Title
Agoo Rice Mill Corp. vs. Land Bank of the Philippines
Case
G.R. No. 173036
Decision Date
Sep 26, 2012
ARMC failed to repay loans secured by mortgaged properties; LBP foreclosed under P.D. 385. Court upheld foreclosure, denied injunction, deemed interest rates reasonable.
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Case Digest (G.R. No. 173036)

Facts:

Background of the Loan Agreements

  • From October 1993 to October 1996, Agoo Rice Mill Corporation (ARMC) obtained a Term Loan (TL) of P2,000,000.00 and two Short-Term Loan Lines (STLLs) totaling P15,000,000.00 from Land Bank of the Philippines (LBP). These loans were secured by a Real and Chattel Mortgage over ARMC’s commercial lots, improvements, rice mill machineries, and generator.

Payment Issues and Requests for Extension

  • ARMC faced financial difficulties due to liquidity problems, the negative impact of government rice importation in 1996, and the El Niño phenomenon affecting rice production. As a result, ARMC made partial payments but failed to fully settle its obligations on time.
  • On January 6, 1997, ARMC requested an extension to pay its obligations, proposing a deadline of February 28, 1997. LBP reminded ARMC of this commitment on February 25, 1997.
  • On February 27, 1997, ARMC requested the renewal of its P15,000,000.00 STLLs, but LBP advised restructuring instead. ARMC then proposed restructuring the STLLs with payments of P5,000,000.00 every six months.

LBP’s Conditions and ARMC’s Non-Compliance

  • LBP deferred ARMC’s restructuring proposal, requiring ARMC to secure a waiver of penalty charges and offer additional collateral. ARMC failed to comply with these conditions.
  • On November 3, 1997, LBP informed ARMC that additional collateral was required, and failure to comply would result in legal action. ARMC requested a reappraisal of its properties, but LBP denied the request.

Foreclosure Proceedings

  • On July 8, 1998, LBP filed an application for extrajudicial foreclosure of ARMC’s mortgaged properties, citing ARMC’s failure to pay its overdue obligations totaling P23,473,320.83 (principal, interest, and penalties).
  • ARMC filed a complaint for injunction on August 24, 1998, alleging that the foreclosure was premature and violated its contractual rights, as loan restructuring negotiations were ongoing. ARMC also claimed inconsistencies in LBP’s foreclosure petition.

Temporary Restraining Order and Writ of Preliminary Injunction

  • The RTC issued a Temporary Restraining Order (TRO) and later a writ of preliminary injunction, suspending the foreclosure sale. However, the RTC ultimately denied ARMC’s complaint, ruling that LBP had the right to foreclose under Presidential Decree No. 385 (P.D. 385).

Issue:

  1. Whether ARMC was entitled to an injunctive remedy to stop LBP’s foreclosure of its mortgaged properties.
  2. Whether LBP acted in bad faith by filing for foreclosure while loan restructuring negotiations were allegedly ongoing.
  3. Whether the stipulated interest rates and penalty charges imposed by LBP were excessive and unconscionable.

Ruling:

  • (Subscriber-Only)

Ratio:

  • (Subscriber-Only)


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