BANK OF THE PHILIPPINE G.R. No. 184122
ISLANDS, INC.,
Petitioner, Present:
Carpio, J., Chairperson,
- versus - Brion,
Del Castillo,
Abad, and
Perez, JJ.
SPS. NORMAN AND ANGELINA YU
and TUANSON BUILDERS
CORPORATION represented by Promulgated:
PRES. NORMAN YU,
Respondents. January 20, 2010
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ABAD, J.:
This case is about the propriety of a
summary judgment in resolving a documented claim of alleged excessive penalty
charges, interest, attorney’s fees, and foreclosure expenses imposed in an
extrajudicial foreclosure of mortgage.
The Facts and the Case
Respondents
Norman and Angelina Yu (the Yus), doing business as Tuanson Trading, and
Tuanson Builders Corporation (Tuanson Builders) borrowed various sums totaling P75
million from Far East Bank and Trust Company. For collateral, they executed real estate
mortgages over several of their properties,[1]
including certain lands in P33,400,000.00.
The restructured loan used the same collaterals,
with the exception of Transfer Certificate of Title 40247 that secured a loan
of P1,600,000.[5]
Despite the restructuring, however, the
Yus still had difficulties paying their loan. They asked BPI to release some of the
mortgaged lands since their total appraised value far exceeded the amount of
the remaining debt. When BPI ignored their
request, the Yus withheld payments on their amortizations. Thus, BPI extrajudicially foreclosed[6] the
mortgaged properties in
In the course of the proceedings, however,
the Yus and Magnacraft entered into a compromise agreement[7] that
affirmed the latter’s ownership of three out of the 10 parcels of land that
were auctioned. By virtue of this
agreement, the court dismissed the complaint against Magnacraft,[8]
without prejudice to the Yus filing a new one against BPI.
On October 24, 2003 the Yus filed their
new complaint before the Regional Trial Court (RTC) of
In its answer,[10] BPI
essentially admitted the foreclosure of the mortgaged properties for P39,055,254.95,
broken down as follows: P33,283,758.73 as principal debt; P2,110,282.78
as interest; and P3,661,213.46 as penalty charges.[11] BPI qualified that the total of P39,055,254.95
corresponded only to the Yus’ debt as of date of filing of the petition.[12] The notice of the auction sale said that the total
was “inclusive of interest, penalty charges, attorney’s fee and expenses of
this foreclosure.”[13]
BPI further admitted that its bid of P45,090,566.41
for all the auctioned properties was broken down as follows:[14]
|
Principal |
|
|
Interest |
2,763,088.93 |
|
Penalty Charges |
5,568.649.09 |
|
|
|
|
Sub-total…………… |
|
|
Add: 10% Attorney’s Fees |
4,052,046.11 |
|
Litigation Expenses & Interest |
446,726.74 |
|
Cost of Publication & Interest |
71,332.47 |
|
|
|
|
TOTAL……………. |
|
BPI also
admitted that Magnacraft submitted the highest and winning bid of P45,500,000.00.[15] The sheriff turned over this amount to BPI.[16] According to BPI, it in turn remitted to the
Clerk of Court the P409,433.59 difference between its bid price and that
of Magnacraft’s.[17] Although the proceeds of the sale exceeded
the P39,055,254.95 stated in the notice of sale by P6,035,311.46,[18] the
bid amount increased because it now included litigation expenses and attorney’s
fees as well as interests and penalties as recomputed.[19]
BPI admitted
that it also pushed through with the second auction for the sale of a lot in
Pili, Camarines Sur that secured a remaining debt of P5,562,000.[20] BPI made the lone bid[21] of
P1,701,934.09.[22]
The Yus had three causes of action
against BPI.
First. The bank imposed
excessive penalty charges and interests: over P5 million in penalty
charges computed at 36% per annum compared to the 12% per annum that the Court
fixed in the cases of State Investment
House, Inc. v. Court of Appeals[23] and
Ruiz v. Court of Appeals.[24] In addition, BPI collected a 14% yearly
interest on the principal, bringing the combined penalty charges and interest
to 50% of the principal per annum.
Second. BPI also imposed
a charge of P4,052,046.11 in attorney’s fees, the equivalent of 10% of
the principal, interest, and penalty charges.
Third. BPI did not provide documents to support its
claim for foreclosure expenses of P446,726.74 and cost of publication of
P518,059.21.
As an alternative to their three causes
of action, the Yus claimed that BPI was in estoppel to claim more than the
amount stated in its published notices.
Consequently, it must turn over the excess bid of P6,035,311.46.
After pre-trial, the Yus moved for
summary judgment,[25]
pointing out that based on the answer,[26] the
common exhibits of the parties,[27]
and the answer to the written interrogatories to the sheriff,[28] no
genuine issues of fact exist in the case.
The Yus waived their claim for moral damages so the RTC can dispose of the
case through a summary judgment.[29]
Initially, the RTC granted only a partial
summary judgment. It reduced the penalty
charge of 36% per annum[30] to
12% per annum until the debt would have been fully paid but maintained the
attorney’s fees as reasonable considering that BPI already waived the P1,761,511.36
that formed part of the attorney’s fees and reduced the rate of attorney’s fees
it collected from 25% to 10% of the amount due.
The RTC ruled that facts necessary to resolve the issues on penalties
and fees had been admitted by the parties thus dispensing with the need to
receive evidence.[31]
Still, the RTC held that it needed to
receive evidence for the resolution of the issues of (1) whether or not the foreclosure
and publication expenses were justified; (2) whether or not the foreclosure of
the lot in Pili, Camarines Sur, was valid given that the proceeds of the
foreclosure of the properties in Legazpi City sufficiently covered the debt; and
(3) whether or not BPI was entitled to its counterclaim for attorney’s fees,
moral damages, and exemplary damages.[32]
The Yus moved for partial reconsideration.[33] They argued that, since BPI did not mark in
evidence any document in support of the foreclosure expenses it claimed, it may
be assumed that the bank had no evidence to prove such expenses. As regards their right to the pro-rating of
their debt among the mortgaged properties, the Yus pointed out that BPI did not
dispute the fact that the proceeds of the sale of the properties in
Further, the Yus sought reconsideration
of the reduction of penalty charges and the allowance of the attorney’s fees. They claimed that the penalty charges should
be deleted for violation of Republic Act (R.A.) 3765 or the Truth in Lending
Act. BPI’s disclosure did not state the
rate of penalties on late amortizations. Also, the Yus asked the court to reduce the
attorney’s fees from 10% to 1% of the amount due. On January 3, 2006 the RTC reconsidered its earlier
decision and rendered a summary judgment:[34]
1. Deleting
the penalty charges imposed by BPI for non-compliance with the Truth in Lending
Act;
2. Reducing
the attorney’s fees to 1% of the principal and interest;
3. Upholding
the reasonableness of the foreclosure expenses and cost of publication, both
with interests;
4. Reiterating
the turnover by the Clerk of Court to the Yus of the excess in the bid price;
5. Deleting
the Yus’ claim for moral damages they having waived it;
6. Denying the
Yus’ claim for attorney’s fees for lack of basis; and
7. Dismissing
BPI’s counterclaim for moral and exemplary damages and for attorney’s fees for
lack of merit considering that summary judgment has been rendered in favor of
the Yus.
BPI appealed the decision to the
Court of Appeals (CA) in CA-G.R. CV 86577.
But the CA rendered judgment on January 23, 2008, affirming the RTC
decision in all respects. And when BPI
asked for reconsideration,[35]
the CA denied it on July 14, 2008,[36] hence,
the bank’s recourse to this Court.
The Issues Presented
BPI
presents the following issues:
1. Whether or not the case presented no
genuine issues of fact such as to warrant a summary judgment by the RTC; and
2. Where summary judgment is proper, whether
or not the RTC and the CA a) correctly deleted the penalty charges because of
BPI’s alleged failure to comply with the Truth in Lending Act; b) correctly reduced
the attorney’s fees to 1% of the judgment debt; and c) properly dismissed BPI’s
counterclaims for moral and exemplary damages, attorney’s fees, and litigation
expenses.
The Court’s Rulings
One. A summary judgment is apt when the essential facts
of the case are uncontested or the parties do not raise any genuine issue of
fact.[37] Here, to resolve the issue of the excessive
charges allegedly incorporated into the auction bid price, the RTC simply had
to look at a) the pleadings of the parties; b) the loan agreements, the
promissory note, and the real estate mortgages between them; c) the foreclosure
and bidding documents; and d) the admissions and other disclosures between the
parties during pre-trial. Since the parties
admitted not only the existence, authenticity, and genuine execution of these
documents but also what they stated, the trial court did not need to hold a
trial for the reception of the evidence of the parties.
BPI contends that a summary judgment
was not proper given the following issues that the parties raised: 1) whether
or not the loan agreements between them were valid and enforceable; 2) whether
or not the Yus have a cause of action against BPI; 3) whether or not the Yus are
proper parties in interest; 4) whether or not the Yus are estopped from
questioning the foreclosure proceeding after entering into a compromise
agreement with Magnacraft; 5) whether or not the penalty charges and fees and
expenses of litigation and publication are excessive; and 6) whether or not BPI
violated the Truth in Lending Act.[38]
But these are issues that could be
readily resolved based on the facts established by the pleadings and the admissions
of the parties.[39] Indeed, BPI has failed to name any document or
item of fact that it would have wanted to adduce at the trial of the case. A trial would have been such a great waste of
time and resources.
Two. Both the RTC and CA decisions cited BPI’s
alleged violation of the Truth in Lending Act and the ruling of the Court in New Sampaguita Builders Construction, Inc. v.
Philippine National Bank[40] to
justify their deletion of the penalty charges. Section 4 of the Truth in Lending Act states
that:
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.
Penalty
charge, which is liquidated damages resulting from a breach,[41] falls
under item (6) or finance charge. A finance
charge “represents the amount to be paid by the debtor incident to the
extension of credit.”[42] The lender may provide for a penalty clause so
long as the amount or rate of the charge and the conditions under which it is
to be paid are disclosed to the borrower before he enters into the credit
agreement.
In
this case, although BPI failed to state the penalty charges in the disclosure
statement, the promissory note that the Yus signed, on the same date as the
disclosure statement, contained a penalty clause that said: “I/We jointly and
severally, promise to further pay a late payment charge on any overdue amount
herein at the rate of 3% per month.” The
promissory note is an acknowledgment of a debt and commitment to repay it on
the date and under the conditions that the parties agreed on.[43] It is a valid contract absent proof of acts
which might have vitiated consent.[44]
The question is whether or not the
reference to the penalty charges in the promissory note constitutes substantial
compliance with the disclosure requirement of the Truth in Lending Act.[45] The RTC and CA relied on the ruling in New Sampaguita as authority that the
non-disclosure of the penalty charge renders its imposition illegal. But New Sampaguita is not attended by
the same circumstances. What New Sampaguita disallowed, because it
was not mentioned either in the disclosure statement or in the promissory note,
was the unilateral increase in the rates of penalty charges that the creditor
imposed on the borrower. Here, however, it
is not shown that BPI increased the rate of penalty charge that it collected
from the Yus. [46]
The ruling that is more in point is
that laid down in The Consolidated Bank
and Trust Corporation v. Court of Appeals,[47] a
case cited in New Sampaguita. The Consolidated Bank ruling declared
valid the penalty charges that were stipulated in the promissory notes.[48] What the Court disallowed in that case was the
collection of a handling charge that the promissory notes did not contain.
The Court has affirmed that financial
charges are amply disclosed if stated in the promissory note in the case of Development Bank of the Philippines v.
Arcilla, Jr.[49] The Court there said, “Under Circular
158 of the Central Bank, the lender is required to include the information
required by R.A. 3765 in the contract covering the credit transaction or any
other document to be acknowledged and signed by the borrower. In addition, the contract or document shall
specify additional charges, if any, which will be collected in case certain
stipulations in the contract are not met by the debtor.” In this case, the promissory notes signed by the
Yus contained data, including penalty charges, required by the Truth in Lending
Act. They cannot avoid liability based
on a rigid interpretation of the Truth in Lending Act that contravenes its goal.
Nonetheless,
the courts have authority to reduce penalty charges when these are unreasonable
and iniquitous.[50] Considering that BPI had already received over
P2.7 million in interest and that it seeks to impose the penalty charge
of 3% per month or 36% per annum on the total amount due—principal plus
interest, with interest not paid when due added to and becoming part of the
principal and also bearing interest at the same rate—the Court finds the ruling
of the RTC in its original decision[51]
reasonable and fair. Thus, the penalty
charge of 12% per annum or 1% per month[52]
is imposed.
Three. As for the award of attorney’s fee, it being
part of a party’s liquidated damages, the same may likewise be equitably
reduced.[53] The CA correctly affirmed the RTC Order[54]
to reduce it from 10% to 1% based on the following reasons: (1) attorney’s fee
is not essential to the cost of borrowing, but a mere incident of collection;[55]
(2) 1% is just and adequate because BPI had already charged foreclosure
expenses; (3) attorney’s fee of 10% of the total amount due is onerous considering
the rote effort that goes into extrajudicial foreclosures.
WHEREFORE, the Court DENIES the petition and AFFIRMS the Court of Appeals Decision in
CA-G.R. CV 86577 dated January 23, 2008 subject to the RESTORATION of the penalty charge of 12% per annum or 1% per month of
the amount due computed from date of nonpayment or November 25, 2001.
SO ORDERED.
ROBERTO A. ABAD
Associate Justice
WE
CONCUR:
ANTONIO T. CARPIO
Associate Justice
ARTURO D. BRION MARIANO C.
DEL CASTILLO
Associate Justice Associate Justice
JOSE P. PEREZ
Associate Justice
ATTESTATION
I attest that the conclusions in the
above Decision had been reached in consultation before the case was assigned to
the writer of the opinion of the Court’s Division.
ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division
CERTIFICATION
Pursuant to Section 13, Article VIII
of the Constitution and the Division Chairperson’s Attestation, I certify that
the conclusions in the above Decision had been 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] Rollo,
p. 63: REM dated June 22, 1994 covering TCT 32890 and securing P5,562,000.00;
REM dated July 14, 1997 covering TCT Nos. 32253, 32254, 34452, & 33241 and
securing P1,712,000.00; REM dated March 31, 1998 covering TCT No. 47847 and securing P18,030,000.00.
[2] Id. at 63-64: REM dated November 29, 1996
covering TCT Nos. 40252, 40253, & 40254 and securing P13,825,000.00;
REM dated June 17, 1997 covering TCT No. 44461 and securing P10,000,000.00;
REM dated July 30, 1997 covering TCT No. 40247 and securing P1,600,000.00.
[3]
[4]
[5]
[6]
[7]
[8] Penned by Judge Pedro R. Soriao.
[9] Rollo, pp. 55-59.
[10] Records, pp. 136-144.
[11] Rollo, p. 66, par. 2.12 of complaint.
[12] Records, p. 137, par. 7 of answer.
[13] Rollo, p. 67, par. 2.13 of complaint.
[14]
[15]
[16]
[17] Records, p. 139, par. 20 of answer.
[18] Rollo, p. 69, par. 2.21 of complaint.
[19] Records, p. 137, par. 10 of answer.
[20] Rollo, p. 67, par. 2.14 of complaint; records, p. 138, par. 12 of answer.
[21]
However, according to the Minutes of Public Auction Sale submitted by the
sheriff, another person submitted a bid of P1,150,000.00; records, p.
95.
[22] Rollo, p. 70, par. 2.24 of complaint; records, p. 138, par. 12 of answer.
[23] 413 Phil. 518 (2001).
[24] 449 Phil. 419 (2003).
[25] CA rollo, pp. 49-54.
[26] Records, pp. 136-144.
[27]
[28]
[29] CA rollo, pp. 51-52.
[30] Records, pp. 293-297.
[31]
[32]
[33]
[34]
[35] Rollo, pp. 41-51.
[36]
[37] Rivera v.
Solidbank Corporation, G.R. No. 163269, April 19, 2006, 487 SCRA 512, 535,
cited in Bitanga v. Pyramid Construction
Engineering Corporation, G.R. No. 173526, August 28, 2008, 563 SCRA 544,
560.
[38] RULES OF COURT, Rule 35, Sec. 5: Form of affidavits and supporting papers.—Supporting and opposing affidavits shall be made on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify to the matters stated therein. Certified true copies of all papers or parts thereof referred to in the affidavit shall be attached thereto or served therewith.
[39] A.M. No. 03-1-09-SC, Guidelines to be Observed by Trial Court Judges and Clerks of Court in Conduct of Pre-trial and Use of Deposition-Discovery Measures, August 16, 2004.
[40] 479 Phil. 483 (2004).
[41] Barbasa v. Tuquero, G.R. No. 163898, December 23, 2008, 575 SCRA 102, 111.
[42] Par. (3), Section 3 of R.A. No. 3765 or the Truth in
Lending Act; par. (h) of Central Bank Circular No. 158 defining the details
mentioned in Section 4 of R.A. No. 3765.
[43] Dela Peña v. Court of Appeals, G.R. No.
177828, February 13, 2009, 579 SCRA 396, 413.
[44] Development
Bank of the
[45] United Coconut Planters Bank v. Beluso,
G.R. No. 159912, August 17, 2007, 530 SCRA 567, 599.
[46]
See Development Bank of the
[47] 316 Phil. 247
(1995).
[48]
[49] Supra note 46, at 609-610.
[50] State
Investment House, Inc. v. Court of Appeals, 413 Phil. 518, 523 (2001); CIVIL CODE, Article 1229. The judge shall equitably reduce the penalty
when the principal obligation has been partly or irregularly complied with by
the debtor. Even if there has been no
performance, the penalty may also be reduced by the courts if it is iniquitous
or unconscionable; Article 2227: Liquidated damages, whether intended as an indemnity or penalty,
shall be equitably reduced if they are iniquitous and unconscionable.
[51] CA rollo, p. 62.
[52] Ong v. Roban Lending Corporation, G.R.
No. 172592, July 9, 2008, 557 SCRA 516, 525, citing United Coconut Planters Bank v. Beluso, G.R. No. 159912, August 17, 2007, 530 SCRA 567, 590, 604-605; State Investment House, Inc. v. Court of
Appeals, supra note 50.
[53] Co v. Admiral United Savings Bank, G.R.
No. 154740, April 16, 2008, 551 SCRA 472, 482.
[54] Records, pp. 334-336.
[55] New Sampaguita Builders Construction, Inc. v. Philippine National Bank, supra note 40, at 509-510.