Foreclosure proceedings based on unfair interest rates should be annulled. A mortgagor should be given a chance to pay their indebtedness at an interest rate clearly agreed upon by the parties, otherwise, they shall be at the mercy of their creditor, standing to lose their property without being afforded a fair opportunity to settle their indebtedness.
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AT A GLANCE:
The unilateral imposition of interests, at such rate that the lender or mortgagee so pleases, cannot and should not be reason to justify a foreclosure sale. The mortgagor should be given a chance to pay their indebtedness at an interest rate clearly agreed upon by the parties, otherwise, they shall be at the mercy of their creditor, standing to lose their property without being afforded a fair opportunity to settle their indebtedness.
On April 30, 1997, UCPB granted respondents Editha F. Ang and Violeta M. Fernandez a term loan of PhP16,000,000.00.
The Credit Agreement states that the proceeds of all availments of the Accommodation shall be used exclusively to partly finance the renovation of Queen’s Beach Resort and for working capital for resort operation and foreign exchange business.
Ang and Fernandez availed the credit line payable in five (5) years through twenty (20) quarterly
amortizations of PhP800,000.00 starting July 1, 1997 up to April 30, 2002.
Ang and Fernandez were able to pay US$55,882.90 and PhP198,023.30 or an equivalent total of PhP2,349,514.95. They were not able to pay their amortizations after April 30, 1998. Due to the failure of Ang and Fernandez to pay their loan obligations to the bank, a demand letter dated April 14, 1999 was sent to them.
For failure of Ang and Fernandez to pay the total indebtedness as it fell due, UCPB filed a Petition for Sale under Act No. 3135, as amended, with Notary Public Atty. Immanuel L. Sodusta. On August 2, 1999, Notary Public Sodusta sold at public auction the mortgaged properties to UCPB as the highest bidder for PhP21,985,000.00.
On July 10, 2000, Ang and Fernandez filed a Petition for Declaration of Nullity of Foreclosure,
Auction Sale and Promissory Note & Fixing of True Account of Petitioners.
The Regional Trial Court (RTC) rendered a decision, declaring as null and void the provisions fixing and/or imposing interest rates as stated in the Credit Agreement, Real Estate Mortgage and Promissory Notes, for being violative of the provisions of Articles 1308 and 1309 of the Civil Code and R.A. 3765, otherwise known as the Truth in Lending Act.
The RTC reversed its earlier decision, declaring the sale at public auction conducted on August 2, 1999 to be valid.
The Court of Appeals (CA) partially granted the appeal, declaring the following:
- The five promissory notes are valid;
- The provisions fixing and/or imposing interest rates are null and void for being violative of the provisions of Article 1308 of the Civil Code;
- The sale at public auction conducted on August 2, 1999 is null and void.
The Supreme Court ruled that the extrajudicial foreclosure and auction sale conducted on August 2, 1999 is valid. It dismissed the Petition for Declaration of Nullity of Foreclosure, Auction Sale and Promissory Note & Fixing of True Account of Petitioners.
Hence, this motion for reconsideration filed by Ang and Fernandez asking the Court to take a second look at its decision.
The issue in this case is whether or not foreclosure proceedings due to non-payment of the loan may be held valid even if it is proved that the interest rates imposed by the lender were improper and unlawful.
The Supreme Court Decides
The Supreme Court granted the motion for reconsideration and affirmed in toto the CA’s decision. It held that the position taken by respondents and Associate Justice Rodil V. Zalameda are more in accord with the law and should be adopted if the Court is to mete out a disposition justifiable in all aspects.
A careful reading of both Spouses Andal and Spouses Albos would reveal that the dispositions therein were not made to depend on the cause of non-payment of the principal loan. Nor was the amount paid against the principal loan taken into consideration, in so making the clarification anent the validity of the subsequent foreclosure proceedings. As long as the interest rates were unconscionable or unilaterally imposed by the mortgagee, the foreclosure proceedings that followed should be annulled.
Both Spouses Andal and Spouses Albos support the Dissenting Opinion of Justice Zalameda whose view should be adopted. The unilateral imposition of interests, at such rate that the lender or mortgagee so pleases, cannot and should not be reason to justify a foreclosure sale. The mortgagor should be given a chance to pay their indebtedness at an interest rate clearly agreed upon by the parties, otherwise, they shall be at the mercy of their creditor, standing to lose their property without being afforded a fair opportunity to settle their indebtedness.
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