Banks cannot freely change loan interest rates without the borrower’s consent, and if they do, any foreclosure that follows becomes invalid.
This was the ruling of the Supreme Court (SC) as it struck down the foreclosure of several properties, saying the terms of the loan agreement gave the bank excessive power over the borrowers.
In a nine-page resolution, the SC’s Special Third Division granted the motion for reconsideration filed by the borrowers whose properties were foreclosed after they failed to pay a ₱16-million loan.
Associate Justice Ricardo Rosario wrote the ruling, which was published in October 2025 after being promulgated in March.
“The mortgagor should be given a chance to pay their indebtedness at an interest rate clearly agreed upon by both 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,” the decision stated.
Records showed that the loan contract allowed the bank to adjust interest rates every quarter depending on the market conditions.
When the borrowers defaulted, the bank proceeded with an extrajudicial foreclosure, leading the borrowers to question the sale before a regional trial court (RTC).
The RTC sided with the borrowers and nullified the foreclosure, but the Courts of Appeal (CA) later reversed the ruling. Eventually, the SC found that if the interest rate was set solely by the bank, the contract was void for violating the principle of mutuality.
It added that because the interest provision was void, any foreclosure based on it “could not have been held validly.”
