Philippine National Bank v. Court of Appeals

Summary

PNB and private respondents entered into CIGLF loan agreements totaling P100,000 at 12% annual interest with escalation clauses. PNB unilaterally increased rates to 42% based on these clauses. The Supreme Court ruled that despite escalation clauses and enabling laws (PD 1684, CB Circular 905), banks cannot unilaterally modify interest rates without borrower consent. Such unilateral increases violate the mutuality principle in Civil Code Article 1308, transforming loan agreements into unconscionable contracts of adhesion. The Court emphasized that contract modifications, especially regarding vital components like interest rates, require mutual assent from both parties. The decision protects borrowers from arbitrary banking practices and upholds fundamental contract law principles in commercial lending relationships, establishing important precedent for banking law and consumer protection.