G.R. No. 177260; March 30, 2011
LOTTO RESTAURANT CORPORATION, represented by SUAT KIM GO, Petitioner, vs. BPI FAMILY SAVINGS BANK, INC., Respondent.

FACTS

On December 23, 1999, petitioner Lotto Restaurant Corporation (Lotto) obtained a loan of ₱3,000,000.00 from DBS Bank (later acquired by respondent BPI Family Savings Bank, Inc. or BPI) at an interest rate of 11.5% per annum, payable in 180 monthly amortizations of ₱35,045.69. The loan was secured by a real estate mortgage on a condominium unit executed by Lotto’s General Manager, Suat Kim Go. Lotto paid its monthly amortizations for the first 12 months. In January 2001, after DBS increased the interest rate to 19% per annum, Lotto contested the increase and stopped paying. Negotiations with BPI to reduce the interest to 14.7% per annum failed. On October 21, 2002, BPI foreclosed the mortgage. Lotto filed an action for reformation or annulment of the real estate mortgage with the Regional Trial Court (RTC) of Manila, which ruled in Lotto’s favor, finding the unilateral interest rate increase a breach of the promissory note and declaring the mortgage void for lack of proper corporate authorization. The Court of Appeals (CA) reversed the RTC, upholding the validity of the interest rate adjustment and the mortgage. Lotto’s motion for reconsideration was denied, prompting this petition.

ISSUE

1. Whether DBS (now BPI) validly adjusted the interest rate on Lotto’s loan from 11.5% to 19% per annum beginning December 24, 2000.
2. Whether BPI has the right to foreclose the real estate mortgage for non-payment of the loan.

RULING

The Supreme Court DENIED the petition and AFFIRMED the Court of Appeals’ decision.
1. On the validity of the interest rate adjustment: The adjustment was valid. The promissory note clearly stipulated in paragraph 7 that the 11.5% per annum interest rate applied only for the period “12.24.99-12.24.00” (December 24, 1999, to December 24, 2000). An asterisk appended to this rate footnoted that “[t]hereafter interest to be based on prevailing market rate.” This meant the rate was adjustable after December 24, 2000. Lotto’s interpretation that the adjustment was due only after 180 months was untenable, as it would contravene the explicit period in paragraph 7 and render the adjustment clause meaningless since the loan would have been fully paid by then. The Court held that stipulations in a contract must be read together, and such a provision allowing adjustment based on the prevailing market rate is valid, as it may result in either an increase or decrease in interest.
2. On the right to foreclose: BPI had the right to foreclose. Lotto was estopped from questioning the validity of the real estate mortgage, as it admitted in its complaint that Go obtained the loan on its behalf with the condominium unit as collateral. Having authorized Go to secure the loan, Lotto was deemed to have authorized her to provide the necessary security. Furthermore, Lotto defaulted by unjustifiably stopping its amortization payments after the first year. Foreclosure is a necessary consequence of non-payment of a mortgage debt, and the creditor-mortgagee has the right to foreclose, sell the property, and apply the proceeds to the unpaid loan. The Court noted that Lotto could still avail of a lower interest if warranted by the prevailing market rate and, under Section 47 of the General Banking Law, retains the right to redeem the foreclosed property.