Title
Bank of the Philippine Islands vs. Spouses Yu
Case
G.R. No. 184122
Decision Date
Jan 20, 2010
The Yus borrowed P75M from BPI, secured by mortgages. After restructuring, they defaulted, leading to foreclosure. They sued BPI for excessive charges; court reduced penalties to 12% and attorney's fees to 1%, dismissing BPI's counterclaims. SC affirmed.
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Case Digest (G.R. No. 184122)

Facts:

Loan Agreements and Mortgages

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. They executed real estate mortgages over several properties as collateral, including lands in Legazpi City owned by Tuanson Trading.

Loan Restructuring

In 1999, due to financial difficulties, the Yus and Tuanson Builders requested a loan restructuring, which the bank (now merged with Bank of the Philippine Islands or BPI) granted. At this time, the Yus' loan balance stood at P33,400,000.00. The restructured loan used the same collaterals, except for Transfer Certificate of Title 40247, which secured a loan of P1,600,000.

Foreclosure Proceedings

Despite the restructuring, the Yus struggled to repay the loan. They requested BPI to release some mortgaged lands, as their total appraised value exceeded the remaining debt. When BPI ignored their request, the Yus stopped paying their amortizations. Consequently, BPI extrajudicially foreclosed the mortgaged properties in Legazpi City and Pili, Camarines Sur. The Yus filed a court action to annul the foreclosure sale but later entered into a compromise agreement with the winning bidder, Magnacraft Development Corporation, affirming Magnacraft's ownership of three out of the ten parcels of land auctioned.

New Complaint

On October 24, 2003, the Yus filed a new complaint against BPI before the Regional Trial Court (RTC) of Legazpi City, seeking recovery of alleged excessive penalty charges, attorney's fees, and foreclosure expenses incorporated into the auction bid price. BPI admitted the foreclosure and the breakdown of the bid price, which included principal debt, interest, penalty charges, attorney's fees, and foreclosure expenses.

Summary Judgment

The Yus moved for a summary judgment, arguing that no genuine issues of fact existed. The RTC initially granted a partial summary judgment, reducing the penalty charges from 36% to 12% per annum but maintaining attorney's fees at 10%. The Yus sought reconsideration, leading to a final summary judgment that deleted penalty charges, reduced attorney's fees to 1%, upheld foreclosure expenses, and dismissed BPI's counterclaims.

Issue:

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Ruling:

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Ratio:

  1. Summary Judgment: A summary judgment is appropriate when there are no genuine issues of fact, and the case can be resolved based on the pleadings, admissions, and uncontested documents.

  2. Penalty Charges: Under the Truth in Lending Act, penalty charges must be disclosed to the borrower before entering into a credit agreement. While BPI failed to disclose the penalty charges in the disclosure statement, the promissory note's reference to the charges constituted substantial compliance. However, courts have the authority to reduce penalty charges if they are excessive or iniquitous.

  3. Attorney's Fees: Attorney's fees, as part of liquidated damages, may be equitably reduced if deemed unreasonable. The reduction to 1% was justified, considering the nature of the foreclosure process and the expenses already charged by BPI.

  4. Counterclaims: Counterclaims for damages and attorney's fees must be supported by evidence. In this case, BPI failed to substantiate its claims, warranting their dismissal.


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