Reynaldo P. Floirendo, Jr. v. Metropolitan Bank

Summary

This case involves a loan agreement between Floirendo and Metropolitan Bank where the bank unilaterally increased interest rates from the agreed 15.446% per annum to as high as 30.244% under an escalation clause. When the borrower could no longer pay the excessive rates and the bank moved to foreclose despite his attempts to negotiate, Floirendo sought reformation of the mortgage and promissory note contracts. The RTC initially dismissed his complaint, upholding the escalation clause's validity. However, the Supreme Court reversed, ruling that clauses allowing unilateral modification of essential contract terms violate the mutuality principle under Civil Code Article 1308. The decision is significant for protecting borrowers against unconscionable contract terms and reinforcing that both parties must consent to material contract modifications, particularly in lending agreements where interest rates are vital components.