Philippine National Bank v. The Hon. Court of Appeals

Summary

PNB granted Padilla a P1.8 million credit line at 18% interest with mortgage security. Within four months in 1984, PNB unilaterally increased rates to 32%, 41%, then 48% despite Padilla's protests. The Supreme Court ruled these increases violated PD 116's limitation of rate changes to once yearly, and Civil Code principles on contract mutuality. The escalation clauses were invalid as they allowed unilateral modification violating Article 1308. Since no law authorized the excessive rates, and proper written consent was absent per Article 1956, the increases were null and void. This landmark decision protects borrowers from arbitrary unilateral interest rate modifications and reinforces contractual mutuality principles in banking relationships, establishing important precedent for fair lending practices in Philippine banking law.