G.R. No. 101771 , December 17, 1996
SPOUSES MARIANO and GILDA FLORENDO, petitioners, vs. COURT OF APPEALS and LAND BANK OF THE PHILIPPINES, respondents.

FACTS

Petitioner Gilda Florendo, an employee of respondent Land Bank of the Philippines, was granted a housing loan of P148,000 payable in 25 years at 9% annual interest. She voluntarily resigned from the bank in 1984. Subsequently, in 1985, the bank, invoking provisions in the Housing Loan Agreement and Real Estate Mortgage allowing interest rate adjustments based on Central Bank rules and the bank’s Provident Fund Board, unilaterally increased the interest rate on her outstanding loan to 17% per annum. This increase was implemented via a Management Committee Resolution and a Provident Fund Memorandum Circular, which specifically applied escalated rates to employees who had voluntarily resigned. The petitioners protested the increase, continued paying the original amortization, and filed an action for Injunction with Damages.
The Regional Trial Court ruled in favor of the bank, validating the interest rate escalation. The Court of Appeals affirmed this decision with modification, holding that the contractual provisions permitted such an adjustment. The petitioners elevated the case to the Supreme Court, arguing that the unilateral imposition of the increased rate was invalid.

ISSUE

May a bank unilaterally increase the interest rate on a housing loan due to the borrower’s voluntary resignation, based on general escalation clauses in the loan contracts?

RULING

No. The Supreme Court reversed the Court of Appeals and ruled that the unilateral escalation was invalid. The legal logic centers on the principle of mutuality of contracts under Article 1308 of the Civil Code, which requires that contract terms must be binding on both parties and not dependent solely on the will of one. While the loan documents contained clauses allowing interest rate adjustments in accordance with Central Bank rules and the bank’s Provident Fund Board prescriptions, these provisions did not specifically stipulate that the borrower’s voluntary resignation would be a ground for an increase. The escalation was triggered not by a reference to an external market rate or a Central Bank circular, but by an internal bank resolution (ManCom Resolution No. 85-08) that unilaterally defined a new ground—resignation—for applying a higher rate. This effectively placed the determination and imposition of the new rate solely within the bank’s discretion, without the borrower’s consent, thereby violating mutuality. The Court emphasized that for an escalation clause to be valid, the basis for adjustment must be determinate or made determinable without reliance on the exclusive will of the creditor. Here, the bank’s resolution introduced a new, specific condition not agreed upon in the original contract. Consequently, the original interest rate of 9% per annum and the corresponding monthly amortization were reinstated.