G.R. No. 177260 - Lotto Restaurant Corp. vs. BPI Family Savings Bank, Inc.

On December 23, 1999, Lotto Restaurant Corporation (Lotto) secured a loan of ₱3,000,000.00 from DBS Bank.
The executed promissory note stipulated an interest rate of 11.5% per annum for the first year.
The note required monthly amortizations of ₱35,045.69 for a period of 180 months.
To secure the loan, Lotto, represented by its General Manager Suat Kim Go, mortgaged a condominium unit owned by the corporation.

Lotto paid the monthly installments faithfully for 12 months, covering the period from December 24, 1999, to December 24, 2000.
In January 2001, after DBS unilaterally increased the interest rate to 19% per annum, Lotto disputed the adjustment and ceased further payments.
The dispute escalated after DBS was acquired by BPI Family Savings Bank, Inc. (BPI), which later negotiated only a reduction of the rate to 14.7% per annum—a figure still deemed unacceptable by Lotto.

On October 21, 2002, BPI foreclosed the mortgage on the condominium unit to satisfy an unpaid claim amounting to ₱5,283,470.26.

This sum comprised unpaid principal, accumulated interest, penalties, fire insurance premiums, attorney’s fees, and estimated foreclosure expenses.
Interest computations were applied at 19% per annum for December 24, 2000, to November 24, 2001, and at 14.7% per annum for December 24, 2001, to October 10, 2002.

To contest the foreclosure, Lotto filed an action for reformation or annulment of the real estate mortgage with a prayer for a temporary restraining order (TRO) and preliminary injunction in the Regional Trial Court (RTC) of Manila.

The RTC issued a TRO on January 3, 2003, followed by a preliminary injunction on February 6, 2003.
Mediation efforts in the case ultimately failed.

The RTC rendered a decision on January 11, 2005 in favor of Lotto, holding that:

DBS breached the promissory note by unilaterally increasing the interest rate from 11.5% to 19%.
The real estate mortgage was void due to lack of authority by the Lotto Board of Directors in authorizing Go to sign the mortgage document.
The RTC directed the cancellation of the mortgage encumbrance and recalculated Lotto's obligation to ₱2,990,832.00, reflecting the paid installments.

BPI appealed the RTC decision to the Court of Appeals (CA), which reversed the RTC ruling on November 22, 2006.

The CA held that Lotto was estopped from disputing the validity of both the promissory note and the mortgage deed since it had authorized Go to secure the loan.
It clarified that the gross loan was ₱3,000,000.00, with the figure ₱2,990,832.00 representing the net proceeds after deducting certain charges.
The CA found that the stipulated 11.5% per annum interest applied only to the first year (December 24, 1999 – December 24, 2000) and that thereafter the interest rate was to be based on the prevailing market rate.
Consequently, the CA validated the interest rate adjustment and affirmed BPI’s right to foreclose, lifting the RTC’s preliminary injunction.

Following the denial of its motion for reconsideration, Lotto elevated the case to the Supreme Court via a petition for review.

Whether DBS (now BPI) validly adjusted the loan interest rate from 11.5% to 19% per annum beginning December 24, 2000.
Whether the provision in the promissory note, specifically its reference to applying the prevailing market rate after the first year, supports such an adjustment.

Whether BPI, based on the loan agreement and subsequent default by Lotto, had the right to foreclose the condominium unit.
The role of estoppel stemming from Lotto’s own admission in contesting the validity of the mortgage deed executed by its representative, Suat Kim Go.