G.R. No. 212262, August 26, 2020
Gotesco Properties, Inc., Petitioner, versus International Exchange Bank (Now Union Bank of the Philippines), Respondent.

FACTS

Petitioner Gotesco Properties, Inc. and respondent International Exchange Bank executed a Compromise Agreement, approved by the Regional Trial Court via a Judgment on December 14, 2001, to restructure Gotesco’s loan. The agreement stipulated a ten-year term loan with quarterly amortizations. A critical provision stated that if Gotesco failed to pay any sum due within 60 days from its due date, IBank was entitled to declare the entire obligation due and demandable and move for immediate execution of the judgment.
IBank filed a Motion for Execution in 2009, alleging Gotesco had failed to pay its obligations since 2006. The trial court initially denied the motion as premature, reasoning the ten-year term would end only in 2013. Upon IBank’s Motion for Reconsideration, a different judge granted it, ordered execution, and found that Gotesco’s default triggered the acceleration clause, making the entire loan immediately demandable. The Court of Appeals affirmed this ruling, prompting Gotesco’s petition to the Supreme Court.

ISSUE

Whether the Court of Appeals erred in affirming the trial court’s order of execution, specifically in ruling that Gotesco’s default in paying quarterly amortizations rendered the entire loan obligation immediately due and demandable under the Compromise Agreement’s acceleration clause, notwithstanding the ten-year term.

RULING

The Supreme Court denied the petition and affirmed the lower courts’ rulings. The Court emphasized that a compromise agreement has the force of law between the parties and is immediately executory. The clear and unambiguous terms of the Compromise Agreement governed. It contained a valid acceleration clause, providing that default in paying any installment within the specified grace period entitled IBank to declare the entire balance due and demandable.
The legal logic is that an acceleration clause in a term loan grants the creditor an option: to wait until the term ends to collect the full amount or to invoke the clause upon default to demand immediate payment. Interpreting the agreement to make the loan demandable only upon the expiration of the ten-year term, as Gotesco argued, would nullify this optional right and render the acceleration clause meaningless. Since Gotesco undisputedly defaulted on its quarterly amortizations years earlier, IBank validly exercised its contractual right to accelerate the maturity of the entire debt. Consequently, the motion for execution of the judgment based on the Compromise Agreement was proper and not premature.