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.

Case Digest (G.R. No. 184122)
Expanded Legal Reasoning

Facts:

  • Parties, loans, securities, and restructuring
    • Respondents Spouses Norman and Angelina Yu (doing business as Tuanson Trading) and Tuanson Builders Corporation obtained several loans from Far East Bank and Trust Company (FEBTC), aggregating approximately P75,000,000. The loans were secured by real estate mortgages over multiple parcels of land, including several in Legazpi City and one in Pili, Camarines Sur.
    • In 1999, following the merger of FEBTC with petitioner Bank of the Philippine Islands (BPI), respondents’ loans were restructured when their outstanding balance stood at P33,400,000. The same collaterals secured the restructured obligation, except TCT No. 40247 (which had secured P1,600,000) that was excluded from the restructuring.
    • Despite restructuring, respondents experienced payment difficulties. They requested BPI to release some mortgaged parcels because their aggregate appraised value allegedly exceeded the remaining obligation. BPI did not act on the request; respondents withheld amortization payments.
  • Foreclosure proceedings and auction results
    • BPI initiated extrajudicial foreclosure of the mortgages over the Legazpi City properties, and separately over a Pili, Camarines Sur lot.
    • In the Legazpi foreclosure, BPI admitted the debt as of petition date at P39,055,254.95, broken down as: principal P33,283,758.73; interest P2,110,282.78; penalty charges P3,661,213.46. The notice of sale stated the total was “inclusive of interest, penalty charges, attorney’s fee and expenses of this foreclosure.”
    • At auction, BPI bid P45,090,566.41, broken down as: interest P2,763,088.93; penalty P5,568,649.09; subtotal P40,520,461.09; plus 10% attorney’s fees P4,052,046.11; litigation expenses and interest P446,726.74; publication cost and interest P71,332.47. Magnacraft Development Corporation submitted the highest bid at P45,500,000, won the sale, and the sheriff turned over the proceeds to BPI. BPI remitted to the Clerk of Court the P409,433.59 difference between Magnacraft’s higher bid and BPI’s bid.
    • The P45,500,000 proceeds exceeded the P39,055,254.95 indicated in the published notice by P6,035,311.46, which BPI attributed to the addition of litigation expenses, attorney’s fees, and recomputed interest and penalties.
    • BPI also foreclosed the Pili lot securing a remaining debt of P5,562,000. In the Pili auction, BPI made a lone bid of P1,701,934.09 (although minutes reflected another bid of P1,150,000).
  • Litigation history and claims
    • Respondents sued BPI and Magnacraft to annul the foreclosure. Respondents and Magnacraft later entered into a compromise affirming Magnacraft’s ownership over three of the ten foreclosed parcels, resulting in dismissal of the complaint against Magnacraft, without prejudice to filing a new case against BPI.
    • On October 24, 2003, respondents filed Civil Case No. 10286 (RTC, Legazpi City, Branch 1) against BPI for recovery of alleged excessive penalty charges, attorney’s fees, and foreclosure expenses included in the auction price. Their causes of action were:
1) Excessive penalties computed at 36% per annum contrary to jurisprudence purportedly capping penalties at 12% per annum; coupled with 14% interest, allegedly resulting in a combined 50% per annum burden. 2) Excessive attorney’s fees of 10% of principal, interest, and penalties (P4,052,046.11). 3) Unsupported foreclosure and publication expenses (P446,726.74 and P518,059.21).
  • In the alternative, respondents asserted estoppel, arguing that BPI was bound by the amounts in the published notices and must turn over the P6,035,311.46 excess.
  • Proceedings and dispositions in the lower courts
    • Respondents moved for summary judgment after pre-trial, invoking the parties’ pleadings, common exhibits, and sheriff’s interrogatories; they waived moral damages to facilitate summary disposition.
    • The RTC initially issued a partial summary judgment reducing the penalty rate from 36% to 12% per annum until full payment, maintaining the 10% attorney’s fee as reasonable (noting BPI’s waiver of P1,761,511.36 and reduction of the stipulated rate from 25% to 10%), but reserving trial on:
1) Reasonableness of foreclosure and publication expenses. 2) Validity of Pili foreclosure given the alleged sufficiency of Legazpi proceeds. 3) BPI’s counterclaims for attorney’s fees and damages.
  • Respondents sought partial reconsideration, arguing: penalties should be deleted for violation of the Truth in Lending Act (R.A. 3765) due to non-disclosure of penalty rate; attorney’s fees should be cut to 1%; expenses were unproven; Pili foreclosure was invalid because Legazpi proceeds fully covered the debt.
  • On January 3, 2006, the RTC reconsidered and rendered summary judgment:
1) Deleted penalty charges for non-compliance with the Truth in Lending Act. 2) Reduced attorney’s fees to 1% of principal and interest. 3) Upheld foreclosure and publication expenses (with interest). 4) Reiterated turnover by the Clerk of Court to respondents of the excess in bid price. 5) Deleted respondents’ moral damages claim (waived) and denied their claim for attorney’s fees. 6) Dismissed BPI’s counterclaims for moral and exemplary damages and attorney’s fees.
  • On appeal, the Court of Appeals (CA-G.R. CV No. 86577) affirmed the RTC in toto on January 23, 2008; BPI’s motion for reconsideration was denied on July 14, 2008. BPI elevated the case to the Supreme Court via petition for review on certiorari.

Issues:

  • Whether the RTC properly rendered summary judgment, i.e., whether no genuine issues of material fact existed requiring trial.
  • Assuming summary judgment was proper, whether the RTC and CA correctly:
    • Deleted penalty charges due to alleged non-compliance with the Truth in Lending Act (R.A. 3765).
    • Reduced the stipulated attorney’s fees from 10% to 1% of the judgment debt.
    • Dismissed BPI’s counterclaims for moral and exemplary damages, attorney’s fees, and litigation expenses.

Ruling:

  • (Subscriber-Only)

Ratio:

  • (Subscriber-Only)

Doctrine:

  • (Subscriber-Only)
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