UNITED COCONUT PLANTERS BANK, petitioner, vs.

SPOUSES SAMUEL and ODETTE BELUSO,

respondents.
G.R. No. 159912. August 17, 2007

CHICO-NAZARIO, J p:

FACTS:
 UCPB granted spouses Beluso a Promissory Notes Line under a Credit Agreement whereby the latter
could avail from the former credit up to the maximum amount of P1.2 M, which was amended to
increase P2.35 M.
 Spouses Beluso have executed a total of 5 promissory notes, the last two of which they claim to have
never been released to them.
 In any case, UCPB applied interest rates on the different promissory notes ranging from 18% to 34%,
and thereafter continued to charge interests and penalties.
 When the respondents failed to make payments, UCPB foreclosed their mortgaged properties.
 Respondents filed a petition for annulment thereof.
 RTC ruled in favor of respondents and the CA affirmed.
 It was ruled that the provision on interest rates agreed upon by the parties is void as the rates and
bases therefor were determined solely by the petitioner. UCPB argues that there is no violation of the
principle of mutuality of contracts, and assuming there is, it was already cured by estoppel on the part
 of respondents.

ARGUMENTS OF UCPB
RE: Validity of the int rates
 While the rate was not quantified in the face of the promissory notes, it was fixed at the time of
execution as: “at the rate indicative of the DBP retail rate.” This must be read with another stipulation in
the promissory note that states: “the int rate may be increased or decreased by the lender considering,
among others, the prevailing financial and monetary conditions, OR the rate and charges which other
banks or financial institutions offer to charge for similar conditions, AND/OR the resulting profitability to
the LENDER after due consideration with the borrower.”
 These are valid reference rates akin to a “ prevailing rate” or “ prime rate allowed in Polotan v. CA
 The imposition of the int rates did not infringe on the mutuality of contracts bec the Belusos chose
whether to renew their credit. Assuming there was any defect, it was cured by the subsequent act of
availing of the credit line from Apr 1996-Feb 1998 without protest. Therefore, they are in estoppel

RE: Liability for violating the Truth in Lending Act

 Barred by the 1 yr prescriptive period (latest of the promissory notes was executed on Jan 2, 1998, but
orig petition was filed on Feb9, 1999)
 The original complain did not explicitly allege a violation of the Truth in Lending Act and no action to
formally admit the amended petition was made
 Being a criminal offense, it cannot be inferred nor implied from the allegations

ISSUE:
Are the interest rates valid? NO
Is UCPB liable for violation of the Truth In Lending Act? YES

FALLO: WHEREFORE, the Decision of the Court of Appeals is hereby AFFIRMED with the following
MODIFICATIONS ….

HELD:

RE: Validity of the interest rates

 SC disagrees with the UCPB.
  (PNB v. CA: There must be mutuality.) The provision: “interest shall be at the rate indicative of DBD
retail rate OR as determined by the Branch Head” means the interest rates are solely on the will of
UCPB. Under the provision, UCPB has 2 choices:
1. Rate indicative of the DBD rate
2. 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 interest rate
provision violative of the principle of mutuality
 In this case, BOTH are dependent solely on the will of UCPB. In the case of the “ rate indicative of the
DBD rate ” it is not akin to a “prevailing/prime rate ” in Polotan. In Polotan, the interest rate was “
interest per annum at 3% interest plus the prime rate of Security Bank and Trust Company”
o In the case: there is a fixed margin over the reference rate: 3%. Parties can easily determine the
rate by applying simple arithmetic
o In UCPB’ s provision, there is no specification of any margin above or below the DBD retail rate.
It can peg the interest at any percentage above or below the DBD retail rate (giving it unfettered
discretion in determining the int rate
 Also, the stipulation that the interest rate is subjected to a review is given to UCPB alone as the lender.
(interest rate MAY be increased or decreased by the LENDER considering: prevailing financial and
monetary conditions, rate of other banks or financial institutions, resulting profitability to the lender)

RE: Liability for violating the Truth in Lending Act

 CA says (and the SC agrees): there was no explicit allegation but the infringement may be inferred from
the allegations when the Belusos executed the promissory notes, the interest charged were left blank.
Thus, UCPB failed to discharge its duty to disclose in full to the Belusos the charges applicable on their
loans.
 SC says: 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.”
o 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

NOTES:
RA 3765, otherwise known as the “Truth in Lending Act.”
 Section 6(a) of the Truth in Lending Act which mandates the filing of an action to recover such penalty
must be made under the following circumstances:
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 charge required by such creditor in
connection with such transaction, whichever is 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.

Rationale: to protect the public from hidden or undisclosed charges on their loan obligations, requiring a full
disclosure thereof by the lender.

 Section 4 of the Truth in Lending Act clearly provides that the disclosure statement must be furnished
prior to the consummation of the transaction:

SEC. 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.

Rationale: to protect users of credit from a lack of awareness of the true cost thereof, proceeding from the
experience that banks are able to conceal such true cost by hidden charges, uncertainty of interest rates,
deduction of interests from the loaned amount, and the like. The law thereby seeks to protect debtors by
permitting them to fully appreciate the true cost of their loan, to enable them to give full consent to the contract,
and to properly evaluate their options in arriving at business decisions.