Case Digest (G.R. No. 88880)
Facts:
In July 1982, Ambrosio Padilla applied for and obtained from Philippine National Bank (PNB) a ₱1.8 million, two-year credit line secured by a real estate mortgage, at an initial interest rate of 18% per annum. He executed a Credit Agreement, two ₱900,000 promissory notes, and a Mortgage Contract, each containing an escalation clause authorizing PNB to increase interest “within the limits allowed by law” and requiring Padilla’s written consent to effectuate any change. In June 1984 PNB demanded a 30% principal reduction as a precondition for renewal; Padilla paid ₱540,000 and requested renewal with interest at 21%–24%. PNB instead unilaterally raised the rate to 32% (effective July 4, 1984), to 41% (September 6, 1984), and to 48% (October 25, 1984), without Monetary Board approval and over Padilla’s protests. Padilla continued partial payments, reducing the principal to ₱300,000, and on December 18, 1984 filed Civil Case No. 84-28391 in the RTC of Manila to annul the rate increas...Case Digest (G.R. No. 88880)
Facts:
- Loan Granting and Security Instruments
- In July 1982, Philippine National Bank (PNB) granted Ambrosio Padilla a P1.8 million credit line, secured by:
- A Credit Agreement stipulating 18% interest per annum and an escalation clause “within the limits allowed by law.”
- Two promissory notes of P900,000 each, authorizing future interest increases “within the limits allowed by law” and corresponding decreases if the maximum rate was reduced by law or Monetary Board.
- A Real Estate Mortgage Contract containing a clause that interest may be increased “within the rate allowed by law, as the Board of Directors of the Mortgagee may prescribe.”
- Four months’ advance interest and incidental charges were deducted; the net proceeds were credited to Padilla’s current account.
- Successive Interest Rate Increases and Borrower’s Objections
- June–July 1984: PNB notified Padilla of credit line expiration (July 4, 1984) and renewal conditions (30% principal reduction). Padilla complied, paid P540,000, and requested renewal at 21% or 24%.
- July–November 1984: Without a Monetary Board directive or new written agreement, PNB successively increased the interest rate to:
- Padilla protested in writing each increase, continued partial payments, and ultimately paid off the P300,000 balance on March 31, 1985.
- Litigation History
- December 18, 1984: Padilla filed suit to annul the interest increases, seek an interest rate adjustment to 24%, and recover excess interest collected. He also sought injunctive relief to prevent foreclosure.
- April 14, 1986: The Regional Trial Court dismissed the complaint, upholding PNB’s rate increases.
- June 27, 1989: The Court of Appeals reversed, declaring the rate hikes unreasonable, excessive, and arbitrary; ordered PNB to refund interest collected above 24% from July 1984.
- April 30, 1991: The Supreme Court denied PNB’s petition for review under Rule 45, affirming the CA decision.
Issues:
- May a bank unilaterally and repeatedly increase the contractual interest rate during the loan term without a corresponding law or Monetary Board authorization?
- Were the successive interest rate adjustments from 18% to 32%, 41%, and 48% valid under:
- P.D. No. 116 (limiting interest rate changes to once every twelve months)?
- The parties’ contractual escalation clauses?
- Applicable Central Bank/Monetary Board issuances and PNB internal circulars?
Ruling:
- (Subscriber-Only)
Ratio:
- (Subscriber-Only)
Doctrine:
- (Subscriber-Only)