ALMEDA V.

CA

GR Number: 113412 Date of the case: April 17, 1996

Topic: Interest/Usury Law Digested by: Raymund M. Julian
DOCTRINE The manner of agreement is itself explicitly stipulated by the Civil Code when it
provides, in Article 1956 that "No interest shall be due unless it has been
expressly stipulated in writing."

While the Usury Law ceiling on interest rates was lifted by C.B. Circular 905,
nothing in the said circular could possibly be read as granting respondent
bank carte blanche authority to raise interest rates to levels which would
either enslave its borrowers or lead to a hemorrhaging of their assets.
FACTS PNB granted to Spouses Almeda, a loan/credit of 18M in a period of 6 years at
an interest rate of 21%, as security the spouses mortgaged their parcel of land
located in Makati,
On their loan agreement, PNB also reserves its right to increase the rates,
within the limits allowed by law.

In a span of 4 years (1981-1984) the interest rate increased to a high of 68%.

Petitioner protested against the increase in interest. Hence the petition.
ISSUE/S Whether PNB may unilaterally increase the interest rate, within the limits
prescribed by law.
RULING No. PNB may not unilaterally increase the interest rate, because, while the Usury
Law ceiling on interest rates was lifted by C.B. Circular 905, nothing in the said
circular could possibly be read as granting respondent bank blanket authority to
raise interest rates to levels which would either enslave its borrowers or lead to a
hemorrhaging of their assets.

Furthermore, petitioners never agreed in writing to pay the increased interest rates
demanded by PNB in contravention to the tenor of their credit agreement.

INTEREST IS REQUIRED TO BE EXPRESSLY STIPULATED IN WRITING. — The

manner of agreement is itself explicitly stipulated by the Civil Code when it provides, in Article
1956 that "No interest shall be due unless it has been expressly stipulated in writing." What has
been "stipulated in writing" from a perusal of interest rate provision of the credit agreement
signed between the parties is that petitioners were bound merely to pay 21% interest, subject to
a possible escalation or de-escalation, when 1) the circumstances warrant such escalation or
de-escalation; 2) within the limits allowed by law; and (3) upon agreement.

ID.; ID.; ID.; ESCALATION CLAUSES; VALID AS LONG AS NOT SOLELY

POTESTATIVE BUT BASED ON REASONABLE AND VALID GROUNDS. — Escalation
clauses are not basically wrong or legally objectionable so long as they are not solely
potestative but based on reasonable and valid grounds. Here, as clearly demonstrated above,
not only the increases of the interest rates on the basis of the escalation clause patently
unreasonable and unconscionable, but also there are no valid and reasonable standards
upon which the increases are anchored.