G.R. No. 222448, November 24, 2021
UNITED COCONUT PLANTERS BANK, PETITIONER, VS. EDITHA F. ANG AND VIOLETA M. FERNANDEZ, RESPONDENTS.

FACTS

This is a dissenting opinion in a case where the main petition was filed by United Coconut Planters Bank (UCPB) against respondents Editha F. Ang and Violeta M. Fernandez. The respondents had filed a Petition for Declaration of Nullity of Foreclosure, Auction Sale and Promissory Note & Fixing of True Account. The ponencia (majority decision) granted UCPB’s Petition for Review on Certiorari, set aside the Court of Appeals’ Decision and Resolution, and dismissed the respondents’ petition, ruling that while the stipulations on interest were void, the foreclosure proceedings and auction sale were valid. The dissenting opinion disagrees with this conclusion. The Credit Agreement dated 30 April 1997 allowed UCPB to impose interest based on the Manila Reference Rate, Treasury Bill Rate, or other market-based reference rates, “subject to quarterly interest review and resetting at the option of the bank.” The promissory notes also allowed UCPB to determine the “prevailing market rate” internally and to review, increase, or decrease rates based on considerations including its own profitability. The mortgaged properties were foreclosed and sold at a public auction on July 15, 1999, and subsequently sold to UCPB as the highest bidder.

ISSUE

Whether the provisions on interest rates in the Credit Agreement and promissory notes are void for violating the principle of mutuality of contracts under Article 1308 of the Civil Code, and if so, whether the subsequent foreclosure and auction sale are also void.

RULING

The dissenting opinion holds that the provisions on interest rates are void for violating the principle of mutuality of contracts. The stipulations grant UCPB unrestrained, unilateral power to determine, review, and reset interest rates based on subjective criteria like its own profitability, without the consent of the borrowers. This one-sided authority is anathema to mutuality. Even assuming a floating interest rate system was intended, the reference rates were not properly agreed upon in writing as required, and the bank retained the sole option to reset rates. Consequently, the foreclosure and auction sale are also void. It would be unjust to allow foreclosure for a debt inflated by a void interest scheme, and a debtor must be given an opportunity to settle the correct debt amount. Therefore, the dissenting opinion votes to deny UCPB’s petition and affirm the Court of Appeals’ Decision and Resolution which declared the nullity of the foreclosure and auction sale.