G.R. No.

161397               June 30, 2005 Plus: MRI at PC. 41/thousand P1,614.20

DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner,  76.41

vs.
FELIPE P. ARCILLA, JR., Respondent.
P186,364.15 Total P1,690.617
=========
x - - - - - - - - - - - - - - - - - - - - - - -x

G.R. No. 161426               June 30, 2005 On July 24, 1987, Arcilla signed three Promissory Notes8 for the total amount of P186,364.15. He was also
obliged to pay service charge and interests, as follows:
FELIPE P. ARCILLA, JR., Petitioner, 
vs. a.1 On the amount advanced or balance thereof that remains unpaid for 30 days* or less:
DEVELOPMENT BANK OF THE PHILIPPINES, Respondent.
i. Interest on advances at 7% p.a. over DBP's borrowing cost:
DECISION ii. No 2% service charge

CALLEJO, SR., J.: iii. No 8% penalty charge

a.2 On the amount advanced or balance thereof that remains unpaid for more than 30 days:
Atty. Felipe P. Arcilla, Jr. was employed by the Development Bank of the Philippines (DBP) in October 1981.
About five or six months thereafter, he was assigned to the legal department, and thereafter, decided to avail of a i. Interest on the advance at 7% p.a. ]
loan under the Individual Housing Project (IHP) of the bank.1 On September 12, 1983, DBP and Arcilla executed a over DBP's borrowing cost; ]
Deed of Conditional Sale2 over a parcel of land, as well as the house to be constructed thereon, for the price ii. One time 2% service charge ] -- To be computed from
of P160,000.00. Arcilla borrowed the said amount from DBP for the purchase of the lot and the construction of a
residential building thereon. He obliged himself to pay the loan in 25 years, with a monthly amortization iii. Interest on the service charge ] the start of the 30-day
of P1,417.91, with 9% interest per annum, to be deducted from his monthly salary.3
iv. 8% penalty charge on the balances ] ‌‌period
of the advances and service charge.9
DBP obliged itself to transfer the title of the property upon the payment of the loan, including any increments
thereof. It was also agreed therein that if Arcilla availed of optional retirement, he could elect to continue paying
the loan, provided that the loan/amount would be converted into a regular real estate loan account with the Arcilla also agreed to pay to DBP the following:
prevailing interest assigned on real estate loans, payable within the remaining term of the loan account.4
*Insurance Premiums - 30-day period to be computed from date of advances
Arcilla was notified of the periodic release of his loan.5 During the period of July 1984 to December 31, 1986, the
monthly amortizations for the said account were deducted from his monthly salary, for which he was issued
receipts.6 Other Advances - 30-day period to be computed from date of notification

The monthly amortization was increased to P1,468.92 in November 1984, and to P1,691.51 beginning January b. Taxes
1985. However, Arcilla opted to resign from the bank in December 1986. Conformably with the Deed of
Conditional Sale, the bank informed him, on June 11, 1987, that the balance of his loan account with the bank had b.1 One time service charge 2% of the amount advanced
been converted to a regular housing loan, thus:
b.2 Interest and penalty charge Interest - 7% p.a. over borrowing cost
Penalty charge û 8% p.a. if unpaid
Monthly after 30 days from date of advance
Amount converted to PHLoan Interest Rate Remaining Term
Amortization
i. Interest of the advance at ]
P 155,218.79 - 1 9% 22 yrs. & 6 mos< P1,342.72
7% p.a. over DBP's ]
6,802.45 - 2 9% 21 yrs. & 10 mos. 59.41
borrowing costs; ]-- To be computed from start of 30-day period
24,342.91 - 3 9% 22 yrs. 212.07
 ii. One time 2% service charge ] Arcilla filed a complaint against DBP with the Regional Trial Court (RTC) of Antipolo, Rizal, on February 21,
1994. He alleged that DBP failed to furnish him with the disclosure statement required by Republic Act (R.A.) No.
iii. Interest on the service charge ] 3765 and Central Bank (CB) Circular No. 158 prior to the execution of the deed of conditional sale and the
conversion of his loan account with the bank into a regular housing loan account. Despite this, DBP immediately
iv. 8% penalty charge on the ] deducted the account from his salary as early as 1984. Moreover, the bank applied its own formula and imposed its
balances of the advance and ] usurious interests, penalties and charges on his loan account and advances. He further alleged, thus:
service charge. ]
13. That when plaintiff could no longer cope-up with defendant's illegal and usurious impositions, the DBP
*Insurance Premiums - 30-day period to be computed from date of advances. unilaterally increased further the rate of interest, without notice to the latter, and heaped-up usurious interests,
penalties and charges;
Other Advances - 30-day period to be computed from date of notification.
---

b. Taxes 14. That to further bend the back of the plaintiff, defendant rescinded the subject deed of conditional sale on 4
December 1990 without giving due notice to plaintiff;
b.1 One time service charge 2% of the amount advanced
b.2 Interest and penalty charge Interest - 7% p.a. over borrowing cost 15. That much later, on 10 October 1993, plaintiff received a letter from defendant dated 19 September 1993,
Penalty charge û 8% p.a. if unpaid informing plaintiff that the subject deed of conditional sale was already rescinded on 4 December 1990 (xerox
after 30 days from date of advance copy of the same is hereto attached and made an integral part hereof as Annex "C";17

However, Arcilla also agreed to the reservation by the DBP of its right to increase (with notice to him) the "rate of In its answer to the complaint, the DBP alleged that it substantially complied with R.A. No. 3765 and CB Circular
interest on the loan, as well as all other fees and charges on loans and advances pursuant to such policy as it may No. 158 because the details required in said statements were particularly disclosed in the promissory notes, deed of
adopt from time to time during the period of the loan; Provided, that the rate of interest on the loan shall be conditional sale and the required notices sent to Arcilla. In any event, its failure to comply strictly with R.A. No.
reduced by law or by the Monetary Board; Provided, further, that the adjustment in the rate of interest shall take 3765 did not affect the validity and enforceability of the subject contracts or transactions. DBP interposed a
effect on or after the effectivity of the increase or decrease in the maximum rate of interest."10 counterclaim for the possession of the property.

Upon his request, DBP agreed to grant Arcilla an additional cash advance of P32,000.00. Thereafter, on May 23, On April 27, 2001, the trial court rendered judgment in favor of Arcilla and nullified the notarial rescission of the
1984, a Supplement to the Conditional Sale Agreement was executed in which DBP and Arcilla agreed on the deeds executed by the parties. The fallo of the decision reads:
following terms of the loan:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the
defendant.1avvphil.zw+ Defendant is hereby directed to furnish the disclosure statement to the plaintiff within five
Amount Interest Rate Per Annum Terms Amortization (5) days upon receipt hereof in the manner and form provided by R.A. No. 3765 and submit to this Court for
P32,000.00 Nine (9%) per cent MRI for P32,000.00 at 24 years P271.57 approval the total obligation of the plaintiff as of this date, within ten (10) days from receipt of this order. The
P0.40/1,000.00 Notarial Rescission (Exh. "16") dated November 27, 1990 is hereby declared null and void. Costs against the
12.80 defendant.

P32,000.00 same to be consolidated with the original (Est. SO ORDERED.18

advance in accordance with Condition No. 8 Amort.) P 284.37
hereof.11 ========= DBP appealed the decision to the Court of Appeals (CA) wherein it made the following assignment of errors:

The additional advance was, thus, consolidated to the outstanding balance of Arcilla's original advance, payable 4.1. The trial court erred in ruling that the provision of the details of the loan without the issuance of a
within the remaining term thereof at 9% per annum. However, he failed to pay his loan account, advances, penalty "Disclosure Statement" is not compliance with the "Truth in Lending Act;"
charges and interests which, as of October 31, 1990, amounted to P241,940.93.12 DBP rescinded the Deed of
Conditional Sale by notarial act on November 27, 1990.13 Nevertheless, it wrote Arcilla, on January 3, 1992, 4.2. The trial court erred in declaring the Notarial Rescission null and void; and
giving him until October 24, 1992, within which to repurchase the property upon full payment of the current
appraisal or updated total, whichever is lesser; in case of failure to do so, the property would be advertised for
bidding.14 DBP reiterated the said offer on October 7, 1992.15 Arcilla failed to respond. Consequently, the property 4.3. The trial court erred in denying DBP's counterclaims for recovery of possession, back rentals and
was advertised for sale at public bidding on February 14, 1994.16 litigation expenses.19
On May 29, 2003, the CA rendered judgment setting aside and reversing the decision of the RTC. In ordering the Section 1 of R.A. No. 3765 provides that prior to the consummation of a loan transaction, the bank, as creditor, is
dismissal of the complaint, the appellate court ruled that DBP substantially complied with R.A. No. 3765 and CB obliged to furnish a client with a clear statement, in writing, setting forth, to the extent applicable and in
Circular No. 158. Arcilla filed a motion for reconsideration of the decision. For its part, DBP filed a motion for accordance with the rules and regulations prescribed by the Monetary Board of the Central Bank of the
partial reconsideration of the decision, praying that Arcilla be ordered to vacate the property. However, the Philippines, the following information:
appellate court denied both motions.
(1) the cash price or delivered price of the property or service to be acquired;
The parties filed separate petitions for review on certiorari with this Court. The first petition,
entitled Development Bank of the Philippines v. Court of Appeals, was docketed as G.R. No. 161397; the second (2) the amounts, if any, to be credited as down payment and/or trade-in;
petition, entitled Felipe Arcilla, Jr. v. Court of Appeals, was docketed as G.R. No. 161426. The Court resolved to
consolidate the two cases.
(3) the difference between the amounts set forth under clauses (1) and (2);
The issues raised in the two petitions are the following: a) whether or not petitioner DBP complied with the
disclosure requirement of R.A. No. 3765 and CB Circular No. 158, Series of 1978, in the execution of the deed of (4) the charges, individually itemized, which are paid or to be paid by such person in connection with
conditional sale, the supplemental deed of conditional sale, as well as the promissory notes; and b) whether or not the transaction but which are not incident to the extension of credit;
respondent Felipe Arcilla, Jr. is mandated to vacate the property and pay rentals for his occupation thereof after the
notarial rescission of the deed of conditional sale was rescinded by notarial act, as well as the supplement executed (5) the total amount to be financed;
by DBP.
(6) the finance charges expressed in terms of pesos and centavos; and
On the first issue, Arcilla avers that under R.A. No. 3765 and CB Circular No. 158, the DBP, as the creditor bank,
was mandated to furnish him with the requisite information in such form prescribed by the Central Bank before (7) the percentage that the finance charge bears to the total amount to be financed expressed as a simple
the commutation of the loan transaction. He avers that the disclosure of the details of the loan contained in the annual rate on the outstanding unpaid balance of the obligation.
deed of conditional sale and the supplement thereto, the promissory notes and release sheet, do not constitute
substantial compliance with the law and the CB Circular. He avers that the required disclosure did not include the
following: Under Circular No. 158 of the Central Bank, the information required by R.A. No. 3765 shall be included in the
contract covering the credit transaction or any other document to be acknowledged and signed by the debtor, thus:
à [T]he percentage of Finance Charges to Total Amount Financed (Computed in accordance with Sec. 2(i) of CB
Circular 158; the Additional Charges in case certain stipulations in the contract are not met by the debtor; Total The contract covering the credit transaction, or any other document to be acknowledged and signed by the debtor,
Non-Finance Charges; Total Finance Charges, Effective Interest Rate, etc. à20 shall indicate the above seven items of information. 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.
Arcilla further posits that the failure of DBP to comply with its obligation under R.A. No. 3765 and CB Circular
No. 158 forecloses its right to rescind the transaction between them, and to demand compliance of his obligation Furthermore, the contract or document shall specify additional charges, if any, which will be collected in case
arising from said transaction. Moreover, the bank had no right to deduct the monthly amortizations from his salary certain stipulations in the contract are not met by the debtor.21
without first complying with the mandate of R.A. No. 3765.
If the borrower is not duly informed of the data required by the law prior to the consummation of the availment or
DBP, on the other hand, avers that all the information required by R.A. No. 3765 was already contained in the loan drawdown, the lender will have no right to collect such charge or increases thereof, even if stipulated in the
transaction documents. It posits that even if it failed to comply strictly with the disclosure requirement of R.A. No. promissory note.22 However, such failure shall not affect the validity or enforceability of any contract or
3765, nevertheless, under Section 6(b) of the law, the validity and enforceability of any action or transaction is not transaction.23
affected. It asserts that Arcilla was estopped from invoking R.A. No. 3765 because he failed to demand
compliance with R.A. No. 3765 from the bank before the consummation of the loan transaction, until the time his In the present case, DBP failed to disclose the requisite information in the disclosure statement form authorized by
complaint was filed with the trial court. the Central Bank, but did so in the loan transaction documents between it and Arcilla. There is no evidence on
record that DBP sought to collect or collected any interest, penalty or other charges, from Arcilla other than those
In its petition in G.R. No. 161397, DBP asserts that the RTC erred in not rendering judgment on its counterclaim disclosed in the said deeds/documents.1avvphi1.zw+
for the possession of the subject property, and the liability of Arcilla for rentals while in the possession of the
property after the notarial rescission of the deeds of conditional sale. For his part, Arcilla (in G.R. No. 161426) The Court is convinced that Arcilla's claim of not having been furnished the data/information required by R.A. No.
insists that the respondent failed to comply with its obligation under R.A. No. 3765; hence, the notarial rescission 3765 and CB Circular No. 158 was but an afterthought. Despite the notarial rescission of the conditional sale in
of the deed of conditional sale and the supplement thereof was null and void. Until DBP complies with its 1990, and DBP's subsequent repeated offers to repurchase the property, the latter maintained his silence. Arcilla
obligation, he is not obliged to comply with his. filed his complaint only on February 21, 1994, or four years after the said notarial rescission. The Court finds and
so holds that the following findings and ratiocinations of the CA are correct:
The petition of Arcilla has no merit.
After a careful perusal of the records, We find that the appellee had been sufficiently informed of the terms and the
requisite charges necessarily included in the subject loan. It must be stressed that the Truth in Lending Act (R.A.
No. 3765), was enacted primarily "to protect its citizens from a lack of awareness of the true cost of credit to the
user

by using a full disclosure of such cost with a view of preventing the uninformed use of credit to the detriment of
the national economy" (Emata vs. Intermediate Appellate Court, 174, SCRA 464 [1989]; Sec. 2, R.A. No.
3765). Contrary to appellee's claim that he was not sufficiently informed of the details of the loan, the records
disclose that the required informations were readily available in the three (3) promissory notes he executed.
Precisely, the said promissory notes were executed to apprise appellee of the remaining balance on his loan when
the same was converted into a regular housing loan. And on its face, the promissory notes signed by no less than
the appellee readily shows all the data required by the Truth in Lending Act (R.A. No. 3765).

Apropos, We agree with the appellant that appellee, a lawyer, would not be so gullible or negligent as to sign
documents without knowing fully well the legal implications and consequences of his actions, and that appellee
was a former employee of appellant. As such employee, he is as well presumed knowledgeable with matters
relating to appellant's business and fully cognizant of the terms of the loan he applied for, including the charges
that had to be paid.

It might have been different if the borrower was, say, an ordinary employee eager to buy his first house and is
easily lured into accepting onerous terms so long as the same is payable on installments. In such cases, the Court
would be disposed to be stricter in the application of the Truth in Lending Act, insisting that the borrower be fully
informed of what he is entering into. But in the case at bar, considering appellee's education and training, We must
hold, in the light of the evidence at hand, that he was duly informed of the necessary charges and fully understood
their implications and effects. Consequently, the trial court's annulment of the rescission anchored on this ground
was unjustified.24

Anent the prayer of DBP to order Arcilla to vacate the property and pay rentals therefor from 1990, a review of the
records has shown that it failed to adduce evidence on the reasonable amount of rentals for Arcilla's occupancy of
the property. Hence, the Court orders a remand of the case to the court of origin, for the parties to adduce their
respective evidence on the bank's counterclaim.

IN LIGHT OF ALL THE FOREGOING, the petition in G.R. No. 161426 is DENIED for lack of merit. The
petition in G.R. No. 161397 is 
PARTIALLY GRANTED. The case is hereby REMANDED to the Regional Trial Court of Antipolo, Rizal,
Branch 73, for it to resolve the counterclaim of the Development Bank of the Philippines for possession of the
property, and for the reasonable rentals for Felipe P. Arcilla, Jr.'s occupancy thereof after the notarial rescission of
the Deed of Conditional Sale in 1990.

Costs against petitioner Felipe P. Arcilla, Jr.

SO ORDERED.

ROMEO J. CALLEJO, SR.

Associate Justice