LIAM LAW VS OLYMPIC SAWMILL

On or about September 7, 1957, plaintiff loaned P10,000.00, without interest, to defendant partnership
(Olympic Sawmill). On due date, January 31, 1960, the defendant was not able to pay. On March 17,
1960, the parties executed another loan document. Payment of the P10,000.00 was extended to April
30, 1960, but the obligation was increased by P6,000.00. Defendants once again failed to pay, thus the
plaintiff filed a case for collection. The defendant contended that the P6,000 interest was usurious, and
that since they alleged that the interest was usurious and the plaintiff failed to answer it under oath
thus it admitted that such interest was indeed usurious (Section 9 of the Usury Law).
Issue: Was there a usury?

Held: No. The foregoing provision envisages a complaint filed against an entity which has committed
usury, for the recovery of the usurious interest paid. In that case, if the entity sued shall not file its
answer under oath denying the allegation of usury, the defendant shall be deemed to have admitted
the usury. The provision does not apply to a case, as in the present, where it is the defendant, not the
plaintiff, who is alleging usury.Moreover, for sometime now, usury has been legally non-existent.
Interest can now be charged as lender and borrower may agree upon. 4 The Rules of Court in regards
to allegations of usury, procedural in nature, should be considered repealed with retroactive effect.

BANCO FILIPINO VS NAVARRO

On May 20,1975Florante del Valle secured a real estate mortgage from Banco Filipino in the
amount of P41,000 payable within 15 years with an interest of 12% per annum. It has an
escalation clause that authorizes the bank to increase the interest rate us in the event law
should be enacted increasing the lawful rates of interest that may be charged on this
particular kind of loan. On the strength of CIRCULAR No. 494 BANCO FILIPINO gave notice to
the BORROWER on June 30, 1976 of the increase of interest rate on the LOAN from 12% to
17% per annum effective on March 1, 1976.
Issue: Can the Banco Filipino increase the interest rate?
Held: No. The escalation clause expressly provided that an increase can be made only if
there should be a law which increases the lawful rate. The bank based its increase on
Circular No. 494 which is not a law. Although it has the force of a law, it is not a law.
Furthermore, the circular did not distinguish as to what kind of loan it applies. It also
provides that loans and renewals are continued to be governed by the Usury Law. In the
absence of any indication in CIRCULAR No. 494 as to which particular type of loan was
meant by the Monetary Board, the more equitable construction is to limit CIRCULAR No. 494
to loans guaranteed by securities other than mortgage upon registered realty.
Furthermore, the escalation clause does not contain a de-escalation clause. Although PD
1684 should not be given retroactive effect, the Court nullified the stipulation because of its
one-sidedness.
Note: Loans secured by a real estate has the ceiling interest rate of 12% per annum.
Conditions for Escalation Clause:
1. The increased rate imposed or charged by petitioner does not exceed the ceiling fixed by
law or the Monetary Board 2. The increase is made effective not earlier than the effectivity
of the law or regulation authorizing such an increase;

3. The remaining maturities of the loans are more than 730 days as of the effectivity of the
law or regulation authorizing such an increase.
PNB VS CA and FERNANDEZ
REMEDIOS JAYME-FERNANDEZ and AMADO FERNANDEZ as owners of a NACIDA-registered enterprise,
obtained a loan under the Cottage Industry Guaranty Loan Fund (CIGLF) from the Philippine National
Bank (PNB). The loan contained a unilateral increases in the interest rate of the loan. Private
respondents asked the RTC to reduce those interests.
Issue: Can the PNB make unilateral increases in the interest rate?
Held: No. P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting parties to stipulate
freely regarding any subsequent adjustment in the interest rate that shall accrue on a loan or
forbearance of money, goods or credits. In fine, they can agree to adjust, upward or downward, the
interest previously stipulated. However, contrary to the stubborn insistence of petitioner bank, the said
law and circular did not authorize either party to unilaterally raise the interest rate without the other's
consent. Even assuming that the loan agreement contains such unilateral increases such increases
would have been null and void for being violative of the principle of mutuality essential in contracts.
PNB VS IAC
Spouses ferminmaglasang and antoniasedigo obtained a loan from petitioner in the amount of
P82,682.39 from February 5, 1976 to May 18, 1979 payable upon demand, bore 12% interest per
annum plus 1% interest as penalty charge in case of default in the payments, and has an escalation
clause. On December 1, 1979, the Monetary Board of the Central Bank, by virtue of Presidential Decree
No. 116, issued CB Circular No. 705 increasing the ceiling on the rate of interest on both secured and
unsecured loans up to no more than 21% per annum, consequently PNB raised its interest. Respondent
failed to pay upon demand. Petitioner foreclose the mortgage but the proceeds were insufficient, thus,
it filed a case for the collection of such deficiency. Trial court ordered the payment of such deficiency
plus 21% interest. The CA amended, only 12% was ordered.

Issue: Was the escalation clause valid? Granting that it was valid, was the increase in the interest
proper?

Held: The escalation clause was proper. However, application of the escalation must be in accordance
with the rules settled down by the circular increasing the ceiling rate of interest. Circular No. 705
requires that the maturity date must be more than 730 from the effectivity of the law or regulation
authorizing such increase. The bank has complied with all the requirements but the 730 day
requirement. Although there was no showing as to when the demand was made, it was clear that when
the foreclosure was made, the 730 day requirement had not yet elapsed, counted from the effectivity
of the regulation.