Philippine National Bank v. Court of Appeals

Summary

The Supreme Court affirmed lower court rulings invalidating PNB's unilateral interest rate increases from 12% to 28% on a secured loan to the Bascos spouses. Despite escalation clauses in the 1979 loan documents allowing rate increases 'within limits allowed by law,' the Court held these clauses violated the mutuality principle under Article 1308 of the Civil Code because they lacked corresponding de-escalation provisions and allowed purely unilateral modifications. The decision emphasizes that banking contracts cannot be one-sided adhesion contracts that enable unlimited unilateral changes by the stronger party. This landmark ruling established that interest rate modifications in loan agreements require mutual consent between parties, protecting borrowers from arbitrary increases by financial institutions and ensuring contractual fairness in banking relationships.