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Almeda v.

CA (1996)
Respondents: CA AND PNB
Ponente: KAPUNAN
Topic: Remedies for Breach
SUMMARY: (1-2 sentence summary of facts, issue, ratio and ruling)

Ponciano and Eufemia Almeda acquired several loan/credit accommodations totalling

P18 million from PNB, at an interest rate of 21% per annum. To secure the loan,
spouses executed a Real Estate Mortgage Contract covering a parcel of their land at
Pasong Tamo, Makati and the building erected thereon (Marvin Plaza).
A credit agreement was also executed by the parties, which provides: the Bank
reserves the right to increase the interest rate within the limits allowed by law at
any timeprovided, that the interest rate on this/these accommodations shall be
correspondingly decreased in the event that the applicable maximum interest rate is
reduced by law or by the Monetary Board. In either case, the adjustment in the
interest rate agreed upon shall take effect on the effectivity date of the increase or
decrease of the maximum interest rate.
the Almedas made several partial payments on the loan totaling P7,735,004.66, a
substantial portion of which was applied to accrued interest.
Then, over the Almedas protests, PNB raised the interest rate to 28% pursuant to their
credit agreement, and thereafter increased it to a high of 68% before the loan matured.
Thus, the Almedas filed a petition for declaratory relief with prayer for a writ of
preliminary injunction and TRO to enjoin PNB from unilaterally raising the interest rates
on the loan, pursuant to the credit agreements escalation clause.
The RTC Makati issued the TRO, but by this time the Almedas were already in default of
their loan obligations.
Invoking the law on Mandatory Foreclosure (Act 3135 and PD 385), PNB countered by
ordering the extrajudicial foreclosure of the Almedas mortgaged properties and
scheduling an action sale.
The RTC granted a supplemental writ of preliminary injunction, staying the public
auction. The RTC later dissolved the writ. PNB then set a new date for the sale.
Before the sale, the Almedas tendered to PNB P40,142,518, which covered the
remaining principal amount of the loan plus interest at 21%.
PNB refused to accept the tender of payment, thus the Almedas consigned the P40M
with the RTC. The RTC granted the Almedas prayer for a writ of preliminary injunction
against the sale anew.
PNB appealed to the CA, which set aside the trial courts order granting the writs and
upheld PNBs right to foreclosure pursuant to Act 3135 and PD 385.
Thus, this petition.

PNB vigorously denied that the increases in the interest rates were illegal, unilateral,
excessive and arbitrary, it argued that the escalated rates of interest it imposed was
based on the agreement of the parties.


WoN PNB was authorized to raise its interest rates from 21% to as high as 68% under
the credit agreement
o NO. Any contract which appears to be heavily weighed in favor of one of the
parties so as to lead to an unconscionable result is void. Likewise, any stipulation
regarding the validity or compliance of the contract which is left solely to the will
of one of the parties is invalid.
o The binding effect of any agreement between parties to a contract is premised on
two settled principles: that any obligation arising from contract has the force of
law between the parties and that there must be mutuality between the parties
based on their essential equality.
o PNB unilaterally altered the terms of its contract with the Almedas by
increasing the interest rates on the loan without prior assent of the latter, in
violation of the mutuality principle of contracts expressed in A1308, NCC.
o While interest escalation clauses in credit agreements are perfectly valid and do
not contravene public policy, they are still subject to laws and provisions.
o The stipulation in the credit agreement, which requires that the increase be
within the limits allowed by law refers to legislative enactments, not
administration circulars, otherwise the credit agreement would not have made
the distinction between law and the Monetary Board in the phrase that the
interest rate on this/these accommodations shall be correspondingly decreased
in the event that the applicable maximum interest rate is reduced by law or by the
Monetary Board.
o The increased interest rates, to which the Almedas never assented, thereby
resulting to PNBs contravention of their credit agreement by implementing the
same, are patently unconscionable and excessive, unjustly disabling the
Almedas from fulfilling their obligation due to the new amount of the loan that is
way above the original amount of the old interest rate.