18.

PHILIPPINE NATIONAL BANK

petitioner
, vs, THE HON. COURT OF "PEALS and AMBROSIOPADILLA,
respondents
.
GR# 88880. April 30, 1991.
GRIRO-AQUINO, J
.:
FACTS:
Private respondent (PR) Ambrosio Padilla, applied for and was
granted a credit line of 321.8million, by petitioner PNB. This
was for a term of 2 years at 18% interest per annum and was
secured byreal estate mortgage and 2 promissory notes executed
in favor of Petitioner by PR. The credit agreementand the
promissory notes, in effect, provide that PR agrees to be
bound by “increases to the interest ratestipulated, provided it
is within the limits provided for by law”.

ISSUE:
Despite the removal of the Usury Law ceiling on interest, may
the bank validly increase thestipulated interest rate on loans
contracted with third persons as often as necessary and against
theprotest of such persons.
HELD:

For escalation clauses to be valid and warrant the increase of

the interest rates on loans, there must be:(1) increase was made
by law or by the Monetary Board; (2) stipulation must include a
clause for thereduction of the stipulated interest rate in the
event that the maximum interest is lowered by law or by
theMonetary board.