Case Summary (G.R. No. 184122)
Factual Background
The Yus and their corporation executed several real estate mortgages securing loans from Far East Bank (later BPI). In 1999, unable to meet amortizations, they successfully negotiated a restructuring of their ₱33.4 million balance. Further payment difficulties led the Yus to request release of over-mortgaged lands, which BPI refused. The Yus then defaulted, prompting BPI to extrajudicially foreclose on ten parcels in Legazpi City and Pili.
Loan Restructuring and Foreclosure
The restructured loans maintained the same collaterals except one parcel securing ₱1.6 million. After defaults, BPI published notices of sale indicating a total debt of ₱39,055,254.95 (principal, interest, penalty charges) inclusive of attorney’s fees and foreclosure expenses. BPI’s own bid of ₱45,090,566.41 lost to Magnacraft Development Corporation’s ₱45.5 million offer; the excess ₱409,433.59 was remitted to the court.
Initiation of Recovery Action
On October 24, 2003, the Yus filed Civil Case No. 10286 against BPI, alleging:
- Excessive penalty charges and interest (36% p.a. penalty plus 14% interest).
- Unjust 10% attorney’s fees on the total debt.
- Lack of documentation for claimed foreclosure and publication expenses.
They alternatively invoked estoppel to cap BPI’s recovery at published figures, seeking the ₱6,035,311.46 excess bid.
Summary Judgment Proceedings
During pre-trial the Yus moved for summary judgment, presenting the parties’ answers, common exhibits (loan documents, auction records), and sheriff’s interrogatory answers, asserting no genuine issue of fact. They waived moral damages to expedite resolution.
Partial and Final Summary Judgment by RTC
Initially, the RTC:
– Reduced annual penalty from 36% to 12%.
– Upheld the reasonableness of attorney’s fees at 10% (after BPI’s partial waiver).
– Ordered trial on foreclosure expenses, validity of Pili foreclosure, and BPI’s counterclaim.
On reconsideration, the RTC:
- Deleted all penalty charges for Truth in Lending Act (TILA) violation.
- Reduced attorney’s fees to 1% of principal and interest.
- Upheld foreclosure and publication expenses with interest.
- Ordered turnover of bid excess to the Yus.
- Denied moral damages and BPI’s counterclaims.
Appeal to Court of Appeals
BPI appealed. On January 23, 2008, the CA affirmed the RTC’s final summary judgment in toto. Reconsideration was denied on July 14, 2008.
Issues on Appeal
- Whether genuine issues of fact precluded summary judgment.
- If summary judgment was proper, whether the courts:
a. Correctly deleted penalty charges under TILA.
b. Properly reduced attorney’s fees to 1%.
c. Justly dismissed BPI’s counterclaims.
Standard for Summary Judgment
Summary judgment is warranted when pleadings, admissions, and documents establish undisputed facts. BPI failed to identify any additional evidence for trial; all essential facts concerning indebtedness, auctions, and charges were admitted.
Validity of Penalty Charges under RA 3765
TILA requires clear pre-contract disclosure of finance charges, including penalties. BPI’s disclosure statement omitted penalty rates, but the promissory note specified a 3% monthly late-payment charge. The Supreme Court distinguished this from New Sampaguita (which voided uncontemplated unilateral penalty hikes), citing Consolidated Bank and Trust Corp. v. CA and DBP v. Arcilla, Jr., which uphold penalties stated in promissory notes as substantial compli
...continue readingCase Syllabus (G.R. No. 184122)
Facts
- Respondents Norman and Angelina Yu (the Yus), doing business as Tuanson Trading, and Tuanson Builders Corporation borrowed a total of ₱75 million from Far East Bank and Trust Company, later merged into Bank of the Philippine Islands (BPI).
- To secure the loans, the Yus and Tuanson Builders executed multiple real‐estate mortgages over properties in Legazpi City and elsewhere.
- In 1999, with an outstanding balance of ₱33,400,000, the parties agreed to restructure the loans using the same collaterals, except for one title securing ₱1.6 million.
- Despite restructuring, the Yus requested release of excess collateral; BPI ignored the request and the Yus then withheld amortization payments.
- BPI extrajudicially foreclosed the Legazpi City and Pili, Camarines Sur properties; Magnacraft Development Corporation emerged as the winning bidder for most parcels.
- The Yus sued BPI and Magnacraft for annulment of the foreclosure sale; they settled with Magnacraft, affirming three parcels, and dismissed their complaint against it without prejudice to pursue BPI.
- On October 24, 2003, the Yus filed Civil Case No. 10286 before the RTC of Legazpi City for recovery of alleged excessive penalty charges, interest, attorney’s fees, and foreclosure expenses included in the auction price.
- BPI’s answer admitted foreclosure of properties for ₱39,055,254.95 (₱33,283,758.73 principal; ₱2,110,282.78 interest; ₱3,661,213.46 penalties) and detailed its ₱45,090,566.41 bid breakdown, including interest, penalties, 10% attorney’s fees, litigation expenses, and publication costs.
- Magnacraft’s higher bid of ₱45.5 million generated an excess remittance of ₱409,433.59 to the court clerk.
- The Yus’ principal causes of action:
• Excessive penalty charges (36% p.a. vs. the 12% jurisprudential standard) and 14% interest;
• Unwarranted 10% attorney’s fees on total debt;
• Unsubstantiated foreclosure expenses (₱446,726.74) and publication costs (₱518,059.21). - Alternatively, the Yus invoked estoppel to limit BPI to the amount stated in the auction notice and demanded turnover of the ₱6,035,311.46 excess bid.