THIRD DIVISION

[ G.R. No. 222448, November 24, 2021 ]

UNITED COCONUT PLANTERS BANK, PETITIONER, VS. EDITHA F. ANG
AND VIOLETA M. FERNANDEZ, RESPONDENTS.
DECISION
CARANDANG, J.:

Before this Court is a Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court
(Rules), assailing the Decision[2] dated May 11, 2015 and Resolution[3] dated December 4, 2015 of
the Court of Appeals (CA) in CA-­G.R. CV No. 04270 filed by petitioner United Coconut Planters
Bank (UCPB).

The Antecedents

On April 30, 1997, UCPB granted respondents Editha F. Ang (Ang) and Violeta M. Fernandez
(Fernandez) a term loan of P16,000,000.00. Section 1.02 of the Credit Agreement states that "[t]he
proceeds of all availments of the Accommodation shall be used exclusively by CLIENT to partly
finance the renovation of Queen's Beach Resort and for [additional] working capital for resort
operation and foreign exchange business."[4] Ang and Fernandez availed the credit line payable in
five years through 20 quarterly amortizations of P800,000.00 starting July 1, 1997 up to April 30,
2002.[5] The loans obtained by them are as follows:

Table 1[6]
Date Loan Amount Peso Equivalent Promissory Note
(PN)
US$549,867.00 @ Php
April 30, 1997 Php 14,554,979.49 PN 8316-97-200012-8
26.37/USD$ 1.00
US$ 18,889.00 @ Php
June 2, 1997 Php 498,102.93 PN 8316-97-20020-9
26.37/USD$ 1.00
US$ 11,333.00 @ Php
June 4, 1997 Php 298,851.21 PN 8316-97-20021-7
26.37/US$ 1.00
June 17, 1997 Php 350,000.00 PN 8316-97-00280-6
June 25, 1997 Php 350,000.00 PN 8316-97-00289-0
Total Principal Obligation Php 16,054,955.83

The loans were secured by several real estate mortgages including:

Table 2[7]
Date Amount Secured Corresponding Security
August 1, 1995 Php 2,200,000.00 Transfer Certificate of Title
(TCT) No. T-20640
 October 10, 1995 Php 4,000,000.00 Tax Declaration (TD) No. 93-
011-0394/ 93-011-0274
April 27, 1995 Php 1,800,000.00 TCT No. 20640/TD No. 93-011-
0394
December 29, 1995 Php 4,000,000.00 TD No. 1911/1978/1979
TCT No. 20640
TD No. 93-011-0394/ 93-011-
0274
May 27, 1996 Php 3,000,000.00 TCT No. 20640
TD No. 93-011-0394/ 93-011-
0274/ 1911/ 1978/ 1979
November 25, 1996 Php 2,000,000.00 TCT No. 20640
TD No. 93-011-0394/ 93-011-
0274
TD No. 1911
Php 17,000,000.00

Ang and Fernandez were able to pay US$55,882.90 and P198,023.30 or an equivalent total of
P2,349,514.95. They were not able to pay their amortizations after April 30, 1998.[8]

As of April 15, 1999, the borrowers' outstanding obligations to UCPB were US$ 683,614.23 and
P924,177.57. 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.[9]

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 (Notary
Public Sodusta), to satisfy the principal amount of P700,000.00 and US$ 580,089.00 plus interest,
penalty and other charges, attorney's fees, sheriff fees, and all other necessary expenses in the
enforcement of the extrajudicial foreclosure. Notary Public Sodusta issued a Notice of Sale at Public
Auction dated June 17, 1999 for an auction to be held on July 15, 1999.[10]

On August 2, 1999, Notary Public Sodusta sold at public auction the mortgaged properties to UCPB
as the highest bidder for P21,985,000.00.[11]

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. They prayed that a
judgment or order be rendered:

1) Declaring the auction sale on August 2, 1999 and the Certificate of Sale dated August 9, 1999
of petitioners [Ang and Fernandez] mortgaged properties null and void;
2) Declaring the dollar denominated promissory notes, in so far as they require petitioners [Ang
and Fernandez] to pay the total principal sum of $ 580,089.00, its interest, and penalties in
dollars as contrary to R.A. 529, and likewise, as null and void in so far as respondent bank
require petitioners to pay the same in Philippine Currency equivalent to the dollar amount of
the promissory notes and its interest and penalties at the rate of exchange at the time of
payment on August 2, 1999 of P38.37 - to $1.00 instead of P26.37 to a dollar, the rate at the
time of incurring the obligation;
3) Declaring the provision on interest rate and the fixing and unilateral increase thereof solely by
the bank as null and void, and that therefore, it is as if no interest has been agreed upon so that
petitioners is not liable to pay any interest but only the principal of P16 Million Pesos, less
payments made by petitioners for interest, and penalty of P10,000.00;
 4) Finding respondent bank to have violated the Truth in Lending Act, and to be liable to
petitioners for double the finance charge the bank requires of the petitioners, not exceeding
P2,000.00 per promissory note or P10,000.00 for the five (5) promissory notes in question;
5) Ordering respondent bank to pay petitioners moral damages of P50,000.00 and atty.'s fees of
another P50,000.00.[12]

Due to the failure of Ang and Fernandez to exercise their right to redeem the mortgaged properties, a
Final Deed of Sale[13] dated December 28, 2000 was issued by Notary Public Sodusta. Subsequently,
the following tax declarations were issued by the Office of the Provincial Assessor in the name of
UCPB: (a) Tax Declaration No. 05-011-035[14] for Lot No. 389-pt, which cancelled Tax Declaration
No. 93-011-0274;[15] (b) Tax Declaration No. 05- 011-0352[16] for the building standing on Lot 389-
pt, cancelling Tax Declaration No. 2238;[17] (c) Tax Declaration No. 05-011-0468[18] for Lot No.
391-pt, cancelling Tax Declaration No. 2878; and (d) Tax Declaration No. 05-002-00180[19] for Lot
No. 3460-F-1-A, cancelling Tax Declaration No. 06150.

Ruling of the Regional Trial Court

On June 22, 2011, the RTC rendered its Decision,[20] the dispositive portion of which states:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. 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 Article 1308 and Article 1309 of the New Civil Code of the
Philippines and RA 3765 known as the Truth in Lending Act;
2. Declaring the five (5) Promissory Notes as NULL and VOID for having violated the
provisions of Section 4, paragraphs (5), (6) and (7) of the Truth in Lending Act;
3. Declaring the Sale at Public Auction conducted on August 2, 1999 as Null and Void;
4. The defendant bank is hereby directed to recompute the total amount of indebtedness of
the petitioner based on the interest rate known and agreed by both parties at the time the
contract was consummated.[21]

In nullifying the provisions imposing interest rates in the Credit Agreement, Real Estate Mortgage,
and promissory notes, the RTC found that these provisions violate Articles 1308 and 1309 of the
Civil Code. The imposition of interest rates is left to the sole will of UCPB in violation of the
principle of mutuality of contracts.[22]

In declaring void the five promissory notes Ang and Fernandez executed, the RTC explained that the
practice of making borrowers sign a blank promissory note of Disclosure Statement, and fixing
subsequent interest rates after, without the bank informing the borrower of the finance charges
expressed as an annual percentage of the total amount to be financed or loan obligation of the
borrower in a written disclosure statement violates the requirements in Sections 5, 6, and 7 of the
Republic Act (R.A.) No. 3765 or the Truth in Lending Act.[23]

Thus, the RTC nullified the sale at public auction conducted on August 2, 1999 and ordered UCPB to
recompute the total indebtedness of Ang and Fernandez based on the interest rate known and agreed
by the parties at the time the contract was consummated.[24]
Both parties filed a Motion for Reconsideration.

The RTC issued an Order[25] dated December 5, 2011, the dispositive portion of which states:

WHEREFORE, premises considered, judgment is rendered:

1. Declaring the sale at public auction conducted on August 2, 1999 to be valid;

2. Petitioners are liable to respondent bank the principal amount of P16 Million Pesos
plus compounded legal interest of 12% per annum and penalty of 12% per annum on the
amount due from date of demand. Respondent bank is ordered to deduct from the liability
of petitioners the amount of payments made in the amount of P2,349,514.95. The
proceeds from the auction sale in the amount of P21,985,000,00 less expenses for the
auction sale and attorney's fees shall be applied to and deducted from petitioner's
indebtedness.

SO ORDERED.[26] (Emphasis supplied)

In reversing its earlier ruling, the RTC explained that it did not find any ground to nullify the auction
sale conducted on August 2, 1999. Ang and Fernandez were held to be negligent in paying their
obligation to UCPB. As for the re-computation, the RTC ordered that the imposition of the prevailing
legal interest rate of 12% per annum be applied by the bank in computing the indebtedness and 12%
per annum penalty charges since the interest stipulated in the loan contracts are null and void.[27]

Incidentally, on August 1, 2013, UCPB sold the properties covered by Tax Declaration Nos. 05-011-
0351, 05-011-0468, and 05-011-0352 in favor of Eddie Po who is married to Nancy Po.[28]
Accordingly, the following tax declarations were issued in the name of Eddie Po: Tax Declaration
No. 4457[29] for Lot No. 389-pt, cancelling Tax Declaration No. 05-011-0351; Tax Declaration No.
4456,[30] cancelling Tax Declaration No. 05-011-0468; and Tax Declaration No. 4458,[31] cancelling
Tax Declaration No. 05-011-0352.

Ruling of the Court of Appeals

On May 11, 2015, the CA rendered its Decision,[32] the dispositive portion of which states:

WHEREFORE, the instant appeal is hereby PARTIALLY GRANTED. It is hereby

declared:

1. That the five (5) Promissory Notes are valid;

2. That the provisions fixing and/ or imposing interest rates are NULL and VOID for
being violative of the provisions of Article 1308 of the New Civil Code;
3. That the sale at public auction conducted on August 2, 1999 is NULL and VOID;
4. The case is REMANDED to the trial court for proceedings to determine, based on
evidence already on record and other evidence it may admit in the proceedings before it,
the total indebtedness of the appellants. It shall be computed by deducting the amount
already paid on the principal obligation plus legal interest of twelve percent (12%) per
annum computed from extrajudicial demand until June 30, 2013, and six percent (6%) per
annum from July 1, 2013 until fully paid.
 SO ORDERED.[33] (Emphasis supplied)

The CA held that the promissory notes were validly executed and that there is no evidence to support
the claim of Ang and Fernandez that they were made to sign blank forms. The CA added that the
validity of a promissory note is not dependent on the existence of a stipulation that it is secured by a
real estate mortgage. So long as the promissory note satisfies the requirement of a contract between
the parties, then it is valid and binding between the parties.[34] The CA also found that Ang and
Fernandez failed to substantiate their claim that they failed to receive the proceeds of the loan. The
CA discovered that they received the proceeds of the loan which were paid in satisfaction of their
previous loans with UCPB.[35]

The CA ruled that UCPB did not act in bad faith in the preparation of the real estate mortgage
contracts. The terms of the real estate mortgage contracts permitted the execution of the real estate
mortgage contracts even before the principal obligation existed.[36] The CA identified this stipulation
as a "dragnet clause" or "blanket mortgage clause," a valid stipulation to secure future and other
indebtedness.[37]

The CA clarified that the three US-dollar denominated promissory notes are valid because R.A. No.
8183 permits obligations or transactions to be paid in the currency agreed upon by the parties.[38]

The CA ruled that there was no violation of the Truth in Lending Act because Ang and Fernandez
failed to specifically deny under oath the genuineness and due execution of the financial statements
presented to disprove their claim. Thus, they are deemed admitted under Section 8, Rule 8 of the
Rules.[39]

Nonetheless, the CA declared the provision on interest rates void for violating the principle of
mutuality of contracts. It is void because the choice of which interest rate to apply is left with UCPB.
[40] Nonetheless, the nullity of the interest rate does not mean that Ang and Fernandez are no longer
required to pay interest. It is only the rate of interest that is declared void and the stipulation requiring
them to pay interest on their loan remains valid and binding.[41] Considering that UCPB failed to
account for the actual and true indebtedness of Ang and Fernandez, the CA declared that the bank has
no right to foreclose their properties and any foreclosure thereof is illegal.[42]

The CA imposed legal interest of 12% per annum to be reckoned from the date of extrajudicial
demand, April 21, 1999, until June 30, 2013. Following the effectivity of BSP Circular No. 799 on
July 1, 2013, the rate of interest is reduced to 6% from July 1, 2013 until the obligation is fully paid.
[43]

In a Resolution[44] dated December 4, 2015, the CA denied the Motion for Reconsideration of
UCPB.

In UCPB's petition for review on certiorari, the bank insisted that the public auction sale on August
2, 1999 was valid. UCPB argued that the case of Spouses Andal v. Philippine National Bank[45]
(Spouses Andal), which the CA relied upon in invalidating the auction sale, cannot be applied to the
present case because in Spouses Andal the petitioners were unable to pay their loan due solely to the
exorbitant rate of interest unilaterally determined and imposed by PNB. The borrowers in said case
were also able to pay a substantial portion of their loan, P14,800,000.00 out of P21,805,000.00. On
the other hand, in the case of Ang and Fernandez, they failed to pay their loan "due to dollar shortage,
high exchange rate." Also, they were only able to pay P2,349,514.95 out of their total obligation of
P16,000,000.00.[46] UCPB posited that the applicable case is United Coconut Planters Bank v.
Spouses Beluso[47] (Spouses Beluso) where the Court upheld the validity of the foreclosure
proceedings notwithstanding the issues on the computation of the total amount due to the bank.[48]
UCPB also highlighted the ruling of the Court in Spouses Silos v. Philippine National Bank[49]
(Spouses Silos) where the Court ruled that the extrajudicial foreclosure sale will be invalidated only
when the overpayment exceeds the total amount of interest and award of attorney's fees.[50] For
UCPB, the foreclosure proceedings cannot be nullified because there was no overpayment as the
borrowers only paid P2,349,514.95.[51]

UCPB also maintained that the provisions fixing the rate of interest in the five promissory notes are
valid. The bank averred that the interest rates based on prevailing markets are valid and that the
effective interest rates were duly made known to the borrowers each time they availed the proceeds
of their term loan.[52]

The Court's Resolution dated March 16, 2016

In a Resolution dated March 16, 2016, the Court denied the petition for review on certiorari of
UCPB for lack of proof of service on the CA in accordance with Section 13, Rule 13 in relation to
Section 5(d), Rule 56 of the Rules and for failure to sufficiently show any reversible error in the
assailed judgment to warrant the exercise by the Court of its discretionary appellate jurisdiction.[53]

On April 18, 2016, Ang and Fernandez filed a Manifestation[54] pointing out that UCPB is litigating
in bad faith when it failed to disclose to the Court that Eddie Po, the subsequent purchaser of the
three-storey hotel used by the borrowers as collateral, demolished the property with the bank's
consent.[55]

In response to the Manifestation[56] of Ang and Fernandez, UCPB pointed out in its Comment[57]
that the issues they raised in their Manifestation are matters not alleged in the original petition they
filed in the RTC.[58] UCPB also highlighted that Ang and Fernandez committed forum shopping in
filing a complaint[59] docketed as Civil Case No. 9866 against the bank and Eddie Po on May 6,
2015 with the intention of nullifying the effects of the extrajudicial foreclosure sale on August 2,
1999 by praying for the nullity of various documents issued as a result of, and after the said
foreclosure sale.[60]

The Court's Resolution dated July 24, 2017

In a Resolution[61] dated July 24, 2017, the Court granted the Motion for Reconsideration[62] of
UCPB and reinstated the petition and required respondents to file a comment.

In their Comment,[63] Ang and Fernandez reiterated that the issues raised by UCPB are factual and
that only questions of law may be passed upon in a petition for review on certiorari under Rule 45.
[64] They stressed that the provisions fixing the rate of interest in the five promissory notes are
invalid because the rate to be imposed is dependent solely on the will of UCPB.[65] They also argued
that the public auction sale held on August 2, 1999 was invalid. They highlighted the ruling of the
Court in Spouses Andal wherein it was held that the borrower cannot be considered in default for
their inability to pay the arbitrary, illegal, and unconscionable interest rates, and penalty charges
unilaterally imposed by the bank. They posited that since the interest rates are null and void, it is
premature for the bank to foreclose the properties.[66]

Meanwhile, in UCPB's Reply,[67] they maintained that a petition for review on certiorari wider Rule
45 is the proper remedy because of the questions of law involved in the case.[68] The bank pointed
out that the CA improperly applied the ruling in Spouses Andal instead of the ruling in Spouses
Beluso and Spouses Silos.[69] UCPB claimed that the ruling in Spouses Andal should not have been
applied to the present case as it did not involve the same circumstances as the present case. The bank
pointed out that Spouses Andal case differs from the present case due to the cause for the borrowers'
default and the amount paid by the borrower to the bank before defaulting.[70] UCPB emphasized
that the foreclosure proceedings on the mortgaged properties remain to be valid if a demand is made
for the debtors to pay their loan obligation despite being excessive, and that the debtors are in default
with respect to the proper amount of their obligation. It is only if the proceeds of the foreclosure sale
exceed the total amount due to the creditor that the extrajudicial foreclosure and sale will be
invalidated.[71]

Issues

The issues to be resolved are:

1. Whether the petition should be dismissed for raising questions of fact in violation of Rule 45 of
the Rules;
2. Whether the stipulations on payment of interests stated in the Credit Agreement, promissory
notes, and disclosure statements are valid; and
3. 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.

The Ruling of the Court

The petition is meritorious.

Despite the questions of fact

raised in the petitions for review
on certiorari, the Court may
give due course to the petition.

As a rule, issues dealing with the sufficiency of evidence and the relative weight accorded to it by the
lower court cannot be raised in a petition for review on certiorari under Rule 45, which is confined to
questions of law. The Court does not review factual questions raised under Rule 45 as it is not its
function to analyze nor weigh all over again evidence already considered in the proceedings below.
Nevertheless, this rule is not absolute. In Microsoft Corp. v. Farajallah,[72] the Court declared that a
review of the factual findings of the CA is proper in the following instances:
 xxxx

(3) when the inference made by the Court of Appeals from its findings of fact is
manifestly mistaken, absurd, or impossible;

xxxx

(6) when the judgment of the Court of Appeals is premised on a misapprehension of facts;

(7) when the Court of Appeals failed to notice certain relevant facts which, if properly
considered, would justify a different conclusion;[73]

xxxx

This case falls within the foregoing exceptions. A careful re­examination of the evidence on record is
necessary to determine whether the CA failed to notice and properly appreciate certain relevant facts
which, if properly considered, would justify a different conclusion. There is a need to review whether
the ruling in Spouses Andal was properly applied by the CA in invalidating the auction sale held on
August 2, 1999.

The stipulations on the payment

of interests in the Credit
Agreement, promissory notes,
and disclosure statements are
void.

The relevant stipulations on interest in the Credit Agreement dated April 30, 1997 are as follows:

ARTICLE II
INTEREST AND OTHER BANK CHARGES

Section 2.01 Interest Rate. Unless otherwise expressly stipulated, any availment of the
Accommodation shall be subject to interest See Terms and Conditions for details.
Section 2.02 Compounding of Interest. Interest not paid when due shall form part of the
principal and shall be subject to the same interest rate as herein stipulated.
Section 2.03 Computation of Interest. The interest herein stipulated and other
obligations of CLIENT for which no definite term has been provided shall be computed
on the basis of actual number of days elapsed and a year of 360 days.
Section 2.04. Penalty Charges. In addition to the interest provided for in Section 2.01 of
this ARTICLE, any principal obligation of the CLIENT hereunder which is not paid when
due shall be subject to a penalty charge of one percent (1%) of the amount of such
obligation per month computed from the date until the obligation is paid in full. If the
BANK accelerates the payment of availments, hereunder pursuant to ARTICLE VII
hereof, the penalty charge shall be based on the total principal amount outstanding and
unpaid computed from date of acceleration until the obligation is paid in full.
Section 2.05. Adjustment in Interest and Other Bank Charges. The BANK reserves
the right to review the interest rate and other charges herein provided every thirty (30) to
sixty (60) days from and after the date of drawing or availment and by written notice to
the CLIENT and effective for the relevant interest period, to increase or decrease such
interest rate and charges or change the reference lending rate basis thereof as and to the
extent hereafter allowed by law, or by the rules, regulations, memoranda or circular issued
 by the Monetary Board or by the Central Bank or the Banker's Association of the
Philippines, or as may be charged by other banks offering the same accommodations as
provided herein or as the BANK may determine taking into consideration all of the
foregoing factors and its dealings with the CLIENT.[74] (Emphasis and underscoring in
the original)

The interest rate in the Credit Agreement made reference to the Terms & Conditions, the pertinent
portion of which states:

Interest Prevailing market rate based on the Manila Reference Rate (MRR) or the Treasury Bill
Rate: Rate (TBR) or other market-based reference rates then obtaining at the time of each
availment and shall be subject to quarterly interest review and resetting at the option of
the bank.[75]

Based on the Credit Agreement, UCPB can impose its interest rates based on any of the following:
(1) the prevailing market rate of the Manila Reference Rate; or (2) the Treasury Bill Rates; or (3)
other market-based reference rate obtaining at the time of the availment of the loan subject to the
quarterly interest review and resetting at the option of the bank.[76]

Meanwhile, in the uniformly worded promissory notes, it is stated that the bank can utilize the
following references, to wit: (1) the prevailing market rate as determined by Consumers Credit
Department - Visayas Lending Office based in Cebu City; or (2) the interest rates may be reviewed,
increased, or decreased by the lender or bank considering: (a) the prevailing financial and monetary
conditions; (b) rate of interest or charges other banks or financial institutions charge or offer to
charge for similar accommodation, and/or; (3) the resulting profitability to the Lender or Bank.[77]

Between the promissory notes and the Credit Agreement, it is the interest stipulations in the latter
that should prevail, as addressed in Section 1.05 of Credit Agreement which states:

ARTICLE I
THE ACCOMMODATION

xxxx

Section 1.05. Promissory Note/s. The promissory note/s or other instruments which
CLIENT shall execute as evidence of availment/s of the Accommodation shall be dated
on the date of drawing or availment, shall state the interest rate agreed upon by the parties
hereof and in any event shall be in the form prescribed by the BANK, the terms and
conditions of which shall be deemed incorporated herein by reference (the "Note/s"). In
case of conflict between the terms of the Note/s or other instruments and terms of this
AGREEMENT, the latter shall prevail.[78] (Emphasis in the original, underscoring
supplied)

In the present case, UCPB is given the option to review or reset on a quarterly basis the market
references enumerated in the Credit Agreement from which interest rate to be imposed on the
obligation of Ang and Fernandez will be derived. The Manila Reference Rates, Treasury Bill Rates,
other Market Based Reference Rates are references determined independent of any participation of
the bank and are ascertainable at the time the amortizations fall due. Only the option to review or
reset on a quarterly basis these references is given to the bank. The clear import of the stipulation in
question is that the parties undertook to subject themselves to prevailing market rates. The borrowers
agreed to the arrangement that the interest will be based on any of the independent and recognized
financial rates prevailing as the amortizations fall due and the upward or downward adjustments in
market rates are beyond the control of the bank.

The subject interest stipulation becomes legally objectionable not simply because the borrower failed
to consent to it. Instead, the stipulation on the adjustment of interest must be nullified because of the
probability that an upward adjustment that the bank may impose will result to an unconscionable or
usurious interest.

As pointed out by the RTC, taken from whatever vantage point, it is only UCPB that has discretion to
impose future interest rate/s on the obligation of Ang and Fernandez. The Manila Reference Rates,
Treasury Bill Rates, other Market Based Reference Rates are mere references which may not be
followed at all by UCPB as these are subject to quarterly review and resetting at the option of the
bank. The review and resetting mechanism were also determined to be a vague and indistinct concept
solely beneficial to UCPB and prejudicial to the borrowers.[79]

In Spouses Beluso, the Court ruled that if either of the "choices presents an opportunity for UCPB to
fix the rate at will, the bank can easily choose such an option, thus making the entire interest rate
provision violative of the principle of mutuality of contracts."[80] Considering that discretion to
choose the reference rate and review mechanism were solely given to UCPB, the stipulations on
interest are void for as the element of consent of the borrower is wanting.

UCPB did not violate Sections

5, 6, and 7 of the R.A. No. 3765
or the "Truth in Lending Act."

In nullifying the five promissory notes executed by Ang and Fernandez, the RTC held that UCPB
violated Sections 5, 6, and 7 of the R.A. No. 3765[81] or the Truth in Lending Act. The RTC
explained that the practice of making borrowers sign a blank promissory note of Disclosure
Statement, and fixing subsequent interest rates after, without the bank informing the borrower of the
finance charges expressed as an annual percentage of the total amount to be financed or loan
obligation of the borrower in a written disclosure statement violates the law.[82]

However, the RTC failed to take into consideration that Ang and Fernandez did not specifically deny
under oath the genuineness and due execution of the financial statements the bank presented to
disprove their claim. Section 8, Rule 8 of the Rules provides:

Section 8. How to contest such documents. - When an action or defense is founded upon a
written instrument, or attached to the corresponding pleading as provided in the preceding
section, the genuineness and due execution of the instrument shall be deemed
admitted unless the adverse party, under oath specifically denies them, and set forth
what he or she claims to be the facts; but the requirement of an oath does not apply
when the adverse party does not appear to be a party to the instrument or when
compliance with an order for an inspection of the original instrument is refused.
(Emphasis supplied)

Thus, the CA was correct in concluding that the financial statements UCPB presented are deemed
admitted.[83] The allegation of Ang and Fernandez that UCPB violated the provisions of the Truth in
Lending Act was belied by their admission of the genuineness and due execution of the financial
statements UCPB.

Even assuming that the interest

stipulation is void, the
foreclosure proceedings on the
mortgaged properties and the
auction sale conducted are
valid.

The foreclosure proceedings on the mortgaged properties remain to be valid even if the interest the
bank imposed is erroneous. The debtors are in default with respect to the proper amount of their
obligation.[84] In Advocates for Truth in Lending, Inc. v. Bangko Sentral Monetary Board,[85] the
Court stressed that:

x x x [T]he nullity of the stipulation of usurious interest does not affect the lender's right
to recover the principal of a loan, nor affect the other terms thereof. Thus, in a usurious
loan with mortgage, the right to foreclose the mortgage subsists, and this right can
be exercised by the creditor upon failure by the debtor to pay the debt due. The debt
due is considered as without the stipulated excessive interest, and a legal interest of 12%
per annum will be added in place of the excessive interest formerly imposed, following
the guidelines laid down in the landmark case of Eastern Shipping Lines, Inc. v. Court of
Appeals, x x x[86] (Emphasis supplied; italics in the original; citations omitted)

As a rule, the right to recover the principal of the loan remains and is not affected by the nullification
of the interest imposed. Considering that the right to collect the loan through the foreclosure of the
mortgage subsists despite the nullity of the stipulation of usurious interest, the CA erroneously
nullified the foreclosure proceedings and auction sale.

The CA erred in relying in Spouses Andal in justifying the nullity of the foreclosure proceedings and
auction sale. The Court cannot indiscriminately apply its ruling to all instances involving foreclosure
of mortgaged properties of defaulting debtors due to usurious interests. The circumstances peculiar to
the case that influenced the Court to render such ruling should have been taken into consideration by
the CA before applying it to the case of Ang and Fernandez.

As pointed out by UCPB, the borrowers in Spouses Andal were unable to pay their loan solely due to
"the exorbitant rate of interest unilaterally determined and imposed" by the bank. On the other hand,
in the present case, Ang and Fernandez defaulted in their loan obligation "due to dollar shortage, high
exchange rate."[87] Moreover, in Andal, the borrowers were able to pay a substantial portion of their
loan, P14,800,000.00 out of P21,805,000.00 or approximately 68% of their loan. Meanwhile, in the
present case, Ang and Fernandez were only able to pay P2,349,514.95 of their P16,000,000.00
principal obligation.

In addition, in Spouses Beluso, the Court ruled that:

Default commences upon judicial or extrajudicial demand. The excess amount in such a
demand does not nullify the demand itself, which is valid with respect to the proper
amount. A contrary ruling would put commercial transactions in disarray, as validity of
demands would be dependent on the exactness of the computations thereof, which are too
often contested.[88]
 xxxx

We agree with UCPB and affirm the validity of the foreclosure proceedings. Since we
already found that a valid demand was made by UCPB upon the spouses Beluso, despite
being excessive, the spouses Beluso are considered in default with respect to the proper
amount of their obligation to UCPB and, thus, the property they mortgaged to secure such
amounts may be foreclosed. Consequently, proceeds of the foreclosure sale should be
applied to the extent of the amounts to which UCPB is rightfully entitled.[89] (Citation
omitted)

Although the case of Spouses Beluso is not on all fours as the circumstances surrounding the present
case, the Court finds it more appropriate to adopt the principle established in said case due to the
similarities in the issues, and judicial remedies availed. Applying the principle in Spouses Beluso, the
Court finds that the CA erred in annulling the foreclosure of the properties of Ang and Fernandez
based on an alleged incorrect computation of their total indebtedness. The corresponding titles had
already been consolidated in the name of UCPB due to their failure to exercise their right of
redemption within the period prescribed. Assuming that the outstanding obligation of the borrowers
had been erroneously overstated, UCPB still made a valid demand upon Ang and Fernandez as they
are considered in default with respect to the proper amount of their unpaid principal obligation to the
bank. The properties mortgaged to secure such amounts may be foreclosed and the proceeds should
be applied to the extent of the amount UCPB is entitled to receive.

Even if the interest stipulation in the loan obligation is nullified, the entire obligation does not
become void; the unpaid principal debt still remains valid and only the stipulation as to the interest is
rendered void. In such case, it is the prevailing legal interest that shall be imposed.

Between the date the RTC validated the foreclosure sale on December 5, 2011 and the date the CA
reversed the ruling of the RTC on May 11, 2015, there was no effort on the part of Ang and
Fernandez to pay the principal obligation. During the approximately four-year period that the
foreclosure sale was declared valid, they did not offer to pay the principal amount or even a
substantial part of it, thereby showing their utter lack of interest to pay their obligation at all. On the
contrary, respondents have not exhibited good faith in settling their long-overdue obligation.

Granting arguendo that the total obligation of Ang and Fernandez had been overstated due to the
alleged void interest stipulation, they should have at least manifested an earnest desire to pay their
loan obligation by at least substantially paying the principal obligation to warrant the application of
the ruling in Andal. In the present case, the records reveal that Ang and Fernandez were only able to
pay US$ 55,882.90 and P198,023.30 or a Philippine peso equivalent of P2,349,514.95 of the total
principal obligation of P16,054,955.83. Indeed, there was a valid demand with respect to the proper
amount - and this amount pertains to the undisputed principal obligation. Even if the interest is still in
question, earnest and genuine effort should have still been made to pay the principal obligation.
Though the interest imposed was erroneous, the principal obligation remains demandable. Even if the
Court applies the P2,349,514.95 Ang Ferndandez paid to their P16,000,000.00 principal obligation,
this is hardly sufficient to nullify the foreclosure. Even without the purported void interest
stipulation, they still clearly defaulted in their loan obligation. Therefore, a remand of the case to the
trial court to re­compute the total indebtedness is no longer necessary.

UCPB had the right to foreclose the securities in question after Ang and Fernandez unjustifiably
ceased paying their amortizations after the first year. In Equitable PCI Bank, Inc. v. OJ-Mark
Trading, Inc.,[90] the Court held that:
 Foreclosure is but a necessary consequence of non­payment of a mortgage indebtedness.
In a real estate mortgage when the principal obligation is not paid when due, the
mortgagee has the right to foreclose the mortgage and to have the property seized and
sold with the view of applying the proceeds to the payment of the obligation.[91] (Citation
omitted)

A compartmentalized interpretation of the doctrine laid down in Andal defeats the principles of
fairness and justice. The Court cannot simply nullify the foreclosure sale wherein the bank was
declared the highest bidder and the subsequent transfer it made to an innocent purchaser for value.
Banking institutions pertain to:

x x x [e]ntities x x x engage[d] in the lending of funds obtained from the public through
the receipt of deposits or the sale of bonds, securities, or obligations of any kind x x x[92]
(Emphasis supplied)

The funds obtained by Ang and Fernandez from UCPB belong to the public as these are derived
through the different products of the bank including inter alia deposits, sale of bonds, and securities.

Section 52 of the General Banking Law of 2000 states:

Section 52. Acquisition of Real Estate by Way of Satisfaction of Claims. -

Notwithstanding the limitations of the preceding Section, a bank may acquire, hold or
convey real property under the following circumstances:

52.1 Such as shall be mortgaged to it in good faith by way of security for debts;

52.2 Such as shall be conveyed to it in satisfaction of debts previously contracted in the

course of its dealings; or

52.3 Such as it shall purchase at sales under judgments, decrees, mortgages, or trust deeds
held by it and such as it shall purchase to secure debts due it.

Any real property acquired or held under the circumstances enumerated in the
above paragraph shall be disposed of by the bank within a period of five (5) years or
as may be prescribed by the Monetary Board: Provided, however, That the bank may,
after said period, continue to hold the property for its own use, subject to the limitations
of the preceding Section. (Emphases and underscoring supplied)

Here, the RTC declared that the foreclosure sale was valid on December 5, 2011. UCPB sold the
foreclosed assets to Eddie Po on August 1, 2013[93] and the foreclosure sale was nullified on May 11,
2015. To permit an outright nullification of a foreclosure sale solely based on the imposition of an
erroneous interest would be to discourage the public from purchasing foreclosed assets of banks
which are statutorily mandated to dispose these within a period of five years or as may be prescribed
by the Monetary Board. This restrictive and unjust construction of the Court's ruling in Andal and in
other similar cases will weaken the public's confidence in the banking industry.

Considering the foregoing, UCPB was well within its right to foreclose the securities of Ang and
Fernandez and eventually sell these to innocent purchasers for value. Ang and Fernandez cannot
enjoy the benefits of the loan they obtained from the bank and later on renege on their obligation
when it has become difficult for them to fulfill their obligation, without suffering consequence of
foreclosure of their mortgaged properties.

There is no reason to believe

that Ang and Fernandez did not
receive the proceeds of the loans
they obtained.

It is difficult to believe the claim of Ang and Fernandez that they did not receive the proceeds of the
loans they obtained. The fact that they made an effort to pay their amortizations during the first year
belies their claim. It is settled "that a party to a contract cannot deny its validity after enjoying its
benefits without outrage to one's sense of justice and fairness."[94] They cannot refute now the
existence and veracity of the credit line agreement extended to them and the promissory notes they
issued in favor of UCPB. Based on the conduct of the borrowers and their admission of partially
paying their loan obligation, they are now estopped from assailing the validity and due execution of
the Credit Agreement and the promissory notes and the fact that they defaulted after reaping the
benefits from the loans they obtained. As the famous expression goes, "you cannot have your cake
and eat it too."

WHEREFORE, premises considered, the Decision dated May 11, 2015 and the Resolution dated
December 4, 2015 of the Court of Appeals in CA-G.R. CV No. 04270 are SET ASIDE. Judgment is
rendered as follows:

1. The extrajudicial foreclosure and auction sale conducted on August 2, 1999 is DECLARED valid;
and
2. The Petition for Declaration of Nullity of Foreclosure, Auction Sale and Promissory Note & Fixing
of True Account of Petitioners is DISMISSED.

SO ORDERED.

Leonen, Rosario, and Marquez, JJ., concur.

Zalameda, J., with dissenting opinion.

[1] Rollo, pp. 16-34.

[2]Penned by Associate Justice Jhosep Y. Lopez (now a Member of this Court), with the concurrence
of Associate Justices Gabriel T. Ingles and Marilyn B. Lagura-Yap; id. at 43-71.

[3]Penned by Associate Justice Jhosep Y. Lopez (now a Member of this Court), with Associate
Justices Gabriel T. Ingles and Marilyn B. Lagura-Yap; id. at 74-77.

[4] Id. at 44.

[5] Id. at 83.

[6] Id. at 84.

[7] Id.