AUTHORSHIP INFORMATION

Digest Author Grace Ann Tamboon

Topic Credit Transactions Interest Rates /TILA
CASE INFORMATION
Petitioner(s) United Coconut Planters Bank
Respondent(s) Spouses Samuel and Odette Beluso
Reference G.R. No. 159912 August 17, 2007
Ponente Justice Chico-Nazario
DOCTRINE(S)

The principle of mutuality requires that the lender and the borrower agree to an interest rate
that is mutually beneficial and does not unfairly advantage one party over the other.

Lenders must provide borrowers with a clear and accurate disclosure of the terms and
conditions of the loan, including the interest rate, fees, and other charges.

CASE SUMMARY
Apr 16, 1996: UCPB granted the Sps Beluso a Promissory Notes Line
under a Credit Agreement whereby the Belusos could avail a credit up to
a max amt of P1.2M for a term ending on Apr 30, 1997. The Belusos, in
addition to the promissory notes, executed a real estate mortgage over
Pertinent some land in Roxas as additional security.
Facts
Later, their Credit Agreement was amended to increase the amount of the
Promissory Notes Line to P2.3M. The term was also amended: extended
to Feb 23, 1998.

The Belusos availed of 3 promissory notes amounting to P2M, which were

renewed several times. Apr 30, 1997, the payment of the principal +
interest of the last 2 notes was debited form their account with UCPB (both
added up to P1.3 mil). Later, a loan of P1.3mil was still released to them
under a promissory note whose due date was Feb 28, 1998. (Meaning their
loan was still an even P2M)
To completely avail of the P2.35 mil credit line, they executed 2 more
promissory notes amounting to P350k. However, they allege that the notes
were never released to them, so they claim that their debt is still only P2M
UCPB applied interest rates on the promissory notes ranging from 18% to
34%:

• From 1996 to Feb 1998, the Belusos paid P763k.

• From Feb 1998 to June 1998, UCPB charged them interests and
penalties.

The Belusos failed to make any payment on these. Sept 1998, UCPB
demanded pay P2.93 mil PLUS 25% atty fees. Belusos did not pay.
 PROCEDURAL HISTORY
Interest rate provided in the promissory notes are void. Imposed fine of
RTC P26k for violating the Truth in Lending Act.

CA Affirmed RTC ruling because the rates were determined solely by the
UCPB.

Relevant 1. Are the interest rates valid? NO

Issue(s) 2. Is UCPB liable for violation of the Truth in Lending Act? YES

The case is a dispute UCPB and the Belusos regarding a credit agreement
and promissory notes line. The Belusos allege that the two additional
Analysis promissory notes were never released to them, while UCPB applied
interest rates ranging from 18% to 34%. The Belusos paid P763,000 from
1996 to February 1998, but failed to make any payments on interests and
penalties charged by UCPB. The RTC ruled that the interest rate provided
in the promissory notes was void, and the CA affirmed the decision due to
the lack of transparency in determining the rates.

RE: Interest Rates’ Validity

SC disagrees with the UCPB. (PNB v. CA: There must be mutuality.) The
Ruling(s) & provision: “interest shall be at the rate indicative of DBD retail rate OR as
Rationale determined by the Branch Head” means the interest rates are solely on the
will of UCPB. Under the provision, UCPB has 2 choices:
• Rate indicative of the DBD rate
• Rate as determined by the branch head.
Because UCPB has the choice, the rate should be determinable in BOTH
choices. If either gives UCPB to determine the rate at will, then the bank
can just do that, thus making the entire int rate provision violative of the
principle of mutuality.

RE: Liability for violating the Truth in Lending Act

SC held that the allegations in the complaint are controlling. SC adds some
other parts in the complaint from which some violations can also be
inferred: “unilaterally imposed an increased interest rate by relying on the
provision in the promissory note that granted it the power to unilaterally fix
the interest rate. Such interest rate was not determined in the promissory
note but was left solely to the will of the branch head.” this means the
promissory notes did not contain a clear statement in writing of the finance
charge expressed in terms of pesos and centavos/the percentage that the
finance charge bears to the amount to be financed expressed as a simple
annual rate on the outstanding unpaid balance of the obligation.

Dispositive: SC modified the CA’s decision.