Case Digest (G.R. No. 181249)
Facts:
In Reynaldo P. Floirendo, Jr. vs. Metropolitan Bank and Trust Company, petitioner Floirendo, president of Reymill Realty Corporation, obtained on March 20, 1996 a ₱1,000,000 loan from respondent Metrobank’s Cagayan de Oro Branch, secured by a real estate mortgage over four parcels in Barangay Carmen, Cagayan de Oro City. The loan was renewed after one year under the same mortgage, and on March 14, 1997 petitioner executed a promissory note stipulating an initial interest rate of 15.446% per annum for the first 30 days, adjustable upward or downward every 30 days thereafter, and a penalty of 18% per annum on unpaid principal from default until full payment. The note further authorized the bank to change rates “without advance notice” upon any regulatory or funding-cost changes and to grant extensions or renewals upon payment of fees. Beginning July 11, 1997, Metrobank imposed successive rate hikes—peaking at 30.244% in October 1997—which petitioner could not service. He paid accu...Case Digest (G.R. No. 181249)
Facts:
- Parties and Background
- Petitioner: Reynaldo P. Floirendo, Jr., president and chairman of Reymill Realty Corporation.
- Respondent: Metropolitan Bank and Trust Company (Metrobank), Cagayan de Oro City Branch.
- Loan and Security
- March 20, 1996: Petitioner obtained ₱1,000,000 loan to infuse working capital; executed real estate mortgage over four parcels in Barangay Carmen, CDO City.
- March 14, 1997 promissory note: interest fixed at 15.446% per annum for first 30 days “subject to upward/downward adjustment every 30 days thereafter,” penalty charge 18% per annum on unpaid principal; clause authorizing bank to unilaterally change rates “without advance notice” upon market or regulatory changes; consent to renewals/extensions with fees.
- Events Leading to Litigation
- From July 11, 1997 to May 21, 1998: Bank unilaterally increased interest monthly, reaching as high as 30.244%, prompting petitioner’s inability to pay. He negotiated renewal and paid arrears of interest (₱163,138.33).
- Instead of renewing, bank filed foreclosure petition; RTC set auction for August 17, 1998. Petitioner filed Civil Case No. 98-476 on August 11, 1998 for reformation of mortgage and note, alleging contracts of adhesion and unconscionable, unilateral rate adjustments; sought TRO and preliminary injunction, which RTC granted.
- Trial Court Proceedings
- RTC Branch 39, CDO City:
- Dismissed reformation complaint for lack of mistake, fraud or accident; upheld clear terms of promissory note and validity of escalation clause.
- Dissolved injunction; ordered foreclosure sale.
- RTC reasoning: escalation clauses valid in commercial loans (Llorin v. CA); mortgagee entitled to foreclose upon default (Estate Investment House v. CA). Motion for reconsideration denied May 2, 2001.
Issues:
- Whether the mortgage contract and promissory note express the true agreement of the parties, or if reformation is warranted due to unilateral, unconscionable interest adjustments.
- Whether the escalation clause allowing Metrobank to adjust interest rates monthly without petitioner’s consent violates the principle of mutuality of contracts (Art. 1308, Civil Code).
- Whether the trial court erred in upholding the validity of the escalation clause and in permitting foreclosure without first reforming the instruments.
Ruling:
- (Subscriber-Only)
Ratio:
- (Subscriber-Only)
Doctrine:
- (Subscriber-Only)