The Supreme Court (SC) has nullified the foreclosure of several properties after ruling that the interest charged on a 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 (collectively, borrowers). Their properties had been foreclosed by United Coconut Planters Bank (UCPB) after they failed to pay back a PHP 16 million loan.

The loan agreement allowed UCPB to adjust the interest rate every quarter based on market conditions.

When the borrowers failed to pay the total loan when it fell due, UCPB began extrajudicial foreclosure proceedings–a legal process where properties are auctioned off to recover unpaid debts.

The borrowers filed a petition with the Regional Trial Court (RTC) to nullify the foreclosure sale. They claimed that the bank had the sole power to set and increase the interest rate, which they argued was unfair and invalid.

The RTC agreed that the interest rate provisions were invalid because they were left to the bank’s discretion. However, it still upheld the validity of the foreclosure sale.

The Court of Appeals reversed this, ruling that both the interest rate and the foreclosure sale were void.

Initially, the SC 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 SC 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 loan was not yet due, and 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.

In his Dissenting Opinion, Acting Chief Justice Marvic M.V.F. Leonen explained that even if the interest rate was invalid, the borrowers still owed the original loan amount. He also noted that there was no finding that the interest rate was excessive—only that it was imposed without the borrowers’ consent. (Courtesy of the SC Office of the Spokesperson)

This press release is prepared for members of the media and the general public by the SC Office of the Spokesperson as a simplified summary of the SC’s Resolution. For the SC’s complete discussion of the case, please read the full text of the Resolution in G.R. No. 222448 (United Coconut Planters Bank v. Ang and Fernandez) March 3, 2025, and the Dissenting Opinion of Acting Chief Justice Leonen.