1. Villa Crista Monte Realty & Dev’t Corp.

vs Equitable PCI Bank

GR No. 208336, November 21, 2018
Facts:
In 1994, Villa Crista Monte Realty Corporation, engaged in the business
of real estate development, acquired from Alfonso Lim a parcel of land
located at Old Balara, Quezon City with a land area of 80,000 square
meters (8 hectares) and intended to develop in into a residential
subdivision. After putting up a clubhouse, appellant Corporation
eventually purchased the adjoining 13.5-hectare land, consolidating its
ownership over the 21.5 hectares of land. Appellant then executed a
Real Estate Mortgage over the 80 hectares of land as security for the
credit line of P 80 Million applied and granted by Equitable PCI Bank.
In 1995, appellant subdivided the mortgaged parcel of land into 174
lots, each covered by a separate certificate of title. Appellant applied for
an additional P50 Million credit line from the E-PCIB, mortgaged 41 lots
as securities for the credit accommodation and asked for the release of
the remaining 133 titles from the earlier mortgage. E-PCIB granted the
request provided that the mortgage contract would be amended to
conform to the changes in the amount of credit line and mortgaged
properties, appellant agreed. The latter obtained the amount of credit
line on various occasions from March 20, 1987 to August 15, 1997, each
amount was covered by a promissory note. E-PCIB wrote to appellant
informing it of the increased interest rates ranging from 21% to 36%
anchored on the uniform provision in the promissory notes.
Appellant defaulted on its obligations amounting to P129,700,000.00
prompting E-PCIB to initiate foreclosure proceedings. Respondent
Sheriff scheduled auction of the lots which led to the filing for the
nullification of the promissory notes and the mortgage agreements with
prayer for injunctive relief. The auction sale still proceeded where E-
PCIB emerged as the highest bidder. Appellant then filed a supplemental
complaint with the RTC of Quezon City assailing the said auction sale
and the amount claimed therein as well as praying for the nullification
of the titles under the name of E-PCIB.
Appellant contended that the increases in the interest rates were not
discussed by both parties; that the mortgage and its amendment were
contrary to law and public policy; that E-PCIB prematurely initiated the
foreclosure proceedings; and a claim for reparation of damages and
attorney’s fees. E-PCIB countered that appellant has no cause of action
and appellant likewise voluntarily agreed to the monthly re-pricing
interest. E-PCIB maintained that it merely complied with the provisions
of the Promissory Notes. On 2009, RTC rendered judgment in favour of
E-PCIB. Petitioner, appellant herein, appealed to the CA. However, CA
affirmed the judgment of the RTC.
Issues:
I. Whether or not the bank’s repricing of the interest rates was valid;
II. Whether or not the promissory notes bound appellant; and
III. Whether or not the payments made by appellant in excess of the
original rate of interest should be credited to the principal.

Ruling:
The SC ruled that the real estate mortgage and promissory notes were
valid, as well as the foreclosure proceedings. The provision found in the
promissory notes is commonly known as the escalation clause, which
refers to the stipulation allowing increases in the interest rates agreed
upon by the contracting parties. It is validly stipulated in commercial
contracts. The escalation clause is not void per se, the clause would only
be void if it violates the principle of mutuality of contracts wherein it
grants the creditor an unbridled right to adjust the interest
independently and deprive the debtor of the right to assent to an
important modification in the agreement. A de-escalation clause is an
indispensable requisite to the validity of the escalation clause in the
contract. No express de-escalation clause was stipulated in the
promissory notes, yet its absence did not invalidate the repricing of the
interest rates. The repricing notices indicated that on some occasions,
the bank had reduced or adjusted the interest rates downward. Despite
the absence of the corresponding de-escalation clause, the actual grant
by the respondent of the decreases in the interest rates rendered
inexistent the evil of inequality sought to be thwarted.
There was mutuality of contracts between petitioner and respondent,
the former’s president signed the promissory notes and was aware of
the certain provision on the interest rates. The respondent nonetheless
accorded the petitioner the notice of any repricing of the interest rates
despite being not obliged, this is in order to give the petitioner the option
to reject the repricing or has implemented the downward repricing.
The contract of adhesion is not invalid per se but is as binding as any
contract. The petitioner drew the amount of credit line on various
occasions and thus was afforded the opportunity to discuss or negotiate
the interest rates.
There was no showing by the petitioner that it had been placed at any
disadvantage. Respondent bank readily acceded to the request of the
petitioner for the release of some lots. Also, the petitioner’s President,
trained and experienced in the field of business, functioned without
duress or force in signing the various promissory notes and allied
agreement on petitioner’s behalf.
Hence, the petitioner for review on certiorari was denied.