VILLA CRISTA MONTE REALTY & DEVELOPMENT v.

EQUITABLE PCI BANK (2018)

Petitioner: Villa Crista Monte Realty & Development Corporation

Respondent: Equitable PCI Bank

FACTS:
 Sometime in 1994, Villa Crista Monte Realty Corp was organized to engage in the
business of real estate development. Soon after, it acquired for a certain Alfonso Lim
the 80,000sqm (8 hectares) parcel of land located at Old Balara, QC, which land Villa
Crista intended to develop into a residential subdivision. After successfully putting up
its clubhouse, known as the “Tivoli Royale Country Clubhouse,” Villa Crista later
negotiated and eventually succeeded in purchasing the adjoining 13.5 hectares land,
thereby consolidating its ownership over the 21.5 hectares of land.
 In order to fully develop its subdivision project, Villa Crista applied for and was
granted a credit line of P80M by then Equitable Philippine Commercial International
Bank (E-PCIB), now BDO. By way of security for the said credit line, Villa Crista
executed a Real Estate Mortgage over the 80,000sqm of its properties with all the
existing improvements thereon.
 Villa Crista subdivided the parcel of land into 174 lots, each with an average area of
340 sqms and each covered by a separate certificate of title.
 Villa Crista subsequently applied for an additional P50M credit accommodation from
E-PCIB to which the latter readily acceded. It being later established that the 41 lots,
out of the 174 subdivided lots, would already be sufficient securities for the credit
accommodation, Villa Crista asked for the release of the remaining 133 titles from
the earlier mortgage. E-PCIB granted Villa Crista’s request on the condition that the
real estate mortgage contract be amended to conform to the changes in the amount
of the credit line and in the properties subject of the mortgage, to which condition
Villa Crista readily agreed.
 Under its approved 130M credit line, Villa Crista separately obtained the amounts on
various occasions. Each aforesaid amount was covered by a promissory note in the
prescribed form of the E-PCIB.
 Eventually, E-PCIB wrote several times to Villa Crista apprising it of the increased
rates in the interest to be imposed on its loans covered by the promissory notes. The
increased rates ranged from 21% to 36% and were ostensibly anchored on the
uniform provision in the promissory notes on monthly repricing.
 Villa Crista reneged on paying its obligations amounting to P129M, prompting E-PCIB
to initiate foreclosure proceedings on the mortgaged properties. Villa Crista filed its
initial complaint for the nullification of the promissory notes and the mortgage
agreements with prayer for injunctive relief.
 Although the said auction sale was initially enjoined, the injunction was nonetheless
lifted; and so, the auction sale proceeded where E-PCIB emerged as the highest
bidder. This led to appellant’s filing of the Supplemental Complaint with the RTC QC
assailing the said auction sale and the amount claimed therein (including
unwarranted assessments and charges), as well as praying for the nullification of the
titles that were consolidated in the name of E-PCIB.
 Villa Crista alleges that E-PCIB unilaterally made and imposed the increases in
interest rates on Villa Crista’s loan without them being discussed and negotiated
 with, much less agreed upon, by Villa Crista and thus, invalid; since the real estate
mortgage and its amendment are but accessory to the loans evidenced by the
Promissory Notes, which bore the unilaterally imposed exorbitant interest rates, and
thus, contrary to law and public policy, the same (accessory contracts) are likewise
illegal and against public policy; despite the substantial payments already made by
Villa Crista, E-PCIB still insistently demanded for the payment of the loan obligation
inclusive of the higher interest rates and penalty charges which it unilaterally
imposed, warranting the issuance of a detailed accounting or Statement of Account,
instead of issuing said statement, though, E-PCIB prematurely initiated the
foreclosure proceedings.
 E-PCIB underscored that Villa Crista voluntarily and consciously agreed to the
complained monthly repricing of interest as shown by their signature in all the
promissory notes in due course and its acceptance of the loan proceeds. The said
interest rates were then repriced as agreed upon. E-PCIB stressed that Villa Crista
then not only accepted the stipulation on the monthly repricing but also the new
interest rates, as repriced, by its payment of the corresponding adjusted interest
rates until it later defaulted to pay even the interest rates to keep the loans current.
 The RTC rendered a judgment in favor of E-PCIB, holding that the loan contracts
between the two parties were supported by several promissory notes, a fact
admitted by Villa Crista’s own president; that Tio also testified that the documents
included a rider dealing with the monthly repricing of the interest rates; that the
protest allegedly made against the repricing was not established; that Villa Crista
paid the adjusted interest rates. The RTC concluded that the extra-judicial
foreclosure proceedings against petitioner’s mortgaged properties were valid.
 The CA affirmed the decision of the RTC.

ISSUE: W/N the monthly repricing of the interest rates on the loans, which petitioner
claimed to have been unilaterally imposed by E-PCIB is valid.
 YES. Both the RTC and CA were in unison in finding that the real estate mortgage and
promisorry notes were valid, as well as the subsequent foreclosure proceedings.
 The promissory notes state that: “interest rates shall be determined by the Lender
without need of prior notice to the Borrower,” “the borrower disagrees with the new
rate, he shall prepay within 5 days from the notice of the new rate the outstanding
balance of the loan with interest at the last applicable rate, provided, further, that
the Borrower’s failure to so prepay shall be deemed acceptance of the new rate.”
 Contrary to the petitioner’s position, there was mutuality of contracts between itself
and E-PCIB. The President of Villa Crista, who signed the promissory notes in behalf
of the petitioner, was aware of the provision in the documents pertaining to the
monthly repricing of the interest rates. Although the promissory notes succinctly
stipulated that the loans were subject to interest without need of prior notice to the
borrower, E-PCIB, E-PCIB sent notices to Villa Crista each and every time it increased
the interest rate. Equally of significance was that E-PCIB allowed Villa Crista the
sufficient time and opportunity to either reject the imposition of the increased
interest rates by paying the outstanding obligations or by accepting the same
through payment of whatever amounts were due. Sufficient time and opportunity
negated Villa Crista’s insistence about E-PCIB having unilaterally determined the
interest rates in violation of the principle of mutuality of contracts under Art. 1308.
  There is no question that E-PCIB accorded Villa Crista the notice of any repricing of
the interest rates. Although there have been occasions in which the Court struck
down the escalation clauses in loan agreements for violating the mutuality of
contracts, this case is not one of them. This is because E-PCIB has given notice to
Villa Crista whenever it repriced the interest rates in order to give Villa Crista the
option to reject the repricing, or has implemented the downward repricing of the
interest rates.
 The promissory notes are not contracts of adhesion. There is no showing that Villa
crista had been placed at any disadvantage in dealing with E-PCIB. On the contrary, it
appeared that mutuality always pervaded the relationship between the parties.
Petitioner had earlier requested the release of the 133 subdivision lots and it was
granted, subject to the condition that the real estate mortgage contract be duly
amended to make it conform to the changes in the amount of the credit line and lots
covered by the mortgage. Villa Crista readily agreed to the conditions.
 Also, in their transactions, Tiu, the petitioner's President, who appeared to have
been trained and experienced in business at the time he acted in the petitioner's
behalf in dealing with the respondent, had functioned without duress or force in
signing the various promissory notes and allied agreements on petitioner's behalf.
Furthermore, Tiu was aware of the rider of the agreements and had full knowledge
of the import of the rider. The rider contained the agreements on the monthly
repricing of the interest rates. The natural presumption under the circumstances was
that Tiu would not have signed the documents unless he had informed himself of
their contents, import and consequences. This presumption was not overturned.

PETITION IS DENIED.