Supreme Court voids property foreclosure over unfair loan rate
THE Supreme Court (SC) has nullified the foreclosure of properties linked to a P16-million loan, ruling that the interest rate imposed by United Coconut Planters Bank (UCPB) was unfair and unilateral.
In a resolution made public on Oct. 6 penned by Associate Justice Ricardo R. Rosario, the SC Special Third Division granted the motion for reconsideration filed by Editha Ang and Violeta Fernandez, whose properties were foreclosed after they allegedly defaulted on the loan.
The loan agreement allowed UCPB to adjust interest rates quarterly at its discretion. When the borrowers failed to pay the loan in full, the bank initiated extrajudicial foreclosure proceedings. The borrowers challenged the sale before the Regional Trial Court (RTC), arguing that the interest rate was imposed without their consent.
The RTC found the interest rate provision invalid for being “potestative” or dependent solely on the lender’s will but upheld the foreclosure sale. The Court of Appeals reversed this, voiding both the interest rate and the foreclosure.
The SC initially upheld the foreclosure despite recognizing the interest rate as improper. Upon reconsideration, the Court ruled that any foreclosure following the imposition of an unconscionable or unilateral interest rate is void.
The tribunal cited the Civil Code’s requirement for mutuality in contracts, emphasizing that agreements depending solely on one party’s discretion are null and void. Since UCPB alone determined the interest rate, the loan was not yet due and the foreclosure could not stand, it said.
The Court said that “borrowers must be given the opportunity to repay the loan under terms agreed upon by both parties, ensuring fairness and protecting property rights.”
In dissent, Acting Chief Justice Marvic M.V.F. Leonen argued that “the borrowers still owed the original loan amount,” and that “there was no finding that the interest rate was excessive — only that it was imposed without the borrowers’ consent.” — Erika Mae P. Sinaking
