06/10/2025
The (SC) has nullified the foreclosure of several properties after ruling that the interest charged on the unpaid bank loan was unfair and imposed without the borrower’s consent.
In a Resolution written by Associate Justice Ricardo R. Rosario, the SC’s Special Third Division granted the Motion for Reconsideration filed by Editha Ang and Violeta Fernandez, whose properties were foreclosed by United Coconut Planters Bank (UCPB) after they failed to pay a PHP 16-million loan.
Ang and Fernandez obtained a loan from UCPB. Based on the loan documents, however, UCPB was allowed to unilaterally adjust the interest rate every quarter based on market conditions.
When Ang and Fernandez failed to pay the total loan when it fell due, UCPB began to extrajudicially foreclose their properties.
Ang and Fernandez then filed a petition with the Regional Trial Court (RTC) to nullify the foreclosure sale, claiming that because the bank had the sole power to set and increase the interest rate, the rate was unfair and invalid.
The SC initially agreed that the interest rate was invalid but still upheld the foreclosure sale, ruling that the borrowers remained in default.
Upon reconsideration, however, the SC ruled that if the interest rate was unconscionable or imposed unilaterally by the lender, then any foreclosure that follows is also invalid.
The Court emphasized that under the Civil Code, contracts must be fair and mutually agreed upon. A contract that depends only on one party’s will is void.
In this case, the interest rate was solely determined by UCPB. Since the interest rate was invalid, the foreclosure of the properties was void.
The SC held that the borrowers should be given a chance to pay the loan at an interest rate agreed upon by both parties. Otherwise, they would be at the mercy of the lender and risk losing their property without a fair opportunity to settle their debt.
Read the full text of the Press Release at https://sc.judiciary.gov.ph/?p=152735.
Read the full text of the Decision at https://sc.judiciary.gov.ph/?p=152719.
Read the Dissenting Opinion of Senior Associate Justice Marvic M.V.F. Leonen https://sc.judiciary.gov.ph/?p=152726.
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