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    Banco Filipino Vs Navarro

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    Anonymous GMUQYq8
    This case involves a dispute over an escalation clause in a promissory note between Navarro and Banco Filipino Savings. The escalation clause allowed the bank to increase the interest rate on Navarro's loan from 12% to 17% based on Circular 494 issued by the Central Bank. Navarro argued that Circular 494 was not a "law" as referred to in the escalation clause. The court ruled that Circular 494 was an administrative order rather than a law and could not be relied on by the bank to retroactively increase the interest rate. Additionally, the escalation clause was invalid because it did not include a provision allowing for interest rate decreases if rates were later reduced by law. Therefore, the

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    Banco Filipino Vs Navarro

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    Anonymous GMUQYq8
    903 views2 pages
    This case involves a dispute over an escalation clause in a promissory note between Navarro and Banco Filipino Savings. The escalation clause allowed the bank to increase the interest rate on Navarro's loan from 12% to 17% based on Circular 494 issued by the Central Bank. Navarro argued that Circular 494 was not a "law" as referred to in the escalation clause. The court ruled that Circular 494 was an administrative order rather than a law and could not be relied on by the bank to retroactively increase the interest rate. Additionally, the escalation clause was invalid because it did not include a provision allowing for interest rate decreases if rates were later reduced by law. Therefore, the

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    law case digest

    Original Title

    11. Banco Filipino vs Navarro

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    This case involves a dispute over an escalation clause in a promissory note between Navarro and Banco Filipino Savings. The escalation clause allowed the bank to increase the interest rate on Navarro's loan from 12% to 17% based on Circular 494 issued by the Central Bank. Navarro argued that Circular 494 was not a "law" as referred to in the escalation clause. The court ruled that Circular 494 was an administrative order rather than a law and could not be relied on by the bank to retroactively increase the interest rate. Additionally, the escalation clause was invalid because it did not include a provision allowing for interest rate decreases if rates were later reduced by law. Therefore, the

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    903 views2 pages

    Banco Filipino Vs Navarro

    Uploaded by

    Anonymous GMUQYq8
    This case involves a dispute over an escalation clause in a promissory note between Navarro and Banco Filipino Savings. The escalation clause allowed the bank to increase the interest rate on Navarro's loan from 12% to 17% based on Circular 494 issued by the Central Bank. Navarro argued that Circular 494 was not a "law" as referred to in the escalation clause. The court ruled that Circular 494 was an administrative order rather than a law and could not be relied on by the bank to retroactively increase the interest rate. Additionally, the escalation clause was invalid because it did not include a provision allowing for interest rate decreases if rates were later reduced by law. Therefore, the

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    Case 11: BANCO FILIPINO SAVINGS VS NAVARRO

    FACTS:
    Navarros loan secured with a mortgage from Banco
    Filipino had an escalation clause BASED ON CIRCULAR
    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 BANCO FILIPINO


    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.

    THUS, THIS CASE


    ISSUE
    What should be resolved is whether BANCO FILIPINO
    can increase the interest rate on the LOAN from 12%
    to 17% per annum under the Escalation Clause..

    RULING; the court may not increase the interest rate


    on the loan. Although the stipulation of the parties is
    very clear that the interest rate may be increased in
    the event a law should be enacted increasing the
    lawful rate that maybe charged on this loan Circular

    494 is not strictly a statute or law but


    administrative order that has the effect of law.

    an

    The difference between a law an administrative


    regulation
    is recognized in the monetary Board
    guidelines whereunder provides that for a loans
    interest to be subject to the increase provided under
    Circular 494, there must be an ESCALATION clause
    allowing the increase in the event that any law or
    Central bank regulation is promulgated increasing the
    max interest for loans. The guidelines thus
    presupposes that a central bank regulation is not
    within
    the
    term
    any
    law
    For the escalation clause to
    specifically provide as follows;

    be

    valid;

    it

    must

    1. There can be an increase in interest IF INCREASED


    by law or by the MONETARY BOARD
    2. For the stipulation to be valid, it must include a
    provision for reduction of the stipulated interest in the
    event that the applicable maximum rate of interest is
    reduced by law or by the Monetary Board.
    While PD no 1684 is not to be given retroactive effect,
    te absence of De-escalation clause in the Escalation

    Clause in question provides another reason why it


    should not be given effect because of its one
    sidedness in favor of the lender.
    The escalation clause specifically stipulated that the
    increase in interest was to be on this particular kind
    of loan meaning one secured by registered real
    estate mortgage
    COURT RULES THAT WHILE AN ESCALATION CLAUSE
    LIKE THE ONE IN THIS CASE CAN ORDINARILY BE HELD
    VALID, NEVERTHELESS PETITIONER BANCO FILIPINO
    CANNOT RELY THEREON TO RAISE THE INTEREST ON
    THE BORROWERS 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
    SEECURED BY REGISTERED REAL ESTATE IN THE
    ABSENCE OF ANY SUCH SPECIFIC INDICATION AND IN
    CONTRAVENTION OF THE POLICY BEHIND THE USURY
    LAW

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