MANILA -- The Supreme Court has emphasized that banks must exercise “extraordinary diligence” in their commercial transactions as it voided the foreclosure order by Metropolitan Bank and Trust Company against a property used as collateral for loans.

In the decision of the 2nd Division penned by Associate Justice Mario Lopez and promulgated on July 29, 2024, the court granted the petition for review on certiorari filed by businesswomen Carmelita Cruz and Vilma Low Tay.

The Supreme Court reversed the ruling of the Court of Appeals which dismissed the complaint of Cruz and Tay for the annulment of the foreclosure sale.

The borrowers argued that while they had paid a total of P32.6 million for their loans, Metrobank only recorded P20.5 million, leaving an unaccounted P12.14 million.

The SC found that the foreclosure sale was premature as there was no categorical finding that the borrowers had defaulted.

The high court said that while a lender’s failure to provide an accounting of loan payments is not a ground for annulling a foreclosure, in the case of Cruz and Tay, the SC had already issued a ruling requiring Metrobank to provide a complete and accurate accounting of the borrowers’ payments.

“Until this is resolved, foreclosure cannot proceed, as doing so would contradict the SC’s prior ruling,” the SC said.

The court also ordered the parties to await the final outcome of the accounting case remanded to the Marikina City Regional Trial Court.

“Guided by principles of fairness, diligence in banking practices, and the fiduciary duty owed by banks to their clients, the court cannot sanction Metrobank’s foreclosure considering the proven deficiencies in its records and its clear nonfulfillment of the obligation to provide a complete and accurate accounting to its bank clients,” the SC said.