VALDEZ || CREDIT DIGESTS || JOVEN 2014

CASE DIGESTS for the TRUTH IN LENDING ACT, DEPOSITS, GUARANTY and SURETYSHIP 1 UCPB v. Beluso FACTS: UCPB extended a credit line to Samuel and Odette Beluso. 1st loan: P1.2M; 2 promissory notes, REM over parcels of land in Roxas City; amended to increase amount of PN Line to P2.35 max 1st PN: P700,000 2nd PN: P500,000 3rd PN: P800,000 Payment of principal and interest of the latter two PNs were debited from petitioners account with UCPB; yet a consolidated loan for P1.3M was again released to the spouses under one PN with a due date of 2/28/98. TO maximize the credit line, the Belusos executed two more PNs with a total of P350,000 (which they claim was not released). 4th PN: P200,000 5th PN: P150,000 UCPB applied interest rates on the different PNs ranging from 18-34%. Belusos were only able to pay P763,692.03 from Feb 96-98. UCPB continued to charge interest, but the Belusos failed to pay. On 9/2/98, UCPB demanded the total amount of the obligation totalling a little less than P3M, and on 12/28/98, the UCPB foreclosed on the mortgaged properties as the credit had ballooned to P3.7M. The Belusos filed a petition for annulment, accounting, and damages against UCPB with the Makati RTC. RTC: in favour of Belusos; interest rate is void and foreclosure and sheriffs certificate void; Belusos only to pay principal amount CA: affirmed RTC decision ISSUE(S): Whether or not the interest rates were valid? NO 1. UCPB solely determined interest rates, as the promissory notes indicated ...with interest thereon at the rate indicative of DBD retail rate or as determined by the Branch Head a. UCPB: Valid, as while the interest rate was not numerically quantified in the face of the PNs, it was categorically fixed; Polotan case provides that the interest points to a prevailing rate or prime rate i. Wrong. Rate still at the behest of the bank because it has a choice between the DBD retail rate/rate determined by the Branch Head ii. Rate in Polotan case was fixed 2. Interest rates were in violation of the mutuality of contracts and the Truth in Lending Act i. UCPB did not disclose the true finance charges in connection with the extensions of credit, which goes against Sec. 2 of the TiLA 3. Offending provisions found in the PNs themselves, not the credit line WoN petitioner is liable for violation of the TiLA? YES RTC imposed a fine of P26,000 for UCPBs alleged violation of RA 3765. UCPB challenges the fine because the filing of an action to recover such penalty must be made in accordance with Sec. 6 of the TiLA, which mandates the filing of an action to recover such penalty within one year from the date of the occurrence of the violation, in any court of competent jurisdiction. UCPB says that (1) the Belusos did not file an action in accordance with the TiLA; (2) the action to recover penalty had been barred by the one-year prescriptive period (PNs were executed on 1/2/88, action filed on 2/9/99) (3) the original complaint did not explicitly allege a violation of the TiLA and the Belusos did not take any action to amend the same 1. CA was correct in holding that allegations in the complaint, much more than the title thereof, are controlling. Violations can be inferred from same allegation in the complaint. a. Allegation that PNs grant UCPB the power to unilaterally fix the interest rates also means that PNs do not contrain a clear statement in writing of (6) the finance charge expressed in terms of pesos and centavos and (7) the percentage that the finance charge bears to the amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation b. Prayer for such other reliefs just and equitable in the premises deemed to include civil penalty provided for Sec (6)a of TiLA 2. TiLA provides that a violation thereof result in civil and criminal offenses. Sec. 6(a) and 6(c) state that any violations thereof would

VALDEZ || CREDIT DIGESTS || JOVEN 2014

lead to civil and criminal liability, respectively. Civil action to recover penalty had been jointly instituted with (1) the action to declare the interests in the PNs void; and (2) actions to declare foreclosure void It was alleged in the complaint, as early as July 1, 1999, that UCPB violated the TiLA for failure to apprise the Belusos of the interest rate Action lies with RTC, not MeTC, as the actions was jointly instituted to declare PNs and the foreclosure void Opening a credit line does not create a credit transaction of loan or mutum Even if Sps Beluso were given copies of the subject PNs after their execution, UCPB still violated the TiLA bec Sec (4) provides that Any creditor shall furnish to each person to whom credit is extended, prior to the consummation of the transaction...

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HELD: 1. Belusos liable to pay a. 12% interest from the date of demand b. Compounded legal interest at 12% on the amount due from date of demand c. Principal 2. To be deducted doe: a. Payments worth P700k++ to be applied to date of actual payment b. Penalties under TiLA 3. Foreclosure mortgage valid doe 02 BPI v IAC and ZSHORNACK FACTS: ISSUES: HELD: