Kathryn P.

Akmad
Bulacan State University
College of Law
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 107569 November 8, 1994
PHILIPPINE NTIONL !N", petitioner,
vs.
COURT O# PPELS, REME$IOS %&ME'#ERNN$E( )*+ M$O
#ERNN$E(, respondents.
Vidad, Corpus & Associates for petitioner.
Remedios Jayme-Fernandez for privaate respondents.

PUNO, J.:
Petitioner ban sees the revie! of the decision, dated October "#, "$$%, of the Court of
&ppeals
1
in C& '.R. CV No. %("$#, the dispositive portion of !hich reads as follo!s)
*+ERE,ORE, the -ud./ent appealed fro/ is hereb0 SE1 &SIDE and a ne! one
is entered orderin. defendant2appellee PN3 to re2appl0 the interest rate of
"%4 per annum to plaintiffs2appellants5 6referrin. to herein private respondents7
indebtedness and to accordin.l0 tae the appropriate char.es fro/ plaintiffs2
appellants5 6private respondents57 pa0/ent of P8",999.99 /ade on Dece/ber %:,
"$8#. &n0 balance on the indebtedness should, lie!ise, be char.ed interest at the
rate of "%4per annum.
SO ORDERED.
1he parties do not dispute the facts as laid do!n b0 respondent court in its i/pu.ned
decision, viz.)
On &pril (, "$8%, 6private respondents7 as o!ners of a N&CID&2re.istered
enterprise, obtained a loan under the Cotta.e Industr0 'uarant0 ;oan ,und
6CI';,7 fro/ the Philippine National 3an 6PN37 in the a/ount of ,ift0 1housand
6P#9,999.997 Pesos, as evidenced b0 a Credit &.ree/ent. <nder the Pro/issor0
Note coverin. the loan, the loan !as to be a/orti=ed over a period of three 6>7
0ears to end on March %$, "$8#, at t!elve 6"%47 percent interest annuall0.
1o secure the loan, 6private respondents7 e?ecuted a Real Estate Mort.a.e over a
".##@%2hectare parcel of unre.istered a.ricultural land located at Ca/ban.2u.,
1oledo Cit0, !hich !as appraised b0 the PN3 at P",9:%.#% and .iven a loan value
1
Kathryn P. Akmad
Bulacan State University
College of Law
of P#>".%: b0 the 3an. In addition, 6private respondents7 e?ecuted a Chattel
Mort.a.e over a ther/o plastic2for/in. /achine, !hich had an appraisal value of
P8,899 and a loan value of P@,@99.99.
1he Credit &.ree/ent provided inter alia, that A
6a7 1he 3&NB reserves the ri.ht to increase the interest rate !ithin
the li/its allo!ed b0 la! at an0 ti/e dependin. on !hatever polic0
it /a0 adopt in the futureC Provided, that the interest rate on this
acco//odation shall be correspondin.l0 decreased in the event
that the applicable /a?i/u/ interest is reduced b0 la! or b0 the
Monetar0 3oard. In either case, the ad-ust/ent in the interest rate
a.reed upon shall tae effect on the effectivit0 date of the increase
or decrease in the /a?i/u/ interest rate.
1he Pro/issor0 Note, in turn, authori=ed the PN3 to raise the rate of interest, at
an0 ti/e !ithout notice, be0ond the stipulated rate of "%4 but onl0 D!ithin the
li/its allo!ed b0 la!.D
1he Real Estate Mort.a.e contract lie!ise provided that A
67 INCRE&SE O, IN1ERES1 R&1E) 1he rate of interest char.ed
on the obli.ation secured b0 this /ort.a.e as !ell as the interest
on the a/ount !hich /a0 have been advanced b0 the
MOR1'&'E, in accordance !ith the provision hereof, shall be
sub-ect durin. the life of this contract to such an increase !ithin the
rate allo!ed b0 la!, as the 3oard of Directors of the MOR1'&'EE
/a0 prescribe for its debtors.
On ,ebruar0 "(, "$8>, 6private respondents7 !ere .ranted an additional N&CID&
loan of ,ift0 1housand 6P#9,999.997 Pesos b0 the PN3, for !hich 6private
respondents7 e?ecuted another Pro/issor0 Note, !hich !as to /ature on &pril ",
"$8#. Other than the date of /aturit0, the second pro/issor0 note contained the
sa/e ter/s and stipulations as the previous note. 1he parties lie!ise e?ecuted a
ne! Credit &.ree/ent, chan.in. the a/ount of the loan fro/ P#9,999.99 to
P"99,999.99, but other!ise preservin. the stipulations contained in the ori.inal
a.ree/ent.
&s additional securit0 for the loan, 6private respondents7 constituted another real
estate /ort.a.e over % parcels of re.istered land, !ith a co/bined area of >""
sEuare /eters, located at 'uadalupe, Cebu Cit0. 1he land, upon !hich several
buildin.s are standin., !as appraised b0 the PN3 to have a value of P@9,999.99
and a loan value of P%8,999.99.
In a letter dated &u.ust ", "$8@, the PN3 infor/ed 6private respondents7 Dthat the
interest rate of 0our CI';, loan account !ith us is no! %#4 per annum plus a
penalt0 of :4 per annum on past dues.D 1he PN3 further increased this interest
rate to >94 on October "#, "$8@C and to @%4 on October %#, "$8@.
2
Kathryn P. Akmad
Bulacan State University
College of Law
1he records sho! that as of Dece/ber "$8#, 6private respondents7 had an
outstandin. principal account of P8",999.99 of !hich P"8,#%>."@ !as credited to
the principal, P#(,@88.8$ to the interest, and the rest to penalt0 and other char.es.
1hus, as of said date, the unpaid principal obli.ation of 6private respondent7
a/ounted to P:%,8>9.>%.
1hereafter, 6private respondents7 e?erted efforts to .et the PN3 to re2adopt the
"%4 interest and to condone the present interest and penalties dueC but to no
avail.
,
6Citations o/itted.7
On Dece/ber "#, "$8(, private respondents filed a suit for specific perfor/ance a.ainst petitioner
PN3 and the N&CID&. It !as doceted as Civil Case No. CE32#:"9, and raffled to the Re.ional
1rial Court, (th Fudicial Re.ion, Cebu Cit0, 3r. (.
-
Private respondents pra0ed the trial court to order)
". 1he PN3 and N&CID& to issue in 6private respondents57 favor, a release of
/ort.a.eC
%. 1he PN3 to pa0 pecuniar0 conseEuential da/a.es for the destruction of 6private
respondents57 enterpriseC
>. 1he PN3 to pa0 /oral and e?e/plar0 da/a.es as !ell as the costs of suitC and
@. 'rantin. 6private respondents57 such other relief as /a0 be found -ust and
eEuitable in the pre/ises.
4
On ,ebruar0 %:, "$$9, the trial court dis/issed private respondents5 co/plaint in Civil Case No.
CE32#:"9. On October "#, "$$%, the Court of &ppeals reversed the dis/issal !ith respect to
petitioner ban, and disallo!ed the increases in interest rates.
Petitioner ban no! contends that Drespondent Court of &ppeals co//itted .rave error !hen it
ruled 6"7 that the increase in interest rates are unauthori=edC 6%7 that the Credit &.ree/ent and the
Pro/issor0 Notes are not the la! bet!een the partiesC 6>7 that C3 Circular No. ((> and C3
Circular
No. $9# are not applicableC and 6@7 that private respondents are not estopped fro/ Euestionin. the
increase of rate interest /ade b0 petitioner.D
5
1he petition is bereft of /erit.
In /ain. the unilateral increases in interest rates, petitioner ban relied on the escalation clause
contained in their credit a.ree/ent !hich provides, as follo!s)
1he 3an reserves the ri.ht to increase the interest rate !ithin the li/its allo!ed b0
la! at an0 ti/e dependin. on !hatever polic0 it /a0 adopt in the future
and provided, that, the interest rate on this acco//odation shall be
correspondin.l0 decreased in the event that the applicable /a?i/u/ interest rate
is reduced b0 la! or b0 the Monetar0 3oard. In either case, the ad-ust/ent in the
interest rate a.reed upon shall tae effect on the effectivit0 date of the increase or
decrease in /a?i/u/ interest rate.
3
Kathryn P. Akmad
Bulacan State University
College of Law
1his clause is authori=ed b0 Section % of Presidential Decree 6P.D.7
No. ":8@ !hich further a/ended &ct No. %:## 6D1he <sur0 ;a!D7, as a/ended, thus)
Section %. 1he sa/e &ct is hereb0 a/ended b0 addin. a ne! section after Section
(, to read as follo!s)
Sec. (2a. Parties to an a.ree/ent pertainin. to a loan or forbearance of /one0,
.oods or credits /a0 stipulate that the rate of interest a.reed upon /a0 be
increased in the event that the applicable /a?i/u/ rate of interest is increased b0
la! or b0 the Monetar0 3oardC Provided, 1hat such stipulation shall be valid onl0 if
there is also a stipulation in the a.ree/ent that the rate of interest a.reed upon
shall be reduced in the event that the applicable /a?i/u/ rate of interest is
reduced b0 la! or b0 the Monetar0 3oardC Provided further, 1hat the ad-ust/ent in
the rate of interest a.reed upon shall tae effect on or after the effectivit0 of the
increase or decrease in the /a?i/u/ rate of interest.
Section " of P.D. No. ":8@ also e/po!ered the Central 3an5s Monetar0 3oard to prescribe the
/a?i/u/ rates of interest for loans and certain forbearances. Pursuant to such authorit0, the
Monetar0 3oard issued Central 3an 6C.3.7 Circular No. $9#, series of "$8%, Section # of !hich
provides)
Sec. #. Section ">9> of the Manual of Re.ulations 6for 3ans and Other ,inancial
Inter/ediaries7 is hereb0 a/ended to read as follo!s)
Sec. ">9>. Interest and t!er C!ar"es. A 1he rate of interest,
includin. co//issions, pre/iu/s, fees and other char.es, on an0
loan, or forbearance of an0 /one0, .oods or credits, re.ardless of
/aturit0 and !hether secured or unsecured, shall not be sub-ect to
an0 ceilin. prescribed under or pursuant to the <sur0 ;a!, as
a/ended.
P.D. No. ":8@ and C.3. Circular No. $9# no /ore than allo! contractin. parties to stipulate freel0
re.ardin. an0 subseEuent ad-ust/ent in the interest rate that shall accrue on a loan or
forbearance of /one0, .oods or credits. In fine, the0 can a.ree to ad-ust, up!ard or do!n!ard, the
interest previousl0 stipulated. +o!ever, contrar0 to the stubborn insistence of petitioner ban, the
said la! and circular did not authori=e either part0 to unilaterally raise the interest rate !ithout the
other5s consent.
It is basic that there can be no contract in the true sense in the absence of the ele/ent of
a.ree/ent, or of /utual assent of the parties. If this assent is !antin. on the part of the one !ho
contracts, his act has no /ore efficac0 than if it had been done under duress or b0 a person of
unsound /ind.
6
Si/ilarl0, contract chan.es /ust be /ade !ith the consent of the contractin. parties. 1he /inds of
all the parties /ust /eet as to the proposed /odification, especiall0 !hen it affects an i/portant
aspect of the a.ree/ent. In the case of loan contracts, it cannot be .ainsaid that the rate of
interest is al!a0s a vital co/ponent, for it can /ae or brea a capital venture. 1hus, an0 chan.e
/ust be mutually a.reed upon, other!ise, it is bereft of an0 bindin. effect.
4
Kathryn P. Akmad
Bulacan State University
College of Law
*e cannot countenance petitioner ban5s posturin. that the escalation clause at bench .ives it
unbridled ri.ht tounilaterally up!ardl0 ad-ust the interest on private respondents5 loan. 1hat
!ould completely tae a!a0 fro/ private respondents the ri.ht to assent to an i/portant
/odification in their a.ree/ent, and !ould ne.ate the ele/ent of /utualit0 in contracts.
In P!ilippine #ational $an% v. Court of Appeals, et al., "$: SCR& #>:, #@@2#@# 6"$$"7 !e held A
. . . 1he unilateral action of the PN3 in increasin. the interest rate on the private
respondent5s loan violated the /utualit0 of contracts ordained in &rticle ">98 of the
Civil Code)
&rt. ">98. 1he contract /ust bind both contractin. partiesC its
validit0 or co/pliance cannot be left to the !ill of one of the/.
In order that obli.ations arisin. fro/ contracts /a0 have the force or la! bet!een
the parties, there /ust be mutuality bet!een the parties based on their essential
eEualit0. & contract containin. a condition !hich /aes its fulfill/ent dependent
e?clusivel0 upon the uncontrolled !ill of one of the contractin. parties, is void . . . .
+ence, even assu/in. that
the . . . loan a.ree/ent bet!een the PN3 and the private respondent .ave the
PN3 a license 6althou.h in fact there !as none7 to increase the interest rate at !ill
durin. the ter/ of the loan, that license !ould have been null and void for bein.
violative of the principle of /utualit0 essential in contracts. It !ould have invested
the loan a.ree/ent !ith the character of a contract of adhesion, !here the parties
do not bar.ain on eEual footin., the !eaer part05s 6the debtor7 participation bein.
reduced to the alternative Dto tae it or leave itD . . . . Such a contract is a veritable
trap for the !eaer part0 !ho/ the courts of -ustice /ust protect a.ainst abuse
and i/position. 6Citation o/itted.7
Private respondents are not also estopped fro/ assailin. the unilateral increases in interest rate
/ade b0 petitioner ban. No one receivin. a proposal to chan.e a contract to !hich he is a part0,
is obli.ed to ans!er the proposal, and his silence per se cannot be construed as an
acceptance.
7
In the case at bench, the circu/stances do not sho! that private respondents i/plicitl0
a.reed to the proposed increases in interest rate !hich b0 an0 standard !ere too sudden and too stiff.
IN VIE* 1+EREO,, the instant petition is DENIED for lac of /erit, and the decision of the Court
of &ppeals in C&2'.R. CV No. %("$#, dated October "#, "$$%, is &,,IRMED. Costs a.ainst
petitioner.
SO ORDERED.
#arvasa, C.J., Re"alado and &endoza, JJ., concur.

5