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Title SPOUSES MARIANO and GILDA FLORENDO, petitioners, vs.

COURT OF APPEALS and LAND BANK


OF THE PHILIPPINES, respondents. (G.R. No. 101771. December 17, 1996.)
Facts of the Case (Petitioner) Gilda Florendo (was) an employee of (Respondent Bank) when she voluntarily
resigned. Before her resignation, she applied for a housing loan through an authorized
representative. This was given to her in her capacity as an employee of the Bank, along with a
Real Estate Mortgage and Promissory Note. Two years after the agreement, the respondent bank
increased the interest on the loan from 9% to 17%. They did so because a provision in the Housing
Loan Agreement and Real Estate Mortgage stated that the rate of interest charged shall be
subject to changes in accordance with the rules, regulations and circulars of the Central Bank of
the Philippines and the Provident Fund Board of Trustees of Mortgage. A Provident Fund
Memorandum Circular escalated the interest rates on outstanding housing loans of bank
employees who voluntarily resign from the Bank. Landbank informed Petitioner of the changes
and demanded that she pay the increased rate. She refused, and Landbank thus sued for
Injunction and Damages.

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.