VILLA CRISTA MONTE REALTY Vs BANCO DE ORO UNIBANK

VILLA CRISTA MONTE REALTY & DEVELOPMENT CORPORATION, Petitioner, v.
EQUITABLE PCI BANK (now known as BANCO DE ORO UNIBANK, INC.), and the
EX-OFFICIO SHERIFF OF QUEZON CITY and/or HIS DEPUTY or AUTHORIZED
REPRESENTATIVES, Respondents.
G.R. No. 208336, November 21, 2018
First Division, Bersamin, J.
I. Nature of the Case: Petition for Foreclosure of Mortgage
II. Facts:
Sometime in 1994, plaintiff-appellant Villa Crista Monte Realty Corporation was
organized to engage in the business of real estate development. Soon after, it acquired
from a certain Alfonso Lim the 80,000 square meters (8 hectares) parcel of land located
at Old Batara, Quezon City, which land appellant intended to develop into a residential
subdivision. After successfully putting up its clubhouse, known as the "Tivoli Royale
Country Clubhouse, " appellant Corporation later negotiated and eventually succeeded
in purchasing the adjoining 13 .5 hectares land, thereby consolidating its ownership over
the 21.5 hectares of land[s]. In order to fully develop its subdivision project, appellant
applied for and was granted a credit line of P.80 Million by then Equitable Philippine
Commercial International Bank (E-PCIB), now Banco De Oro. By way of security for the
said credit line, appellant executed a Real Estate Nlortgage over the 80,000 square
meters of its properties (covered by TCT No. T-145652) with all the existing improvements
thereon. On August 5, 1995, appellant subdivided the parcel of land covered by TCT No.
T-145652 into 174 lots, each with an average area of 340 square meters and each
covered by a separate certificate of title. Appellant subsequently applied for an additional
Jl50 Million 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, appellant then asked for the release of
the remaining 133 titles from the earlier mortgage. E-PCIB granted appellant'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 appellant readily agreed.
III. Issue: Whether or not the promissory notes and the corresponding repricing of interest
rates are valid.
IV. Ruling:
Yes. Both the trial and appellate courts were in unison in finding that the real estate
mortgage and promissory notes were valid, as well as the subsequent foreclosure
proceedings. We find no cogent reason to depart from their common findings, considering
that the same are supported by the facts and applicable laws.
The agreement between the parties on the imposition of increasing interest rates
on the loan is commonly known as the escalation clause. Generally, the escalation clause
refers to the stipulation allowing increases in the interest rates agreed upon by the
contracting parties. There is nothing inherently wrong with the escalation clause because
it is validly stipulated in commercial contracts as one of the means adopted to maintain
fiscal stability and to retain the value of money in long term contracts. In short, the
escalation clause is not void per se. Yet, the escalation clause that "grants the creditor
an unbridled right to adjust the interest independently and upwardly, completely depriving
the debtor of the right to assent to an important modification in the agreement" is void.
Such escalation clause violates the principle of mutuality of contracts, and should be
annulled. To prevent or forestall any one-sidedness that the escalation clause may cause
in favor of· the creditor, therefore, Presidential Decree No. 1684 was promulgated.
No express de-escalation clause was stipulated in the promissory notes signed by
the petitioner. Yet, the absence of the clause did not invalidate the repricing of the interest
rates. The repricing notices issued to the petitioner by E-PCIB indicated that on some
occasions, the bank had reduced or adjusted the interest rates downward. For example,
the 26% interest rate for PN No. 970019HD for P2 million on July 30, 1997 was reduced
to 22.5% in August 1997; the 26% interest rate for PN No. 970044HD for P2. 7 million in
July 1997 was decreased to 22.5% in August 1997.
It becomes inescapable for the Court to uphold the validity and enforceability of
the escalation clause involved herein despite the absence of the de-escalation clause.
The actual grant by the respondent of the decreases in the interest rates imposed on the
loans extended to the petitioner rendered inexistent the evil of inequality sought to be
thwarted by the enactment and application of Presidential Decree No. 1684. The Court
does not see here a situation in which the petitioner did not stand on equality with the
lender bank.

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VILLA CRISTA MONTE REALTY & DEVELOPMENT CORPORATION, Petitioner, v.

I. Nature of the Case: Petition for Foreclosure of Mortgage

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