DBP v. Bonita Perez

G.R. No.
148541 November 11, 2004

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
BONITA O. PEREZ and ALFREDO PEREZ, respondents.
CALLEJO, SR., J.:
FACTS:
• April 28, 1978 - Petitioner DBP sent a letter to respondent Bonita Perez informing the
following:
o Industrial loan ofP214,000.00 for the acquisition of machinery and equipment
o Additional of P21,000.00 to cover unforeseen price escalation.
• May 8, 1978 - The respondents were made to sign four promissory notes covering the total
amount of the loan, P235,000.00.
o Three promissory notes for P24,000.00, P48,000.00, and P142,000.00 were all due
on August 31, 1988
o Fourth promissory note (21,000.00) due on September 19, 1988
• September 6, 1978 - The petitioner sent a letter to the respondents informing them of the
terms for the payment of the P214,000.00 industrial loan.
• November 8, 1978 - Another letter to inform the respondent about the additional industrial loan
(21,000.00)
• Respondents failed to comply with their amortization payments.
• The petitioner foreclose the mortgages
• October 7, 1981 - Mrs. Perez requested for a restructuring of their account due to difficulties
they were encountering in collecting receivables.
• April 1, 1982 - The petitioner informed the respondents that the restructuring was approved.
• May 6, 1982 - The respondents signed another promissory note (P231,000.00) at 18% interest
per annum, payable quarterly over a period of 10 years.
• The total payments they made after the restructure of the loan amounted to P35,000.00 only.
• The respondent failed to meet the quarterly amortization of the loan.
• The petitioner instituted a foreclosure proceeding on the mortgages.
• October 24, 1985 - the respondents filed a complaint for the nullification of the new promissory
note with damages and preliminary prohibitory injunction.
• The complaint alleged that the petitioner:
o restructured the respondents’ obligation in bad faith by requiring them to sign another
promissory note for P231,000.00 without considering the total payments made on the
loan amounting to P224,383.43.
o failed to furnish them with a disclosure statement as required by Rep. Act No. 3765,
also known as the Truth in Lending Act, prior to the consummation of the transaction
o That transaction was usurious
o The new promissory note constituted a novation of the previous obligations
• The petitioner denied the allegations and said that the claim for violation of the disclosure
requirement under Rep. Act No. 3765 was not within the jurisdiction of the RTC and was barred
by prescription.
• The petitioner prayed that the respondents be ordered to pay their obligation, plus exemplary
damages and costs.
RULING OF THE TRIAL COURT:

Defendant Bank's counterclaim is hereby granted, and plaintiffs are hereby ordered to pay the former
the sum of P1,384,465.71, representing the latter's obligation as of September 15, 1990, with interest
thereon at the legal rate of twelve (12%) percent per annum pursuant to Sec. 2 of CB Circular No.
905; (Sagrador vs. Valderrama, supra), from September 15, 1990 up to the full payment of the said
sum.
RULING OF THE COURT OF APPEALS:

The trial court should have used the formula prescribed by paragraph 3, Sec. 2(i), Central Bank (CB)
Circular No. 158, Rules and Regulations Implementing Rep. Act No. 3765, in computing the total
obligation of the respondents considering that Sec. 3(a) thereof provides that it applies to any loans,
mortgages, deeds of trust, advances and discounts. Since the loan is secured by a mortgage contract,
the eighteen percent (18%) interest rate was excessive and usurious under CB Circular No. 817.
According to the appellate court, CB Circular No. 905, series of 1982, simply suspended the effectivity
of the Usury Law; it did not authorize either party to unilaterally raise the interest without the other
party's consent. Finally, there was neither basis nor explanation as to how the measly amount of
P214,000.00 in 1972, restructured to P231,000.00 in 1982, ballooned to P1,384,465.71 as of
September 15, 1990.
ISSUES:
(1) Whether the interest rate agreed upon by the parties in the new promissory note is usurious;
(2) Whether Central Bank Circular No. 158 should be applied in computing the total obligations of the
respondents;
HELD:
First Issue: We agree with the ruling of the CA. It is elementary that the laws in force at the time the
contract was made generally govern the effectivity of its provision. We note that the new promissory
note was executed on May 6, 1982, prior to the effectivity of CB Circular No. 905 on January 1, 1983.
At that time, The Usury Law, Act No. 2655, as amended by Presidential Decree No. 116, was still in
force and effect.
Under the Usury Law, no person shall receive a rate of interest, including commissions, premiums,
fines, and penalties, higher than twelve percent (12%) per annum or the maximum rate prescribed by
the Monetary Board for a loan secured by a mortgage upon real estate the title to which is duly
registered.
In this case, by specific provision in the new promissory note, the restructured loan continued to be
secured by the same mortgage contract executed on May 18, 1978 which covered the real and
personal properties of the respondents. We, therefore, find the eighteen percent (18%) interest rate
plus the additional interest and penalty charges of eighteen percent (18%) and eight percent (8%),
respectively, to be highly usurious.
In usurious loans, the entire obligation does not become void because of an agreement for usurious
interest; the unpaid principal debt still stands and remains valid, but the stipulation as to the usurious
interest is void. Consequently, the debt is to be considered without stipulation as to the interest.38 In
the absence of an express stipulation as to the rate of interest, the legal rate at twelve percent (12%)
per annum shall be imposed.
Second Issue: The total obligation of the respondents must be computed according to the terms and
conditions agreed upon. The formula provided under paragraph 3, Sec. 2(i), CB Circular No. 158
cannot be used in computing the total obligation of the respondents because it merely applies to the
computation of the simple annual rate. A simple annual rate is a uniform percentage which represents
the ratio, on an annual basis, between the finance charges and the amount to be financed. It is one of
the items required to be disclosed under the Truth in Lending Act pursuant to the State’s policy to
protect its citizens from a lack of awareness of the true cost of credit.

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G.R. No.

148541 November 11, 2004

RULING OF THE TRIAL COURT:

RULING OF THE COURT OF APPEALS:

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