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    Case #11 - Delos Santos Vs Metrobank

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    Michelle Catadman
    The petitioners took out multiple loans totaling 12 million pesos from Metrobank to construct a hotel. They executed promissory notes and mortgaged their land to secure the loans. The loans had interest rates of 15.75% and 22.204% that were fixed for the first year but could escalate without notice. Metrobank sought to foreclose on the property when petitioners defaulted. Petitioners argued the bank increased rates without consent and they had excess payment. The court held that escalation clauses are generally valid but any rate increase must be agreed upon by both parties.

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    Case #11 - Delos Santos Vs Metrobank

    Uploaded by

    Michelle Catadman
    142 views1 page
    The petitioners took out multiple loans totaling 12 million pesos from Metrobank to construct a hotel. They executed promissory notes and mortgaged their land to secure the loans. The loans had interest rates of 15.75% and 22.204% that were fixed for the first year but could escalate without notice. Metrobank sought to foreclose on the property when petitioners defaulted. Petitioners argued the bank increased rates without consent and they had excess payment. The court held that escalation clauses are generally valid but any rate increase must be agreed upon by both parties.

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    Case #11 - Delos Santos vs Metrobank

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    The petitioners took out multiple loans totaling 12 million pesos from Metrobank to construct a hotel. They executed promissory notes and mortgaged their land to secure the loans. The loans had interest rates of 15.75% and 22.204% that were fixed for the first year but could escalate without notice. Metrobank sought to foreclose on the property when petitioners defaulted. Petitioners argued the bank increased rates without consent and they had excess payment. The court held that escalation clauses are generally valid but any rate increase must be agreed upon by both parties.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    142 views1 page

    Case #11 - Delos Santos Vs Metrobank

    Uploaded by

    Michelle Catadman
    The petitioners took out multiple loans totaling 12 million pesos from Metrobank to construct a hotel. They executed promissory notes and mortgaged their land to secure the loans. The loans had interest rates of 15.75% and 22.204% that were fixed for the first year but could escalate without notice. Metrobank sought to foreclose on the property when petitioners defaulted. Petitioners argued the bank increased rates without consent and they had excess payment. The court held that escalation clauses are generally valid but any rate increase must be agreed upon by both parties.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 1

    Facts :

    From December 9, 1996 until March 20, 1998, the petitioners took out several loans
    totaling P12,000,000.00 from Metrobank, Davao City Branch, the proceeds of which they would
    use in constructing a hotel on their 305-square-meter parcel of land located in Davao City.

    They executed various promissory notes covering the loans, and constituted a mortgage over
    their parcel of land to secure the performance of their obligation. The stipulated interest rates
    were 15.75% per annum for the long term loans (maturing on December 9, 2006) and 22.204%
    per annum for a short term loan of P4,400,000.00 (maturing on March 12, 1999). The interest
    rates were fixed for the first year, subject to escalation or de-escalation in certain events
    without advance notice to them. The loan agreements further stipulated that the entire amount
    of the loans would become due and demandable upon default in the payment of any installment,
    interest or other charges.

    On December 27, 1999, Metrobank sought the extrajudicial foreclosure of the real estate
    mortgage after the petitioners defaulted in their installment payments.

    Petitioners allege that Metrobank had increased the interest rates without their assent and
    without any basis; and they had an excess payment sufficient to cover the amounts due.

    Issue : WON the escalation clause is valid


    WON Metrobank increase the interest rate without their consent

    Held :

    Yes, Escalation clauses are valid and do not contravene public policy. These clauses
    are common in credit agreements as means of maintaining fiscal stability and retaining the
    value of money on long-term contracts. Escalation clauses do not give creditors the unbridled
    right to adjust interest rates unilaterally.

    NO, Any increase in the rate of interest made pursuant to an escalation clause must be the
    result of an agreement between the parties. The minds of all the parties must meet on the
    proposed modification as this modification affects an important aspect of the agreement. There
    can be no contract in the true sense in the absence of the element of an agreement, i.e., the
    parties’ mutual consent. Thus, any change must be mutually agreed upon, otherwise, the
    change carries no binding effect. A stipulation on the validity or compliance with the contract
    that is left solely to the will of one of the parties is void

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