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PNB V Ca

The Bascos obtained a loan from PNB secured by a real mortgage note. The note contained an escalation clause allowing the interest rate to increase yearly up to 28% but lacked a de-escalation clause. Both the RTC and CA ruled the escalation clause void without a de-escalation clause. The Supreme Court affirmed, finding an escalation clause valid only if: 1) in writing and agreed by both parties; 2) accompanied by a de-escalation clause; and 3) rate changes based on BSP pronouncements. Unilateral interest rate increases violate the principle of mutuality requiring notice and consent.

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163 views1 page

PNB V Ca

The Bascos obtained a loan from PNB secured by a real mortgage note. The note contained an escalation clause allowing the interest rate to increase yearly up to 28% but lacked a de-escalation clause. Both the RTC and CA ruled the escalation clause void without a de-escalation clause. The Supreme Court affirmed, finding an escalation clause valid only if: 1) in writing and agreed by both parties; 2) accompanied by a de-escalation clause; and 3) rate changes based on BSP pronouncements. Unilateral interest rate increases violate the principle of mutuality requiring notice and consent.

Uploaded by

daryll
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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PNB V CA

G.R. 109563, JULY 9,1996

FACTS:

Bascos obtain a loan from PNB evidenced by a promissory note secured with a real mortgage. The
promissory note contains an escalation clause. Thereafter, the interest rate per annum of 14% was then
increased gradually yearly for up to 28%. RTC ruled in favor of Bascos ruling that the absence of a de-
escalation clause rendered the stipulated escalation clause void. CA affirmed.

ISSUE:

Is the escalation clause valid?

HELD:

No. As reiterated by the Supreme Court, an stipulation of escalation clause is valid provided the
following conditions are present: 1) in writing and agreed by the parties, 2) escalation clause is coupled
with a de-escalation clause, and 3) the increase or decrease be based on the pronouncement of Bangko
Sentral ng Pilipinas. Moreso, the court discussed about the principle of mutuality whereby notice must
be given to the other party and consent of the parties must be given. Hence, increase in the interest rate
may not be done unilaterally.

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