8epubllc of Lhe hlllpplnes

SUkLML CCUk1
Manlla
SLCCnu ulvlSlCn
Gk No 184122 Ianuary 20 2010
8ANk CI 1nL nILIINL ISLANDS INC eLlLloner
vs
SS NCkMAN AND ANGLLINA U and 1UANSCN 8UILDLkS CCkCkA1ICN represented by kLS NCkMAN U 8espondenLs
u L C l S l C n
A8AD
1hls case ls abouL Lhe proprleLy of a summary [udgmenL ln resolvlng a documenLed clalm of alleged excesslve penalLy charges
lnLeresL aLLorney's fees and foreclosure expenses lmposed ln an exLra[udlclal foreclosure of morLgage
1he lacLs and Lhe Case
8espondenLs norman and Angellna ?u (Lhe ?us) dolng buslness as 1uanson 1radlng and 1uanson 8ullders CorporaLlon (1uanson
8ullders) borrowed varlous sums LoLallng 73 mllllon from lar LasL 8ank and 1rusL Company lor collaLeral Lhey execuLed real
esLaLe morLgages over several of Lhelr properLles
1
lncludlng cerLaln lands ln Legazpl ClLy owned by 1uanson 1radlng
2
ln 1999
unable Lo pay Lhelr loans Lhe ?us and 1uanson 8ullders requesLed a loan resLrucLurlng
3
whlch Lhe bank now merged wlLh 8ank of
Lhe hlllpplne lslands (8l) granLed
4
8y Lhls Llme Lhe ?us' loan balance sLood aL 3340000000 1he resLrucLured loan used Lhe
same collaLerals wlLh Lhe excepLlon of 1ransfer CerLlflcaLe of 1lLle 40247 LhaL secured a loan of 1600000
3

uesplLe Lhe resLrucLurlng however Lhe ?us sLlll had dlfflculLles paylng Lhelr loan 1hey asked 8l Lo release some of Lhe morLgaged
lands slnce Lhelr LoLal appralsed value far exceeded Lhe amounL of Lhe remalnlng debL When 8l lgnored Lhelr requesL Lhe ?us
wlLhheld paymenLs on Lhelr amorLlzaLlons 1hus 8l exLra[udlclally foreclosed
6
Lhe morLgaged properLles ln Legazpl ClLy and ln lll
Camarlnes Sur 8uL Lhe ?us soughL by courL acLlon agalnsL 8l and Lhe wlnnlng bldder MagnacrafL uevelopmenL CorporaLlon
(MagnacrafL) Lhe annulmenL of Lhe foreclosure sale
ln Lhe course of Lhe proceedlngs however Lhe ?us and MagnacrafL enLered lnLo a compromlse agreemenL
7
LhaL afflrmed Lhe laLLer's
ownershlp of Lhree ouL of Lhe 10 parcels of land LhaL were aucLloned 8y vlrLue of Lhls agreemenL Lhe courL dlsmlssed Lhe complalnL
agalnsL MagnacrafL
8
wlLhouL pre[udlce Lo Lhe ?us flllng a new one agalnsL 8l
Cn CcLober 24 2003 Lhe ?us flled Lhelr new complalnL before Lhe 8eglonal 1rlal CourL (81C) of Legazpl ClLy 8ranch 1 ln Clvll Case
10286 agalnsL 8l for recovery of alleged excesslve penalLy charges aLLorney's fees and foreclosure expenses LhaL Lhe bank caused
Lo be lncorporaLed ln Lhe prlce of Lhe aucLloned properLles
9
1ovvpbl1
ln lLs answer
10
8l essenLlally admlLLed Lhe foreclosure of Lhe morLgaged properLles for 3903323493 broken down as
follows 3328373873 as prlnclpal debL 211028278 as lnLeresL and 366121346 as penalLy charges
11
8l quallfled LhaL Lhe
LoLal of 3903323493 corresponded only Lo Lhe ?us' debL as of daLe of flllng of Lhe peLlLlon
12
1he noLlce of Lhe aucLlon sale sald
LhaL Lhe LoLal was lncluslve of lnLeresL penalLy charges aLLorney's fee and expenses of Lhls foreclosure
13

8l furLher admlLLed LhaL lLs bld of 4309036641 for all Lhe aucLloned properLles was broken down as follows
14

rlnclpal 3218872307
lnLeresL 276308893
enalLy Charges 336864909
SubLoLal 4032046109
Add 10 ALLorney's lees 403204611
LlLlgaLlon Lxpenses lnLeresL 44672674
CosL of ubllcaLlon lnLeresL 7133247
1C1AL 4309036641
8l also admlLLed LhaL MagnacrafL submlLLed Lhe hlghesL and wlnnlng bld of 4330000000
13
1he sherlff Lurned over Lhls amounL
Lo 8l
16
Accordlng Lo 8l lL ln Lurn remlLLed Lo Lhe Clerk of CourL Lhe 40943339 dlfference beLween lLs bld prlce and LhaL of
MagnacrafL's
17
AlLhough Lhe proceeds of Lhe sale exceeded Lhe 3903323493 sLaLed ln Lhe noLlce of sale by 603331146
18
Lhe
bld amounL lncreased because lL now lncluded llLlgaLlon expenses and aLLorney's fees as well as lnLeresLs and penalLles as
recompuLed
19

8l admlLLed LhaL lL also pushed Lhrough wlLh Lhe second aucLlon for Lhe sale of a loL ln lll Camarlnes Sur LhaL secured a remalnlng
debL of 3362000
20
8l made Lhe lone bld
21
of 170193409
22

1he ?us had Lhree causes of acLlon agalnsL 8l
llrsL 1he bank lmposed excesslve penalLy charges and lnLeresLs over 3 mllllon ln penalLy charges compuLed aL 36 per
annum compared Lo Lhe 12 per annum LhaL Lhe CourL flxed ln Lhe cases of SLaLe lnvesLmenL Pouse lnc v CourL of
Appeals
23
and 8ulz v CourL of Appeals
24
ln addlLlon 8l collecLed a 14 yearly lnLeresL on Lhe prlnclpal brlnglng Lhe
comblned penalLy charges and lnLeresL Lo 30 of Lhe prlnclpal per annum
Second 8l also lmposed a charge of 403204611 ln aLLorney's fees Lhe equlvalenL of 10 of Lhe prlnclpal lnLeresL and
penalLy charges
1hlrd 8l dld noL provlde documenLs Lo supporL lLs clalm for foreclosure expenses of 44672674 and cosL of publlcaLlon
of 31803921
As an alLernaLlve Lo Lhelr Lhree causes of acLlon Lhe ?us clalmed LhaL 8l was ln esLoppel Lo clalm more Lhan Lhe amounL sLaLed ln
lLs publlshed noLlces ConsequenLly lL musL Lurn over Lhe excess bld of 603331146
AfLer preLrlal Lhe ?us moved for summary [udgmenL
23
polnLlng ouL LhaL based on Lhe answer
26
Lhe common exhlblLs of Lhe
parLles
27
and Lhe answer Lo Lhe wrlLLen lnLerrogaLorles Lo Lhe sherlff
28
no genulne lssues of facL exlsL ln Lhe case 1he ?us walved
Lhelr clalm for moral damages so Lhe 81C can dlspose of Lhe case Lhrough a summary [udgmenL
29

lnlLlally Lhe 81C granLed only a parLlal summary [udgmenL lL reduced Lhe penalLy charge of 36 per annum
30
Lo 12 per annum
unLll Lhe debL would have been fully pald buL malnLalned Lhe aLLorney's fees as reasonable conslderlng LhaL 8l already walved
Lhe 176131136 LhaL formed parL of Lhe aLLorney's fees and reduced Lhe raLe of aLLorney's fees lL collecLed from 23 Lo 10 of
Lhe amounL due 1he 81C ruled LhaL facLs necessary Lo resolve Lhe lssues on penalLles and fees had been admlLLed by Lhe parLles
Lhus dlspenslng wlLh Lhe need Lo recelve evldence
31

SLlll Lhe 81C held LhaL lL needed Lo recelve evldence for Lhe resoluLlon of Lhe lssues of
(1) wheLher or noL Lhe foreclosure and publlcaLlon expenses were [usLlfled
(2) wheLher or noL Lhe foreclosure of Lhe loL ln lll Camarlnes Sur was valld glven LhaL Lhe proceeds of Lhe foreclosure of Lhe
properLles ln Legazpl ClLy sufflclenLly covered Lhe debL and (3) wheLher or noL 8l was enLlLled Lo lLs counLerclalm for aLLorney's
fees moral damages and exemplary damages
32

1he ?us moved for parLlal reconslderaLlon
33
1hey argued LhaL slnce 8l dld noL mark ln evldence any documenL ln supporL of Lhe
foreclosure expenses lL clalmed lL may be assumed LhaL Lhe bank had no evldence Lo prove such expenses As regards Lhelr rlghL Lo
Lhe proraLlng of Lhelr debL among Lhe morLgaged properLles Lhe ?us polnLed ouL LhaL 8l dld noL dlspuLe Lhe facL LhaL Lhe proceeds
of Lhe sale of Lhe properLles ln Legazpl ClLy fully saLlsfled Lhe debL 1hus Lhe courL could already resolve wlLhouL Lrlal Lhe lssue of
wheLher or noL Lhe foreclosure of Lhe lll properLy was valld
lurLher Lhe ?us soughL reconslderaLlon of Lhe reducLlon of penalLy charges and Lhe allowance of Lhe aLLorney's fees 1hey clalmed
LhaL Lhe penalLy charges should be deleLed for vlolaLlon of 8epubllc AcL (8A) 3763 or Lhe 1ruLh ln Lendlng AcL 8l's dlsclosure dld
noL sLaLe Lhe raLe of penalLles on laLe amorLlzaLlons Also Lhe ?us asked Lhe courL Lo reduce Lhe aLLorney's fees from 10 Lo 1 of
Lhe amounL due Cn !anuary 3 2006 Lhe 81C reconsldered lLs earller declslon and rendered a summary [udgmenL
34

1 ueleLlng Lhe penalLy charges lmposed by 8l for noncompllance wlLh Lhe 1ruLh ln Lendlng AcL
2 8educlng Lhe aLLorney's fees Lo 1 of Lhe prlnclpal and lnLeresL
3 upholdlng Lhe reasonableness of Lhe foreclosure expenses and cosL of publlcaLlon boLh wlLh lnLeresLs
4 8elLeraLlng Lhe Lurnover by Lhe Clerk of CourL Lo Lhe ?us of Lhe excess ln Lhe bld prlce
3 ueleLlng Lhe ?us' clalm for moral damages Lhey havlng walved lL
6 uenylng Lhe ?us' clalm for aLLorney's fees for lack of basls and
7 ulsmlsslng 8l's counLerclalm for moral and exemplary damages and for aLLorney's fees for lack of merlL conslderlng LhaL
summary [udgmenL has been rendered ln favor of Lhe ?us
8l appealed Lhe declslon Lo Lhe CourL of Appeals (CA) ln CAC8 Cv 86377 8uL Lhe CA rendered [udgmenL on !anuary 23 2008
afflrmlng Lhe 81C declslon ln all respecLs And when 8l asked for reconslderaLlon
33
Lhe CA denled lL on !uly 14 2008
36
hence Lhe
bank's recourse Lo Lhls CourL
1he lssues resenLed
8l presenLs Lhe followlng lssues
1 WheLher or noL Lhe case presenLed no genulne lssues of facL such as Lo warranL a summary [udgmenL by Lhe 81C and
2 Where summary [udgmenL ls proper wheLher or noL Lhe 81C and Lhe CA a) correcLly deleLed Lhe penalLy charges because
of 8l's alleged fallure Lo comply wlLh Lhe 1ruLh ln Lendlng AcL b) correcLly reduced Lhe aLLorney's fees Lo 1 of Lhe
[udgmenL debL and c) properly dlsmlssed 8l's counLerclalms for moral and exemplary damages aLLorney's fees and
llLlgaLlon expenses
1he CourL's 8ullngs
Cne A summary [udgmenL ls apL when Lhe essenLlal facLs of Lhe case are unconLesLed or Lhe parLles do noL ralse any genulne lssue
of facL
37
Pere Lo resolve Lhe lssue of Lhe excesslve charges allegedly lncorporaLed lnLo Lhe aucLlon bld prlce Lhe 81C slmply had Lo
look aL a) Lhe pleadlngs of Lhe parLles b) Lhe loan agreemenLs Lhe promlssory noLe and Lhe real esLaLe morLgages beLween Lhem c)
Lhe foreclosure and blddlng documenLs and d) Lhe admlsslons and oLher dlsclosures beLween Lhe parLles durlng preLrlal Slnce Lhe
parLles admlLLed noL only Lhe exlsLence auLhenLlclLy and genulne execuLlon of Lhese documenLs buL also whaL Lhey sLaLed Lhe Lrlal
courL dld noL need Lo hold a Lrlal for Lhe recepLlon of Lhe evldence of Lhe parLles
8l conLends LhaL a summary [udgmenL was noL proper glven Lhe followlng lssues LhaL Lhe parLles ralsed 1) wheLher or noL Lhe loan
agreemenLs beLween Lhem were valld and enforceable 2) wheLher or noL Lhe ?us have a cause of acLlon agalnsL 8l 3) wheLher or
noL Lhe ?us are proper parLles ln lnLeresL 4) wheLher or noL Lhe ?us are esLopped from quesLlonlng Lhe foreclosure proceedlng afLer
enLerlng lnLo a compromlse agreemenL wlLh MagnacrafL 3) wheLher or noL Lhe penalLy charges and fees and expenses of llLlgaLlon
and publlcaLlon are excesslve and 6) wheLher or noL 8l vlolaLed Lhe 1ruLh ln Lendlng AcL
38

8uL Lhese are lssues LhaL could be readlly resolved based on Lhe facLs esLabllshed by Lhe pleadlngs and Lhe admlsslons of Lhe
parLles
39
lndeed 8l has falled Lo name any documenL or lLem of facL LhaL lL would have wanLed Lo adduce aL Lhe Lrlal of Lhe case A
Lrlal would have been such a greaL wasLe of Llme and resources
1wo 8oLh Lhe 81C and CA declslons clLed 8l's alleged vlolaLlon of Lhe 1ruLh ln Lendlng AcL and Lhe rullng of Lhe CourL ln new
SampagulLa 8ullders ConsLrucLlon lnc v hlllpplne naLlonal 8ank
40
Lo [usLlfy Lhelr deleLlon of Lhe penalLy charges SecLlon 4 of Lhe
1ruLh ln Lendlng AcL sLaLes LhaL
SLC 4 Any credlLor shall furnlsh Lo each person Lo whom credlL ls exLended prlor Lo Lhe consummaLlon of Lhe LransacLlon a clear
sLaLemenL ln wrlLlng seLLlng forLh Lo Lhe exLenL appllcable and ln accordance wlLh rules and regulaLlons prescrlbed by Lhe 8oard Lhe
followlng lnformaLlon
(1) Lhe cash prlce or dellvered prlce of Lhe properLy or servlce Lo be acqulred
(2) Lhe amounLs lf any Lo be credlLed as down paymenL and/or Lradeln
(3) Lhe dlfference beLween Lhe amounLs seL forLh under clauses (1) and (2)
(4) Lhe charges lndlvldually lLemlzed whlch are pald or Lo be pald by such person ln connecLlon wlLh Lhe LransacLlon buL
whlch are noL lncldenL Lo Lhe exLenslon of credlL
(3) Lhe LoLal amounL Lo be flnanced
(6) Lhe flnance charge expressed ln Lerms of pesos and cenLavos and
(7) Lhe percenLage LhaL Lhe flnance bears Lo Lhe LoLal amounL Lo be flnanced expressed as a slmple annual raLe on Lhe
ouLsLandlng unpald balance of Lhe obllgaLlon
enalLy charge whlch ls llquldaLed damages resulLlng from a breach
41
falls under lLem (6) or flnance charge A flnance charge
represenLs Lhe amounL Lo be pald by Lhe debLor lncldenL Lo Lhe exLenslon of credlL
42
1he lender may provlde for a penalLy clause
so long as Lhe amounL or raLe of Lhe charge and Lhe condlLlons under whlch lL ls Lo be pald are dlsclosed Lo Lhe borrower before he
enLers lnLo Lhe credlL agreemenL
ln Lhls case alLhough 8l falled Lo sLaLe Lhe penalLy charges ln Lhe dlsclosure sLaLemenL Lhe promlssory noLe LhaL Lhe ?us slgned on
Lhe same daLe as Lhe dlsclosure sLaLemenL conLalned a penalLy clause LhaL sald
l/We [olnLly and severally promlse Lo furLher pay a laLe paymenL charge on any overdue amounL hereln aL Lhe raLe of 3 per
monLh
@be ptomlssoty oote ls oo ockoowleJqmeot of o Jebt ooJ commltmeot to tepoy lt oo tbe Jote ooJ ooJet tbe cooJltloos tbot tbe
pottles oqteeJ oo
4J
lt ls o vollJ coottoct obseot ptoof of octs wblcb mlqbt bove vltloteJ cooseot
44

1he quesLlon ls wheLher or noL Lhe reference Lo Lhe penalLy charges ln Lhe promlssory noLe consLlLuLes subsLanLlal compllance wlLh
Lhe dlsclosure requlremenL of Lhe 1ruLh ln Lendlng AcL
43
1he 81C and CA relled on Lhe rullng ln new SampagulLa as auLhorlLy LhaL
Lhe nondlsclosure of Lhe penalLy charge renders lLs lmposlLlon lllegal 8uL New 5ompoqolto ls noL aLLended by Lhe same
clrcumsLances WhaL new SampagulLa dlsallowed because lL was noL menLloned elLher ln Lhe dlsclosure sLaLemenL or ln Lhe
promlssory noLe was Lhe unllaLeral lncrease ln Lhe raLes of penalLy charges LhaL Lhe credlLor lmposed on Lhe borrower Pere
however lL ls noL shown LhaL 8l lncreased Lhe raLe of penalLy charge LhaL lL collecLed from Lhe ?us
46

1he rullng LhaL ls more ln polnL ls LhaL lald down ln 1he ConsolldaLed 8ank and 1rusL CorporaLlon v CourL of Appeals
47
a case clLed
ln new SampagulLa 1he coosollJoteJ 8ook rullng declared valld Lhe penalLy charges LhaL were sLlpulaLed ln Lhe promlssory
noLes
48
WhaL Lhe CourL dlsallowed ln LhaL case was Lhe collecLlon of a handllng charge LhaL Lhe promlssory noLes dld noL conLaln
1he CourL has afflrmed LhaL flnanclal charges are amply dlsclosed lf sLaLed ln Lhe promlssory noLe ln Lhe case of uevelopmenL 8ank
of Lhe hlllpplnes v Arcllla !r
49
1he CourL Lhere sald under Clrcular 138 of Lhe CenLral 8ank Lhe lender ls requlred Lo lnclude Lhe
lnformaLlon requlred by 8A 3763 ln Lhe conLracL coverlng Lhe credlL LransacLlon or any oLher documenL Lo be acknowledged and
slgned by Lhe borrower ln addlLlon Lhe conLracL or documenL shall speclfy addlLlonal charges lf any whlch wlll be collecLed ln case
cerLaln sLlpulaLlons ln Lhe conLracL are noL meL by Lhe debLor ln Lhls case Lhe promlssory noLes slgned by Lhe ?us conLalned daLa
lncludlng penalLy charges requlred by Lhe 1ruLh ln Lendlng AcL 1hey cannoL avold llablllLy based on a rlgld lnLerpreLaLlon of Lhe
1ruLh ln Lendlng AcL LhaL conLravenes lLs goal
noneLheless Lhe courLs have auLhorlLy Lo reduce penalLy charges when Lhese are unreasonable and lnlqulLous
30
Conslderlng LhaL
8l had already recelved over 27 mllllon ln lnLeresL and LhaL lL seeks Lo lmpose Lhe penalLy charge of 3 per monLh or 36 per
annum on Lhe LoLal amounL dueprlnclpal plus lnLeresL wlLh lnLeresL noL pald when due added Lo and becomlng parL of Lhe
prlnclpal and also bearlng lnLeresL aL Lhe same raLeLhe CourL flnds Lhe rullng of Lhe 81C ln lLs orlglnal declslon
31
reasonable and
falr 1hus Lhe penalLy charge of 12 per annum or 1 per monLh
32
ls lmposed
1hree As for Lhe award of aLLorney's fee lL belng parL of a parLy's llquldaLed damages Lhe same may llkewlse be equlLably
reduced
33
1he CA correcLly afflrmed Lhe 81C Crder
34
Lo reduce lL from 10 Lo 1 based on Lhe followlng reasons (1) aLLorney's fee
ls noL essenLlal Lo Lhe cosL of borrowlng buL a mere lncldenL of collecLlon
33
(2) 1 ls [usL and adequaLe because 8l had already
charged foreclosure expenses (3) aLLorney's fee of 10 of Lhe LoLal amounL due ls onerous conslderlng Lhe roLe efforL LhaL goes lnLo
exLra[udlclal foreclosures
WPL8LlC8L Lhe CourL uLnlLS Lhe peLlLlon and Alll8MS Lhe CourL of Appeals ueclslon ln CAC8 Cv 86377 daLed !anuary 23 2008
sub[ecL Lo Lhe 8LS1C8A1lCn of Lhe penalLy charge of 12 per annum or 1 per monLh of Lhe amounL due compuLed from daLe of
nonpaymenL or november 23 2001
SC C8uL8Lu
kC8Lk1C A A8AD
AssoclaLe !usLlce
WL CCNCUk