G.R. No. 131588 - People vs. De los Santos

Petitioners Spouses Ignacio F. Juico and Alice P. Juico obtained two loans from China Banking Corporation evidenced by Promissory Notes Nos. 507-001051-3 (₱6,216,000) and 507-001052-0 (₱4,139,000), both dated October 6, 1998.
The loans were secured by a Real Estate Mortgage over petitioners’ property at 49 Greensville St., White Plains, Quezon City (TCT No. RT-103568).

Petitioners failed to pay monthly amortizations; respondent issued demand letters, the last dated August 29, 2000.
As of February 23, 2001, the outstanding balance (principal, interest, penalties, attorney’s fees) reached ₱19,201,776.63. The mortgaged property was sold extrajudicially at public auction for ₱10,300,000 (respondent as highest bidder).

China Bank filed suit for the deficiency of ₱8,901,776.63, plus legal interest (from February 23, 2001), penalty of 1/10 of 1% per day, 10% attorney’s fees, and litigation costs.
Petitioners admitted the debt but contended the auction proceeds discharged principal, limiting deficiency to ₱55,000; they also challenged penalty/compounded interest and counterclaimed ₱100,000 attorney’s fees.

Trial: Respondent’s witness (Senior Loans Assistant) testified on monthly rate adjustments based on prevailing market rates and presented detailed statements of account. Petitioners testified they signed blank notes and received telephone advisories of rate changes.
RTC rendered judgment ordering payment of ₱8,901,776.63 deficiency plus legal interest and 10% attorney’s fees; CA affirmed. Petitioners elevated the case to the Supreme Court via Rule 45 certiorari.

Whether the unilateral escalation of interest rates (from 15% to up to 24.5%) by China Bank, without written notice and debtor’s consent, was valid under the Civil Code and BSP regulations.

Whether the escalation clause granting the bank power to adjust rates at its sole discretion violated the principle of mutuality of contracts (Arts. 1308, 1956, Civil Code).