G.R. No. 206459 April 6, 2016
SPOUSES FLORANTE E. JONSAY and LUZVIMINDA L. JONSAY and MOMARCO IMPORT CO., INC., Petitioners, vs. SOLIDBANK CORPORATION (now METROPOLITAN BANK AND TRUST COMPANY), Respondent.

FACTS

Petitioner Momarco Import Co., Inc., controlled by Spouses Florante and Luzviminda Jonsay, obtained loans from respondent Solidbank Corporation totaling P60,000,000.00, consolidated under a promissory note signed by Florante as President and Luzviminda as co-maker. The loans were secured by a real estate mortgage over three parcels of land owned by the spouses. The stipulated interest rate was 18.75% per annum with an escalation clause, which Solidbank unilaterally increased to 30% per annum. Momarco made regular interest payments until January 1998 but, citing business reverses from the 1997 Asian financial crisis, sought a moratorium. After making a final payment in April 1998, Solidbank extrajudicially foreclosed the mortgage. At the auction sale on March 5, 1999, Solidbank was the winning bidder for P82,327,249.54. The petitioners filed a complaint to annul the foreclosure, alleging, among others, that the interest charges were illegal and excessive, the publication of the notice of sale was defective (as the Morning Chronicle was not a newspaper of general circulation in Calamba, Laguna), the attorney’s fees were unconscionable, and their previous payments were not properly accounted for. The Regional Trial Court (RTC) annulled the foreclosure, reduced the interest to 12% per annum, and awarded damages to the petitioners. The Court of Appeals (CA) initially affirmed the RTC but, upon reconsideration, modified the decision by upholding the validity of the foreclosure sale but reducing the interest rate and deleting the award of damages.

ISSUE

The primary issues were: (1) the validity of the extrajudicial foreclosure proceedings, particularly regarding the publication of the notice of sale; (2) the validity and reasonableness of the stipulated interest rates, penalties, and attorney’s fees; and (3) the propriety of the award of damages to the petitioners.

RULING

The Supreme Court denied the petition and affirmed the amended decision of the Court of Appeals with modifications. The Court held that the extrajudicial foreclosure was valid. The Morning Chronicle was deemed a newspaper of general circulation as it was accredited by the RTC of Calamba and published in the province where the property was located, complying with Act No. 3135. However, the Court found the interest rate of 30% per annum, unilaterally imposed by Solidbank via the escalation clause, to be unconscionable and void. The stipulation granting Solidbank the sole discretion to increase rates was a potestative condition disadvantageous to the borrowers, making it contrary to law and public policy. The Court reduced the interest to 12% per annum, consistent with the stipulation in the promissory note and the legal rate at the time of execution. The award of moral and exemplary damages by the RTC was deleted for lack of basis, as Solidbank’s actions, while its interest charges were voided, did not constitute gross negligence or bad faith warranting such damages. The attorney’s fees in the foreclosure were also deemed unwarranted. The case was remanded to the RTC to determine the exact amount of the petitioners’ loan obligation, applying the 12% interest per annum and accounting for all payments made, and for further proceedings on Solidbank’s counterclaim for collection.