Spouses Eduardo v. Philippine National Bank

Summary

This landmark banking case involved spouses who obtained credit facilities from PNB secured by real estate mortgages, with PNB unilaterally increasing interest rates from 19.5% to 32% over several years through escalation clauses. When the spouses defaulted during the 1997 Asian financial crisis, PNB foreclosed their properties. The Supreme Court invalidated PNB's practice of requiring borrowers to sign promissory notes in blank and unilaterally imposing interest rates, finding this violated the Civil Code's mutuality of contracts principle and the Truth in Lending Act. The Court declared the escalation clauses null and void, limited interest to the legal rate, excluded penalties from secured amounts, and remanded for proper accounting. This case established important precedent protecting borrowers from unconscionable banking practices and unilateral contract modifications, emphasizing that interest rate changes in loan agreements must be mutually agreed upon by both parties.