lifting any interest
rate ceiling prescribed under or pursuant to the Usury Law, as amended, was promulgated in
1982. These and other relevant CB issuances had already come into existence prior to the
perfection of the housing loan agreement and mortgage contract, and thus it may be said that
these regulations had been taken into consideration by the contracting parties when they first
entered into their loan contract. 

ManCom Resolution No. 85-08, which is neither a rule nor a resolution of the Monetary Board,
cannot be used as basis for the escalation in lieu of CB issuances, since paragraph (f) of the
mortgage contract very categorically specifies that any interest rate increase be in accordance
with "prevailing rules, regulations and circulars of the Central Bank . . . as the Provident Fund
Board . . . may prescribe." The Banco Filipino and PNB doctrines are applicable four-square in
this case. As a matter of fact, the said escalation clause further provides that the increased
interest rate "shall only take effect on the date of effectivity of (the) increase/decrease"
authorized by the CB rule, regulation or circular. Without such CB issuance, any proposed
increased rate will never become effective.