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G.R. No. 184122. January 20, 2010.*

BANK OF THE PHILIPPINE ISLANDS, INC., petitioner,

vs. SPS. NORMAN AND ANGELINA YU and TUANSON
BUILDERS CORPORATION represented by PRES.
NORMAN YU, respondents.

Remedial Law; Civil Procedure; Summary Judgments; A

summary judgment is apt when the essential facts of the case are
uncontested or the parties do not raise any genuine issue of fact.—
A summary judgment is apt when the essential facts of the case
are uncontested or the parties do not raise any genuine issue of
fact. Here, to resolve the issue of the excessive charges allegedly
incorporated into the auction bid price, the RTC simply had to
look at a) the pleadings

_______________

* SECOND DIVISION.

 
 

413

of the parties; b) the loan agreements, the promissory note,

and the real estate mortgages between them; c) the foreclosure
and bidding documents; and d) the admissions and other
disclosures between the parties during pre-trial. Since the parties

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admitted not only the existence, authenticity, and genuine

execution of these documents but also what they stated, the trial
court did not need to hold a trial for the reception of the evidence
of the parties.
Loans; Words and Phrases; “Finance Charge”; A finance
charge represents the amount to be paid by the debtor incident to
the extension of credit.—Penalty charge, which is liquidated
damages resulting from a breach, falls under item (6) or finance
charge. A finance charge “represents the amount to be paid by the
debtor incident to the extension of credit.” The lender may provide
for a penalty clause so long as the amount or rate of the charge
and the conditions under which it is to be paid are disclosed to the
borrower before he enters into the credit agreement.
Same; Promissory Notes; A promissory note is an
acknowledgment of a debt and commitment to repay it on the date
and under the conditions that the parties agreed on; It is a valid
contract absent proof of acts which might have vitiated consent.—
In this case, although BPI failed to state the penalty charges in
the disclosure statement, the promissory note that the Yus
signed, on the same date as the disclosure statement, contained a
penalty clause that said: “I/We jointly and severally, promise to
further pay a late payment charge on any overdue amount herein
at the rate of 3% per month.” The promissory note is an
acknowledgment of a debt and commitment to repay it on the date
and under the conditions that the parties agreed on. It is a valid
contract absent proof of acts which might have vitiated consent.
Same; Same; Penalty charges stipulated in the promissory
notes declared valid.—The ruling that is more in point is that laid
down in The Consolidated Bank and Trust Corporation v. Court of
Appeals, 246 SCRA 193 (1995) a case cited in New Sampaguita.
The Consolidated Bank ruling declared valid the penalty charges
that were stipulated in the promissory notes. What the Court
disallowed in that case was the collection of a handling charge
that the promissory notes did not contain.

 
 

414

Same; Penalty Charges; Courts have authority to reduce

penalty charges when these are unreasonable and iniquitous.—
Nonetheless, the courts have authority to reduce penalty charges
when these are unreasonable and iniquitous. Considering that
BPI had already received over P2.7 million in interest and that it
seeks to impose the penalty charge of 3% per month or 36% per
annum on the total amount due—principal plus interest, with

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interest not paid when due added to and becoming part of the
principal and also bearing interest at the same rate—the Court
finds the ruling of the RTC in its original decision reasonable and
fair. Thus, the penalty charge of 12% per annum or 1% per month
is imposed.

PETITION for review on certiorari of a decision of the

Court of Appeals.
The facts are stated in the opinion of the Court.
    Bongat, Borja and Associates for petitioner.
    Jose Vicente D. Fernandez for respondents.

ABAD, J.:

 
This case is about the propriety of a summary judgment
in resolving a documented claim of alleged excessive
penalty charges, interest, attorney’s fees, and foreclosure
expenses imposed in an extrajudicial foreclosure of
mortgage.

The Facts and the Case

 
Respondents Norman and Angelina Yu (the Yus), doing
business as Tuanson Trading, and Tuanson Builders
Corporation (Tuanson Builders) borrowed various sums
totaling P75 million from Far East Bank and Trust
Company. For collateral, they executed real estate
mortgages over several of their properties,1 including
certain lands in Legazpi City owned by

_______________

1  Rollo, p. 63: REM dated June 22, 1994 covering TCT 32890 and
securing P5,562,000.00; REM dated July 14, 1997 covering TCT Nos.
32253, 32254, 34452, & 33241 and securing P1,712,000.00;

 
 
415

Tuanson Trading.2 In 1999, unable to pay their loans, the

Yus and Tuanson Builders requested a loan restructuring,3
which the bank, now merged with Bank of the Philippine

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Islands (BPI), granted.4 By this time, the Yus’ loan balance

stood at P33,400,000.00. The restructured loan used the
same collaterals, with the exception of Transfer Certificate
of Title 40247 that secured a loan of P1,600,000.5
Despite the restructuring, however, the Yus still had
difficulties paying their loan. They asked BPI to release
some of the mortgaged lands since their total appraised
value far exceeded the amount of the remaining debt.
When BPI ignored their request, the Yus withheld
payments on their amortizations. Thus, BPI extrajudicially
foreclosed6 the mortgaged properties in Legazpi City and in
Pili, Camarines Sur. But the Yus sought by court action
against BPI and the winning bidder, Magnacraft
Development Corporation (Magnacraft), the annulment of
the foreclosure sale.
In the course of the proceedings, however, the Yus and
Magnacraft entered into a compromise agreement7 that
affirmed the latter’s ownership of three out of the 10
parcels of land that were auctioned. By virtue of this
agreement, the court dismissed the complaint against
Magnacraft,8 without prejudice to the Yus filing a new one
against BPI.

_______________

REM dated March 31, 1998 covering TCT No. 47847 and securing
P18,030,000.00.
2 Id., at pp. 63-64: REM dated November 29, 1996 covering TCT Nos.
40252, 40253, & 40254 and securing P13,825,000.00; REM dated June 17,
1997 covering TCT No. 44461 and securing P10,000,000.00; REM dated
July 30, 1997 covering TCT No. 40247 and securing P1,600,000.00.
3 Id., at pp. 62-63.
4 Id., at p. 72.
5 Id.
6 Id., at pp. 78-82; 86-90.
7 Id., at pp. 97-101.
8 Penned by Judge Pedro R. Soriao.

 
 

416

On October 24, 2003 the Yus filed their new complaint

before the Regional Trial Court (RTC) of Legazpi City,
Branch 1, in Civil Case 10286 against BPI for recovery of
alleged excessive penalty charges, attorney’s fees, and
foreclosure expenses that the bank caused to be
incorporated in the price of the auctioned properties.9
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10
In its answer, BPI essentially admitted the foreclosure
of the mortgaged properties for P39,055,254.95, broken
down as follows: P33,283,758.73 as principal debt;
P2,110,282.78 as interest; and P3,661,213.46 as penalty
charges.11 BPI qualified that the total of P39,055,254.95
corresponded only to the Yus’ debt as of date of filing of the
petition.12 The notice of the auction sale said that the total
was “inclusive of interest, penalty charges, attorney’s fee
and expenses of this foreclosure.”13
BPI further admitted that its bid of P45,090,566.41 for
all the auctioned properties was broken down as follows:14

Principal P 32,188,723.07
Interest  2,763,088.93
Penalty Charges  5,568.649.09
   
 Sub-total…………… P 40,520,461.09
Add: 10% Attorney’s Fees  4,052,046.11
Litigation Expenses & Interest  446,726.74
Cost of Publication & Interest  71,332.47
   
 TOTAL……………. P 45,090,566.41

_______________

9 Rollo, pp. 55-59.

10 Records, pp. 136-144.
11 Rollo, p. 66, par. 2.12 of complaint.
12 Records, p. 137, par. 7 of answer.
13 Rollo, p. 67, par. 2.13 of complaint.
14 Id., at p. 68, par. 2.18 of complaint.

 
 
417

BPI also admitted that Magnacraft submitted the

highest and winning bid of P45,500,000.00.15 The sheriff
turned over this amount to BPI.16 According to BPI, it in
turn remitted to the Clerk of Court the P409,433.59
difference between its bid price and that of Magnacraft’s.17
Although the proceeds of the sale exceeded the
P39,055,254.95 stated in the notice of sale by
P6,035,311.46,18 the bid amount increased because it now
included litigation expenses and attorney’s fees as well as
interests and penalties as recomputed.19
BPI admitted that it also pushed through with the
second auction for the sale of a lot in Pili, Camarines Sur

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that secured a remaining debt of P5,562,000.20 BPI made

the lone bid21 of P1,701,934.09.22
The Yus had three causes of action against BPI.
First. The bank imposed excessive penalty charges and
interests: over P5 million in penalty charges computed at
36% per annum compared to the 12% per annum that the
Court fixed in the cases of State Investment House, Inc. v.
Court of Appeals23 and Ruiz v. Court of Appeals.24 In
addition, BPI collected a 14% yearly interest on the
principal, bringing the combined penalty charges and
interest to 50% of the principal per annum.

_______________

15 Id., par. 2.19 of complaint.

16 Id., at p. 69, par. 2.20 of complaint.
17 Records, p. 139, par. 20 of answer.
18 Rollo, p. 69, par. 2.21 of complaint.
19 Records, p. 137, par. 10 of answer.
20  Rollo, p. 67, par. 2.14 of complaint; Records, p. 138, par. 12 of
answer.
21 However, according to the Minutes of Public Auction Sale submitted
by the sheriff, another person submitted a bid of P1,150,000.00; Records,
p. 95.
22  Rollo, p. 70, par. 2.24 of complaint; Records, p. 138, par. 12 of
answer.
23 413 Phil. 518; 361 SCRA 201 (2001).
24 449 Phil. 419; 401 SCRA 410 (2003).

 
 

418

Second. BPI also imposed a charge of P4,052,046.11 in

attorney’s fees, the equivalent of 10% of the principal,
interest, and penalty charges.
Third. BPI did not provide documents to support its
claim for foreclosure expenses of P446,726.74 and cost of
publication of P518,059.21.
As an alternative to their three causes of action, the Yus
claimed that BPI was in estoppel to claim more than the
amount stated in its published notices. Consequently, it
must turn over the excess bid of P6,035,311.46.
After pre-trial, the Yus moved for summary judgment,25
pointing out that based on the answer,26 the common
exhibits of the parties,27 and the answer to the written
interrogatories to the sheriff,28 no genuine issues of fact
exist in the case. The Yus waived their claim for moral
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damages so the RTC can dispose of the case through a

summary judgment.29
Initially, the RTC granted only a partial summary
judgment. It reduced the penalty charge of 36% per
annum30 to 12% per annum until the debt would have been
fully paid but maintained the attorney’s fees as reasonable
considering that BPI already waived the P1,761,511.36
that formed part of the attorney’s fees and reduced the rate
of attorney’s fees it collected from 25% to 10% of the
amount due. The RTC ruled that facts necessary to resolve
the issues on penalties and fees had been admitted by the
parties thus dispensing with the need to receive evidence.31
Still, the RTC held that it needed to receive evidence for
the resolution of the issues of (1) whether or not the
foreclosure and publication expenses were justified; (2)
whether or not the foreclo-

_______________

25 CA Rollo, pp. 49-54.

26 Records, pp. 136-144.
27 Id., at pp. 154-163; 175-179; 214-233; 249-258; 261-262.
28 Id., at p. 270.
29 CA Rollo, pp. 51-52.
30 Records, pp. 293-297.
31 Id., at pp. 294-296.

 
 

419

sure of the lot in Pili, Camarines Sur, was valid given that
the proceeds of the foreclosure of the properties in Legazpi
City sufficiently covered the debt; and (3) whether or not
BPI was entitled to its counterclaim for attorney’s fees,
moral damages, and exemplary damages.32
The Yus moved for partial reconsideration.33 They
argued that, since BPI did not mark in evidence any
document in support of the foreclosure expenses it claimed,
it may be assumed that the bank had no evidence to prove
such expenses. As regards their right to the pro-rating of
their debt among the mortgaged properties, the Yus
pointed out that BPI did not dispute the fact that the
proceeds of the sale of the properties in Legazpi City fully
satisfied the debt. Thus, the court could already resolve
without trial the issue of whether or not the foreclosure of
the Pili property was valid.

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Further, the Yus sought reconsideration of the reduction

of penalty charges and the allowance of the attorney’s fees.
They claimed that the penalty charges should be deleted
for violation of Republic Act (R.A.) 3765 or the Truth in
Lending Act. BPI’s disclosure did not state the rate of
penalties on late amortizations. Also, the Yus asked the
court to reduce the attorney’s fees from 10% to 1% of the
amount due. On January 3, 2006 the RTC reconsidered its
earlier decision and rendered a summary judgment:34

“1. Deleting the penalty charges imposed by BPI for non-

compliance with the Truth in Lending Act;
2. Reducing the attorney’s fees to 1% of the principal and
interest;
3. Upholding the reasonableness of the foreclosure expenses
and cost of publication, both with interests;

_______________

32 Id., at p. 294.
33 Id., at pp. 298-314.
34 Id., at pp. 331-337.

 
 
420

4. Reiterating the turnover by the Clerk of Court to the Yus of

the excess in the bid price;
5. Deleting the Yus’ claim for moral damages they having
waived it;
6. Denying the Yus’ claim for attorney’s fees for lack of basis;
and
7. Dismissing BPI’s counterclaim for moral and exemplary
damages and for attorney’s fees for lack of merit considering that
summary judgment has been rendered in favor of the Yus.”

 
BPI appealed the decision to the Court of Appeals (CA)
in CA-G.R. CV 86577. But the CA rendered judgment on
January 23, 2008, affirming the RTC decision in all
respects. And when BPI asked for reconsideration,35 the CA
denied it on July 14, 2008,36 hence, the bank’s recourse to
this Court.

The Issues Presented

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BPI presents the following issues:

1. Whether or not the case presented no genuine issues of

fact such as to warrant a summary judgment by the RTC;
and
 
2. Where summary judgment is proper, whether or not the
RTC and the CA a) correctly deleted the penalty charges
because of BPI’s alleged failure to comply with the Truth in
Lending Act; b) correctly reduced the attorney’s fees to 1%
of the judgment debt; and c) properly dismissed BPI’s
counterclaims for moral and exemplary damages, attorney’s
fees, and litigation expenses.

The Court’s Rulings

 
One. A summary judgment is apt when the essential
facts of the case are uncontested or the parties do not raise
any

_______________

35 Rollo, pp. 41-51.

36 Id., at pp. 52-53.

 
 
421

genuine issue of fact.37 Here, to resolve the issue of the

excessive charges allegedly incorporated into the auction
bid price, the RTC simply had to look at a) the pleadings of
the parties; b) the loan agreements, the promissory note,
and the real estate mortgages between them; c) the
foreclosure and bidding documents; and d) the admissions
and other disclosures between the parties during pre-trial.
Since the parties admitted not only the existence,
authenticity, and genuine execution of these documents but
also what they stated, the trial court did not need to hold a
trial for the reception of the evidence of the parties.
BPI contends that a summary judgment was not proper
given the following issues that the parties raised: 1)
whether or not the loan agreements between them were
valid and enforceable; 2) whether or not the Yus have a
cause of action against BPI; 3) whether or not the Yus are
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proper parties in interest; 4) whether or not the Yus are

estopped from questioning the foreclosure proceeding after
entering into a compromise agreement with Magnacraft; 5)
whether or not the penalty charges and fees and expenses
of litigation and publication are excessive; and 6) whether
or not BPI violated the Truth in Lending Act.38
But these are issues that could be readily resolved based
on the facts established by the pleadings and the
admissions of

_______________

37 Rivera v. Solidbank Corporation, G.R. No. 163269, April 19, 2006,

487 SCRA 512, 535, cited in Bitanga v. Pyramid Construction Engineering
Corporation, G.R. No. 173526, August 28, 2008, 563 SCRA 544, 560.
38 RULES OF COURT, Rule 35, Sec. 5: Form of affidavits and supporting
papers.—Supporting and opposing affidavits shall be made on personal
knowledge, shall set forth such facts as would be admissible in evidence,
and shall show affirmatively that the affiant is competent to testify to the
matters stated therein. Certified true copies of all papers or parts thereof
referred to in the affidavit shall be attached thereto or served therewith.

 
 

422

the parties.39 Indeed, BPI has failed to name any document

or item of fact that it would have wanted to adduce at the
trial of the case. A trial would have been such a great waste
of time and resources.
Two. Both the RTC and CA decisions cited BPI’s alleged
violation of the Truth in Lending Act and the ruling of the
Court in New Sampaguita Builders Construction, Inc. v.
Philippine National Bank40 to justify their deletion of the
penalty charges. Section 4 of the Truth in Lending Act
states that:

“SEC. 4. Any creditor shall furnish to each person to whom

credit is extended, prior to the consummation of the transaction, a
clear statement in writing setting forth, to the extent applicable
and in accordance with rules and regulations prescribed by the
Board, the following information:
(1) the cash price or delivered price of the property or service
to be acquired;
(2) the amounts, if any, to be credited as down payment
and/or trade-in;
(3) the difference between the amounts set forth under
clauses (1) and (2);

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(4) the charges, individually itemized, which are paid or to be

paid by such person in connection with the transaction but which
are not incident to the extension of credit;
(5) the total amount to be financed;
(6) the finance charge expressed in terms of pesos and
centavos; and
(7) the percentage that the finance bears to the total amount
to be financed expressed as a simple annual rate on the
outstanding unpaid balance of the obligation.”

_______________

39 A.M. No. 03-1-09-SC, Guidelines to be Observed by Trial Court

Judges and Clerks of Court in Conduct of Pre-trial and Use of Deposition-
Discovery Measures, August 16, 2004.
40 479 Phil. 483; 435 SCRA 565 (2004).

 
 

423

Penalty charge, which is liquidated damages resulting

from a breach,41 falls under item (6) or finance charge. A
finance charge “represents the amount to be paid by the
debtor incident to the extension of credit.”42 The lender
may provide for a penalty clause so long as the amount or
rate of the charge and the conditions under which it is to be
paid are disclosed to the borrower before he enters into the
credit agreement.
In this case, although BPI failed to state the penalty
charges in the disclosure statement, the promissory note
that the Yus signed, on the same date as the disclosure
statement, contained a penalty clause that said: “I/We
jointly and severally, promise to further pay a late payment
charge on any overdue amount herein at the rate of 3% per
month.” The promissory note is an acknowledgment of a
debt and commitment to repay it on the date and under the
conditions that the parties agreed on.43 It is a valid
contract absent proof of acts which might have vitiated
consent.44
The question is whether or not the reference to the
penalty charges in the promissory note constitutes
substantial compliance with the disclosure requirement of
the Truth in Lending Act.45 The RTC and CA relied on the
ruling in New Sampaguita as authority that the non-
disclosure of the penalty charge renders its imposition
illegal. But New Sampaguita is not attended by the same

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circumstances. What New Sampaguita disallowed, because

it was not mentioned either in

_______________

41 Barbasa v. Tuquero, G.R. No. 163898, December 23, 2008, 575 SCRA
102, 111.
42 Par. (3), Section 3 of R.A. No. 3765 or the Truth in Lending Act; par.
(h) of Central Bank Circular No. 158 defining the details mentioned in
Section 4 of R.A. No. 3765.
43 Dela Peña v. Court of Appeals, G.R. No. 177828, February 13, 2009,
579 SCRA 396, 413.
44  Development Bank of the Philippines v. Perez, 484 Phil. 843, 853;
442 SCRA 238, 250 (2004).
45 United Coconut Planters Bank v. Beluso, G.R. No. 159912, August
17, 2007, 530 SCRA 567, 599.

 
 
424

the disclosure statement or in the promissory note, was the

unilateral increase in the rates of penalty charges that the
creditor imposed on the borrower. Here, however, it is not
shown that BPI increased the rate of penalty charge that it
collected from the Yus.46
The ruling that is more in point is that laid down in The
Consolidated Bank and Trust Corporation v. Court of
Appeals,47 a case cited in New Sampaguita. The
Consolidated Bank ruling declared valid the penalty
charges that were stipulated in the promissory notes.48
What the Court disallowed in that case was the collection
of a handling charge that the promissory notes did not
contain.
The Court has affirmed that financial charges are amply
disclosed if stated in the promissory note in the case of
Development Bank of the Philippines v. Arcilla, Jr.49 The
Court there said, “Under Circular 158 of the Central Bank,
the lender is required to include the information required
by R.A. 3765 in the contract covering the credit transaction
or any other document to be acknowledged and signed by
the borrower. In addition, the contract or document shall
specify additional charges, if any, which will be collected in
case certain stipulations in the contract are not met by the
debtor.” In this case, the promissory notes signed by the
Yus contained data, including penalty charges, required by
the Truth in Lending Act. They cannot avoid liability based

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on a rigid interpretation of the Truth in Lending Act that

contravenes its goal.

_______________

46  See Development Bank of the Philippines v. Arcilla, Jr., G.R. No.
161397, June 30, 2005, 462 SCRA 599.
47 316 Phil. 247; 246 SCRA 193 (1995).
48 Id., at pp. 258-259: The payment of penalty was provided for under
the terms and conditions of the promissory notes for Loans B and C of
George and George Trade, Inc. The penalty actually imposed, being only
3% per annum of the unpaid balance of the principal of said Loan B, is
considered reasonable and proper.
49 Supra note 46, at 609-610.

 
 

425

Nonetheless, the courts have authority to reduce penalty

charges when these are unreasonable and iniquitous.50
Considering that BPI had already received over P2.7
million in interest and that it seeks to impose the penalty
charge of 3% per month or 36% per annum on the total
amount due—principal plus interest, with interest not paid
when due added to and becoming part of the principal and
also bearing interest at the same rate—the Court finds the
ruling of the RTC in its original decision51 reasonable and
fair. Thus, the penalty charge of 12% per annum or 1% per
month52 is imposed.
Three. As for the award of attorney’s fee, it being part
of a party’s liquidated damages, the same may likewise be
equitably reduced.53 The CA correctly affirmed the RTC
Order54 to reduce it from 10% to 1% based on the following
reasons: (1) attorney’s fee is not essential to the cost of
borrowing, but a mere incident of collection;55 (2) 1% is just
and adequate because BPI had already charged foreclosure
expenses; (3) at-

_______________

50 State Investment House, Inc. v. Court of Appeals, 413 Phil. 518, 523;
361 SCRA 201, 205-206 (2001); Civil Code, Article 1229. The judge shall
equitably reduce the penalty when the principal obligation has been partly
or irregularly complied with by the debtor. Even if there has been no
performance, the penalty may also be reduced by the courts if it is
iniquitous or unconscionable; Article 2227: Liquidated damages, whether

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intended as an indemnity or penalty, shall be equitably reduced if they are

iniquitous and unconscionable.
51 CA Rollo, p. 62.
52 Ong v. Roban Lending Corporation, G.R. No. 172592, July 9, 2008,
557 SCRA 516, 525, citing United Coconut Planters Bank v. Beluso, G.R.
No. 159912, August 17, 2007, 530 SCRA 567, 590, 604-605; State
Investment House, Inc. v. Court of Appeals, supra note 50.
53  Co v. Admiral United Savings Bank, G.R. No. 154740, April 16,
2008, 551 SCRA 472, 482.
54 Records, pp. 334-336.
55 New Sampaguita Builders Construction, Inc. v. Philippine National
Bank, supra note 40, at 509-510.

 
 

426

torney’s fee of 10% of the total amount due is onerous

considering the rote effort that goes into extrajudicial
foreclosures.
WHEREFORE, the Court DENIES the petition and
AFFIRMS the Court of Appeals Decision in CA-G.R. CV
86577 dated January 23, 2008 subject to the
RESTORATION of the penalty charge of 12% per annum or
1% per month of the amount due computed from date of
nonpayment or November 25, 2001.
SO ORDERED.

Carpio, Brion, Del Castillo and Perez, JJ., concur.

Petition denied, judgment affirmed.

Note.—When a decision denominated as summary

judgment is equivalent to a judgment on the merits it
makes the rule on summary judgment inapplicable.
(Ontimare, Jr. vs.  Elep, 479 SCRA 257 [2006])
 
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4/29/2021 SUPREME COURT REPORTS ANNOTATED VOLUME 610

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