Philippine National Bank v CA - GR 107569 (8 November 1994)

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Philippine National Bank v CA, Remedios Jayme-Fernandez, and Amado Fernandez
GR 107569, 8 November 1994; Second Division, Puno, J.

Facts:

(1) Remedios and Amado are owners of a NACIDA-registered enterprise. On 7 April
1982 they obtained a loan in the amount of PhP 50,000.00 from PNB. The interest for
the loan was initially pegged at 12% per annum.

(2) Their contract also includes, among others, a clause which allows PNB to raise the
rate of interest depending on the bank's future policies. On several occasions during
the term of the contract, PNB imposed subsequent raises to the applicable rate
ranging from the original 12% up to 42%. Moreover, PNB imposed a penalty of six
percent per annum.

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, a creditor cannot 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.

Ratio:

(1) It is basic that there can be no contract in the true sense in the absence of the
element of agreement, or of mutual assent of the parties. If this assent is wanting on
the part of the one who contracts, his act has no more efficacy than if it had been
done under duress or by a person of unsound mind.

(2) Similarly, any change in the contract must be made with the consent of the contrac-
ting parties. The minds of all the parties must meet as to the proposed modification,
especially when it affects an important aspect of the agreement.

(3) In the case of loan contracts, it cannot be gainsaid that the rate of interest is always a
vital component, for it can make or break a capital venture. Thus, any change must
be mutually agreed upon, otherwise, it is bereft of any binding effect. In the case at
hand, the escalation clause in the contract gives PNB an unbridled right to unilate-
rally and upwardly adjust the interest on the loan of Remedios and Amado. Such
unbridled right would completely take away from them the right to assent to an im-
portant modification in their agreement. Furthermore, it would negate the element
of mutuality in contracts.

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