32] Almeda vs CA 256 SCRA 292 (1996) FACTS 1. in 1981, Philippine National Bank granted to petitioners, spouses Ponciano Almeda and Eufemia Almeda, several loanvoredit accommodations totaling P18 Millon payable in 6 years at an interest rate of 21% per annum 2. 10 secure the loan, spouses executed a Real Estate Mortgage Contract covering a 3.5 K sq.m. parcel of land and the buiiding erected thereon (the Marvin Plaza) located at Pasong Tamo, Makati 3. actedit agreement wit the ff pertinent terms and conditions: Interest of 21% per annum, payable semi-annually in arears, the first interest payment to become due and payable 6 months trom date of inital release ot loan > "The Bank reserves the right 0 increase the interest rate within the mits allowed by Jaw at any time depending on whatever policy t may adopt in the future..the adjustment in the intrest rate agreed upon stall take effect on the effectvty date of the increaseldecrease of the maximum interest rate, 4, between 1981 and 1984 petitioners made several partial payments on the foan totaling 7,735,004.66, a substantial porton of which was applied to accrued interest 5. March 31, 1984 the bank, over petitioners’ protests, raised the interest rate to 28% pursuant to their credit ‘agreement, interest rate increased toa high of 68% between March 1984 to Sept 1986 before the loan was to mature in March 1988, the spouses filed a pettion for declaratory relied with prayer for a writ ot preliminary injunction and TRO—spouses sought clarification as to WON the PNB could uniaterally raise interest rates on the loan, pursuant tothe credit agreement's escalation clause 6. lower cour issued TRO; by this time the spouses 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 foreciosure of petitioners’ mongaged properties—-> lower cour, however, issued a supplemental writ of preliminary injunetion 7. PNB posted a counterbond and the tral coun dissolved the supplemental wrt; PNB once more set a new date for the foreclosure of Marvin Plaza 8, spouses tendered 10 PNB the amount of 40,142,518 pesos (interest calculated at 2196); PNB refused 10 accept-—> spouses formally consigned the amount with the RTC which granted the writ of preliminary injunction enjoining the foreclosure of Marvin Plaza 9. Judge Capulong refused to lit WPI 10, PNB filed petition for Certoran, Prohibition and Mandamus with CA 11, On August 1993 CA rendered its decision setting aside the assailed orders and upholding respondent's right to foreclose the mongaged property pursuant to Act 12, 3135 and PD 385 ISSUES 1. WON PNB was authorized to raise its interest rates from 21% to as high as 68% under the credit agreement 2. WON PNB is granted the authority 1o foreclose the Marvin Plaza under the mandatory foreclosure provisions of PD385 HELD 1. Any contract which appears o be heavily weighed in favor of one ofthe parties so as to lead to an unconscionable results void. Ary stipulation regarding the validity or compliance of the contract which is left solely o the will of ne of the parties, is IKewise, val2. In faciltating collection of debts through the automatic foreclosure provisions of PD 386, the government is, however, not exempted trom observing basic principles of law, and ordinary falmess and decency under the due process clause of the Constitution Reasoning 1. — the binding effect of any agreement between parties toa contract is premised on two settled principles: that any obligation arising ftom contract has the force of lw between the parties; and that there must be mutuality between the parties based on their essential equalty - PNB unilaterally altered the terms ofits contract with pettioners by increasing the interest rates on the loan without prior assent of the later the manner of agreement is itself explicitly stipulated by the Civil Code in ‘A1L1956 “no ierest shall be due uniess ft has been expressly stipulated in wring what has been stipulated in \wrting is that petitoners were bound merely to pay 21% interest, subject to possible escalation or de-escalation When the circumstances warrant fits within the limits allowed by law, and upon agreement - i PNB v. CA, PNB was disauthorzed from unilaterally raising the interest rate partly because the increase violated the principle of mutuality of contracts expressed in Ar.1308 of the CC “the contract must bind both contracting partes; is validity or compliance cannot be lft 0 the willof one of them = increases were arbitrary - escalation clauses in credit agreements are perfectly valid and do not contravene public policy. However, they are stil subject 10 laws and provisions governing agreements between partes, which agreements implicitly incorporate provisions of existing law =the credit agreement requires that the increase be within the limits alowed by law—reters to legislative enactments, notadmin circulars (PNB relied on CB Circular No. 905) as shown in the credit agreement where there isa distinction made between “law or the Monetary Board Circulars” Banco Filipino Savings and Mongage Bank v. Navarro: distinction between a law and an admin regulation is recognized in the Monetary Board guidelines; guidelines thus presuppose that a Central Bank regulation isnot within the term ‘any law’ - pettioners never agreed in writing to pay the increased imerest rates demanded by PNB 2.—PD 385 was issued principally to guarantee that government financial institutions would not be denied substantal cash inflows necessary to finance the government's development projects by large borrowers who resort to litigation 1o prevent or delay the government's colection of their debs or loans - the dispute regarding the interest rate increases was never settled so the exact amount of petitioners’ obligations could not be determined - the foreclosure provisions could be validly invoked by PNB only after settlement of the question invoWing the interest rate on the loan, and only after the spouses refused to meet their obligations folowing such determination - PNB cannot claim that there was no honest-o-goodness attempt on the part of the spouses 10 settle their obligations Disposition The unilateral and progressive increases imposed by PNB were null and void, The decision and resolution of the CA is REVERSED AND SET ASIDE. The case is remanded to RTC for further proceedings,