G.R. No. 101083 , July 30, 1993
METROPOLITAN BANK AND TRUST COMPANY, Petitioner, vs. HON. COURT OF APPEALS AND SPOUSES FORTUNATO AND VIRGINIA VANGUARDIA, Respondents.

FACTS

Spouses Fortunato and Virginia Vanguardia obtained a loan from Metropolitan Bank and Trust Company (Metrobank) secured by a real estate mortgage over their property. Due to alleged defaults, Metrobank extrajudicially foreclosed the mortgage. The spouses filed a complaint for annulment of the foreclosure and mortgage, alleging that the loan documents were signed in blank, the interest rates were unilaterally increased by the bank without their consent, and the foreclosure was premature. The Regional Trial Court (RTC) dismissed the complaint. On appeal, the Court of Appeals (CA) reversed the RTC, declaring the foreclosure null and void and ordering the reconveyance of the property to the spouses upon payment of the loan balance. Metrobank elevated the case to the Supreme Court via petition for review.

ISSUE

Whether the Court of Appeals erred in nullifying the foreclosure sale based on the finding that the stipulated interest rates were unilaterally imposed by the bank and violative of the principle of mutuality of contracts.

RULING

Yes, the Court of Appeals erred. The Supreme Court REVERSED the decision of the Court of Appeals and REINSTATED the judgment of the Regional Trial Court dismissing the complaint.

The Supreme Court held that the factual findings of the Court of Appeals, which contradicted those of the trial court, were not binding as they were based on a misapprehension of the evidence. The evidence, particularly the promissory notes signed by the spouses, clearly stipulated that the interest rate was “subject to change within the limits allowed by law at any time depending on whatever policy [Metrobank] may adopt in the future.” The spouses, as borrowers of long standing who had previously obtained several loans, were deemed to have knowingly and voluntarily agreed to this stipulation, which is a common banking practice. The increases in interest were within the limits allowed by law and were made pursuant to this valid stipulation, not through unilateral imposition. The principle of mutuality of contracts under Article 1308 of the Civil Code was not violated because the stipulation itself, to which the parties mutually agreed, granted the bank the right to adjust the interest rate within legal limits. The foreclosure was therefore valid, as the spouses were in default for failing to pay the obligation under the properly increased interest rates.