Carmelita C. Cruz v. Metropolitan Bank

Summary

Petitioners Cruz and Tay borrowed from Metrobank from 1993-2004, secured by real property mortgage. After restructuring in 2004, they claimed overpayment of PHP 3.5 million and filed for accounting in 2005. Despite pending accounting case, Metrobank foreclosed in 2009. The Supreme Court ruled the foreclosure invalid, emphasizing that mortgage obligations are extinguished when principal loans are fully paid under Article 1231 of the Civil Code. The Court found that the final judgment in the accounting case, which established Metrobank's failure to provide proper accounting, constituted res judicata and created genuine uncertainty about the debt's existence. The decision reinforces banks' fiduciary duties and the principle that foreclosure requires clear evidence of default, protecting borrowers from premature foreclosure actions when payment disputes remain unresolved.