Case Summary (G.R. No. 222448)
Petitioner
United Coconut Planters Bank (UCPB) extended a term loan and instituted extrajudicial foreclosure and auction sale to enforce its security after borrowers’ failure to pay.
Respondents
Editha F. Ang and Violeta M. Fernandez were borrowers who executed a Credit Agreement, several promissory notes (including three dollar‑denominated PNs), and multiple real estate mortgages to secure the loan proceeds applied to renovation, working capital and foreign exchange business.
Key Dates
Loan grant and instruments: April–June 1997 (principal obligation approximately Php16,054,955.83). Borrowers ceased amortizations after April 30, 1998. Demand letter: April 14, 1999. Notice of sale: June 17, 1999; auction: July 15, 1999; sale to UCPB as highest bidder: August 2, 1999 (Certificate of Sale dated August 9, 1999). Petition for nullity filed: July 10, 2000. RTC decisions: June 22, 2011 (initial) and December 5, 2011 (reconsideration). Court of Appeals decision: May 11, 2015 (and denial of MR December 4, 2015). Supreme Court final Decision: November 24, 2021 (as the matter before the Court).
Applicable Law and Authorities
Governing Constitution: 1987 Philippine Constitution (decision after 1990). Relevant statutes and rules invoked or applied: New Civil Code (Articles 1308, 1309), R.A. No. 3765 (Truth in Lending Act), Act No. 3135 (extrajudicial foreclosure), General Banking Law provisions on banks acquiring real estate, BSP Circulars (including BSP Circular No. 799 as to interest rate effectivity), and the Rules of Court (Rule 45 on petition for review on certiorari; Section 8, Rule 8 on pleading admissions). Controlling jurisprudence cited includes Spouses Andal, Spouses Beluso, Spouses Silos, Eastern Shipping Lines, Advocates for Truth in Lending v. BSP Monetary Board, and other precedents discussed by the courts below and the Supreme Court.
Loan terms, promissory notes, and security
UCPB granted a term loan payable in 20 quarterly amortizations of P800,000 from July 1, 1997 to April 30, 2002. The Credit Agreement limited proceeds’ use and incorporated Terms & Conditions and required promissory notes to state the agreed interest rate but provided that the Agreement would prevail in case of conflict. Various promissory notes referenced prevailing market rates, Manila Reference Rate (MRR) or Treasury Bill Rate (TBR), or other market-based references, with clauses permitting quarterly review and resetting “at the option of the bank,” and other provisions (compounding; penalty charge of 1% per month in some clauses).
Payments made and default
Ang and Fernandez made payments totaling US$55,882.90 and P198,023.30 (equivalent total P2,349,514.95) and ceased amortizations after April 30, 1998. As of April 15, 1999, outstanding obligations were US$683,614.23 and P924,177.57. A demand was sent and upon nonpayment UCPB initiated extrajudicial foreclosure to satisfy stated arrears and costs.
Extrajudicial foreclosure and auction sale
UCPB filed for extrajudicial foreclosure under Act No. 3135. Notary Public Immanuel L. Sodusta issued a Notice of Sale and conducted a public auction; the mortgaged properties were sold to UCPB as highest bidder for P21,985,000.00 on August 2, 1999, and a Final Deed of Sale was issued December 28, 2000. Tax declarations were later issued and, in 2013, UCPB sold the foreclosed properties to a third party, Eddie Po.
Petition to annul foreclosure, sale, and promissory notes
On July 10, 2000, the borrowers filed a petition seeking, inter alia: declaration of nullity of the auction sale and certificate of sale; nullity of dollar‑denominated promissory notes insofar as they required payment in dollars or conversion at a later, higher exchange rate; nullity of interest rate fixation provisions as violative of Civil Code mutuality and of Truth in Lending Act disclosure requirements; damages; and attorney’s fees.
RTC’s rulings (initial decision and order on reconsideration)
The RTC’s June 22, 2011 Decision declared provisions fixing or imposing interest in the Credit Agreement, mortgages and promissory notes void for violating Articles 1308 and 1309 and R.A. No. 3765; declared the five promissory notes null and void for violating sections of the Truth in Lending Act; nullified the auction sale of August 2, 1999; and directed recomputation of indebtedness based on the interest rate known and agreed at contract formation. On reconsideration the RTC reversed its nullification of the sale and, in its December 5, 2011 order, declared the sale valid, held the borrowers liable for principal (Php16,000,000) plus compounded legal interest at 12% p.a. and penalty of 12% p.a. from date of demand, directed deduction of payments made and application of auction proceeds against indebtedness.
Court of Appeals’ decision and reasoning
The Court of Appeals (May 11, 2015) held: the promissory notes were validly executed (borrowers failed to prove they signed blank forms and the notes met contractual requirements); the bank did not violate the Truth in Lending Act because borrowers failed to specifically deny under oath the genuineness and execution of financial statements (deemed admitted under Section 8, Rule 8); the provisions fixing or imposing interest rates were null and void for violating mutuality (leaving the obligation to pay interest intact but voiding the stipulated rate); and because UCPB failed to accurately account for the true indebtedness, the extrajudicial foreclosure and auction sale were declared null and void. The CA remanded computation of indebtedness to the trial court and applied legal interest of 12% p.a. from extrajudicial demand until June 30, 2013, then 6% p.a. thereafter pursuant to BSP Circular No. 799.
Procedural history at the Supreme Court prior to final disposition
UCPB filed a petition for review under Rule 45. The Supreme Court initially denied the petition (March 16, 2016) for procedural deficiencies and lack of reversible error but later granted UCPB’s motion for reconsideration and reinstated the petition (July 24, 2017), allowing the petition for review to proceed. Parties filed pleadings and raised primarily questions of law, but factual issues were also considered because the Court found exceptions permitting review of factual findings.
Issues presented to the Supreme Court
The Court framed the main issues as: (1) whether the petition should be dismissed for raising factual questions beyond Rule 45; (2) whether the stipulations on payment of interest in the Credit Agreement, promissory notes, and disclosure statements are valid; and (3) whether extrajudicial foreclosure is valid despite nullity of interest provisions that produced erroneous computation of total indebtedness.
Supreme Court’s approach to factual questions and exceptions
Although Rule 45 is ordinarily confined to questions of law, the Supreme Court acknowledged established exceptions permitting limited factual review when the Court of Appeals’ inferences are manifestly mistaken, the CA’s judgment is premised on misapprehension of facts, or the CA failed to notice relevant facts that would justify a different conclusion. The Court determined the present case fit within those exceptions and warranted re‑examination of evidence and factual findings.
Supreme Court’s ruling on interest stipulations (mutuality)
The Supreme Court held the interest stipulations in the Credit Agreement and promissory notes void for lack of mutuality. The Agreement allowed the bank to select among market references (MRR, TBR, or other market‑based references) and to “review and reset” rates quarterly “at the option of the bank,” giving UCPB unilateral discretion to set future rates. The Court characterized this discretion as enabling the bank to fix the rate at will and as a vague, one‑sided mechanism that could result in unconscionable or usurious rates, thereby violating Article 1308’s mutuality requirement.
Supreme Court’s ruling on Truth in Lending Act and promissory notes
The Court found that UCPB did not violate the Truth in Lending Act’s disclosure requirements as the borrowers failed to specifically deny under oath the genuineness and due execution of the financial statements and documents the bank produced; under Section 8, Rule 8 those documents were deemed admitted. Consequently, the CA’s ground for declaring the promissory notes void due to Truth in Lending Act violations was incorrect, and the promissory notes were held valid and binding.
Supreme Court’s ruling on validity of extrajudicial foreclosure and auction sale
The Supreme Court concluded that nullity of interest stipulations does not impair the bank’s right to recover the principal or its right to foreclose a mortgage securing the debt. Following precedent, the Court held that the principal remains demandable, and legal interest (1
...continue readingCase Syllabus (G.R. No. 222448)
Case Caption and Procedural Posture
- Third Division, G.R. No. 222448, November 24, 2021 — Petition for Review on Certiorari under Rule 45 filed by United Coconut Planters Bank (UCPB) assailing the Court of Appeals (CA) Decision dated May 11, 2015 and Resolution dated December 4, 2015 in CA‑G.R. CV No. 04270.
- Petition seeks review of CA rulings that: (a) declared the five promissory notes valid; (b) declared provisions fixing interest rates null and void under Article 1308 of the New Civil Code; and (c) declared the extrajudicial foreclosure sale of August 2, 1999 null and void, and remanded to trial court to determine total indebtedness.
- Supreme Court disposition: ponencia granted UCPB’s petition; set aside CA Decision and Resolution; declared the extrajudicial foreclosure and auction sale of August 2, 1999 valid; dismissed petitioners’ (Ang and Fernandez) Petition for Declaration of Nullity of Foreclosure, Auction Sale and Promissory Note & Fixing of True Account.
Parties and Nature of Action
- Petitioner: United Coconut Planters Bank (UCPB).
- Respondents/Petitioners below: Editha F. Ang and Violeta M. Fernandez.
- Nature of action below: Petition for Declaration of Nullity of Foreclosure, Auction Sale and Promissory Note & Fixing of True Account of Petitioners — challenging promissory notes, interest stipulations, and extrajudicial foreclosure/auction sale.
Loan Origination, Purpose, and Payment Terms (Antecedents)
- Date of original Credit Agreement: April 30, 1997.
- Loan purpose per Section 1.02 of Credit Agreement: proceeds to be used exclusively to partly finance renovation of Queen’s Beach Resort, additional working capital for resort operation, and foreign exchange business.
- Term and amortization: term loan of P16,000,000.00 payable in five years through 20 quarterly amortizations of P800,000.00 each, commencing July 1, 1997 up to April 30, 2002.
- Total principal obligation as shown in source table: Php 16,054,955.83 (aggregate of multiple drawdowns in US dollars and pesos, with corresponding promissory note numbers listed in source).
- Specific drawdowns and promissory notes (as presented in source Table 1):
- April 30, 1997 — US$549,867.00 @ Php 26.37/USD = Php 14,554,979.49 — PN 8316-97-200012-8.
- June 2, 1997 — US$18,889.00 @ Php 26.37 = Php 498,102.93 — PN 8316-97-20020-9.
- June 4, 1997 — US$11,333.00 @ Php 26.37 = Php 298,851.21 — PN 8316-97-20021-7.
- June 17, 1997 — Php 350,000.00 — PN 8316-97-00280-6.
- June 25, 1997 — Php 350,000.00 — PN 8316-97-00289-0.
Collateral and Securities
- Loans secured by several real estate mortgages (as reflected in source Table 2) with various dates, secured amounts, and references to Transfer Certificates of Title and Tax Declarations:
- Aug 1, 1995 — Php 2,200,000.00 — TCT No. T-20640.
- Oct 10, 1995 — Php 4,000,000.00 — TD No. 93-011-0394 / 93-011-0274.
- Apr 27, 1995 — Php 1,800,000.00 — TCT No. 20640 / TD No. 93-011-0394.
- Dec 29, 1995 — Php 4,000,000.00 — various TCT/TD references including TCT No. 20640 and TD No. 93-011-0394/93-011-0274.
- May 27, 1996 — Php 3,000,000.00 — TCT No. 20640 and multiple TD references.
- Nov 25, 1996 — Php 2,000,000.00 — TCT No. 20640 and TD references.
- Total coverage shown in table: Php 17,000,000.00.
Borrowers’ Partial Payments, Default, Demand and Extrajudicial Proceedings
- Payments made by Ang and Fernandez: US$55,882.90 and Php 198,023.30, totalling a Philippine peso equivalent of Php 2,349,514.95.
- Borrowers ceased paying amortizations after April 30, 1998.
- As of April 15, 1999, outstanding obligations shown as US$683,614.23 and Php 924,177.57.
- Demand letter sent April 14, 1999.
- UCPB filed a Petition for Sale under Act No. 3135 (extrajudicial foreclosure) with Notary Public Immanuel L. Sodusta to satisfy a specified principal amount of Php 700,000.00 and US$580,089.00 plus interest, penalty and other charges, attorneys’ fees, sheriff fees, and enforcement expenses.
- Notice of Sale at Public Auction dated June 17, 1999 (auction set July 15, 1999).
- Notary Public Sodusta sold mortgaged properties at public auction to UCPB as highest bidder on August 2, 1999 for Php 21,985,000.00.
- Final Deed of Sale dated December 28, 2000 issued; subsequent tax declarations issued in name of UCPB for the properties (specific tax declaration numbers cited in source).
Petition for Declaration of Nullity — Prayer for Reliefs (July 10, 2000)
- Petitioners (Ang & Fernandez) sought:
- Declaration that the auction sale of August 2, 1999 and Certificate of Sale dated August 9, 1999 are null and void.
- Declaration that dollar‑denominated promissory notes (to the extent they require payment in dollars or require conversion using later exchange rate of P38.37/$1.00 instead of P26.37/$1.00) violate R.A. 529 and are null and void to that extent.
- Declaration that provision on interest rate and unilateral fixing of interest by the bank is null and void; relief to result in petitioners being liable only for principal of P16 Million less payments and limited penalty.
- Finding of violation of the Truth in Lending Act and recovery of double finance charge (not exceeding statutory caps).
- Award of moral damages of Php 50,000.00 and attorney’s fees of Php 50,000.00.
Trial Court (Regional Trial Court) Rulings — June 22, 2011 Decision; December 5, 2011 Reconsideration Order
- RTC Decision (June 22, 2011) dispositive:
- Declared null and void provisions fixing/imposing interest rates in Credit Agreement, Real Estate Mortgage and Promissory Notes for violating Articles 1308 and 1309 of the New Civil Code and R.A. No. 3765 (Truth in Lending Act).
- Declared the five promissory notes NULL and VOID for violating Sections 4 (par. 5, 6, 7) of R.A. No. 3765.
- Declared the Sale at Public Auction of August 2, 1999 NULL and VOID.
- Directed defendant bank to recompute total indebtedness of petitioners based on the interest rate known and agreed at time of contract consummation.
- RTC rationale: interest imposition left solely to UCPB in violation of mutuality; practice of signing blank promissory notes and fixing subsequent interest without disclosure violated Truth in Lending Act.
- RTC Order on Reconsideration (December 5, 2011) dispositive (reversing earlier aspect on auction):
- Declared the sale at public auction conducted on August 2, 1999 to be valid.
- Held petitioners liable to bank for principal of Php 16,000,000.00 plus compounded legal interest of 12% p.a. and penalty of 12% p.a. from date of demand; bank to deduct payments of Php 2,349,514.95 and apply auction proceeds of Php 21,985,000.00 less expenses and attorney’s fees against indebtedness.
- RTC explained reversal: no ground to nullify auction sale; borrowers negligent in payment; recomputation to apply prevailing legal interest of 12% p.a. and penalty 12% p.a. because contractual interest stipulations nullified.
Post‑RTC Events — Transfer to Third Parties
- UCPB sold the properties covered by certain tax declarations to Eddie Po (married to Nancy Po) on August 1, 2013.
- New tax declarations in the name of Eddie Po were subsequently issued for Lot Nos. referenced in the source.
Court of Appeals Decision (May 11, 2015) and Resolution (Dec 4, 2015)
- CA Dispositive holdings:
- Declared the five promissory notes valid.
- Declared provisions fixing and/or imposing interest rates NULL and VOID for violating Article 1308 of the New Civil Code.
- Declared the sale at public auction of August 2, 1999 NULL and VOID.
- Remanded to trial court to determine total indebtedness based on evidence on record and other admissible evidence; computation to deduct amounts already paid and apply legal interest of 12% p.a. from extrajudicial demand until June 30, 2013, and 6% p.a. from July 1, 2013 until fully paid (applying BSP Circular No. 799 effectivity).
- CA reasoning and findings:
- Promissory notes valid: no evidence supporting claim that borrowers signed blank forms; validity of promissory note does not depend on explicit mortgage stipulation.
- Borrowers received loan proceeds, which were applied to satisfy prior loans with UCPB.
- Real estate mortgage clauses (including dragnet/blanket clauses) were valid to secure future/other indebtedness.
- Dollar‑denominate