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Argument & The trial court ruled in favor of respondent bank, and held that the bank was vested with
Ruling (TC) authority to increase the interest rate (and the corresponding monthly amortizations) pursuant to
said escalation provisions in the housing loan agreement and the mortgage contract
Argument & The respondent Court subsequently affirmed with modification the decision of the trial court,
Ruling (CA) stating that escalation clauses have been ruled to be valid stipulations.
Issue Whether or not the respondent bank has a valid and legal basis to impose an increased interest
rate on the petitioner's housing loan?
SC Ruling WHEREFORE, the petition is hereby GRANTED. The Court hereby REVERSES and SETS ASIDE the
challenged Decision of the Court of Appeals. The interest rate on the subject housing loan
remains at nine (9) percent per annum.
Ratio Decidendi What is actually central to the disposition of this case is not really the validity of the escalation
clause but the retroactive enforcement of the ManCom Resolution as against petitioner-
employee. The ManCom Resolution is neither a rule nor a resolution of the Monetary Board, and
thus cannot be used as basis for the escalation.
It could not apply to petitioner-employee because nowhere in the loan agreement or mortgage
contract is it provided that petitioner-wife's resignation will be a ground for the adjustment of
interest rates. It would be unfair to impose said condition, not to mention that it would violate
the principle of mutuality of consent in contracts. It goes without saying that such escalation
ground can be included in future contracts but not to agreements already validly entered into.