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    BPI Vs SPS YU

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    NormzWaban
    1. BPI did not violate the Truth in Lending Act because it substantially complied with the disclosure requirements. While the penalty charges were not stated in the disclosure statement, they were mentioned in the promissory note signed by the borrowers on the same day. 2. However, the penalty charges sought by BPI were found to be unconscionable. While some penalty is reasonable, charging 3% monthly (36% annually) on the total outstanding amount including both principal and interest was deemed excessive. 3. Therefore, the court reduced the penalty rate to 12% annually or 1% monthly, finding this to be a fair and reasonable penalty under the circumstances.

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    BPI Vs SPS YU

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    NormzWaban
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    1. BPI did not violate the Truth in Lending Act because it substantially complied with the disclosure requirements. While the penalty charges were not stated in the disclosure statement, they were mentioned in the promissory note signed by the borrowers on the same day. 2. However, the penalty charges sought by BPI were found to be unconscionable. While some penalty is reasonable, charging 3% monthly (36% annually) on the total outstanding amount including both principal and interest was deemed excessive. 3. Therefore, the court reduced the penalty rate to 12% annually or 1% monthly, finding this to be a fair and reasonable penalty under the circumstances.

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    BPI vs SPS YU

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    1. BPI did not violate the Truth in Lending Act because it substantially complied with the disclosure requirements. While the penalty charges were not stated in the disclosure statement, they were mentioned in the promissory note signed by the borrowers on the same day. 2. However, the penalty charges sought by BPI were found to be unconscionable. While some penalty is reasonable, charging 3% monthly (36% annually) on the total outstanding amount including both principal and interest was deemed excessive. 3. Therefore, the court reduced the penalty rate to 12% annually or 1% monthly, finding this to be a fair and reasonable penalty under the circumstances.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    223 views4 pages

    BPI Vs SPS YU

    Uploaded by

    NormzWaban
    1. BPI did not violate the Truth in Lending Act because it substantially complied with the disclosure requirements. While the penalty charges were not stated in the disclosure statement, they were mentioned in the promissory note signed by the borrowers on the same day. 2. However, the penalty charges sought by BPI were found to be unconscionable. While some penalty is reasonable, charging 3% monthly (36% annually) on the total outstanding amount including both principal and interest was deemed excessive. 3. Therefore, the court reduced the penalty rate to 12% annually or 1% monthly, finding this to be a fair and reasonable penalty under the circumstances.

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    © All Rights Reserved
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    Download as docx, pdf, or txt
    of 4

    BPI vs SPS YU

    Doctrine: Truth in Lending Act; substantial compliance with truth in lending


    act

    Facts:

    1.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.

    2.For collateral, they executed real estate mortgages over several of their
    properties,1 including certain lands in Legazpi City owned by Tuanson
    Trading.2

    3.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
    Islands (BPI), granted.4

    4. 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."

    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.

    6. When BPI ignored their request, the Yus withheld payments on their
    amortizations.

    7.Thus, BPI extrajudicially foreclosed6 the mortgaged properties in Legazpi City


    and in Pili, Camarines Sur.

    8. 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, attorneys fees, and foreclosure
    expenses that the bank caused to be incorporated in the price of the auctioned
    properties.

    9. Furthermore, they demanded that the penalty be deleted for violation of


    Truth in Lending Act and that the interest be reduced because it is inequitable.
    Issue: WON the BPI is in violation of the truth in Lending Act?

    WON the penalty is unconscionable

    Ruling:

    1. BPI did not violate the truth in lending act because it made substantial
    compliance.
    . Both the RTC and CA decisions cited BPIs 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);

    (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.

    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.

    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.

    Yes there is substantial compliance.


    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 circumstances.
    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. 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.
    They cannot avoid liability based on a rigid interpretation of the
    Truth in Lending Act that contravenes its goal.

    In short, they wanted the penalty be deleted on account that it was not
    stated in exact figures, for example 10 thousand. In this case, it was only
    mentioned as percentage. The supreme court said there was substantial
    compliance.

    2. The penalty is unconscionable

    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 dueprincipal plus interest, with interest not paid when due
    added to and becoming part of the principal and also bearing interest at
    the same ratethe 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.

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