BPI v. Yu (2010) PDF

9/10/2016
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624Phil.408
SECONDDIVISION
[G.R.No.184122,January20,2010]
BANKOFTHEPHILIPPINEISLANDS,INC.,PETITIONER,SPS.
NORMANANDANGELINAYUANDTUANSONBUILDERS
CORPORATIONREPRESENTEDBYPRES.NORMANYU,
RESPONDENTS.
DECISION
ABAD,J.:
This case is about the propriety of a summary judgment in resolving a documented
claimofallegedexcessivepenaltycharges,interest,attorney'sfees,andforeclosure
expensesimposedinanextrajudicialforeclosureofmortgage.
TheFactsandtheCase
RespondentsNormanandAngelinaYu(theYus),doingbusinessasTuansonTrading,
andTuansonBuildersCorporation(TuansonBuilders)borrowedvarioussumstotaling
P75millionfromFarEastBankandTrustCompany.Forcollateral,theyexecutedreal
estatemortgagesoverseveraloftheirproperties,[1]includingcertainlandsinLegazpi
City owned by Tuanson Trading.[2] In 1999, unable to pay their loans, the Yus and
TuansonBuildersrequestedaloanrestructuring,[3]whichthebank,nowmergedwith
Bank of the Philippine Islands (BPI), granted.[4] By this time, the Yus' loan balance
stood at P33,400,000.00. The restructured loan used the same collaterals, with the
exceptionofTransferCertificateofTitle40247thatsecuredaloanofP1,600,000.[5]
Despitetherestructuring,however,theYusstillhaddifficultiespayingtheirloan.They
asked BPI to release some of the mortgaged lands since their total appraised value
farexceededtheamountoftheremainingdebt.WhenBPIignoredtheirrequest,the
Yuswithheldpaymentsontheiramortizations.Thus, BPI extrajudicially foreclosed[6]
the mortgaged properties in Legazpi City and in Pili, Camarines Sur. But the Yus
sought by court action against BPI and the winning bidder, Magnacraft Development
Corporation(Magnacraft),theannulmentoftheforeclosuresale.
In the course of the proceedings, however, the Yus and Magnacraft entered into a
compromiseagreement[7]thataffirmedthelatter'sownershipofthreeoutofthe10
parcelsoflandthatwereauctioned.Byvirtueofthisagreement,thecourtdismissed
the complaint against Magnacraft,[8] without prejudice to the Yus filing a new one
againstBPI.
http://elibrary.judiciary.gov.ph/thebookshelf/showdocsfriendly/1/53484
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OnOctober24,2003theYusfiledtheirnewcomplaintbeforetheRegionalTrialCourt
(RTC) of Legazpi City, Branch 1, in Civil Case 10286 against BPI for recovery of
allegedexcessivepenaltycharges,attorney'sfees,andforeclosureexpensesthatthe
bankcausedtobeincorporatedinthepriceoftheauctionedproperties.[9]
Initsanswer,[10]BPIessentiallyadmittedtheforeclosureofthemortgagedproperties
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
thatthetotalofP39,055,254.95correspondedonlytotheYus'debtasofdateoffiling
ofthepetition.[12]Thenoticeoftheauctionsalesaidthatthetotalwas"inclusiveof
interest,penaltycharges,attorney'sfeeandexpensesofthisforeclosure."[13]
BPI further admitted that its bid of P45,090,566.41 for all the auctioned properties
wasbrokendownasfollows: [14]
Interest
PenaltyCharges
Subtotal...............
Add:10%Attorney'sFees
LitigationExpenses&Interest
CostofPublication&Interest
TOTAL................
2,763,088.93
5,568.649.09
40,520,461.09
4,052,046.11
446,726.74
71,332.47
P45,090,566.41
BPI also admitted that Magnacraft submitted the highest and winning bid of
P45,500,000.00.[15]ThesheriffturnedoverthisamounttoBPI.[16]AccordingtoBPI,
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
increasedbecauseitnowincludedlitigationexpensesandattorney'sfeesaswellas
interestsandpenaltiesasrecomputed.[19]
BPIadmittedthatitalsopushedthroughwiththesecondauctionforthesaleofalot
inPili,CamarinesSurthatsecuredaremainingdebtofP5,562,000.[20]BPImadethe
lonebid[21]ofP1,701,934.09.[22]
TheYushadthreecausesofactionagainstBPI.
First.The bank imposed excessive penalty charges and interests: over P5 million in
penaltychargescomputedat36%perannumcomparedtothe12%perannumthat
theCourtfixedinthecasesofStateInvestmentHouse,Inc.v.CourtofAppeals [23]
andRuizv.CourtofAppeals.[24]In addition, BPI collected a 14% yearly interest on
the principal, bringing the combined penalty charges and interest to 50% of the
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principalperannum.
Second.BPIalsoimposedachargeofP4,052,046.11inattorney'sfees,theequivalent
of10%oftheprincipal,interest,andpenaltycharges.
Third.BPIdidnotprovidedocumentstosupportitsclaimforforeclosureexpensesof
P446,726.74andcostofpublicationofP518,059.21.
As an alternative to their three causes of action, the Yus claimed that BPI was in
estoppeltoclaimmorethantheamountstatedinitspublishednotices.Consequently,
itmustturnovertheexcessbidofP6,035,311.46.
Afterpretrial,theYusmovedforsummaryjudgment,[25]pointingoutthatbasedon
theanswer,[26]thecommonexhibitsoftheparties,[27]andtheanswertothewritten
interrogatoriestothesheriff,[28]nogenuineissuesoffactexistinthecase.TheYus
waivedtheirclaimformoraldamagessotheRTCcandisposeofthecasethrougha
summaryjudgment.[29]
Initially, the RTC granted only a partial summary judgment. It reduced the penalty
chargeof36%perannum[30]to12%perannumuntilthedebtwouldhavebeenfully
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
admittedbythepartiesthusdispensingwiththeneedtoreceiveevidence.[31]
Still,theRTCheldthatitneededtoreceiveevidencefortheresolutionoftheissues
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
theproceedsoftheforeclosureofthepropertiesinLegazpiCitysufficientlycovered
the debt and (3) whether or not BPI was entitled to its counterclaim for attorney's
fees,moraldamages,andexemplarydamages.[32]
The Yus moved for partial reconsideration.[33] They argued that, since BPI did not
markinevidenceanydocumentinsupportoftheforeclosureexpensesitclaimed,it
maybeassumedthatthebankhadnoevidencetoprovesuchexpenses.Asregards
their right to the prorating 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 Legazpi City fully satisfied the debt. Thus, the court could already
resolve without trial the issue of whether or not the foreclosure of the Pili property
wasvalid.
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
askedthecourttoreducetheattorney'sfeesfrom10%to1%oftheamountdue.On
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January 3, 2006 the RTC reconsidered its earlier decision and rendered a summary
judgment: [34]
1. Deleting the penalty charges imposed by BPI for noncompliance with

theTruthinLendingAct
2.Reducingtheattorney'sfeesto1%oftheprincipalandinterest
3. Upholding the reasonableness of the foreclosure expenses and cost of
publication,bothwithinterests
4.ReiteratingtheturnoverbytheClerkofCourttotheYusoftheexcessin
thebidprice
5.DeletingtheYus'claimformoraldamagestheyhavingwaivedit
6.DenyingtheYus'claimforattorney'sfeesforlackofbasisand
7.DismissingBPI'scounterclaimformoralandexemplarydamagesandfor
attorney's fees for lack of merit considering that summary judgment has
beenrenderedinfavoroftheYus.
BPIappealedthedecisiontotheCourtofAppeals(CA)inCAG.R.CV86577.Butthe
CArenderedjudgmentonJanuary23,2008,affirmingtheRTCdecisioninallrespects.
And when BPI asked for reconsideration,[35] the CA denied it on July 14, 2008,[36]
hence,thebank'srecoursetothisCourt.
TheIssuesPresented
BPIpresentsthefollowingissues:
1.Whetherornotthecasepresentednogenuineissuesoffactsuchasto
warrantasummaryjudgmentbytheRTCand
2.Wheresummaryjudgmentisproper,whetherornottheRTCandtheCA
a)correctlydeletedthepenaltychargesbecauseofBPI'sallegedfailureto
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
litigationexpenses.
TheCourt'sRulings
One. A summary judgment is apt when the essential facts of the case are
uncontestedorthepartiesdonotraiseanygenuineissueoffact.[37]Here,toresolve
the issue of the excessive charges allegedly incorporated into the auction bid price,
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theRTCsimplyhadtolookata)thepleadingsofthepartiesb)theloanagreements,
thepromissorynote,andtherealestatemortgagesbetweenthemc)theforeclosure
and bidding documents and d) the admissions and other disclosures between the
parties during pretrial. 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
validandenforceable2)whetherornottheYushaveacauseofactionagainstBPI
3)whetherornottheYusareproperpartiesininterest4)whetherornottheYusare
estopped from questioning the foreclosure proceeding after entering into a
compromiseagreementwithMagnacraft5)whetherornotthepenaltychargesand
feesandexpensesoflitigationandpublicationareexcessiveand6)whetherornot
BPIviolatedtheTruthinLendingAct.[38]
Buttheseareissuesthatcouldbereadilyresolvedbasedonthefactsestablishedby
the pleadings and the admissions of the parties.[39] Indeed, BPI has failed to name
anydocumentoritemoffactthatitwouldhavewantedtoadduceatthetrialofthe
case.Atrialwouldhavebeensuchagreatwasteoftimeandresources.
Two. Both the RTC and CA decisions cited BPI's alleged violation of the Truth in
LendingActandtherulingoftheCourtinNewSampaguitaBuildersConstruction,Inc.
v.PhilippineNationalBank[40]tojustifytheirdeletionofthepenaltycharges.Section
4oftheTruthinLendingActstatesthat:
SEC. 4. Any creditor shall furnish to each person to whom credit is

extended,priortotheconsummationofthetransaction,aclearstatement
in writing setting forth, to the extent applicable and in accordance with
rulesandregulationsprescribedbytheBoard,thefollowinginformation:
(1) the cash price or delivered price of the property or service to be
acquired
(2)theamounts,ifany,tobecreditedasdownpaymentand/ortradein
(3) the difference between the amounts set forth under clauses (1) and
(2)
(4)thecharges,individuallyitemized,whicharepaidortobepaidbysuch
personinconnectionwiththetransactionbutwhicharenotincidenttothe
extensionofcredit
(5)thetotalamounttobefinanced
(6)thefinancechargeexpressedintermsofpesosandcentavosand
(7) the percentage that the finance bears to the total amount to be
financed expressed as a simple annual rate on the outstanding unpaid
balanceoftheobligation.
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Penalty charge, which is liquidated damages resulting from a breach,[41] falls under
item(6)orfinancecharge.Afinancecharge"representstheamounttobepaidbythe
debtorincidenttotheextensionofcredit."[42]The lender may provide for a penalty
clausesolongastheamountorrateofthechargeandtheconditionsunderwhichit
istobepaidaredisclosedtotheborrowerbeforeheentersintothecreditagreement.
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
hereinattherateof3%permonth."Thepromissorynoteisanacknowledgmentofa
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
vitiatedconsent.[44]
Thequestioniswhetherornotthereferencetothepenaltychargesinthepromissory
noteconstitutessubstantialcompliancewiththedisclosurerequirementoftheTruth
in Lending Act.[45] The RTC and CA relied on the ruling in New Sampaguita as
authoritythatthenondisclosureofthepenaltychargerendersitsimpositionillegal.
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]
TherulingthatismoreinpointisthatlaiddowninTheConsolidatedBankandTrust
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
thepromissorynotes.[48]WhattheCourtdisallowedinthatcasewasthecollectionof
ahandlingchargethatthepromissorynotesdidnotcontain.
The Court has affirmed that financial charges are amply disclosed if stated in the
promissorynoteinthecaseofDevelopmentBankofthePhilippinesv.Arcilla,Jr.[49]
TheCourttheresaid,"UnderCircular158oftheCentralBank,thelenderisrequired
to include the information required by R.A. 3765 in the contract covering the credit
transactionoranyotherdocumenttobeacknowledgedandsignedbytheborrower.
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
liabilitybasedonarigidinterpretationoftheTruthinLendingActthatcontravenesits
goal.
Nonetheless, the courts have authority to reduce penalty charges when these are
unreasonableandiniquitous.[50]ConsideringthatBPIhadalreadyreceivedoverP2.7
millionininterestandthatitseekstoimposethepenaltychargeof3%permonthor
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36% per annum on the total amount dueprincipal plus interest, with interest not
paidwhendueaddedtoandbecomingpartoftheprincipalandalsobearinginterest
at the same ratethe Court finds the ruling of the RTC in its original decision[51]
reasonableandfair.Thus,thepenaltychargeof12%perannumor1%permonth[52]
isimposed.
Three. As for the award of attorney's fee, it being part of a party's liquidated
damages,thesamemaylikewisebeequitablyreduced.[53]TheCAcorrectlyaffirmed
theRTCOrder[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
consideringtheroteeffortthatgoesintoextrajudicialforeclosures.
WHEREFORE, the Court DENIES the petition and AFFIRMS the Court of Appeals
DecisioninCAG.R.CV86577datedJanuary23,2008subjecttotheRESTORATION
of the penalty charge of 12% per annum or 1% per month of the amount due
computedfromdateofnonpaymentorNovember25,2001.
SOORDERED.
Carpio,Brion,DelCastillo,andPerez,JJ.,concur.
[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.
47847andsecuringP18,030,000.00.
[2]Id. at 6364: 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.
44461andsecuringP10,000,000.00REMdatedJuly30,1997coveringTCTNo.40247
andsecuringP1,600,000.00.
[3]Id.at6263.
[4]Id.at72.
[5]Id.
[6]Id.at78828690.
[7]Id.at97101.
[8]PennedbyJudgePedroR.Soriao.
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[9]Rollo,pp.5559.
[10]Records,pp.136144.
[11]Rollo,p.66,par.2.12ofcomplaint.
[12]Records,p.137,par.7ofanswer.
[14]Id.at68,par.2.18ofcomplaint.
[15]Id.,par.2.19ofcomplaint.
[16]Id.at69,par.2.20ofcomplaint.
[20]Rollo,p.67,par.2.14ofcomplaintrecords,p.138,par.12ofanswer.
[21]However,accordingtotheMinutesofPublicAuctionSalesubmittedbythesheriff,
anotherpersonsubmittedabidofP1,150,000.00records,p.95.
[22]Rollo,p.70,par.2.24ofcomplaintrecords,p.138,par.12ofanswer.
[23]413Phil.518(2001).
[24]449Phil.419(2003).
[25]CArollo,pp.4954.
[27]Id.at154163175179214233249258261262.
[28]Id.at270.
[29]CArollo,pp.5152.
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[31]Id.at294296.
[32]Id.at294.
[33]Id.at298314.
[34]Id.at331337.
[35]Rollo,pp.4151.
[36]Id.at5253.
[37]Riverav.SolidbankCorporation,G.R.No.163269,April19,2006,487SCRA512,
535, cited in Bitanga v. Pyramid Construction Engineering Corporation, G.R. No.

173526,August28,2008,563SCRA544,560.
[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
forthsuchfactsaswouldbeadmissibleinevidence,andshallshowaffirmativelythat
theaffiantiscompetenttotestifytothemattersstatedtherein.Certifiedtruecopies
ofallpapersorpartsthereofreferredtointheaffidavitshallbeattachedtheretoor
servedtherewith.
[39]A.M.No.03109SC,GuidelinestobeObservedbyTrialCourtJudgesandClerks
ofCourtinConductofPretrialandUseofDepositionDiscoveryMeasures,August16,
2004.
[40]479Phil.483(2004).
[41]Barbasav.Tuquero,G.R.No.163898,December23,2008,575SCRA102,111.
[42]Par.(3),Section3ofR.A.No.3765ortheTruthinLendingActpar.(h)ofCentral
BankCircularNo.158definingthedetailsmentionedinSection4ofR.A.No.3765.
[43] Dela Pea v. Court of Appeals, G.R. No. 177828, February 13, 2009, 579 SCRA
396,413.
[44]DevelopmentBankofthePhilippinesv.Perez,484Phil.843,853(2004).
[45]UnitedCoconutPlantersBankv.Beluso, G.R. No. 159912, August 17, 2007, 530
SCRA567,599.
[46]SeeDevelopmentBankofthePhilippinesv.Arcilla,Jr.,G.R.No.161397,June30,
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2005,462SCRA599.
[47]316Phil.247(1995).
[48] Id. at 258259: The payment of penalty was provided for under the terms and
conditions of the promissory notes for Loans B and C of George and George Trade,
Inc.Thepenaltyactuallyimposed,beingonly3%perannumoftheunpaidbalanceof
theprincipalofsaidLoanB,isconsideredreasonableandproper.
[49]Supranote46,at609610.
[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
principalobligationhasbeenpartlyorirregularlycompliedwithbythedebtor.Evenif
therehasbeennoperformance,thepenaltymayalsobereducedbythecourtsifitis
iniquitousorunconscionableArticle2227:Liquidateddamages,whetherintendedas
an indemnity or penalty, shall be equitably reduced if they are iniquitous and
unconscionable.
[51]CArollo,p.62.
[52]Ongv.RobanLendingCorporation,G.R.No.172592,July9,2008,557SCRA516,
525,citingUnitedCoconutPlantersBankv.Beluso,G.R.No.159912,August17,2007,
530 SCRA 567, 590, 604605 State Investment House, Inc. v. Court of Appeals,
supranote50.
[53] Co v. Admiral United Savings Bank, G.R. No. 154740, April 16, 2008, 551 SCRA
472,482.
[55] New Sampaguita Builders Construction, Inc. v. Philippine National Bank, supra
note40,at509510.
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1. Deleting the penalty charges imposed by BPI for noncompliance with

SEC. 4. Any creditor shall furnish to each person to whom credit is

535, cited in Bitanga v. Pyramid Construction Engineering Corporation, G.R. No.

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