Commercial Law, 2018 Bar — Question XIII-b

ESSAY

YBC Bank extended a loan of PhP50 million to Mr. Yamato secured by a real estate mortgage (REM) on a large tract of land. The covering Transfer Certificate of Title (TCT) of the property mortgaged did not indicate any encumbrance or lien on it, and the bank was able to obtain a certified true copy of the TCT from the Register of Deeds showing that the owner's copy submitted to the bank was a genuine title. The loan agreement provided an escalation clause which stated that, at the anniversary date of the loan, YBC Bank was granted the option to increase the interest rate whenever there would be an increase in the Bangko Sentral ng Pilipinas' prevailing rates. Three years later, Mr. Yamato received a formal notice from YBC Bank raising the interest rate of the loan based on the escalation clause provided for in the Loan Agreement. Mr. Yamato refused to pay based on the increased interest rate that was effected without his consent. YBC insists on the binding effect of the escalation clause appearing on their loan agreement. Mr. Yamato subsequently defaulted on the loan and vanished. Thus, YBC Bank extrajudicially foreclosed on the REM, and was the highest bidder at the public auction sale. It was only then that the bank determined that there were actually two separate TCTs issued for the property, one of which was in the name of Mr. Yamsuan who occupied the property after having bought it earlier from Mr. Yamato. (b) Is YBC Bank a mortgagee in good faith? Is it preferred over Mr. Yamsuan?

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