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.

FACTS

Respondents, the Yus and Tuanson Builders, borrowed sums totaling ₱75 million from Far East Bank and Trust Company (later merged with BPI), secured by real estate mortgages. After loan restructuring due to payment difficulties, a balance of ₱33,400,000 remained. The Yus requested the release of some mortgaged properties due to excess collateral value, and after BPI ignored the request, they withheld amortization payments. BPI extrajudicially foreclosed the mortgaged properties. The Yus initially sought annulment of the foreclosure sale but later entered into a compromise agreement with the winning bidder, Magnacraft, affirming its ownership over three parcels. The court dismissed the complaint against Magnacraft, without prejudice to filing a new one against BPI.
The Yus filed a new complaint against BPI for recovery of alleged excessive penalty charges, attorney’s fees, and foreclosure expenses incorporated into the auction price. BPI admitted the foreclosure details: a total debt of ₱39,055,254.95 (principal, interest, penalty) as stated in the notice, and its bid of ₱45,090,566.41 (including recomputed interest, penalties, 10% attorney’s fees, and expenses). Magnacraft’s winning bid was ₱45,500,000. The Yus claimed: (1) excessive penalty charges (36% p.a.) and interest (14% p.a.); (2) excessive attorney’s fees (10%); and (3) unsupported foreclosure and publication expenses. Alternatively, they claimed BPI was estopped from claiming more than the notice amount and must turn over the excess bid.
After pre-trial, the Yus moved for summary judgment, arguing no genuine issues of fact existed based on pleadings, common exhibits, and admissions. The RTC initially granted partial summary judgment, reducing penalty charges to 12% p.a. but maintaining attorney’s fees. Upon the Yus’ motion for reconsideration, the RTC rendered a full summary judgment: (1) deleting penalty charges for non-compliance with the Truth in Lending Act; (2) reducing attorney’s fees to 1% of principal and interest; (3) upholding the reasonableness of foreclosure expenses; (4) ordering turnover of the bid price excess; (5) deleting the Yus’ claim for moral damages (waived); (6) denying the Yus’ claim for attorney’s fees; and (7) dismissing BPI’s counterclaim. The CA affirmed the RTC decision.

ISSUE

1. Whether the case presented no genuine issues of fact to warrant a summary judgment.
2. Whether the RTC and CA correctly: a) deleted the penalty charges due to alleged violation of the Truth in Lending Act; b) reduced the attorney’s fees to 1%; and c) properly dismissed BPI’s counterclaims.

RULING

1. Yes, summary judgment was proper. The essential facts were uncontested. The resolution of the issues relied on the pleadings, loan agreements, promissory notes, mortgages, foreclosure documents, and admissions during pre-trial, all of which were admitted by the parties as to existence, authenticity, and execution. The issues raised by BPI (validity of loan agreements, cause of action, proper parties, estoppel, excessiveness of charges, violation of Truth in Lending Act) were all resolvable based on the established facts and admissions. No document or factual item requiring a trial was identified by BPI.
2. a) No, the deletion of penalty charges was incorrect. The cited case, New Sampaguita Builders, involved a stipulation on interest that was void for lack of disclosure under the Truth in Lending Act. Here, the stipulation in question was for penalty charges, not interest. The Truth in Lending Act requires disclosure of the finance charge (which includes interest) and the method of determining the finance charge. Penalty charges are not included in the required disclosure under the Act. Therefore, non-disclosure of the penalty rate does not render the stipulation void. The penalty charge of 36% per annum, however, is iniquitous and unconscionable. Applying Article 1229 of the Civil Code, the Court reduces the penalty to 12% per annum on the total amount due.
b) Yes, the reduction of attorney’s fees to 1% was proper. While the stipulated 10% attorney’s fee is not per se unreasonable, the Court has the authority to reduce it if excessive. Considering the amount involved was substantial and the legal services rendered did not justify a 10% fee, the reduction to 1% of the principal and interest is equitable.
c) Yes, the dismissal of BPI’s counterclaims was proper. The counterclaims for moral and exemplary damages and attorney’s fees lacked merit, as summary judgment was correctly rendered in favor of the Yus. BPI failed to substantiate its claims for damages.