THIRD
DIVISION
|
UNITED COCONUT PLANTERS BANK,
Petitioner, - versus
- SPOUSES SAMUEL and ODETTE BELUSO, Respondents. |
|
G.R. No. 159912 Present: YNARES-SANTIAGO, J., Chairperson, AUSTRIA-MARTINEZ,
CHICO-NAZARIO, NACHURA, and
REYES, JJ. Promulgated: |
x- - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - - - -x
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of
Court, which seeks to annul the Court of Appeals Decision[1]
dated
The procedural and factual
antecedents of this case are as follows:
On P1.2 Million pesos for a term
ending on P2.35
Million pesos and to extend the term thereof to
The spouses Beluso availed themselves
of the credit line under the following Promissory Notes:
|
PN # |
Date of PN |
Maturity Date |
Amount Secured |
|
8314-96-00083-3 |
|
|
|
|
8314-96-00085-0 |
2 May 1996 |
|
|
|
8314-96-000292-2 |
|
|
|
The three promissory notes were renewed
several times. On P1.3 Million was again released to the spouses Beluso under one
promissory note with a due date of
To completely avail themselves of the
P2.35 Million credit line extended to them by UCPB, the spouses Beluso executed
two more promissory notes for a total of P350,000.00:
|
PN # |
Date of PN |
Maturity Date |
Amount Secured |
|
97-00363-1 |
|
|
|
|
98-00002-4 |
|
|
|
However, the spouses Beluso alleged
that the amounts covered by these last two promissory notes were never released
or credited to their account and, thus, claimed that the principal indebtedness
was only P2 Million.
In any case, UCPB applied interest
rates on the different promissory notes ranging from 18% to 34%. From 1996 to February 1998 the spouses Beluso
were able to pay the total sum of P763,692.03.
From
|
PN # |
Amount Secured |
Interest |
Penalty |
Total |
|
97-00363-1 |
|
31% |
36% |
|
|
97-00366-6 |
|
30.17% (7 days) |
32.786% (102 days) |
|
|
97-00368-2 |
|
28% (2 days) |
30.41% (102 days) |
|
|
98-00002-4 |
|
33% (102 days) |
36% |
|
The spouses Beluso, however, failed
to make any payment of the foregoing amounts.
On P2,932,543.00
plus 25% attorney’s fees, but the spouses Beluso failed to comply therewith. On P3,784,603.00.
On
On
PREMISES CONSIDERED, judgment is hereby
rendered declaring the interest rate used by [UCPB] void and the foreclosure
and Sheriff’s Certificate of P50,000.00 by way
of attorney’s fees; and to pay the costs of suit. [The spouses Beluso] are hereby ordered to
pay [UCPB] the sum of P1,560,308.00.[5]
On
WHEREFORE, premises considered, the
decision dated
On
I
WHETHER OR NOT THE HONORABLE COURT OF APPEALS
COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN IT AFFIRMED THE DECISION OF THE
TRIAL COURT WHICH DECLARED VOID THE PROVISION ON INTEREST RATE AGREED UPON
BETWEEN PETITIONER AND RESPONDENTS
II
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED
SERIOUS AND REVERSIBLE ERROR WHEN IT AFFIRMED THE COMPUTATION BY THE TRIAL
COURT OF RESPONDENTS’ INDEBTEDNESS AND ORDERED RESPONDENTS TO PAY PETITIONER
THE AMOUNT OF ONLY ONE MILLION FIVE HUNDRED SIXTY THOUSAND THREE HUNDRED EIGHT
PESOS (P1,560,308.00)
III
WHETHER OR NOT THE HONORABLE COURT OF APPEALS
COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN IT AFFIRMED THE DECISION OF THE
TRIAL COURT WHICH ANNULLED THE FORECLOSURE BY PETITIONER OF THE SUBJECT
PROPERTIES DUE TO AN ALLEGED “INCORRECT COMPUTATION” OF RESPONDENTS’
INDEBTEDNESS
IV
WHETHER OR NOT THE HONORABLE COURT OF APPEALS
COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN IT AFFIRMED THE DECISION OF THE
TRIAL COURT WHICH FOUND PETITIONER LIABLE FOR VIOLATION OF THE TRUTH IN LENDING
ACT
V
WHETHER OR NOT THE HONORABLE COURT OF APPEALS
COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN IT FAILED TO ORDER THE DISMISSAL OF
THE CASE BECAUSE THE RESPONDENTS ARE GUILTY OF FORUM SHOPPING[8]
Validity of the Interest Rates
The Court
of Appeals held that the imposition of interest in the following provision found
in the promissory notes of the spouses Beluso is void, as the interest rates
and the bases therefor were determined solely by petitioner UCPB:
FOR VALUE RECEIVED, I, and/or We, on or
before due date, SPS. SAMUEL AND ODETTE BELUSO (BORROWER), jointly and
severally promise to pay to UNITED COCONUT PLANTERS BANK (LENDER) or order at
UCPB Bldg., Makati Avenue, Makati City, Philippines, the sum of ______________
PESOS, (P_____), Philippine Currency, with interest thereon at the rate
indicative of DBD retail rate or as determined by the Branch Head.[9]
UCPB asserts
that this is a reversible error, and claims that while the interest rate was
not numerically quantified in the face of the promissory notes, it was
nonetheless categorically fixed, at the time of execution thereof, at the “rate
indicative of the DBD retail rate.” UCPB contends that said provision must be
read with another stipulation in the promissory notes subjecting to review the
interest rate as fixed:
The interest rate shall be subject to
review and may be increased or decreased by the LENDER considering among others
the prevailing financial and monetary conditions; or the rate of interest and
charges which other banks or financial institutions charge or offer to charge
for similar accommodations; and/or the resulting profitability to the LENDER after
due consideration of all dealings with the BORROWER.[10]
In this
regard, UCPB avers that these are valid reference rates akin to a “prevailing
rate” or “prime rate” allowed by this Court in Polotan v. Court of Appeals.[11]
Furthermore, UCPB argues that even if the
proviso “as determined by the branch head” is considered void, such a
declaration would not ipso facto
render the connecting clause “indicative of DBD retail rate” void in view of
the separability clause of the Credit Agreement, which reads:
Section 9.08 Separability Clause. If any one or more of the provisions
contained in this AGREEMENT, or documents executed in connection herewith shall
be declared invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions hereof shall not in any
way be affected or impaired.[12]
According
to UCPB, the imposition of the questioned interest rates did not infringe on
the principle of mutuality of contracts, because the spouses Beluso had the
liberty to choose whether or not to renew their credit line at the new interest
rates pegged by petitioner.[13]
UCPB also claims that assuming there was
any defect in the mutuality of the contract at the time of its inception, such
defect was cured by the subsequent conduct of the spouses Beluso in availing
themselves of the credit line from April 1996 to February 1998 without airing
any protest with respect to the interest rates imposed by UCPB. According to UCPB, therefore, the spouses
Beluso are in estoppel.[14]
We
agree with the Court of Appeals, and find no merit in the contentions of UCPB.
Article
1308 of the Civil Code provides:
Art. 1308. The contract must bind both contracting
parties; its validity or compliance cannot be left to the will of one of them.
We
applied this provision in Philippine
National Bank v. Court of Appeals,[15]
where we held:
In order that obligations arising from
contracts may have the force of law between the parties, there must be
mutuality between the parties based on their essential equality. A contract
containing a condition which makes its fulfillment dependent exclusively upon
the uncontrolled will of one of the contracting parties, is void (Garcia vs.
Rita Legarda, Inc., 21 SCRA 555). Hence, even assuming that the P1.8 million
loan agreement between the PNB and the private respondent gave the PNB a
license (although in fact there was none) to increase the interest rate at will
during the term of the loan, that license would have been null and void for
being violative of the principle of mutuality essential in contracts. It would
have invested the loan agreement with the character of a contract of adhesion,
where the parties do not bargain on equal footing, the weaker party's (the
debtor) participation being reduced to the alternative "to take it or
leave it" (Qua vs. Law Union & Rock Insurance Co., 95 Phil. 85). Such
a contract is a veritable trap for the weaker party whom the courts of justice
must protect against abuse and imposition.
The provision stating
that the interest shall be at the “rate indicative of DBD retail rate or as
determined by the Branch Head” is indeed dependent solely on the will of
petitioner UCPB. Under such provision,
petitioner UCPB has two choices on what the interest rate shall be: (1) a rate
indicative of the DBD retail rate; or (2) a rate as determined by the Branch
Head. As UCPB is given this choice, the
rate should be categorically determinable in both choices. If either of
these two 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.
Not just one, but rather both,
of these choices are dependent solely on the will of UCPB. Clearly, a rate “as determined by the Branch
Head” gives the latter unfettered discretion on what the rate may be. The Branch Head may choose any rate he or she
desires. As regards the rate “indicative
of the DBD retail rate,” the same cannot be considered as valid for being akin
to a “prevailing rate” or “prime rate” allowed by this Court in Polotan. The interest
rate in Polotan reads:
The Cardholder agrees to pay interest per annum at 3%
plus the prime rate of Security Bank and Trust Company. x x x.[16]
In this provision in Polotan, there is a fixed margin over
the reference rate: 3%. Thus, the
parties can easily determine the interest rate by applying simple
arithmetic. On the other hand, the
provision in the case at bar does not specify any margin above or below the DBD
retail rate. UCPB can peg the interest
at any percentage above or below the DBD retail rate, again giving it
unfettered discretion in determining the interest rate.
The
stipulation in the promissory notes subjecting the interest rate to review does
not render the imposition by UCPB of interest rates on the obligations of the
spouses Beluso valid. According to said
stipulation:
The interest rate shall be subject to
review and may be increased or decreased by the LENDER considering among others
the prevailing financial and monetary conditions; or the rate of interest and
charges which other banks or financial institutions charge or offer to charge
for similar accommodations; and/or the resulting profitability to the LENDER
after due consideration of all dealings with the BORROWER.[17]
It should be pointed out that the
authority to review the interest rate was given UCPB alone as the lender. Moreover, UCPB may apply the considerations
enumerated in this provision as it wishes.
As worded in the above provision, UCPB may give as much weight as it
desires to each of the following considerations: (1) the prevailing financial
and monetary condition; (2) the rate of interest and charges which other banks
or financial institutions charge or offer to charge for similar accommodations;
and/or (3) the resulting profitability to the LENDER (UCPB) after due
consideration of all dealings with the BORROWER (the spouses Beluso). Again, as in the case of the interest rate
provision, there is no fixed margin above or below these considerations.
In view of the foregoing, the
Separability Clause cannot save either of the two options of UCPB as to the
interest to be imposed, as both options violate the principle of mutuality of
contracts.
UCPB likewise failed to convince us that
the spouses Beluso were in estoppel.
Estoppel cannot be predicated on an
illegal act. As between the parties to a
contract, validity cannot be given to it by estoppel if it is prohibited by law
or is against public policy.[18]
The interest rate provisions in the
case at bar are illegal not only because of the provisions of the Civil Code on
mutuality of contracts, but also, as shall be discussed later, because they
violate the Truth in Lending Act. Not
disclosing the true finance charges in connection with the extensions of credit
is, furthermore, a form of deception which we cannot countenance. It is against the policy of the State as
stated in the Truth in Lending Act:
Sec. 2. Declaration of Policy. – It is hereby declared to be the policy of
the State to protect its citizens from a lack of awareness of the true cost of
credit to the user by assuring a full disclosure of such cost with a view of
preventing the uninformed use of credit to the detriment of the national economy.[19]
Moreover, while the spouses Beluso
indeed agreed to renew the credit line, the offending provisions are found in
the promissory notes themselves, not in the credit line. In fixing the interest rates in the
promissory notes to cover the renewed credit line, UCPB still reserved to
itself the same two options – (1) a rate indicative of the DBD retail rate; or
(2) a rate as determined by the Branch Head.
Error in Computation
UCPB
asserts that while both the RTC and the Court of Appeals voided the interest
rates imposed by UCPB, both failed to include in their computation of the
outstanding obligation of the spouses Beluso the legal rate of interest of 12% per
annum. Furthermore, the penalty charges
were also deleted in the decisions of the RTC and the Court of Appeals. Section 2.04, Article II on “Interest and
other Bank Charges” of the subject Credit Agreement, provides:
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 due date until
the obligation is paid in full. If the
bank accelerates teh (sic) payment of availments hereunder pursuant to ARTICLE
VIII hereof, the penalty charge shall be used on the total principal amount
outstanding and unpaid computed from the date of acceleration until the
obligation is paid in full.[20]
Paragraph
4 of the promissory notes also states:
In case of non-payment of this
Promissory Note (Note) at maturity, I/We, jointly and severally, agree to pay
an additional sum equivalent to twenty-five percent (25%) of the total due on
the Note as attorney’s fee, aside from the expenses and costs of collection
whether actually incurred or not, and a penalty charge of one percent (1%) per
month on the total amount due and unpaid from date of default until fully paid.[21]
Petitioner
further claims that it is likewise entitled to attorney’s fees, pursuant to
Section 9.06 of the Credit Agreement, thus:
If the BANK shall require the services
of counsel for the enforcement of its rights under this AGREEMENT, the Note(s),
the collaterals and other related documents, the BANK shall be entitled to
recover attorney’s fees equivalent to not less than twenty-five percent (25%)
of the total amounts due and outstanding exclusive of costs and other expenses.[22]
Another
alleged computational error pointed out by UCPB is the negation of the
Compounding Interest agreed upon by the parties under Section 2.02 of the
Credit Agreement:
Section 2.02
Compounding Interest. Interest
not paid when due shall form part of the principal and shall be subject to the
same interest rate as herein stipulated.[23]
and paragraph
3 of the subject promissory notes:
Interest not paid when due shall be added to, and
become part of the principal and shall likewise bear interest at the same rate.[24]
UCPB
lastly avers that the application of the spouses Beluso’s payments in the disputed
computation does not reflect the parties’ agreement. The RTC deducted the payment made by the
spouses Beluso amounting to P763,693.00 from the principal of P2,350,000.00. This was allegedly inconsistent with the Credit
Agreement, as well as with the agreement of the parties as to the facts of the
case. In paragraph 7 of the spouses
Beluso’s Manifestation and Motion on Proposed Stipulation of Facts and Issues vis-ŕ-vis UCPB’s Manifestation, the
parties agreed that the amount of P763,693.00 was applied to the
interest and not to the principal, in accord with Section 3.03, Article II of
the Credit Agreement on “Order of the Application of Payments,” which provides:
Section 3.03 Application of
Payment. Payments made by the CLIENT
shall be applied in accordance with the following order of preference:
1. Accounts receivable and other out-of-pocket expenses
2. Front-end Fee,
Origination Fee, Attorney’s Fee and other expenses of collection;
3. Penalty charges;
4. Past due interest;
5. Principal amortization/Payment in arrears;
6. Advance interest;
7. Outstanding balance; and
8. All other obligations of CLIENT to the BANK, if any.[25]
Thus,
according to UCPB, the interest charges, penalty charges, and attorney’s fees
had been erroneously excluded by the RTC and the Court of Appeals from the
computation of the total amount due and demandable from spouses Beluso.
The
spouses Beluso’s defense as to all these issues is that the demand made by UCPB
is for a considerably bigger amount and, therefore, the demand should be
considered void. There being no valid
demand, according to the spouses Beluso, there would be no default, and
therefore the interests and penalties would not commence to run. As it was likewise improper to foreclose the
mortgaged properties or file a case against the spouses Beluso, attorney’s fees
were not warranted.
We
agree with UCPB on this score. Default
commences upon judicial or extrajudicial demand.[26] 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.
There
being a valid demand on the part of UCPB, albeit excessive, the spouses Beluso are
considered in default with respect to the proper amount and, therefore, the
interests and the penalties began to run at that point.
As
regards the award of 12% legal interest in favor of petitioner, the RTC
actually recognized that said legal interest should be imposed, thus: “There
being no valid stipulation as to interest, the legal rate of interest shall be
charged.”[27] It seems that the RTC inadvertently
overlooked its non-inclusion in its computation.
The
spouses Beluso had even originally asked for the RTC to impose this legal rate
of interest in both the body and the prayer of its petition with the RTC:
12. Since the provision on the fixing
of the rate of interest by the sole will of the respondent Bank is null and void,
only the legal rate of interest which is 12% per annum can be legally charged
and imposed by the bank, which would amount to only about P599,000.00 since
1996 up to
x x x x
WHEREFORE, in view of the foregoing,
petiitoners pray for judgment or order:
x x x x
2. By way of example for the public
good against the Bank’s taking unfair advantage of the weaker party to their
contract, declaring the legal rate of 12% per annum, as the imposable rate of
interest up to
All these
show that the spouses Beluso had acknowledged before the RTC their obligation
to pay a 12% legal interest on their loans.
When the RTC failed to include the 12% legal interest in its
computation, however, the spouses Beluso merely defended in the appellate
courts this non-inclusion, as the same was beneficial to them. We see, however, sufficient basis to impose a
12% legal interest in favor of petitioner in the case at bar, as what we have
voided is merely the stipulated rate of interest and not the stipulation that
the loan shall earn interest.
We
must likewise uphold the contract stipulation providing the compounding of interest. The provisions in the Credit Agreement and in
the promissory notes providing for the compounding of interest were neither
nullified by the RTC or the Court of Appeals, nor assailed by the spouses
Beluso in their petition with the RTC. The
compounding of interests has furthermore been declared by this Court to be
legal. We have held in Tan v. Court of Appeals,[29]
that:
Without prejudice to the provisions of
Article 2212, interest due and unpaid shall not earn interest. However,
the contracting parties may by stipulation capitalize the interest due and
unpaid, which as added principal, shall earn new interest.
As
regards the imposition of penalties, however, although we are likewise upholding
the imposition thereof in the contract, we find the rate iniquitous. Like in the case of grossly excessive
interests, the penalty stipulated in the contract may also be reduced by the
courts if it is iniquitous or unconscionable.[30]
We
find the penalty imposed by UCPB, ranging from 30.41% to 36%, to be iniquitous
considering the fact that this penalty is already over and above the compounded
interest likewise imposed in the contract.
If a 36% interest in itself has been declared unconscionable by this Court,[31]
what more a 30.41% to 36% penalty, over and above the payment of compounded interest? UCPB itself must have realized this, as it
gave us a sample computation of the spouses Beluso’s obligation if both the
interest and the penalty charge are reduced to 12%.
As
regards the attorney’s fees, the spouses Beluso can actually be liable therefor
even if there had been no demand. Filing
a case in court is the judicial
demand referred to in Article 1169[32]
of the Civil Code, which would put the obligor in delay.
The
RTC, however, also held UCPB liable for attorney’s fees in this case, as the spouses
Beluso were forced to litigate the issue on the illegality of the interest rate
provision of the promissory notes. The
award of attorney’s fees, it must be recalled, falls under the sound discretion
of the court.[33] Since both parties were forced to litigate to
protect their respective rights, and both are entitled to the award of
attorney’s fees from the other, practical reasons dictate that we set off or
compensate both parties’ liabilities for attorney’s fees. Therefore, instead of awarding attorney’s
fees in favor of petitioner, we shall merely affirm the deletion of the award
of attorney’s fees to the spouses Beluso.
In
sum, we hold that spouses Beluso should still be held liable for a compounded
legal interest of 12% per annum and a penalty charge of 12% per annum. We also hold that, instead of awarding
attorney’s fees in favor of petitioner, we shall merely affirm the deletion of
the award of attorney’s fees to the spouses Beluso.
Annulment of the Foreclosure
Properties
of spouses Beluso had been foreclosed, titles to which had already been
consolidated on
UCPB alleges that none of the grounds for the annulment
of a foreclosure sale are present in the case at bar. Furthermore, the annulment of the foreclosure
proceedings and the certificates of sale were mooted by the subsequent issuance
of new certificates of title in the name of said bank. UCPB claims that the spouses Beluso’s action
for annulment of foreclosure constitutes a collateral attack on its certificates
of title, an act proscribed by Section 48 of Presidential Decree No. 1529,
otherwise known as the Property Registration Decree, which provides:
Section 48. Certificate
not subject to collateral attack. – A certificate of title shall not be
subject to collateral attack. It cannot
be altered, modified or cancelled except in a direct proceeding in accordance
with law.
The
spouses Beluso retort that since they had the right to refuse payment of an
excessive demand on their account, they cannot be said to be in default for
refusing to pay the same. Consequently,
according to the spouses Beluso, the “enforcement of such illegal and
overcharged demand through foreclosure of mortgage” should be voided.
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.
As argued by UCPB, none of the grounds for the
annulment of a foreclosure sale are present in this case. The grounds for the proper annulment of the
foreclosure sale are the following: (1) that there was fraud, collusion,
accident, mutual mistake, breach of trust or misconduct by the purchaser; (2)
that the sale had not been fairly and regularly conducted; or (3) that the price was inadequate and the
inadequacy was so great as to shock the conscience of the court.[34]
Liability for Violation of Truth in
Lending Act
The RTC,
affirmed by the Court of Appeals, imposed a fine of P26,000.00 for UCPB’s
alleged violation of Republic Act No. 3765, otherwise known as the Truth in
Lending Act.
UCPB
challenges this imposition, on the argument that Section 6(a) of the Truth in
Lending Act which mandates the filing of an action to recover such penalty must
be made under the following circumstances:
Section 6.
(a) Any creditor who in connection with any credit transaction fails to
disclose to any person any information in violation of this Act or any
regulation issued thereunder shall be liable to such person in the amount of P100
or in an amount equal to twice the finance charge required by such creditor in
connection with such transaction, whichever is greater, except that such
liability shall not exceed P2,000 on any credit transaction. Action
to recover such penalty may be brought by such person within one year from the
date of the occurrence of the violation, in any court of competent
jurisdiction. x x x (Emphasis ours.)
According
to UCPB, the Court of Appeals even stated that “[a]dmittedly the original complaint
did not explicitly allege a violation of the ‘Truth in Lending Act’ and no
action to formally admit the amended petition [which expressly alleges
violation of the Truth in Lending Act] was made either by [respondents] spouses
Beluso and the lower court. x x x.”[35]
UCPB
further claims that the action to recover the penalty for the violation of the
Truth in Lending Act had been barred by the one-year prescriptive period
provided for in the Act. UCPB asserts that
per the records of the case, the latest of the subject promissory notes had
been executed on
On
the matter of allegation of the violation of the Truth in Lending Act, the
Court of Appeals ruled:
Admittedly
the original complaint did not explicitly allege a violation of the ‘Truth in
Lending Act’ and no action to formally admit the amended petition was made
either by [respondents] spouses Beluso and the lower court. In such transactions, the debtor and the
lending institutions do not deal on an equal footing and this law was intended
to protect the public from hidden or undisclosed charges on their loan obligations,
requiring a full disclosure thereof by the lender. We find that its infringement may be inferred
or implied from allegations that when [respondents] spouses Beluso executed the
promissory notes, the interest rate chargeable thereon were left blank. Thus, [petitioner] UCPB failed to discharge
its duty to disclose in full to [respondents] Spouses Beluso the charges
applicable on their loans.[36]
We
agree with the Court of Appeals. The
allegations in the complaint, much more than the title thereof, are
controlling. Other than that stated by
the Court of Appeals, we find that the allegation of violation of the Truth in
Lending Act can also be inferred from the same allegation in the complaint we
discussed earlier:
b.) In unilaterally imposing an increased
interest rates (sic) respondent bank has relied on the provision of their
promissory note granting respondent bank the power to unilaterally fix the
interest rates, which rate was not determined in the promissory note but was
left solely to the will of the Branch Head of the respondent Bank, x x x.[37]
The
allegation that the promissory notes grant UCPB the power to unilaterally fix
the interest rates certainly also means that the promissory notes do not
contain a “clear statement in writing” of “(6) the finance charge expressed in
terms of pesos and centavos; and (7) the percentage that the finance charge
bears to the amount to be financed expressed as a simple annual rate on the
outstanding unpaid balance of the obligation.”[38] Furthermore, the spouses Beluso’s prayer “for
such other reliefs just and equitable in the premises” should be deemed to
include the civil penalty provided for in Section 6(a) of the Truth in Lending
Act.
UCPB’s
contention that this action to recover the penalty for the violation of the
Truth in Lending Act has already prescribed is likewise without merit. The penalty for the violation of the act is P100 or an amount equal to twice the finance charge required by such creditor
in connection with such transaction, whichever is greater, except that such
liability shall not exceed P2,000.00 on any credit transaction.[39] As this penalty depends on the finance charge required of the borrower,
the borrower’s cause of action would only accrue when such finance charge is
required. In the case at bar, the date
of the demand for payment of the finance charge is
UCPB
argues that a violation of the Truth in Lending Act, being a criminal offense,
cannot be inferred nor implied from the allegations made in the complaint.[40] Pertinent
provisions of the Act read:
Sec. 6. (a) Any creditor who in
connection with any credit transaction fails to disclose to any person any
information in violation of this Act or any regulation issued thereunder shall
be liable to such person in the amount of P100 or in an amount equal to
twice the finance charge required by such creditor in connection with such
transaction, whichever is the greater, except that such liability shall not
exceed P2,000 on any credit transaction.
Action to recover such penalty may be brought by such person within one
year from the date of the occurrence of the violation, in any court of
competent jurisdiction. In any action
under this subsection in which any person is entitled to a recovery, the
creditor shall be liable for reasonable attorney’s fees and court costs as
determined by the court.
x x x x
(c)
Any person who willfully
violates any provision of this Act or any regulation issued thereunder shall be
fined by not less than P1,000 or more than P5,000 or imprisonment
for not less than 6 months, nor more than one year or both.
As can be
gleaned from Section 6(a) and (c) of the Truth in Lending Act, the violation of
the said Act gives rise to both criminal and civil liabilities. Section 6(c) considers a criminal offense the
willful violation of the Act, imposing the penalty therefor of fine,
imprisonment or both. Section 6(a), on the other hand, clearly
provides for a civil cause of action for failure to disclose any information of the
required information to any person in violation of the Act. The penalty therefor is an amount of P100
or in an amount equal to twice the finance charge required by the creditor in
connection with such transaction, whichever is greater, except that the liability
shall not exceed P2,000.00 on any credit transaction. The action to recover such penalty may be
instituted by the aggrieved private person separately and independently from
the criminal case for the same offense.
In the case at bar, therefore, the
civil action to recover the penalty under Section 6(a) of the Truth in Lending
Act had been jointly instituted with (1) the action to declare the interests in
the promissory notes void, and (2) the action to declare the foreclosure
void. This joinder is allowed under Rule
2, Section 5 of the Rules of Court, which provides:
SEC.
5. Joinder of causes of action.—A
party may in one pleading assert, in the alternative or otherwise, as many
causes of action as he may have against an opposing party, subject to the
following conditions:
(a) The party joining the causes of action
shall comply with the rules on joinder of parties;
(b) The joinder shall not include special
civil actions or actions governed by special rules;
(c) Where the causes of action are between
the same parties but pertain to different venues or jurisdictions, the joinder
may be allowed in the Regional Trial Court provided one of the causes of action
falls within the jurisdiction of said court and the venue lies therein; and
(d) Where the claims in all the causes of action are principally
for recovery of money, the aggregate amount claimed shall be the test of
jurisdiction.
In
attacking the RTC’s disposition on the violation of the Truth in Lending Act since
the same was not alleged in the complaint, UCPB is actually asserting a
violation of due process. Indeed, due
process mandates that a defendant should be sufficiently apprised of the
matters he or she would be defending himself or herself against. However, in the
Moreover, since from the start, respondent bank
violated the Truth in Lending Act in not informing the borrower in writing
before the execution of the Promissory Notes of the interest rate expressed as
a percentage of the total loan, the respondent bank instead is liable to pay
petitioners double the amount the bank is charging petitioners by way of
sanction for its violation.[41]
In
the same pre-trial brief, the spouses Beluso also expressly raised the
following issue:
b.) Does the expression indicative rate
of DBD retail (sic) comply with the Truth in Lending Act provision to express
the interest rate as a simple annual percentage of the loan?[42]
These
assertions are so clear and unequivocal that any attempt of UCPB to feign
ignorance of the assertion of this issue in this case as to prevent it from
putting up a defense thereto is plainly hogwash.
Petitioner
further posits that it is the Metropolitan Trial Court which has jurisdiction
to try and adjudicate the alleged violation of the Truth in Lending Act,
considering that the present action allegedly involved a single credit
transaction as there was only one Promissory Note Line.
We
disagree. We have already ruled that the
action to recover the
penalty under Section 6(a) of the Truth in Lending Act had been jointly
instituted with (1) the action to declare the interests in the promissory notes
void, and (2) the action to declare the foreclosure void. There had been no question that the above
actions belong to the jurisdiction of the RTC.
Subsection (c) of the above-quoted Section 5 of the Rules of Court on
Joinder of Causes of Action provides:
(c) Where the causes of action
are between the same parties but pertain to different venues or jurisdictions,
the joinder may be allowed in the Regional Trial Court provided one of the
causes of action falls within the jurisdiction of said court and the venue lies
therein.
Furthermore,
opening a credit line does not create a credit transaction of loan or mutuum, since the former is merely a preparatory
contract to the contract of loan or mutuum. Under such credit line, the bank is merely
obliged, for the considerations specified therefor, to lend to the other party amounts
not exceeding the limit provided. The
credit transaction thus occurred not when the credit line was opened, but
rather when the credit line was availed of.
In the case at bar, the violation of the Truth in Lending Act allegedly
occurred not when the parties executed the Credit Agreement, where no interest
rate was mentioned, but when the parties executed the promissory notes, where
the allegedly offending interest rate was stipulated.
UCPB
further argues that since the spouses Beluso were duly given copies of the
subject promissory notes after their execution, then they were duly notified of
the terms thereof, in substantial compliance with the Truth in Lending Act.
Once
more, we disagree. Section 4 of the
Truth in Lending Act clearly provides that the disclosure statement must be
furnished prior to the consummation of the transaction:
SEC. 4.
Any creditor shall furnish to each person to whom credit is extended, prior to the consummation of the
transaction, a clear statement in writing setting forth, to the extent
applicable and in accordance with rules and regulations prescribed by the
Board, the following information:
(1)
the cash price or
delivered price of the property or service to be acquired;
(2)
the amounts, if
any, to be credited as down payment and/or trade-in;
(3)
the difference
between the amounts set forth under clauses (1) and (2)
(4)
the charges,
individually itemized, which are paid or to be paid by such person in
connection with the transaction but which are not incident to the extension of
credit;
(5)
the total amount
to be financed;
(6)
the finance
charge expressed in terms of pesos and centavos; and
(7)
the percentage
that the finance bears to the total amount to be financed expressed as a simple
annual rate on the outstanding unpaid balance of the obligation.
The
rationale of this provision is to protect users of credit from a lack of
awareness of the true cost thereof, proceeding from the experience that banks
are able to conceal such true cost by hidden charges, uncertainty of interest
rates, deduction of interests from the loaned amount, and the like. The law thereby seeks to protect debtors by
permitting them to fully appreciate the true cost of their loan, to enable them
to give full consent to the contract, and to properly evaluate their options in
arriving at business decisions.
Upholding UCPB’s claim of substantial compliance would defeat these
purposes of the Truth in Lending Act. The
belated discovery of the true cost of credit will too often not be able to
reverse the ill effects of an already consummated business decision.
In
addition, the promissory notes, the copies of which were presented to the spouses
Beluso after execution, are not sufficient notification from UCPB. As earlier discussed, the interest rate
provision therein does not sufficiently indicate with particularity the
interest rate to be applied to the loan covered by said promissory notes.
Forum Shopping
UCPB
had earlier moved to dismiss the petition (originally Case No. 99-314 in RTC,
The
spouses Beluso claim that the issue in Civil Case No. V-7227 before the RTC of
Roxas City, a Petition for Injunction Against Foreclosure, is the propriety of
the foreclosure before the true account of spouses Beluso is determined. On the other hand, the issue in Case No.
99-314 before the RTC of Makati City is the validity of the interest rate
provision. The spouses Beluso claim that
Civil Case No. V-7227 has become moot because, before the RTC of Roxas City
could act on the restraining order, UCPB proceeded with the foreclosure and
auction sale. As the act sought to be
restrained by Civil Case No. V-7227 has already been accomplished, the spouses
Beluso had to file a different action, that of Annulment of the Foreclosure
Sale, Case No. 99-314 with the RTC, Makati City.
Even if we
assume for the sake of argument, however, that only one cause of action is
involved in the two civil actions, namely, the violation of the right of the spouses
Beluso not to have their property foreclosed for an amount they do not owe, the
Rules of Court nevertheless allows the filing of the second action. Civil Case No. V-7227 was dismissed by the
RTC of Roxas City before the filing of Case No. 99-314 with the RTC of Makati
City, since the venue of litigation as provided for in the Credit Agreement is
in
Rule 16, Section
5 bars the refiling of an action previously dismissed only in the following
instances:
SEC.
5. Effect of dismissal.—Subject to the right of appeal, an order
granting a motion to dismiss based on paragraphs (f), (h) and (i) of section 1
hereof shall bar the refiling of the same action or claim. (n)
Improper
venue as a ground for the dismissal of an action is found in paragraph (c) of
Section 1, not in paragraphs (f), (h) and (i):
SECTION
1. Grounds.—Within the
time for but before filing the answer to the complaint or pleading asserting a
claim, a motion to dismiss may be made on any of the following grounds:
(a) That the court has no jurisdiction over the person of the defending party;
(b) That the court has no jurisdiction over the subject matter of the claim;
(c) That venue is
improperly laid;
(d) That the plaintiff has no
legal capacity to sue;
(e) That there is another action
pending between the same parties for the same cause;
(f) That the cause of
action is barred by a prior judgment or by the statute of limitations;
(g) That the pleading asserting
the claim states no cause of action;
(h) That the claim or
demand set forth in the plaintiff’s pleading has been paid, waived, abandoned,
or otherwise extinguished;
(i) That the claim on
which the action is founded is unenforceable under the provisions of the
statute of frauds; and
(j) That a condition precedent
for filing the claim has not been complied with.[44]
(Emphases supplied.)
When
an action is dismissed on the motion of the other party, it is only when the
ground for the dismissal of an action is found in paragraphs (f), (h) and (i)
that the action cannot be refiled. As
regards all the other grounds, the complainant is allowed to file same action,
but should take care that, this time, it is filed with the proper court or
after the accomplishment of the erstwhile absent condition precedent, as the
case may be.
UCPB,
however, brings to the attention of this Court a Motion for Reconsideration
filed by the spouses Beluso on
In these cases, it is evident that the
first action was filed in anticipation of the filing of the later action and
the purpose is to preempt the later suit or provide a basis for seeking the
dismissal of the second action.
Even
if this is not the purpose for the filing of the first action, it may
nevertheless be dismissed if the later action is the more appropriate vehicle
for the ventilation of the issues between the parties. Thus, in Ramos
v. Peralta, it was held:
[T]he rule on litis pendentia does not require that
the later case should yield to the earlier case. What is required merely is
that there be another pending action, not a prior pending action. Considering
the broader scope of inquiry involved in Civil Case No. 4102 and the location
of the property involved, no error was committed by the lower court in
deferring to the
Given, therefore, the pendency of two
actions, the following are the relevant considerations in determining which
action should be dismissed: (1) the date of filing, with preference generally
given to the first action filed to be retained; (2) whether the action sought
to be dismissed was filed merely to preempt the later action or to anticipate
its filing and lay the basis for its dismissal; and (3) whether the action is
the appropriate vehicle for litigating the issues between the parties.
In
the case at bar, Civil Case No. V-7227 before the RTC of Roxas City was an
action for injunction against a foreclosure sale that has already been held,
while Civil Case No. 99-314 before the RTC of Makati City includes an action
for the annulment of said foreclosure, an action certainly more proper in view
of the execution of the foreclosure sale.
The former case was improperly filed in
WHEREFORE, the
Decision of the Court of Appeals is hereby AFFIRMED
with the following MODIFICATIONS:
1.
In addition to the sum of P2,350,000.00 as
determined by the courts a quo,
respondent spouses Samuel and Odette Beluso are also liable for the following
amounts:
a. Penalty of
12% per annum on the amount due[46]
from the date of demand; and
b. Compounded
legal interest of 12% per annum on the amount due[47]
from date of demand;
2.
The following amounts shall be deducted from the
liability of the spouses Samuel and Odette Beluso:
a.
Payments made by the spouses in the amount of P763,692.00. These payments shall be applied to the date of actual payment of the
following in the order that they are listed, to wit:
i.
penalty charges due and demandable as of the time of
payment;
ii.
interest due and demandable as of the time of payment;
iii.
principal amortization/payment in arrears as of the
time of payment;
iv.
outstanding balance.
b.
Penalty under Republic Act No. 3765 in the amount of P26,000.00. This amount shall be deducted from the
liability of the spouses Samuel and Odette Beluso on
i.
penalty charges due and demandable as of time of
payment;
ii.
interest due and demandable as of the time of payment;
iii.
principal amortization/payment in arrears as of the
time of payment;
iv.
outstanding balance.
3.
The foreclosure of mortgage is hereby declared
VALID. Consequently, the amounts which the
Regional Trial Court and the Court of Appeals ordered respondents to pay, as
modified in this Decision, shall be deducted from the proceeds of the
foreclosure sale.
SO
ORDERED.
|
|
MINITA V. CHICO-NAZARIOAssociate Justice |
WE
CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
MA. ALICIA
Associate Justice Associate Justice
RUBEN T.
REYES
Associate Justice
ATTESTATION
I attest that the conclusions in the above
Decision were reached in consultation before the case was assigned to the
writer of the opinion of the Court’s Division.
CONSUELO YNARES-SANTIAGO
Associate
Justice
Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII
of the Constitution, and the Division Chairperson’s Attestation, it is hereby
certified that the conclusions in the above Decision were reached in
consultation before the case was assigned to the writer of the opinion of the
Court’s Division.
REYNATO S.
PUNO
Chief Justice
[1] Penned by Associate Justice Remedios A. Salazar-Fernando with Associate Justices Ruben T. Reyes (now a member of this Court) and Edgardo F. Sundiam concurring; Rollo, pp. 69-81.
[2] Rollo, p. 82.
[3]
[4]
[5]
[6]
[7]
[8]
[9]
[10]
[11] 357 Phil. 250 (1998).
[12] Rollo, p. 341.
[13]
[14]
[15] G.R. No. 88880,
[16] Supra note 11 at 254-255.
[17] Rollo, p. 184.
[18] Eugenio
v. Perdido, 97 Phil. 41, 44 (1955); Auyong
Hian v. Court of Tax Appeals, G.R. No. L-28782,
[19] Section 2, Republic Act No. 3765.
[20] Rollo, p. 350.
[21]
[22]
[23]
[24]
[25]
[26] Civil Code, Article 1169.
[27] Rollo, p. 86.
[28] Records, pp. 5-6.
[29] 419 Phil. 857, 866 (2001).
[30] Equitable Banking Corporation v. Liwanag, 143 Phil. 102, 106 (1970); Civil Code, Article 1229.
[31] Ruiz v. Court of Appeals, 449 Phil. 419, 434-435 (2003).
[32] Article 1169 of the Civil Code provides:
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins.
[33] Nielson
& Co., Inc. v. Lepanto Consolidated Mining Co., 135 Phil. 532, 566
(1968); Kalalo v. Luz, 145 Phil. 152,
174 (1970); San Miguel Brewery, Inc. v.
Magno, 128 Phil. 328, 337 (1967); Philippine
Airlines, Inc. v. Court of Appeals, G.R. Nos. 50504-05, 13 August 1990, 188
SCRA 461, 464; Pleno v. Court of Appeals,
G.R. No. L-56505,
[34] Philippine National Bank v. Gonzalez, 45 Phil. 693, 699 (1924).
[35] Rollo, p. 80.
[36]
[37] Records, p. 4.
[38] Republic Act No. 3765, Sec. 4.
[39] Republic Act No. 3765, Section 6(a).
[40] Rollo, p. 376.
[41] Records, pp. 64-65.
[42]
[43] Petitioner’s Memorandum, pp. 57-62; rollo, pp. 378-382.
[44] Rules of Court, Rule 16.
[45] 328 Phil. 710, 718-719 (1996).
[46] The amount still due at the time of the application of penalty charges shall take into account the dates when the amounts in item No. 2 of this fallo shall be deducted.
[47] The amount still due at the time of the application of the compounded legal interest shall take into account the dates when the amounts in item No. 2 of this fallo shall be deducted.