G.R. No. 101083
METROPOLITAN BANK AND TRUST COMPANY, petitioner, vs. HON. COURT OF APPEALS AND SPOUSES ANTONIO and LETICIA BERNARDO, respondents.

July 8, 1996

FACTS

Spouses Antonio and Leticia Bernardo obtained a loan from Metropolitan Bank and Trust Company (Metrobank) secured by a real estate mortgage over their property. The mortgage contract contained an acceleration clause. The spouses defaulted on their monthly amortizations. Metrobank extrajudicially foreclosed the mortgage. The spouses filed a complaint for annulment of foreclosure, arguing that the bank failed to send a formal demand or notice of foreclosure as required by the mortgage contract’s acceleration clause, which they claimed was a condition precedent. The trial court ruled in favor of the spouses, declaring the foreclosure null and void. The Court of Appeals affirmed the decision. Metrobank appealed, arguing that a formal demand was not necessary under the terms of the contract and the law.

ISSUE

Whether a formal demand or notice is a condition precedent to the exercise of the acceleration clause and the right to foreclose the mortgage, given the terms of the contract and the circumstances of the debtor’s default.

RULING

No. The Supreme Court REVERSED the decisions of the lower courts.
The acceleration clause in the mortgage contract was clear and unconditional, allowing the bank to declare the entire obligation due upon default in the payment of any installment. The Court held that a formal demand was not a condition precedent to foreclosure. The act of default itself, specifically the failure to pay the stipulated amortizations, made the entire sum due immediately under the acceleration clause. The purpose of an acceleration clause is precisely to make the entire obligation due upon default without the necessity of a demand, as the demand would be a mere formality. The Court emphasized that the mortgagors were already in default, and the bank’s act of filing for foreclosure constituted a clear election to avail of the acceleration clause. The absence of a separate formal demand did not invalidate the foreclosure proceedings. The decision reinstated the validity of the extrajudicial foreclosure.