United Coconut Planters Bank v. Ang
REITERATIONFacts
1. The Antecedents: United Coconut Planters Bank (UCPB) granted Editha F. Ang and Violeta M. Fernandez a term loan of P16,000,000.00 on April 30, 1997, to be used for renovating Queen's Beach Resort and for additional working capital. The loan was to be repaid in 20 quarterly amortizations of P800,000.00 from July 1, 1997, to April 30, 2002. The loans were secured by several real estate mortgages. Ang and Fernandez made partial payments but failed to meet their amortizations after April 30, 1998. As of April 15, 1999, their outstanding obligation was US$683,614.23 and P924,177.57. UCPB sent a demand letter for the total indebtedness. 2. Procedural History: Due to the default, UCPB initiated an extrajudicial foreclosure proceeding under Act No. 3135. The mortgaged properties were sold at public auction to UCPB on August 2, 1999. Subsequently, 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) initially declared the auction sale null and void but later modified its ruling, declaring the auction sale valid and ordering the re-computation of the indebtedness. Both parties appealed. The Court of Appeals (CA) partially granted the appeal, declaring the promissory notes valid, the interest rate provisions void, and the auction sale null and void, remanding the case for re-computation of the total indebtedness. UCPB filed a Petition for Review on Certiorari with the Supreme Court. 3. The Petition: UCPB seeks a review of the CA's decision, arguing that the extrajudicial foreclosure and auction sale were valid. UCPB contends that the CA erred in applying the ruling in Spouses Andal and should have instead applied the principles in Spouses Beluso and Spouses Silos, asserting that the foreclosure sale should only be invalidated if the proceeds exceed the total amount due. UCPB also maintains the validity of the interest rate stipulations in the promissory notes, claiming they were based on prevailing market rates and duly communicated to the borrowers. The petition raises questions of law regarding the validity of the interest stipulations and the extrajudicial foreclosure of the mortgage.
Issue(s)
Whether the petition should be dismissed for raising questions of fact in violation of Rule 45 of the Rules. Whether the stipulations on payment of interests stated in the Credit Agreement, promissory notes, and disclosure statements are valid. Whether the extra-judicial foreclosure of mortgage is valid despite the nullity of the provisions imposing interests which resulted in the erroneous computation of Ang and Fernandez's total obligation.
Ruling
The Supreme Court granted the petition, setting aside the Decision and Resolution of the Court of Appeals. It declared the extrajudicial foreclosure and auction sale conducted on August 2, 1999 as valid and dismissed the Petition for Declaration of Nullity of Foreclosure, Auction Sale and Promissory Note & Fixing of True Account of Petitioners.
Ratio Decidendi
On the issue of raising questions of fact: The Court held that while Rule 45 generally limits review to questions of law, it may review factual findings of the CA when such findings are manifestly mistaken, absurd, or impossible, or when the judgment is premised on a misapprehension of facts or failure to notice relevant facts. This case fell under these exceptions, necessitating a re-examination of the evidence to determine the proper application of jurisprudence. On the validity of stipulations on payment of interests: The Court affirmed the CA's ruling that the stipulations on interest rates in the Credit Agreement, promissory notes, and disclosure statements are void for violating the principle of mutuality of contracts. The bank reserved the right to review and reset interest rates quarterly at its option, based on various market references, giving UCPB sole discretion and making the stipulation objectionable due to the probability of unconscionable or usurious interest. However, the Court clarified that the nullity of the interest stipulation does not affect the lender's right to recover the principal of the loan nor the other terms thereof, including the right to foreclose the mortgage. On the validity of the extra-judicial foreclosure of mortgage: The Court ruled that the extra-judicial foreclosure and auction sale were valid. It held that the nullity of the interest stipulation does not affect the lender's right to recover the principal of the loan and to foreclose the mortgage upon the debtor's failure to pay the debt due. The Court distinguished the present case from Spouses Andal, noting that the default in Spouses Andal was solely due to exorbitant interest rates, whereas in this case, Ang and Fernandez defaulted due to dollar shortage and high exchange rates, and they had paid only a small fraction of their principal obligation. The Court applied the principle in Spouses Beluso, stating that a valid demand for payment, even if excessive, makes the debtors in default with respect to the proper amount of their obligation, and the mortgaged property may be foreclosed. The Court emphasized that Ang and Fernandez failed to show good faith or an earnest desire to pay their principal obligation, even after the RTC declared the foreclosure sale valid. The Court also noted that UCPB was statutorily mandated to dispose of foreclosed assets, and outright nullification of the sale would discourage purchasers and weaken public confidence in the banking industry. The Court found no reason to believe Ang and Fernandez did not receive the loan proceeds, as their partial payment belied this claim, estopping them from assailing the validity of the loan agreements.
Main Doctrine
The extrajudicial foreclosure and auction sale of mortgaged properties are valid even if the stipulated interest rates are void, provided that a valid demand for payment of the principal obligation was made and the debtors are in default. The nullity of the interest stipulation does not affect the lender's right to recover the principal of the loan and to foreclose the mortgage.