Facts:

The case involves the Development Bank of the Philippines (DBP) as the petitioner and Bonita O. Perez and Alfredo Perez as the respondents. The events trace back to April 28, 1978, when the DBP approved an industrial loan of P214,000.00 to Bonita Perez for acquiring machinery and working capital, along with an additional P21,000.00 for unforeseen price escalations. The respondents signed four promissory notes on May 18, 1978, totaling P235,000.00, with due dates through August and September 1988, secured by a mortgage over real and personal properties. As the respondents failed to make their amortization payments, DBP initiated foreclosure proceedings.

On October 7, 1981, the respondents requested a restructuring of their loan due to difficulties with their financial situation. A restructuring was approved, and on May 6, 1982, they signed a new promissory note for P231,000.00 at an 18% annual interest rate, payable quarterly over ten years. However, the respondents only made spo

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Facts:

Background of the Transaction

• On April 28, 1978, the Development Bank of the Philippines (DBP) approved an industrial loan for respondent Bonita Perez amounting to P214,000.00 for the acquisition of machinery, equipment, and working capital.
• An additional industrial loan of P21,000.00 was also approved to cover unforeseen price escalation, bringing the total to P235,000.00.
• On May 18, 1978, the respondents executed four promissory notes covering the total loan amount—three notes totaling P214,000.00, all due on August 31, 1988, and a fourth note for P21,000.00 due on September 19, 1988.
• The promissory notes required payment in equal quarterly amortizations and were secured by a mortgage contract covering real and personal properties.

Notification and Early Payment Terms

• DBP communicated the terms of the P214,000.00 loan in a letter dated September 6, 1978, and conveyed the conditions for the additional P21,000.00 loan in a follow-up letter dated November 8, 1978.
• The scheduled amortizations were clearly set, and the mortgage served as collateral for ensuring the repayment of both loans.

Default and Restructuring of the Loan

• Due to the respondents’ failure to comply with the scheduled quarterly amortization payments, DBP opted to foreclose the mortgages securing the obligation.
• On October 7, 1981, Mrs. Perez requested a restructuring of their account, citing difficulties in collecting receivables.
• DBP approved the restructuring on April 1, 1982, and on May 6, 1982, the respondents signed a new promissory note for P231,000.00 at an interest rate of 18% per annum, payable quarterly at P12,553.27 over a period of ten years.
• The new note specifically provided for additional penalty charges and an adjustment clause regarding interest in the event of changes in the maximum legal rate.

Payment Irregularities and Subsequent Proceedings

• Although the new promissory note set the first amortization on August 7, 1982, the respondents made their first payment of P15,000.00 only on April 20, 1983, well after three quarters had lapsed.
• The second quarterly payment, due on November 7, 1982, was rendered on December 2, 1983 and in a reduced amount of P5,000.00.
• A third payment was made later (when the ninth quarterly payment was due), but thereafter the respondents ceased making further payments; total payments after the restructuring amounted to only P35,000.00.
• DBP then initiated foreclosure proceedings on the collateral properties with a scheduled sale on October 30, 1985.

Trial Court and Appellate Proceedings

• On October 24, 1985, the respondents filed a complaint seeking the nullification of the new promissory note, alleging that DBP had restructured the debt in bad faith by not accounting for payments already made, failing to furnish a disclosure statement as required by Republic Act No. 3765 (the Truth in Lending Act), and imposing an usurious interest rate.
• During trial, DBP presented a Statement of Account (dated September 14, 1990) showing a total obligation of P1,384,465.71 as of September 15, 1990.
• The Regional Trial Court (RTC) issued orders to suspend the auction and maintain the status quo, eventually ruling on May 10, 1993, that upheld the validity of the new promissory note and ordered the respondents to pay the computed obligation with interest.
• Subsequent to a motion for reconsideration, the RTC amended the interest rate from 12% to 18% per annum.
• The respondents appealed, and on February 28, 2001, the Court of Appeals (CA) modified the RTC decision by setting aside the computed amount and directing that the formula under Central Bank Circular No. 158 be applied in determining the total debt, while holding that the interest rate of 18% was usurious and that the note was a contract of adhesion.

Issue:

Validity of the New Promissory Note and Consent

• Whether the new promissory note is voidable on the ground that it was not voluntarily signed by the respondents.
• Whether the classification of the new promissory note as a contract of adhesion, being prepared solely by the petitioner (DBP), vitiates the consent of the respondents.

Usury and the Interest Rate Imposed

• Whether the interest rate of 18% per annum (plus additional interest and penalty charges) agreed upon in the restructured note is usurious under the prevailing Usury Law and applicable Central Bank Circulars.
• Whether DBP’s reliance on CB Circular No. 905 to justify the 18% rate is valid, considering the timing of the note’s execution relative to the Circular’s effectivity.

Computation of the Total Debt

• Whether the formula provided under paragraph 3, Sec. 2(i) of CB Circular No. 158 should be used in computing the overall monetary obligation of the respondents.
• Whether the resulting figure of P1,384,465.71, as substantiated by the petition, is sufficiently supported by the evidence on record or is merely speculative.

Procedural and Evidentiary Considerations

• Whether the trial and appellate courts appropriately addressed evidentiary discrepancies regarding the actual payments made after the restructuring.
• Whether the CA’s findings and conclusions, particularly regarding the nature of the contract and the computation of obligations, are in accord with both the Truth in Lending Act and the Usury Law.

Ruling:

• (Subscriber-Only)

Ratio:

• (Subscriber-Only)

Doctrine:

• (Subscriber-Only)