MANILA – The Supreme Court (SC) has nullified the foreclosure of several properties after ruling that the interest charged on a bank loan was imposed unilaterally and without the borrower’s consent.

In a Resolution penned by Associate Justice Ricardo R. Rosario, the SC’s Special Third Division granted the Motion for Reconsideration filed by borrowers Editha Ang and Violeta Fernandez, whose properties were foreclosed by the United Coconut Planters Bank (UCPB) after they failed to pay a ₱16-million loan.

The loan agreement authorized UCPB to adjust the interest rate every quarter based on market conditions. When the borrowers defaulted, the bank initiated extrajudicial foreclosure proceedings to recover the unpaid debt.

Ang and Fernandez challenged the foreclosure before the Regional Trial Court (RTC), arguing that the bank’s power to set and increase the interest rate solely at its discretion was unfair and invalid.

The RTC declared the interest rate provisions invalid but upheld the foreclosure sale. The Court of Appeals later reversed this, ruling that both the interest rate and the foreclosure were void.

Initially, the Supreme Court maintained that although the interest rate was invalid, the foreclosure remained valid since the borrowers were still in default. However, upon reconsideration, the Court ruled that any foreclosure following an unconscionable or unilaterally imposed interest rate was also invalid.

The SC stressed that under the Civil Code, contracts must be fair and mutually agreed upon. A contract that depends solely on one party’s will is void.

Since UCPB had the sole authority to determine the interest rate, the Court ruled that the loan had not yet become due, rendering the foreclosure void. It added that the borrowers should be given a chance to pay the loan at an interest rate mutually agreed upon by both sides.

In his Dissenting Opinion, Acting Chief Justice Marvic M.V.F. Leonen maintained that even if the interest rate was invalid, the borrowers remained liable for the principal loan amount. He added that there was no finding that the interest rate was excessive—only that it was imposed without the borrowers’ consent.