PNB V CA

G.R. 109563, JULY 9,1996

FACTS:

Bascos obtain a loan from PNB evidenced by a promissory note secured with a real mortgage. The
promissory note contains an escalation clause. Thereafter, the interest rate per annum of 14% was then
increased gradually yearly for up to 28%. RTC ruled in favor of Bascos ruling that the absence of a de-
escalation clause rendered the stipulated escalation clause void. CA affirmed.

ISSUE:

Is the escalation clause valid?

HELD:

No. As reiterated by the Supreme Court, an stipulation of escalation clause is valid provided the
following conditions are present: 1) in writing and agreed by the parties, 2) escalation clause is coupled
with a de-escalation clause, and 3) the increase or decrease be based on the pronouncement of Bangko
Sentral ng Pilipinas. Moreso, the court discussed about the principle of mutuality whereby notice must
be given to the other party and consent of the parties must be given. Hence, increase in the interest rate
may not be done unilaterally.