REPUBLIC ACT No.

3765

AN ACT TO REQUIRE THE DISCLOSURE OF FINANCE CHARGES IN CONNECTION WITH

EXTENSIONS OF CREDIT.

Section 1. This Act shall be known as the "Truth in Lending Act."

Section 2. Declaration of Policy. It is hereby declared to be the policy of the State to protect its
citizens from a lack of awareness of the true cost of credit to the user by assuring a full disclosure of
such cost with a view of preventing the uninformed use of credit to the detriment of the national
economy.

Section 3. As used in this Act, the term

(1) "Board" means the Monetary Board of the Central Bank of the Philippines.

(2) "Credit" means any loan, mortgage, deed of trust, advance, or discount; any conditional
sales contract; any contract to sell, or sale or contract of sale of property or services, either
for present or future delivery, under which part or all of the price is payable subsequent to the
making of such sale or contract; any rental-purchase contract; any contract or arrangement
for the hire, bailment, or leasing of property; any option, demand, lien, pledge, or other claim
against, or for the delivery of, property or money; any purchase, or other acquisition of, or
any credit upon the security of, any obligation of claim arising out of any of the foregoing; and
any transaction or series of transactions having a similar purpose or effect.

(3) "Finance charge" includes interest, fees, service charges, discounts, and such other
charges incident to the extension of credit as the Board may be regulation prescribe.

(4) "Creditor" means any person engaged in the business of extending credit (including any
person who as a regular business practice make loans or sells or rents property or services
on a time, credit, or installment basis, either as principal or as agent) who requires as an
incident to the extension of credit, the payment of a finance charge.

(5) "Person" means any individual, corporation, partnership, association, or other organized
group of persons, or the legal successor or representative of the foregoing, and includes the
Philippine Government or any agency thereof, or any other government, or of any of its
political subdivisions, or any agency of the foregoing.

Section 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.

Section 5. The Board shall prescribe such rules and regulations as may be necessary or proper in
carrying out the provisions of this Act. Any rule or regulation prescribed hereunder may contain such
classifications and differentiations as in the judgment of the Board are necessary or proper to
effectuate the purposes of this Act or to prevent circumvention or evasion, or to facilitate the
enforcement of this Act, or any rule or regulation issued thereunder.

Section 6. (a) Any creditor who in connection with any credit transaction fails to disclose to any
person any information in violation of this Act or any regulation issued thereunder shall be liable to
such person in the amount of P100 or in an amount equal to twice the finance charged required by
such creditor in connection with such transaction, whichever is the greater, except that such liability
shall not exceed P2,000 on any credit transaction. Action to recover such penalty may be brought by
such person within one year from the date of the occurrence of the violation, in any court of
competent jurisdiction. In any action under this subsection in which any person is entitled to a
recovery, the creditor shall be liable for reasonable attorney's fees and court costs as determined by
the court.

(b) Except as specified in subsection (a) of this section, nothing contained in this Act or any
regulation contained in this Act or any regulation thereunder shall affect the validity or
enforceability of any contract or transactions.

(c) Any person who willfully violates any provision of this Act or any regulation issued
thereunder shall be fined by not less than P1,00 or more than P5,000 or imprisonment for not
less than 6 months, nor more than one year or both.

(d) No punishment or penalty provided by this Act shall apply to the Philippine Government
or any agency or any political subdivision thereof.

(e) A final judgment hereafter rendered in any criminal proceeding under this Act to the effect
that a defendant has willfully violated this Act shall be prima facie evidence against such
defendant in an action or proceeding brought by any other party against such defendant
under this Act as to all matters respecting which said judgment would be an estoppel as
between the parties thereto.

Section 7. This Act shall become effective upon approval.

Approved: June 22, 1963

G.R. No. L-43682 March 31, 1938

In Re Liquidation of Mercantile Bank of China.

TAN TIONG TICK, claimant-appellant,
vs.
AMERICAN APOTHECARIES CO., ET AL., claimants-appellees.
Cirilo Lim and Antonio Gonzalez for appellant.
Eusebio Orense and Carmelino G. Alvendia for appellees Chinese Grocers Asso., et al.
Marcelo Nubla for appellees Ang Cheng Lian, et al.

IMPERIAL, J.:

In the proceedings for the liquidation of the Mercantile Bank of China, the appellant presented a
written claim alleging: that when this bank ceased to operate on September 19, 1931, his current
account in said bank showed a balance of P9,657.50 in his favor; that on the same date his savings
account in the said bank also showed a balance in his favor of P20,000 plus interest then due
amounting to P194.78; that on the other hand, he owed the bank in the amount of P13,262.58, the
amount of the trust receipts which he signed because of his withdrawal from the bank of certain
merchandise consigned to him without paying the drafts drawn upon him by the remittors thereof;
that the credits thus described should be set off against each other according to law, and on such
set off being made it appeared that he was still the creditor of the bank in the sum of P16,589.70.
And he asked that the court order the Bank Commissioner to pay him the aforesaid balance and that
the same be declared as preferred credit. The claim was referred to the commissioner appointed by
the court, who at the same time acted as referee, and this officer recommended that the balance
claimed be paid without interest and as an ordinary credit. The court approved the recommendation
and entered judgment in the accordance therewith. The claimant took an appeal.

In his report the commissioner classified the claims presented under the following six groups: "(First)
Current accounts, savings and fixed deposits. (Second) Checks or drafts sold by the Mercantile
Bank of China and not paid by the correspondents or banks against which they were drawn. (Third)
Checks or drafts issued by the Mercantile Bank of China in payment or reimbursement of drafts or
goods sent to it for collection by banks and foreign commercial houses against merchants or
commercial entities of Manila. (Fourth) Drafts for collection received by the Mercantile Bank of China
to be collected from merchants and commercial entities in Manila and which were pending collection
on the date of the suspension of payments. (Fifth) Claims of depositors who are at the same time
debtor of the Mercantile Bank of China.(Sixth Various claims." And referring to the claims of the
appellant, he states:

Mr. Tan Tiong Tick claims from the Mercantile Bank of China the amount of P 27,597.80, the total
amount of the following sums which he has in his favor in said bank including the corresponding
interest:

Balance on the current account . . . . . . . . . . . P7,390.11

Balance of savings account No. 2266 . . . . . 20,000.00

Total . . . . . . . . . . . . . . . . . . 27,390.11

Adding to this total the interest also claimed by Mr. Tan Tiong Tick, that is, P194.78 on the saving
account and P12.91 on the current account, the amount claimed makes a total of P27,597.80.

Notwithstanding the fact that the Bank Commissioner found the claim in accordance with the books
of the Mercantile Bank of China, he declined to issue the corresponding certificate of proof of claim
because the said claimant has pending in the said bank obligations for accepting draft amounting to
a total of $6 631.29.
At the hearing of this claim, the claimant admitted such pending obligations, alleging at the same
time that to guarantee the payment of drafts accepted by him, he pledged his bank book No. 2266,
which also answered for the payment of any credit which the said bank may extend to him.

In Exhibit A presented by the claimant as evidence, consisting of a letter dated November 4, 1931
addressed by Mr. H. J. Belden to the then Bank Commissioner, Mr. Leo. H. Martin it appears that the
said savings account was constituted for the sole purpose of securing the payment of drafts against
the claimants, the bill of lading of where delivered to him upon trust-receipts and that according to
the records of that bank Mr. Tan Tiong Tick did not obtain any other accomodation from the bank
except the trust-receipts.

RECOMMENDATION

Having established the existence of such deposits in the name of the bank alleged by the Bank
Commissioner, for the securities of which he constituted the savings deposit in the amount of
P20,000, it is recommended that from this amount there be deducted the amount of the obligation of
P13,778.90 which the claimant acknowledge in favor of the Mercantile Bank of China, and that the
difference, plus the other current account deposit of P7,390.11, be considered as ordinary credits
subject to the equal division of the funds of the said bank.

As to the interest on said deposits also claimed by Mr. Tan Tiong Tick, the rejection thereof is
recommended in view of the fact that the Bank Commissioner has not credited any interest to the
current and savings account of the Merchantile Bank of China, and would be unfair that interest, not
credited to the others, be allowed to this claimant.

It will be noted that in the report of the commissioner the credit of the claimant for the balance of his
deposit on current account has been reduced to P7,390.11, instead of P9,657.50 alleged in his
claim, the total balance recommended in favor of the appellant being P13,611.21, without including
interest, instead of P16,589.70. In his brief the appellant admits the figures appearing in the report,
with the exception of the interest on which we shall presently dwell.

1. Resolving the claims under the first group the recommendation of this official to the effect that
they declared ordinary credits only, and approved them as preferred credits. However, in considering
the other claims among them that of that of the appellant, classified under the fifth group, the court
approved the recommendation of the commissioner that they be declared ordinary credits; in
otherwords, the court considered and declared the claim of the appellant as an ordinary credit just
because the latter is at the same time a debtor of the bank, notwithstanding the fact that his claim is
of the same kind as those classified under the first group, inasmuch as they are also current account
and savings deposits. To this part of the decision is addressed the appellant's first assignment of
error.

In truth if the current account, savings, and fixed deposits are preferred credits for the reason states
by the court in its decision, we see no reason why the preference should disappear when the
depositors are at the same time debtors of the bank less than their credits. If the ground to declare
them preferred credits is sound, the balances resulting after the set should likewise be preferred,
unless there be a law providing that a set off, when it take place, produces such an effect, a law
which does not exist as far as we know.

But we are of the opinion, for the reason presently to be stated, that current account and savings
deposits are not preferred credits in the cases, like the present, involving the insolvency and
liquidation of a bank, where there are various creditors and it becomes necessary to ascertain the
preference of various credits.
The court held that these deposits should be governed by the Civil Code, and applying articles 1758
and 1868 of the said Code, ruled that the so-called irregular deposits being still in vogue, as
Manresa, the commentator, maintain and as held by this court in the case Rogers vs. Smith, Bell &
Co. (10 Phil., 319), the former are preferred credits because partaking of the nature of the irregular
deposits.

In our opinion, these deposits are essentially merchantile contracts and should, therefore, be
governed by the provisions of the Code of Commerce, pursuant to its article 2 reading:

ART. 2 Commercial transactions, be they performed by merchants or not, whether they are
specified in this Code or not, shall be governed by the provisions contained in the same; in
the absence of such provisions, by the commercial customs generally observed in each
place; and in the absence of such provisions, by the commercial customs generally observed
in each place; and in the absence of both, by those of the common law.

Commercial transactions shall be considered those enumerated in this Code and any others
of a similar character.

There is cited in support of the application of the Civil Code to these deposits article 310 of the Code
of Commerce providing:

ART. 310. Notwithstanding the provisions of the foregoing articles, deposits made banks,
with general warehouse, with loan or any other associations, shall be governed in the place
by the by-laws of the same in the second by the provisions of this Code, and finally by the
rules of common law, which are applicable to all deposits.

But apparently there was a failure to consider that, according to the order established by the article,
the Civil Code or the common law is mentioned after Code of Commerce, which means that the
provisions of the latter Code should first be applied before resorting to those of the Civil Code which
are supplementary in character.

The Code of Commerce contains express provisions regulating deposits of the nature under
consideration, and they are articles 303 to 310. The first and the second to the last of the said
articles are as follows:

ART. 303. In order that a deposit may be considered commercial, it is necessary —

1. That the depositary, at least, be a merchant.

2. That the things deposited be commercial objects.

3. That the deposit constitute in itself a commercial transaction, or be made by reason or as

a consequently of commercial transaction.

ART. 309. Whatever, with the consent of the depositor, the depositary disposes of the
articles on deposit either for himself or for his business, or for transactions intrusted to him by
the former, the rights and obligations of the depositary and of the depositor shall cease, and
the rules and provisions applicable to the commercial loans, commissions, or contract which
took the place of the deposit shall be observed.
In accordance with article 309, the so-called current account and savings deposits have lost the
character of deposits properly so-called, and are converted into simple commercial loans, because
the bank disposed of the funds deposited by the claimant for its ordinary transactions and for the
banking business in which it was engaged. That the bank had the authority of the claimant to make
use of the money deposited on current and savings account is deducible from the fact that the bank
has been paying interest on both deposits, and the claimant himself asks that he be allowed interest
up to the time when the bank ceased its operations. Moreover, according to section 125 of the
Corporation Law and 9 of Act No. 3154, said bank is authorized to make use of the current account,
savings, and fixed deposits provided it retains in its treasury a certain percentage of the amounts of
said deposits. Said sections read:

SEC. 125. Every such commercial banking corporation shall at all times have on hand in
lawful money of the Philippines Islands or of the United States, an amount equal to at least
eighteen per centum of the aggregate amount of its deposits in current which are payable on
demand and of its fixed deposits coming due within thirty days. Such commercial banking
corporations shall also at all times maintain equal in amount to at least five per centum of its
total savings deposits. The said reserve may be maintained in the form of lawful money of
the Philippines Islands of the United States, or in bonds issued or guaranteed by the
Government of the Philippines Islands or to the United States. . . .

The percentage of reserve to deposits in the case of the Philippine National Bank and Bank
of the Philippine Islands is hereby fixed at eighteen per centum of demand deposits and fixed
deposits payable within thirty days and five per centum of savings deposits, in the same
manner as is prescribed in this section for commercial banking corporations in general,
which reserve against savings deposit may consists of Philippine Government of United
States Government Bonds.

SEC. 9. Every bank organized under this Act shall at all times have on hand, in lawful money
of the Philippine Islands of the United States, an amount equal to at least twenty per centum
of the aggregate amount of its deposits. The Treasury certificates authorized by Act
Numbered Three thousand and fifty-eight, and the term lawful money of the United States
shall include gold and silver certificates of the United States and bank notes issued by the
Federal Reserve Bank.

Therefore, the bank, without the necessity of the claimant consent, was by law authorized to dispose
of the deposits, subject to the limitations indicated.

We, therefore, conclude that the law applicable to the appellant's claim is the Code of Commerce
and that his current and savings account have converted into simple commercial loans.

2. The next point to decide is the applicable law, if any, to determine the preference of the
appellant's credits, considering that there happens to be other creditors. Section V of Title I Book IV
of the Code of Commerce contains provisions relative to the rights of creditors in case of bankruptcy
and their respective gradations, but these provisions have been repealed by section 524 of the Code
of Civil Procedure reading as follows:

SEC. 524. No new proceedings to be instituted. — No new bankrupt proceedings shall be

instituted until a new bankruptcy law shall come into force in the Islands. All existing laws
and other relating to bankruptcy and proceedings therein are hereby repealed: Provided,
That nothing in this section shall be deemed in any manner to affect pending litigation in
bankruptcy proceedings.
The Philippine Legislature subsequently enacted Act No. 1956, also known as the Insolvency Law,
which took effect on May 20, 1909, containing provisions regarding preference of credits; but its
section 52 provides that all the provisions of the law shall not apply to corporations engaged
principally in the banking business, and among them should be understood included the Merchantile
Bank of China. Said section provide:

SEC. 48. Merchantile, effect, and any other kind of property found among the property of the
insolvent, the ownership of which has not been conveyed to him by a legal and irrevocable
title, shall be considered to be the property of other persons shall be placed at the disposal of
its lawful owners on order of the court made at the hearing in section forty-three or at any
ordinary hearing, if the assignee or any creditor whose right in the estate of the insolvent has
been established shall petition in writing for such hearing and the court in its discretion shall
so order, the creditors, however, retaining such rights in said property as belong to the
insolvent, and subrogating him whenever they shall have with all obligations concerning said
property.

The following shall be included in this section:

1. Drowy property inestimado and such property estimado which may remain in the
possession of the husband where the receipt thereof is matter of record in a public
instrument registered under the provisions of section twenty-one and twenty-seven of
the Code of Commerce in force.

2. Paraphernal property which the wife may have acquired by inheritance, legacy, or
donation whether remaining in the form in which it was received or subrogated or
invested in other property, provided that such investment or subrogation has been
registered in the registro mercantile in accordance with the provisions of the sections
of the Code of Commerce mentioned in the next preceding paragraph.

3. Property and effects deposited with the bankrupt, or administered, least, rented, or
held in usufruct by him.

4. Merchandise in the possession of the bankrupt, on commission, for purchase,

sale, forwarding, or delivery.

5. Bills of exchange or promissory notes without indorsement or other expression

transferring ownership remitted to the insolvent for collection and all other acquired
by him for the account of another person, drawn or indorsed to the remitter direct.

6. Money remitted to the insolvent, otherwise than on current account, and which is
in his possession for delivery to a definite person in the name and for the account of
the remitter or for the settlement of claims which are to be met at the insolvent
domicile.

7. Amounts due the insolvent for sales of merchandise on commission, and bills of
exchange and promissory notes delivered therefrom in his possession, even when
the same are not made payable to the owner of the merchandise sold, provided it is
proven that the obligation to the insolvent is derived therefrom and that said bills of
exchange and promissory notes were in the possession of the insolvent for account
of the owner of the merchandise to be cashed and remitted, in due time, to the said
owners; all of which shall be a legal presumption when the amount involved in any
 such shall not been credited on the book of both the owner of the merchantile and of
the insolvent.

8. Merchandise bought on credit by the insolvent so long as the actual thereof has
not been made to him at his store at any other place stipulated for such delivery, and
merchandise the bills of lading or shipping receipts of which have been sent him after
the same has been loaded by order of the purchaser and for his account and risk.

In all cases arising under this paragraph assignees may retain the merchandise so
purchased or claim it for the creditors by paying the price thereof to the vendor.

9. Goods or chattels wrongfully taken, converted, or withheld by the insolvent if still

existing in his possession or the amount of the value thereof.

SEC. 49. All creditors, except those whose debts are duly proved and allowed shall be
entitled to share in the property and estate pro rata, after the property belonging to other
persons referred to in the last preceding section has been deducted therefrom, without
priority or preference whatever: Provided, That any debt proved by any person liable as bail,
surety, guarantor, or otherwise, for the debtor, shall not be paid to the person so providing
the same until satisfactory evidence shall be produced of the payment of such debt by such
person so liable, and the share to which such debt would be entitled may be paid into court,
or otherwise held, for the benefit of the party entitled thereto, as the court may direct.

SEC. 50. The following are preferred claims which shall be paid in the order named:

(a) Necessary funeral expenses of the debtor, or of his wife, or children who are
under their parental authority and have no property of their own, when approved by
the court;

(b) Debts due for personal services rendered the insolvent by employees, laborers,
or domestic servants immediately preceding the commencement of proceedings in
insolvency;

(c) Compensation due the laborers or their dependents under the provisions of Act
Numbered Thirty-four hundred and twenty-eight, known as the Workmen's
Compensation Act, as amended by Act Numbered Thirty-eight hundred and twelve,
and under the provisions of Act Numbered Eighteen hundred and seventy-four
known as the Employers' Liability Act, and of the other laws providing for payment of
indemnity for damages in cases of labor accidents;

(d) Legal expenses, and expenses incurred in the administration of the insolvent
estate for the common interest of the creditors, when properly authorized and
approved by the court;

(e) Debts, taxes and assessments due the Insular Government;

(f ) Debts, taxes and assessments due to any province of provinces of the Philippines
Islands;

(g) Debts, taxes and assessment due to any municipality or municipalities of the
Philippine Islands;
 All other creditors shall be paid pro rata. (As amended by Act No. 3962.)

ART. 52 . . . The provisions of this Act shall not apply to corporations engaged principally in
the banking business, or to any other corporation as to which there is any special provisions
of law for its liquidation in case of insolvency.

It appears that even after the enactment of the Insolvency Law there was no law in this jurisdiction
governing the order or preference of credits in case of insolvency and liquidation of a bank. But the
Philippine Legislature subsequently enacted Act No. 3519, amended various sections of the Revised
Administrative Code, which took effect on February 20, 1929, and section 1641 of this latter Code.
as amended by said Act provides:

SEC. 1641. Distribution of assets. — In the case of the liquidation of a bank or banking
institution, after payment of the costs of the proceeding, including reasonable expenses,
commissions and fees of the Bank Commissioner, to be allowed by the court, the Bank
Commissioner shall pay the debts of the institution, under of the court in the order of their
legal priority.

From this section 1641 we deduce that the intention of the Philippine Legislature, in providing that
the Bank Commissioner shall pay the debts of the company by virtue of an order of the court in the
order of their priority, was to enforce the provisions of section 48, 49 and 50 of the Insolvency Law in
the sense that they are made applicable to cases of insolvency or bankruptcy and liquidation of
banks. No other deduction can be made from the phrase "in the order of their legal priority"
employed by the law, for there being no law establishing any priority in the order of payment of
credits, the legislature could not reasonably refer to any legislation upon the subject, unless the
interpretation above stated is accepted.

Examining now the claims of the appellant, it appears that none of them falls under any of the cases
specified by section 48, 49 and 50 of the Insolvency Law; wherefore, we conclude that the
appellant's claims, consisting of his current and savings account, are not preferred credits.

3. The commissioner set off the claims of the appellant against what the bank had against him. The
court approved this set off over the objection of the appellant. The appellees contend that the set off
does not lie in this case because otherwise it would prejudice them and the other creditors in the
liquidation. We hold that the court's ruling is not error. "It may be stated as a general rule that when a
depositor is indebted to a bank, and the debts are mutual — that is, between the same parties and in
the same right — the bank may apply the deposit, or such portion thereof as may be necessary, to
the payment of the debt due it by the depositor, provided there is no express agreement to the
contrary and the deposit is not specially applicable to some other particular purposes." (7 Am. Jur.,
par. 629, p.455; United States vs. Butterworth-Judson Corp., 267 U.S., 387; National Bank vs.
Morgan, 207 Ala.., 65; Bank of Guntersville vs. Crayter, 199 Ala., 699; Tatum vs. Commercial Bank
& T. Co., 193 Ala., 120; Desha Bank & T. Co. vs. Quilling, 118 Ark., 114; Holloway vs. First Nat.
Bank, 45 Idaho, 746; Wyman vs. Ft. Dearborn Nat Bank, 181 Ill., 279; Niblack vs. Park Nat. Bank,
169 Ill., 517; First Nat Bank vs. Stapf., 165 Ind., 162; Bedford Bank vs. Acoam, 125 Ind., 584.) The
situation referred to by the appellees is inevitable because section 1639 of the Revised
Administrative Code, as amended by Act No. 3519, provides that the Bank Commissioner shall
reduce the assets of the bank into cash and this cannot be done without first liquidating individually
the accounts of the debtors of said bank, and in making this individual liquidation the debtors are
entitled to set off, by way of compensation, their claims against the bank.

4. The court held that the appellant is not entitled to charge interest on the amounts of his claims,
and this is the object of the second assignment of error. Upon this point a distinction must be made
between the interest which the deposits should ear from their existence until the bank ceased to
operate, and that which they may earn from the time the bank's operations were stopped until the
date of payment of the deposits. As to the first class, we hold that it should be paid because such
interest has been earned in the ordinary course of the bank's business and before the latter has
been declared in a state or liquidation. Moreover, the bank being authorized by law to make us of the
deposits, with the limitation stated, to invest the same in its business and other operations, it may be
presumed that it bound itself to pay interest to the depositors as in fact it paid interest prior to the
date of the said claims. As to the interest which may be charged from the date the bank ceased to
do business because it was declared in a state of liquidation, we hold that the said interest should
not be paid. Under articles 1101 and 1108 of the Civil Code, interest is allowed by way of indemnity
for damages suffered, in the cases wherein the obligation consists in the payment of money. In view
of this, we hold that in the absence of any express law or any applicable provision of the Code of
Commerce, it is not proper to pay this last kind of interest to the appellant upon his deposits in the
bank, for this would be anomalous and unjustified in a liquidation or insolvency of a bank. This rule
should be strictly observed in the instant case because it is understood that the assets should be
prorated among all the creditors as they are insufficient to pay all the obligations of the bank.

5. The last assignment of error has to do with the denial by the court of the claimant's motion for new
trial. No new arguments have been made in its support and it appears that the assigned error was
inserted as a mere corollary of the preceding ones.

In view of all the foregoing considerations, we affirm the part of the appealed decision for the
reasons stated herein, and it is ordered that the net claim of the appellant, amounting to P13,611.21,
is an ordinary and not a preferred credit, and that he is entitled to charge interest on said amount up
to September 19, 1931, without special pronouncement up to September 19, 1931, without special
pronouncement as to the costs. So ordered.

Avanceña, C.J., Villa-Real, Abad Santos, Diaz and Horrilleno, JJ., concur.

Republic of the Philippines

Congress of the Philippines
Metro Manila

Fourteenth Congress
Second Regular Session

Begun and held in Metro Manila, on Monday, the twenty-eight day of July, two thousand eight.

Republic Act No. 9510 October 31, 2008

AN ACT ESTABLISHING THE CREDIT INFORMATION SYSTEM AND FOR OTHER PURPOSES

Be it enacted by the Senate and House of Representatives of the Philippines in Congress

assembled::
Section 1. Title. - This Act shall be known as the "Credit Information System Act".

Section 2. Declaration of Policy. - The State recognizes the need to establish a comprehensive
and centralized credit information system for the collection and dissemination of fair and accurate
information relevant to, or arising from, credit and credit-related activities of all entities participating
in the financial system. A credit information system will directly address the need for reliable credit
information concerning the credit standing and track record of borrowers.

The operations and services of a credit information system can be expected to: greatly improve the
overall availability of credit especially to micro, small and medium-scale enterprises; provide
mechanisms to make credit more cost-effective; and reduce the excessive dependence on collateral
to secure credit facilities.

The State shall endeavor to have credit information provided at the least cost to all participants and
shall ensure the protection of consumer rights and the existence of fair competition in the industry at
all times.

An efficient credit information system will also enable financial institutions to reduce their over-all
credit risk, contributing to a healthier and more stable financial system.

Section 3. Definition of Terms. - For purposes of this Act:

(a) "Accessing Entity" refers to any submitting entity or any other entity authorized by the
Corporation to access basic credit data from the Corporation.

(b) "Basic Credit Data" refers to positive and negative information provided by a borrower to
a submitting entity in connection with the application for and availment of a credit facility and
any information on the borrower’s creditworthiness in the possession of the submitting entity
and other factual and objective information related or relevant thereto in the submitting
entity’s data files or that of other sources of information: Provided, that in the absence of a
written waiver duly accomplished by the borrower, basic credit data shall exclude confidential
information on bank deposits and/or clients funds under Republic Act No. 1405 (Law on
Secrecy of Bank Deposits), Republic Act No. 6426 (The Foreign Currency Deposit Act),
Republic Act No. 8791 (The General Banking Law of 2000), Republic Act No. 9160 (Anti-
Money Laundering Law) and their amendatory laws.

(c) "Borrower" refers to a natural or juridical person, including any local government unit
(LGU), its subsidiaries and affiliates, that applies for and/or avails of a credit facility.

(d) "BSP" refers to the Bangko Sentral ng Pilipinas, created under Republic Act No.7653.

(e) "Corporation" refers to the Credit Information Corporation established under Section 5 of
this Act.

(f) "Credit facility" refers to any loan, credit line, guarantee or any other form of financial
accommodation from a submitting entity: Provided, That for purposes of this Act, deposits in
banks shall not be considered a credit facility extended by the depositor in favor of the bank.

(g) "Credit Rating" refers to an opinion regarding the creditworthiness of a borrower or of an

issuer of debt security, using an established and defined ranking system.
 (h) "Credit Report" refers to a summary of consolidated and evaluated information on
creditworthiness, credit standing, credit capacity, character and general reputation of a
borrower.

(i) "Government Lending Institutions" refers to existing and future government (GFIs),
government-owned and controlled corporations (GOCCs) primarilly engaged in lending
activities.

(j) "Negative Credit Information" refers to information/data concerning the poor credit
performance of borrowers such as, but not limited to, defaults on loans, adverse court
judgments relating to debts and reports on bankruptcy, insolvency, petitions or orders on
suspension of payments and corporate rehabilitation.

(k) "Non-Accessing Entity" refers to an entity other than a Submitting Entity, Special
Accessing Entity or Borrower that is authorized by the Corporation to access credit
information from a Special Accessing Entity.

(l) "Outsource entity" refers to any accredited third party provider to whom the Corporation
may outsource the processing and consolidation of basic credit data pertaining to a borrower
or issuer of debt or convertible securities under such qualifications, criteria and strict
confidentiality guidelines that the Corporation shall prescribe and duly publish.

(m) "Positive credit information" refers to information/data concerning the credit performance
of a borrower such as, but not limited to, information on timely repayments or non-
delinquency.

(n) "Relevant Government Agencies" refers to the Department of Finance, Department of

Trade and Industry, Bangko Sentral ng Pilipinas, Insurance Commission and the
Cooperative Development Authority.

(o) "SEC" refers to the Securities and Exchange Commission.

(p) "Special Accessing Entity" refers to a duly accredited private corporation engaged
primarily in the business of providing credit reports, ratings and other similar credit
information products and services.

(q) "Submitting Entity" refers to any entity that provides credit facilities such as, but not
limited to, banks, quasi-banks, trust entities, investment houses, financing companies,
cooperatives, nongovernmental, micro-financing organizations, credit card companies,
insurance companies and government lending institutions.

Section 4. Establishment of the Credit Information System. - In furtherance of the policy set forth
in Section 2 of this Act, a credit information system is hereby established.

(a) Banks, quasi-banks, their subsidiaries and affiliates, life insurance companies, credit card
companies and other entities that provide credit facilities are required to submit basic credit
data and updates thereon on a regular basis to the Corporation.

(b) The Corporation may include other credit providers to be subject to compulsory
participation: Provided, That all other entities qualified to be submitting entities may
participate subject to their acceptance by the Corporation: Provided, further, That, in all
cases, participation under the system shall be in accordance with such standards and rules
that the SEC in coordination with the relevant government agencies my prescribe.

(c) Participating submitting entities are required to submit to the Corporation any negative
and positive credit information that tends to update and/or correct the credit status of
borrowers. The Corporation shall fix the time interval for such submission: Provided, That
such interval shall not be less than fifteen (15) working days but not more than thirty (30)
working days.

(d) The Corporation should regularly collect basic credit data of borrowers at least on a
quarterly basis to correct/update the basic credit data of said borrowers.

(e) The Corporation may also access credit and other relevant information from government
offices, judicial and administrative tribunals, prosecutorial agencies and other related offices,
as well as pension plans administered by the government.

(f) Each submitting entity shall notify its borrowers of the former’s obligation to submit basic
credit data to the Corporation and the disclosure thereof to the Corporation, subject to the
provisions of this Act and the implementing rules and regulations.

(g) The Corporation is in turn authorized to release consolidated basic credit data on the
borrower, subject to the provisions of Section 6 of this Act.

(h) The negative information on the borrower as contained in the credit history files of
borrowers should stay in the database of the Corporation unless sooner corrected, for not
more than three (3) years from and after the date when the negative credit information was
rectified through payment or liquidation of the debt, or through settlement of debts through
compromise agreements or court decisions that exculpate the borrower from liability.
Negative information shall be corrected and updated within fifteen (15) days from the time of
payment, liquidation or settlement of debts.

(i) Special Accessing Entities shall be accredited by the Corporation in accordance with such
standards and rules as the SEC in coordination with the relevant government agencies, may
prescribe.

(j) Special accessing entities shall be entitled access to the Corporation’s pool of
consolidated basic credit data, subject to the provisions of Section s 6 and 7 of this Act and
related implementing rules and regulations.

(k) Special accessing entities are prohibited from releasing basic credit data received from
the Corporation or credit reports and credit ratings derived from the basic credit data
received from the Corporation, to non-accessing entities unless the written consent or
authorization has been obtained from the Borrower: Provided, however, That in case the
borrower is a local government unit (LGU) or its subsidiary or affiliate, the special accessing
entity may release credit information on the LGU, its subsidiary or affiliate upon written
request and payment of reasonable fees by a constituent of the concerned LGU.

(l) Outsource Entities, which may process and consolidate basic credit data, are absolutely
prohibited from releasing such data received from the Corporation other than to the
Corporation itself.
 (m) Accessing Entities shall hold strictly confidential any credit information they receive from
the Corporation.

(n) The borrower has the right to know the causes of refusal of the application for credit
facilities or services from a financial institution that uses basic credit data as basis or ground
for such a refusal.

(o) The borrower, for a reasonable fee, shall have, as a matter of right, ready and immediate
access to the credit information pertinent to the borrower. In case of erroneous, incomplete
or misleading credit information, the subject borrower shall have the right to dispute the
erroneous, incomplete, outdated or misleading credit information before the Corporation. The
Corporation shall investigate and verify the disputed information within five (5) working days
from receipt of the complaint. If its accuracy cannot be verified and cannot be proven, the
disputed information shall be deleted. The borrower and the accessing entities and special
accessing entities who have received such information shall be informed of the
corresponding correction or removal within five (5) working days. The Corporation should
use a simplified dispute resolution process to fast track the settlement/resolution of disputed
credit information. Denial of these borrowers’ rights, without justifiable reason, shall entitle
the borrower to indemnity.

Section 5. Establishment of the Central Credit Information Corporation. - There is hereby

created a Corporation which shall be known as the Credit Information Corporation, whose primary
purpose shall be to receive and consolidate basic credit data, to act as a central registry or central
repository of credit information, and to provide access to reliable, standardized information on credit
history and financial condition of borrowers.

(a) The Corporation is hereby authorized to adopt, alter, and use a corporate seal which shall
be judicially noticed; to enter into contracts; to incur liabilities; to lease or own real or
personal property, and to sell or otherwise dispose of the same; to sue and be sued; to
compromise, condone or release any liability and otherwise to do and perform any and all
things that may be necessary or proper to carry out the purposes of this Act.

(b) The authorized capital stock of the Corporation shall be Five hundred million pesos
(P500,000,000.00) which shall be divided into common and preferred shares which shall be
non-voting. The National Government shall own and hold sixty percent (60%) of the common
shares while the balance of forty percent (40%) shall be owned by and held by qualified
investors which shall be limited to industry associations of banks, quasi-banks and other
credit related associations including associations of consumers. The amount of Seventy-five
million pesos (PhP75,000,000.00) shall be appropriated in the General Appropriations Act for
the subscription of common shares by the National Government to represent its sixty percent
(60%) equity share and the amount of Fifty million pesos (PhP50,000,000.00) shall be
subscribed and paid up by such qualified investors in accordance with Section 5(d) hereof.

(c) The National Government may subscribe or purchase securities or financial instrument
that may be issued by the Corporation as a supplement to capital.

(d) Equal equity participation in the Corporation shall be offered and held by qualified private
sector investors but in no case shall each of the qualified investor represented by an
association of banks, quasi-banks and other credit-related associations including the
associations of consumers have more than ten percent (10%) each of the total common
shares issued by the Corporation.
(e) The SEC in coordination with relevant government agencies, shall prescribe additional
requirements for the establishment of the Corporation, such as industry representation,
capital structure, number of independent directors, and the process for nominating directors,
and such other requirements to ensure consumer protection and free, fair and healthy
competition in the industry.

(f) The Chairman of the SEC shall be the Chairman of the Board of Directors of the
Corporation. Whenever the Chairman of the SEC is unable to attend a meeting of the Board,
he/she shall designate an Associate Commissioner of the SEC to act as his/her alternate.

The powers and functions of the Corporation shall be exercised by a board of directors
composed of fifteen (15) members. The directors representing the government shares shall
be appointed by the President of the Philippines.

(g) The directors and principal officers of the Corporation, shall be qualified by the "fit and
proper" rule for bank directors and officers. To maintain the quality of management of the
Corporation and afford better protection to the system and the public in general, the SEC in
coordination with the relevant government agencies, shall prescribe, pass upon and review
the qualifications and disqualifications of individuals elected or appointed directors of the
Corporation and disqualify those found unfit. After due notice to the board of directors of the
Corporation, the SEC may disqualify, suspend or remove any director who commits or omits
an act which render him unfit for the position. In determining whether an individual is fit and
proper to hold the position of a director of the Corporation, due regard shall be given to his
integrity, experience, education, training and competence.

The members of the Board of Directors must be Filipino citizens and at least thirty (30) years
of age. In addition, they shall be persons of good moral character, of unquestionable
integrity, of known probity, and have attained competence in the fields of law, finance,
economics, computer science or information technology. In addition to the disqualifications
imposed by the Corporation Code, as amended, no person shall be nominated by the
national government if he has been connected directly with a banking or financial institution
as a director or officer, or has substantial interest therein within three (3) years prior to his
appointment.

(h) The Board of Directors may appoint such officers and employees as are not otherwise
provided for in this Act, define their duties, fix their compensations and impose disciplinary
sanctions upon such officers and employees, for cause. The salaries and other
compensation of the officers and employees of the Corporation shall be exempt from the
Salary Standardization Law. Appointments in the Corporation, except to those which are
policy-determining, primarily confidential or highly technical in nature, shall be made only
according to the Civil Service Law.

(i) The Corporation shall acquire and use state-of-the-art technology and facilities in its
operations to ensure its continuing competence and capability to provide updated negative
and positive credit information; to enable the Corporation to relay credit information
electronically as well as in writing to those authorized to have access to the credit information
system; and to insure accuracy of collected, stored and disseminated credit information. The
Corporation shall implement a borrower’s identification system for the purpose of
consolidating credit information.

(j) The provisions of any general or special law to the contrary notwithstanding, the
importation by the Corporation of all equipment, hardware or software, as well as all other
 equipment needed for its operations shall be fully exempt from all customs duties and from
all other taxes, assessments and charges related to such importation.

(k) The Corporation shall have its principal place of business in Metro Manila, but may
maintain branches in such other places as the proper conduct of its business may require.

(l) Any and all acquisition of goods and services by the Corporation shall be subject to
Procurement Laws.

(m) The national government shall continue to hold sixty percent (60%) of the common
shares for a period not to exceed five (5) years from the date of commencement of
operations of the Corporation. After the said period, the national government shall dispose of
at least twenty percent (20%) of its stockholdings in the Corporation to qualified investors
which shall be limited to industry associations of banks, quasi-banks and other credit-related
associations, including associations of consumers. The national government shall offer equal
equity participation in the Corporation to all qualified investors. When the ownership of the
majority of the common voting shares of the Corporation passes to private investors, the
stockholders shall cause the adoption and registration with the SEC of the amended articles
of incorporation within three (3) months from such transfer of ownership.

Section 6. Confidentiality of Credit Information. - The Corporation, the submitting entities, the
accessing entities, the outsource entities, the special accessing entities and the duly authorized non-
accessing entities shall hold the credit information under strict confidentiality and shall use the same
only for the declared purpose of establishing the creditworthiness of the borrower. Outsource entities
which may process and consolidate basic credit data are absolutely prohibited from releasing such
data received from the Corporation other than to the Corporation.

The accreditation of an accessing entity, a special entity and/or an outsource entity which violates
the confidentiality of, or which misuses, the credit information accessed from the Corporation, may
be suspended or revoked. Any entity which violates this section may be barred access to the credit
information system and penalized pursuant to Section 11 of this Act.

The Corporation shall be authorized to release and disclose consolidated basic credit data only to
the Accessing Entities, the Special Accessing Entities, the Outsource Entities and Borrowers. Basic
Consolidated basic credit data released to Accessing Entities shall be limited to those pertaining to
existing Borrowers or Borrowers with pending credit applications. Credit information shall not be
released to entities other than those enumerated under this Section except upon order of the court.

Section 7. Educational Campaign. - A continuing nationwide educational campaign shall be

developed and undertaken by the Corporation to promote the benefits of a credit information system
to the economy; to create awareness on the rights of consumers/borrowers to access their credit
reports collected, stored and disseminated by the Corporation; to disseminate the rights of the
borrowers to dispute any incorrect/inaccurate credit information in the database file of the
Corporation; to familiarize consumers of the procedure in collecting, storing and disseminating credit
information of borrowers by the Corporation; and to brief consumers of other related information.

Section 8. Rules and Regulations. - For purposes of creating a healthy balance between the need
for reliable credit information and safeguarding consumer protection, ensuring free and healthy
competition in the industry, the SEC, in coordination with relevant government agencies and existing
industry stakeholders, shall issue the implementing rules and regulations (IRRs), which shall be
reviewed, revised and approved by the Oversight Committee to ensure consistency and compliance
with the provisions of this Act, embodying among others:
 (a) The basic credit data shall be limited or confined in form and content to an objective and
factual information and shall exclude any subjective information or opinion;

(b) Restrictions on the use and transfer of credit information;

(c) Rights of the borrowers to access their respective credit information and to dispute the
factual accuracy of such credit information;

(d) Requirements and standards for the establishment of the Corporation including, but not
limited to, ownership, industry representation, independent directors and process of
nomination of directors;

(e) Accreditation standards for submitting entities and special accessing entities and non-
accessing entities;

(f) Sanctions to be imposed by the Corporation on:

(i) The submitting entities for non-submission of reports and for delayed and/or
erroneous reporting;

(ii) Accessing entities, special accessing entities, outsource entities and duly
authorized non-accessing entities, for breaches of the confidentiality of misuse of, the
credit information obtained from the credit information system; and

(iii) Violations of other applicable rules and regulations: Provided, That these
administrative sanctions shall be in the form of fines in amounts as may be
determined by the Corporation but in no case to exceed Thirty thousand pesos
(PhP30,000.00) a day for each violation, taking into consideration the attendant
circumstances, such as the nature and gravity of the violation or irregularity.
Imposition of administrative sanctions shall be without prejudice to any criminal and
other sanctions as may be applicable under this Act and relevant laws;

(g) Suspension or cancellation of the rights of any Accessing Entity or Special Accessing
Entity to access Credit Information from the Corporation; Provided, That the SEC in
coordination with relevant government agencies and existing industry stakeholders, may
issue subsequent regulations consistent with the IRR as approved by the Congressional
Oversight Committee.

In addition, the SEC may regulate access to the credit information system as well as the fees
that shall be collected by the Corporation from the Accessing and Special Accessing Entities,
taking into consideration the policy of lowering the cost of credit, promoting fair competition,
and the need of the Corporation to employ state-of-the-art technology; and

(h) The basic credit data about a borrower shall be limited to credit information existing on
the date of the enactment of this Act and thereafter.

Section 9. Congressional Oversight Committee. - There is hereby created a congressional

oversight committee, composed of seven (7) members from the Senate and seven (7) members
from the House of Representatives. The Members from the Senate shall be appointed by the Senate
President with at least three (3) Senators representing the minority. The Members of the House of
Representatives shall be appointed by the Speaker with at least three (3) members representing the
minority.

After the Oversight Committee approved the implementing rules and regulations, it shall thereafter
become functus officio, and therefore cease to exist: Provided, That the Congress may revive the
Congressional Oversight Committee in case of a need for any major revision/s in the implementing
rules and regulations.

Section 10. Indemnity in Favor of the Corporation, its Officers and Employees. - Unless the
Corporation or any of its officers and employees is found liable for any willful violation of this Act, bad
faith, malice and/or gross negligence, the Submitting Entities, Accessing Entities, Special Accessing
Entities, Outsource Entities and duly authorized non-accessing entities shall hold the Corporation, its
directors, officers and employees free and harmless to the fullest extent permitted by law and shall
indemnify them from any and all liabilities, losses, claims, demands, damages, deficiencies, costs
and expenses of whatsoever kind and nature that may arise in connection with the performance of
their functions without prejudice to any criminal liability under existing laws.

Section 11. Penalties. - Any person who willfully violates any of the provisions of this Act or the
rules and regulations promulgated by the SEC in coordination with the relevant government
agencies shall, upon conviction, suffer a fine of not less than Fifty thousand pesos (PhP50,000.00).
nor more than One million pesos (PhP1,000,000.00) or imprisonment of not less than one (1) year
nor more than five (5) years, or both, at the discretion of the court.

Section 12. Inviolable Nature of the Secrecy of Bank Deposits and/or Client Funds. -Pursuant
to Republic Act No. 1405 (Law on Secrecy of Bank Deposits), Republic Act No. 6426 (The Foreign
Currency Deposit Act), Republic Act No. 8791 (The General Banking Law of 2000), Republic Act No.
9160 (Anti-Money Laundering Law) and their amendatory laws, nothing in this Act shall impair the
secrecy of bank deposits and and/or client funds and investments in government securities or funds.

Section 13. Annual Report. - The SEC shall submit an annual report to Congress on the status of
the implementation of this Act.

Sec. 14. Principal Government Agency. - The SEC shall be the lead government agency to
implement and enforce this Act. As lead agency, the SEC shall consult and coordinate with other
relevant government agencies in the adoption of all rules and regulations for the full and effective
implementation and enforecement of this Act, taking into account the policy objectives contained in
Section 2 hereof.

Section 15. Separability Clause. - Should any provision of this Act or the application thereof to any
person or circumstance be held invalid, the other provisions or sections of this Act shall not be
affected thereby.

Section 16. Repealing Clause. - This Act repeals Presidential Decree No. 1941 in its entirety. All
laws, decrees, executive orders, rules and regulations or parts thereof which are inconsistent with
this Act are hereby repealed, amended or modified accordingly.

Section 17. Effectivity Clause. - This Act shall take effect fifteen (15) days following its publication
in the Official Gazette or in at least two (2) newspapers of general circulation.

Approved
 (Sgd.) PROSPERO C. NOGRALES (Sgd.) MANNY VILLAR
Speaker of the House of Representative President of the Se nate

This Act which is a consolidation of Senate Bill No. 1881 and House Bill No. 4260 was finally passed
by the Senate and the House of Representative on September 1, 2008.

(Sgd.) MARILYN B. BARUA-YAP (Sgd.) EMMA LIRIO-REYES

Secretary General Secretary of the Senate
House of Representative

Approved: OCT 31, 2008

(Sgd.) GLORIA MACAPAGAL-ARROYO

President of the Philippines

G.R. No. 225562

WILLIAM C. LOUH, JR. and IRENE L. LOUH,, Petitioners

vs
BANK OF THE PHILIPPINE ISLANDS, Respondent

RESOLUTION

REYES, J.:

Before the Court is the instant petition for review on certiorari1 filed by William C. Louh, Jr. (William)
and Irene L. Louh (Irene) (collectively, the Spouses Louh) to assail the Decision2 and
Resolution,3 dated August 11, 2015 and May 23, 2016, respectively, of the Court of Appeals (CA) in
CA-G.R. CV No. 100754.

Antecedents

The herein respondent, Bank of the Philippine Islands (BPI), issued a credit card in William's name,
with Irene as the extension card holder. Pursuant to the terms and conditions of the cards' issuance,
3.5% finance charge and 6% late payment charge shall be imposed monthly upon unpaid credit
availments.4

The Spouses Louh made purchases from the use of the credit cards and paid regularly based on the
amounts indicated in the Statement of Accounts (SO As). However, they were remiss in their
obligations starting October 14, 2009.5 As of August 15, 2010, their account was unsettled prompting
BPI to send written demand letters dated August 7, 2010, January 25, 2011 and May 19, 2011. By
September 14, 2010, they owed BPI the total amount of ₱533,836.27. Despite repeated verbal and
written demands, the Spouses Louh failed to pay BPI.6

On August 4, 2011, BPI filed before the Regional Trial Court (RTC) of Makati City a Complaint7 for
Collection of a Sum of Money.

On February 21, 2012, William filed before the RTC a Motion for Extension of Time to File an
Answer or Responsive Pleading.8 In its Order9 dated February 27, 2012, the RTC granted an
extension of 15 days or up to March 4, 2012, but the Spouses Louh still failed to comply within the
prescribed period.10

On June 11, 2012, BPI filed a motion to declare the Spouses Louh in default.11 Before the RTC can
rule on BPI's motion, the Spouses Louh filed an Answer12 on July 20, 2012 or more than three
months after the prescribed period, which ended on March 4, 2012.

On July 24, 2012, the RTC issued an Order13 declaring the Spouses Louh in default and setting
BPI's ex-parte presentation of evidence on August 7, 2012. The Branch Clerk of Court thereafter
submitted a Commissioner's Report14 dated September 7, 2012, and the RTC considered the case
submitted for decision on November 27, 2012.15

On November 29, 2012, the RTC rendered a Decision,16 the fallo of which ordered the Spouses Louh
to solidarily pay BPI (1) P533,836.27 plus 12% finance and 12% late payment annual charges
starting from August 7, 2010 until full payment, and (2) 25% of the amount due as attorney's fees,
plus ₱l,000.00 per court hearing and ₱8,064.00 as filing or docket fees; and (3) costs of suit.17

The RTC explained that BPI had adduced preponderant evidence proving that the Spouses Louh
had in fact availed of credit accommodations from the use of the cards. However, the RTC found the
3.5% finance and 6% late payment monthly charges18 imposed by BPI as iniquitous and
unconscionable. Hence, both charges were reduced to 1 % monthly. Anent the award of attorney's
fees equivalent to 25% of the amount due, the RTC found the same to be within the terms of the
parties' agreement.19

The Spouses Louh filed a Motion for Reconsideration,20 which the RTC denied in the Order21 issued
on April 8, 2013. The appeal22 they filed was likewise denied by the CA in the herein assailed
decision and resolution.

In affirming in toto the RTC's judgment, the CA explained that the Spouses Louh were properly
declared in default for their failure to file an answer within the reglementary period. The Spouses
Louh further filed no motion to set aside the order of default. The CA also found that BPI had offered
ample evidence, to wit: (1) delivery receipts pertaining to the credit cards and the terms and
conditions governing the use thereof signed by the Spouses Louh; (2) computer-generated authentic
copies of the SOAs; and (3) demand letters sent by BPI, which the Spouses Louh received but
ignored. As to the award of attorney's fees, the CA ruled that the terms governing the use of the
cards explicitly stated that should the account be referred to a collection agency, then 25% of the
amount due shall be charged as attorney's fees.23

In the herein assailed Resolution24 dated May 23, 2016, the CA denied the Spouses Louh's Motion
for Reconsideration.25

Issue
Aggrieved, the Spouses Louh are before the Court raising the sole issue of whether or not the CA
erred in sustaining BPI's complaint.26

The Spouses Louh pray for the dismissal of BPI's suit. They likewise seek a relaxation of procedural
rules claiming that their failure to file a timely Answer was due to William's medical condition, which
required him to undergo a heart by-pass surgery.27 They further alleged that BPI failed to establish its
case by preponderance of evidence. Purportedly, BPI did not amply prove that the Spouses Louh
had in fact received and accepted the SO As, which were, however, unilaterally prepared by the
bank.28 They allege the same circumstance as to the receipt of the demand letters. The computations
likewise did not show the specific amounts pertaining to the principal, interests and penalties. They
point out that since their credit limit was only ₱326,000.00, it is evident that the amount of
₱533,836.27 demanded by BPI included unconscionable charges.29

BPI failed to file a comment to the instant petition within the prescribed period, which expired on
September 23, 2016.

Ruling of the Court

The Court affirms the herein assailed decision and resolution, but modifies the principal amount and
attorney's fees awarded by the RTC and the CA.

The Spouses Louh reiterate that the RTC wrongly declared them in default since by reason of
William's sickness, they were entitled to a relaxation of the rules. Moreover, BPI had failed to offer
preponderant evidence relative to the actual amount of the Spouses Louh's indebtedness.

The foregoing claims are untenable.

In Magsino v. De Ocampo,30 the Court instructs that:

Procedural rules are tools designed to facilitate the adjudication of cases. Courts and litigants alike
are thus enjoined to abide strictly by the rules. And while the Court, in some instances, allows a
relaxation in the application of the rules, this, we stress, was never intended to forge a bastion for
erring litigants to violate the rules with impunity. The liberality in the interpretation and application of
the rules applies only in proper cases and under justifiable causes and circumstances. While it is
true that litigation is not a game of technicalities, it is equally true that every case must be
prosecuted in accordance with the prescribed procedure to insure an orderly and speedy
administration of justice.

Like all rules, procedural rules should be followed except only when, for the most persuasive of
reasons, they may be relaxed to relieve a litigant of an injustice not commensurate with the degree
of his thoughtlessness in not complying with the prescribed procedure.

The rules were instituted to be faithfully complied with, and allowing them to be ignored or lightly
dismissed to suit the convenience of a party like the petitioner was impermissible. Such rules, often
derided as merely technical, are to be relaxed only in the furtherance of justice and to benefit the
deserving. Their liberal construction in exceptional situations should then rest on a showing of
justifiable reasons and of at least a reasonable attempt at compliance with them.xx x.31 (Citations
omitted and emphasis and italics ours)

In the case at bar, the CA aptly pointed out that the Spouses Louh filed their Answer with the RTC
only on July 20, 2012 or more than three months after the prescribed period, which expired on
March 4, 2012. When they were thereafter declared in default, they filed no motion to set aside the
RTC's order, a remedy which is allowed under Rule 9, Section 332 of the Rules of Civil Procedure.
The Spouses Louh failed to show that they exerted due diligence in timely pursuing their cause so
as to entitle them to a liberal construction of the rules, which can only be made in exceptional cases.

The Spouses Louh claim as well that BPI's evidence are insufficient to prove the amounts of the
former's obligation; hence, the complaint should be dismissed. The Court, in Macalinao v.
BPl,33 emphatically ruled that:

Considering the foregoing rule, respondent BPI should not be made to suffer for petitioner
Macalinao's failure to file an answer and concomitantly, to allow the latter to submit additional
evidence by dismissing or remanding the case for further reception of evidence. Significantly,
petitioner Macalinao herself admitted the existence of her obligation to respondent BPI, albeit with
reservation as to the principal amount. Thus, a dismissal of the case would cause great injustice to
respondent BPI. Similarly, a remand of the case for further reception of evidence would unduly
prolong the proceedings of the instant case and render inutile the proceedings conducted before the
lower courts.34

BPI had offered as evidence the (1) testimony of Account Specialist Carlito M. Igos, who executed a
Judicial Affidavit in connection with the case, and (2) documentary exhibits, which included the (a)
delivery receipts pertaining to the credit cards and the terms and conditions governing the use
thereof signed by the Spouses Louh, (b) computer-generated authentic copies of the SOAs,35 and (c)
demand letters sent by BPI, which the Spouses Louh received.36 The Clerk of Court subsequently
prepared a Commissioner's Report, from which the RTC based its judgment.

The Spouses Louh slept on their rights to refute BPI's evidence, including the receipt of the SO As
and demand letters. BPI cannot be made to pay for the Spouses Louh 's negligence, omission or
belated actions.

Be that as it may, the Court finds excessive the principal amount and attorneys fees awarded by the
RTC and CA. A modification of the reckoning date relative to the computation of the charges is in
order too.

In Macalinao,37 where BPI charged the credit cardholder of 3.25% interest and 6% penalty per
month,38 and 25% of the total amount due as attorney's fees, the Court unequivocally declared that:

[T]his is not the first time that this Court has considered the interest rate of 36% per annum as
excessive and unconscionable. We held in Chua vs. Timan:

The stipulated interest rates of 7% and 5% per month imposed on respondents' loans must be
equitably reduced to 1% per month or 12% per annum. We need not unsettle· the principle we had
affirmed in a plethora of cases that stipulated interest rates of 3% per month and higher are
excessive, iniquitous, unconscionable and exorbitant. Such stipulations are void for being contrary to
morals, if not against the law. While C.B. Circular No. 905-82, which took effect on January 1, 1983,
effectively removed the ceiling on interest rates for both secured and unsecured loans, regardless of
maturity, nothing in the said circular could possibly be read as granting carte blanche authority to
lenders to raise interest rates to levels which would either enslave their borrowers or lead to a
hemorrhaging of their assets. x x x

Since the stipulation on the interest rate is void, it is as if there was no express contract thereon.
Hence, courts may reduce the interest rate as reason and equity demand.
The same is true with respect to the penalty charge. x x x Pertinently, Article 1229 of the Civil Code
states:

Art. 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. x x xx

x x x [T]he stipulated penalty charge of 3% per month or 36% per annum, in addition to regular
interests, is indeed iniquitous and unconscionable.39 (Citations and emphasis in the original omitted,
and emphasis ours)

Thus, in Macalinao, the Court reduced both the interest and penalty charges to 12% each, and the
attorney's fees to ₱l0,000.00.

In MCMP Construction Corp. v. Monark Equipment Corp.,40 the creditor cumulatively charged the
debtor 60% annually as interest, penalty and collection fees, and 25% of the total amount due as
attorney's fees. The Court similarly found the rates as exorbitant and unconscionable; hence,
directed the reduction of the annual interest to 12%, penalty and collection charges to 6%, and
attorney's fees to 5%. The Court explained that attorney's fees are in the nature of liquidated
damages, which under Article 2227 of the New Civil Code, "shall be equitably reduced if they are
iniquitos or unconscionable."41

In the case at bench, BPI imposed a cumulative annual interest of 114%, plus 25% of the amount
due as attorney's fees. Inevitably, the RTC and the CA aptly reduced the charges imposed by BPI
upon the Spouses Louh. Note that incorporated in the amount of ₱533,836.27 demanded by BPI as
the Spouses Louh's obligation as of August 7, 2010 were the higher rates of finance and late
payment charges, which the comis a quo had properly directed to be reduced.

In the SOA42 dated October 14, 2009, the principal amount indicated was ₱l13,756.83. In accordance
with Macalinao, the finance and late payment charges to be imposed on the principal amount of
₱l13,756.83 are reduced to 12% each per annum, reckoned from October 14, 2009, the date when
the Spouses Louh became initially remiss in the payment of their obligation to BPI, until full payment.

Anent BPI's litigation expenses, the Court retains the RTC and CA' s disquisition awarding
₱5,064.00 as filing or docket fees, and costs of suit.

However, the Court reduces the attorney's fees to five percent (5%) of the total amount due from the
Spouses Louh pursuant to MCMP43 and Article 2227 of the New Civil Code.

WHEREFORE, the Decision and Resolution, dated August 11, 2015 and May 23, 2016, respectively,
of the Court of Appeals in CA-G.R. CV No. 100754, finding the Spouses William and Irene Louh
liable to the Bank of the Philippine Islands for the payment of their past credit availments, plus
finance and late payment charges of 12% each per annum, ₱5,064.00 as filing or docket fees, and
costs of suit, are AFFIRMED. The principal amount due, reckoning period of the computation of
finance and late payment charges, and attorney's fees are, however, MODIFIED as follows:

(1) the principal amount due is Pl 13,756.83 as indicated in the Statement of Account dated October
14, 2009;

(2) finance and late payment charges of twelve percent (12%) each per annum shall be computed
from October 14, 2009 until full payment; and
(3) five percent (5%) of the total amount due is to be paid as attorney's fees.

SO ORDERED.

BIENVENIDO L. REYES
Associate Justice

WE CONCUR:

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson

DIOSDADO M. PERALTA* LUCAS P. BERSAMIN

Associate Justice Associate Justice

ALFREDO BENJAMIN S. CAGUIOA**

Associate Justice

ATTESTATION

I attest that the conclusions in the above Resolution had been reached in consultation before the
case was assigned to the writer of the opinion of the Court’s Division.

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson

CERTIFICATION

Pursuant to the Section 13, Article VIII of the Constitution and the Division Chairperson’s Attestation,
I certify that the conclusions in the above Resolution had been reached in consultation before the
case was assigned to the writer of the opinion of the Court’s Division.

MARIA LOURDES P.A. SERENO

Chief Justice

Footnotes

*
Additional Member per Raffle dated February 20, 2017 vice Associate Justice Francis H.
Jardeleza.

Designated Fifth Member of the Third Division per Special Order No. 2417 dated January 4,
**

2017.
1
Rollo, pp. 5-15.

2
Penned by Associate Justice Marlene Gonzales-Sison, with Associate Justices Ramon A.
Cruz and Melchor Quirino C. Sadang concurring; id. at 17-27.

3
Id. at 34-35.

4
RTC records, p. 000112.

5
Id. at 000108-000109.

6
Id. at 000112.

7
Docketed as Civil Case· No. 11-753, id. at 000001-000005.

8
Id. at 000029-000030.

9
Issued by Presiding Judge Eugene C. Paras; id. at 000036.

10
Rollo, pp. 19, 22.

11
RTC records, pp. 000037-000039.

12
Id. at 000044-000046.

13
Id. at 000047-000048.

14
Id. at 000108-000109.

15
Id. at 000110.

16
Id. at 000111-000113.

17
Id. at 000113.

18
42% and 72% per annum, respectively.

19
RTC records, pp. 000112-000113.

20
Id. at 000114-000118.

21
Id. at 000123.

22
Id. at 000127-000128.

23
Rollo, pp. 22-26.

24
Id. at 34-35.
25
Id. at 28-32.

26
Id. at 9.

27
Id. at 10.

28
Id. at 11.

29
Id. at 12.

30
G.R. No. 166944, August 18, 2014, 733 SCRA 202.

Id. at 219-220, citing Republic of the Philippines v. Kenrick Development Corp., 529 Phil.
31

876, 885-886 (2006).

32
Section 3. Default; declaration of. – If the defending party fails to answer within the time
allowed therefor, the court shall, upon motion of the claiming party with notice to the
defending party, and proof of such failure, declare the defending party in default. Thereupon,
the court shall proceed to render judgment granting the claimant such relief as his pleading
may warrant, unless the court in its discretion requires the claimant to submit evidence. Such
reception of evidence may be delegated to the clerk of court.

(a) Effect of order of default.-A party in default shall be entitled to notice of

subsequent proceedings but not to take part in the trial.

(b) Relief from order q/ default. – A party declared in default may at any time after
notice thereof and before judgment file a motion under oath to set aside the order of
default upon proper showing that his failure to answer was due to fraud, accident,
mistake or excusable negligence and that he has a meritorious defense. In such
case, the order of default may be set aside on such terms and conditions as the
judge may impose in the interest of justice.

xxxx

33
616 Phil. 60 (2009).

34
Id. at 71.

35
RTC records, pp. 000060-000097.

36
Id. at 000111; rollo, p. 25.

37
Supra note 33.

38
111 % per annum.

39
Macalinao v. BPI, supra note 33, at 69-70.

40
G.R. No. 201001, November 10, 2014, 739 SCRA432.
41
Id. at 440-443.

42
RTC records, pp. 000060-000063.

43
Supra note 40.