FACTS:

Respondents obtained a loan from petitioner bank in 1978, secured by a Deed of Real Estate Mortgage. The loan was used for the construction of a commercial building. In 1982, the loan was restructured, increasing the loan obligation. Respondents executed a Promissory Note for the new amount with stipulated interest and monthly payments. From 1983 to 1988, respondents made payments totaling P1,455,385.07. However, from 1989 onwards, they did not make any payments. Respondents claimed that the bank had ceased operations and was under liquidation during this period. In 1990, respondents requested the return of their mortgaged property, but the bank denied the request. The bank was closed in 1985 and reopened in 1994, without transacting business during the closure. In 1994, respondents were served a Notice of Extra Judicial Sale of their property to satisfy their alleged indebtedness. Respondents filed a suit for injunction, accounting, and damages, seeking to halt the foreclosure proceedings. The trial court rendered a decision directing the bank to render a correct accounting of the obligations, reducing the interest rate, and eliminating the surcharge. Both parties appealed the decision to the Court of Appeals, which affirmed the trial court's decision. Petitioner now seeks the reversal of the Court of Appeals' decision, alleging errors in the accounting and the deletion of the surcharge.

ISSUES:

1. Whether the Court of Appeals erred in ordering the petitioner bank to render a correct accounting of the respondents' loan.

2. Whether the Court of Appeals erred in ordering the deletion of the 3% per month surcharge.

RULING:

1. The Court of Appeals did not err in ordering the petitioner bank to render a correct accounting of the respondents' loan. The statement of account submitted by the petitioner bank was not considered as reflecting the true and correct amount, as it imposed a 21% per annum interest which was deemed excessive. The absence of the signatories as witnesses further weakened the probative value of the statement of account. Therefore, a correct accounting was necessary to determine the actual amount owed by the respondents.

2. The Court of Appeals did not err in ordering the deletion of the 3% per month surcharge. The substantial payments made by the respondents from 1983 to 1988 were considered as a valid basis for the removal of the surcharge. The court found that the respondents had already paid a significant amount towards their loan obligation, and thus it was reasonable to eliminate the surcharges.

PRINCIPLES:

• A correct accounting of a loan obligation is necessary when there are questions regarding the accuracy and validity of the amount claimed by the lender.

• The court may order the deletion of surcharges imposed on a loan when the borrower has already made substantial payments towards the loan obligation.