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Silos vs. PNB
Silos vs. PNB
PHILIPPINE NATIONAL
BANK
G.R. No. 181045, 2 July 2014, SECOND DIVISION, (Del Castillo, J.)
In loan agreements, it cannot be denied that the rate of interest is a principal condition, if
not the most important component. Thus, any modification thereof must be mutually agreed upon;
otherwise, it has no binding effect.
Spouses Eduardo and Lydia Silos secureda revolving credit line with
Philippine National Bank (PNB)through a real estate mortgage as a security. After
two years, their credit line increased. Spouses Silos then signed a Credit Agreement,
which was also amended two years later, and several Promissory Notes (PN) as
regards their Credit Agreements with PNB.The said loan was initially subjected to a
19.5% interest rate per annum. In the Credit Agreements, Spouses Silos bound
themselves to the power of PNB to modify the interest rate depending on whatever
policy that PNB may adopt in the future, without the need of notice upon them.
Thus, the said interest rates played from 16% to as high as 32% per annum.Spouses
Silos acceded to the policy by pre-signing a total of twenty-six (26) PNs leaving the
individual applicable interest rates at hand blank since it would be subject to
modification by PNB.
Spouses Silos regularly renewed and made good on their PNs, religiously
paid the interests without objection or fail. However, during the 1997 Asian
Financial Crisis, Spouses Silos faltered when the interest rates soared. Spouses Silos
26thPN became past due, and despite repeated demands by PNB, they failed to
make good on the note. Thus, PNB foreclosed and auctioned the involved security
for the mortgage. Spouses Silos instituted an action to annul the foreclosure sale on
the ground that the succeeding interest rates used in their loan agreements was left
to the sole will of PNB, the same fixed by the latter without their prior consent and
thus, void. The Regional Trial Court (RTC) ruled that such stipulation authorizing
both the increase and decrease of interest rates as may be applicable is valid. The
Court of Appeals (CA) affirmed the RTC decision.
ISSUE:
May the bank, on its own, modify the interest rate in a loan agreement
without violating the mutuality of contracts?
RULING:
No.Any modification in the contract, such as the interest rates, must be
made with the consent of the contracting parties. The minds of all the parties must
meet as to the proposed modification, especially when it affects an important aspect
of the agreement. In the case of loan agreements, the rate of interest is a principal
condition, if not the most important component.
UST Law Review, Vol. LIX, No. 1, May 2015