Case Summary (G.R. No. 207342)
Petitioner and Respondent
Petitioners: Cardholder (William) and extension cardholder (Irene) who used BPI credit cards and became delinquent in payment.
Respondent: BPI, issuer of the credit cards and claimant in the collection action.
Key Dates
Relevant chronology from the record: initial delinquency noted October 14, 2009; account balance as of August 7/15, 2010; demand letters August 7, 2010 and later; complaint filed August 4, 2011; default procedures and judgment in 2012–2013; CA decisions in 2015 and 2016; Supreme Court resolution in 2017. The Supreme Court decision falls after 1990; therefore the 1987 Philippine Constitution is the controlling constitution.
Applicable Law and Precedents
Controlling legal authorities relied upon in the decision: 1987 Philippine Constitution; Rules of Civil Procedure (Rule 9, Section 3 regarding default and relief therefrom); New Civil Code provisions including Article 1229 (equitable reduction of penalty) and Article 2227 (reduction of liquidated damages/attorney’s fees if iniquitous); and binding precedents cited by the Court, notably Magsino v. De Ocampo, Macalinao v. BPI, and MCMP Construction Corp. v. Monark Equipment Corp.
Antecedents and Contractual Terms
BPI issued a credit card to William with Irene as an extension cardholder. The card’s terms and conditions stipulated finance charges of 3.5% per month and late payment charges of 6% per month on unpaid credit availments. The Spouses Louh made purchases and paid regularly until becoming delinquent beginning October 14, 2009. By mid‑August 2010 their outstanding account reached P533,836.27, and BPI sent multiple written demand letters which the bank asserts were received but ignored.
Trial Proceedings and Default
BPI filed a complaint for collection on August 4, 2011. The Spouses Louh requested an extension to file an answer; the RTC granted a 15‑day extension to March 4, 2012, but no answer was filed within that period. BPI moved to have the Spouses Louh declared in default. The Spouses Louh later filed an answer on July 20, 2012—more than three months late. On July 24, 2012 the RTC declared them in default, set an ex parte presentation of evidence, and ultimately rendered judgment. The RTC found BPI’s evidence persuasive that the indebtedness existed, but deemed the contractual monthly finance and penalty charges iniquitous and reduced them. The RTC ordered payment of P533,836.27 plus finance and late payment charges at 12% per annum (reduction from the contract rates), 25% of the amount due as attorney’s fees (as provided in the contract), P1,000 per hearing, and P8,064.00 filing fees, plus costs.
Appellate Proceedings and CA Ruling
The Spouses Louh moved for reconsideration before the RTC, which was denied. The CA affirmed the RTC’s judgment in toto. The CA held the Spouses Louh were properly declared in default for failing to timely file an answer and for not moving to set aside the order of default. The CA found BPI had presented sufficient evidence: signed delivery receipts and terms and conditions, computer‑generated copies of Statement of Accounts (SOAs), and demand letters. The CA also upheld contractual attorney’s fees because the card terms expressly provided for a 25% charge as attorney’s fees when an account was referred for collection.
Issues Presented to the Supreme Court
The Spouses Louh sought relief on two principal grounds: (1) that the default declaration should be set aside and procedural rules relaxed because William’s medical condition (a heart bypass surgery) excused their delay; and (2) that BPI failed to prove the actual indebtedness and the asserted amounts, because the SOAs and demand letters were unilaterally prepared by the bank and the computations lacked sufficient detail. They also argued the demanded amount exceeded their credit limit, suggesting unconscionable charges. BPI did not file an answer to the Supreme Court petition.
Standard on Relaxation of Procedural Rules and Default Relief
The Supreme Court applied controlling precedent (Magsino) emphasizing that procedural rules must be strictly observed, and their relaxation is allowed only in exceptional cases with persuasive justification and evidence of due diligence. Under Rule 9, Section 3, a party declared in default may move under oath to set aside the order upon proper showing of fraud, accident, mistake, or excusable negligence and a meritorious defense. The Spouses Louh did not file such a motion and failed to demonstrate the requisite diligence or exceptional circumstances that would warrant relaxing the rules.
Sufficiency of BPI’s Evidence and Effect of Default
The Court relied on the principle articulated in Macalinao that when a defendant is in default, the plaintiff’s evidence admitted before the lower courts should generally stand unless convincingly rebutted; dismissal or remand for further evidence would unjustly prejudice the creditor. BPI presented testimony (Account Specialist Carlito M. Igos) and documentary evidence: delivery receipts and signed terms and conditions, computer‑generated SOAs, and demand letters. Because the Spouses Louh did not timely contest these proofs or move to set aside the default, the Court found BPI’s showing adequate under the circumstances and determined the Spouses Louh had “slept on their rights” to refute the evidence.
Excessiveness of Contractual Charges and Equitable Reduction
While affirming liability, the Supreme Court found the aggregate contractual charges excessive and unconscionable. The record showed BPI’s contractual rates yielded a cumulative annual rate substantially above previously held reasonable levels (the Court identified 114% per annum plus 25% attorney’s fees under the bank’s scheme). Relying on precedent (Macalinao and MCMP) and Civil Code provisions allowing equitable reduction of unconscionable penalties and liquidated damages, the Court reduced the finance and late payment charges to twelve percent (12%) per annum each and reduced attorney’s fees to five percent (5%) of the total amount due. The Court retained the award of filing/docket fees of P8,064.00 and costs of suit.
Computation Base and Reckoning Period
Case Syllabus (G.R. No. 207342)
Parties and Nature of the Case
- Petitioners: William C. Louh, Jr. and Irene L. Louh (collectively, the Spouses Louh).
- Respondent: Bank of the Philippine Islands (BPI).
- Nature: Petition for review on certiorari to assail the Decision and Resolution of the Court of Appeals (CA) in CA-G.R. CV No. 100754 affirming a Regional Trial Court (RTC) judgment in a Complaint for Collection of a Sum of Money (Civil Case No. 11-753).
Antecedent Facts and Contractual Terms
- BPI issued a credit card in William's name with Irene as extension cardholder.
- Terms and conditions of card issuance provided for a 3.5% finance charge and a 6% late payment charge to be imposed monthly upon unpaid credit availments.
- The Spouses Louh used the cards and made purchases; they paid regularly according to Statements of Account (SOAs) until defaulting beginning October 14, 2009.
- As of August 15, 2010, the Spouses Louh’s account remained unsettled.
- By September 14, 2010, the Spouses Louh owed BPI the total amount of P533,836.27.
- BPI sent written demand letters dated August 7, 2010, January 25, 2011, and May 19, 2011; the Spouses Louh allegedly received but ignored such demands.
Procedural History — Lower Court Proceedings
- BPI filed a Complaint for Collection of a Sum of Money before the RTC of Makati City on August 4, 2011 (Civil Case No. 11-753).
- William filed a Motion for Extension of Time to File an Answer or Responsive Pleading on February 21, 2012.
- The RTC, presided by Judge Eugene C. Paras, granted a 15-day extension in an Order dated February 27, 2012, extending the period to March 4, 2012.
- The Spouses Louh failed to file an answer within the prescribed period; BPI filed a motion to declare the Spouses Louh in default on June 11, 2012.
- The Spouses Louh filed an Answer on July 20, 2012 — more than three months after the prescribed period ended on March 4, 2012.
- On July 24, 2012, the RTC issued an order declaring the Spouses Louh in default and set BPI’s ex parte presentation of evidence on August 7, 2012.
- The Branch Clerk of Court submitted a Commissioner’s Report dated September 7, 2012; the RTC considered the case submitted for decision on November 27, 2012.
- RTC rendered judgment on November 29, 2012.
RTC Decision — Findings and Relief
- RTC found that BPI had adduced preponderant evidence proving the Spouses Louh had availed of credit accommodations through use of the cards.
- The RTC deemed the contractual monthly finance and late payment charges of 3.5% and 6% (equivalent to 42% and 72% per annum) to be iniquitous and unconscionable and reduced both charges to 1% monthly (12% per annum).
- The fallo of the RTC ordered the Spouses Louh to solidarily pay BPI:
- P533,836.27,
- plus 12% finance and 12% late payment annual charges starting from August 7, 2010 until full payment,
- plus 25% of the amount due as attorney’s fees,
- plus P1,000.00 per court hearing,
- plus P8,064.00 as filing or docket fees,
- and costs of suit.
- RTC found the 25% attorney’s fees within the terms of the parties’ agreement.
Post-Decision Motions and Appeal
- The Spouses Louh filed a Motion for Reconsideration which the RTC denied by Order dated April 8, 2013.
- The Spouses Louh appealed to the Court of Appeals.
Court of Appeals Ruling and Reasoning
- CA affirmed the RTC decision in toto (Decision dated August 11, 2015; Resolution dated May 23, 2016 denying reconsideration).
- CA held the Spouses Louh were properly declared in default for failure to file an answer within the reglementary period and noted they filed no motion to set aside the order of default.
- CA found BPI offered ample evidence, including:
- delivery receipts for credit cards and the signed terms and conditions,
- computer-generated authenticated copies of the SOAs,
- demand letters sent and received by the Spouses Louh.
- CA sustained the award of attorney’s fees at 25% based on the terms governing the use of the cards which provided for such charge if the account was referred to a collection agency.
- CA denied the Spouses Louh’s motion for reconsideration in its May 23, 2016 Resolution.
Issues Raised in the Petition to the Supreme Court
- Whether the CA erred in sustaining BPI’s complaint and affirming the RTC judgment.
- Petitioners sought dismissal of the suit and relaxation of procedural rules due to William’s medical condition (heart bypass surgery) as the reason for their failure to file a timely Answer.
- Petitioners contended BPI failed to establish its case by preponderance of evidence, alleging lack of proof that they received and accepted the SOAs and demand letters and asserting the SOAs were unilaterally prepared by BPI.
- Petitioners also argued the computation included unconscionable charges because their credit limit was only P326,000.00 while BPI demanded P533,836.27.
Respondent’s Procedural Posture in Supreme Court
- BPI failed to file a comment to the petition within the prescribed period, which expired on September 23, 2016.
Supreme Court Ruling — Disposition and Modifications
- The Supreme Court affirmed the Decision and Resolution of the CA but modified the principal amount, the reckoning date for computation of charges, and the award of attorney’s fees.
- The Supreme Court held the Spouses Louh were properly declared in default; they failed to show due diligence or to file