2016 (Mercantile Law) Bar Exam Questions: Question 18

[Answer/discuss the question below, or see 2016 bar exam Mercantile Law Instructions; 2016 Mercantile Law Questions: 123456789101112131415161719 and 20; See also 2016 Bar Exam: Information, Discussions, Tips, Questions and Results]

-XVIII-

B Bank, a large universal bank, regularly extends revolving credit lines to business establishments under what it terms as socially responsible banking and private business partnership relations. All loans that are extended to clients have a common “Escalation Clause,” to wit: “B Bank hereby reserves its right to make successive increases in interest rates in accordance with the bank’s adopted policies as approved by the Monetary Board; Provided that each successive increase shall be with the written assent ofthe depositor.”

[a] X, a regular client of the bank, contends that the “Escalation Clause” is unfair, unconscionable and contrary to law, morals, public policy and customs. Rule on the issue and explain. (2.5%)

[b] Suppose that the “Escalation Clause” instead reads: “B Bank hereby reserves the right to make reasonable increases in interest rates in accordance with bank policies as approved by the Monetary Board; Provided, there shall be corresponding reasonable decreases in interest rates as approved by the Monetary Board.” Would this be valid? Explain. (2.5%)

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