Development Bank of the Philippines v.

Arcilla

FACTS:

Atty. Felipe P. Arcilla, Jr. was employed by the Development Bank of the
Philippines (DBP) in October 1981. He availed of an Individual Housing Project loan
sometime in 1982. In 1983, DBP and Arcilla executed a Deed of Conditional Sale over a
parcel of land, including the house to be constructed on the property, for P160,000.00.
Arcilla borrowed the amount from DBP for the purchase of the lot and the construction
of the house. The loan was payable in 25 years, with a P1,417.91 amortization per
month, at 9% interest per annum.

DBP gave Arcilla the option of converting his loan into a regular loan if he retired
early. By 1985, the amortization amount increased to P1,691.51. Arcilla opted for early
retirement in 1986, and so the loan was converted into a regular loan. In 1987, Arcilla
signed three promissory notes amounting to P186,364.15, and was obliged to pay
service charges and interest. DBP reserved the right to increase or decrease the interest
rate of the loan as well as other charges and fees, with prior notice to Arcilla. DBP later
granted Arcilla a cash advance of P32,000.00, at 9% per annum, which was consolidated
to the oustanding balance of Arcilla’s original balance.

Arcilla later defaulted on payments. As of October 31, 1990, the outstanding

balance was P241,940.93, including interest, fees, and penalties. DBP rescinded the
Conditional Sale Agreement in 1990, but in January 1992 DBP offered Arcilla the
opportunity to repurchase the lot upon full payment of the current appraisal or the
updated total, whichever was higher. This offer was reiterated in October 7, 1992.
Arcilla did not respond. DBP placed the property up for sale at public bidding on
February 14, 1994.

Arcilla filed a case against DBP, alleging that DBP failed to furnish him with the
disclosure statement required by Republic Act (R.A.) No. 37651 and Central Bank (CB)
Circular No. 1582 prior to the execution of the deed of conditional sale and the
1
From the case: Section 1 of R.A. No. 3765 provides that prior to the consummation of a loan
transaction, the bank, as creditor, is obliged to furnish a client with a clear statement, in writing, setting
forth, to the extent applicable and in accordance with the rules and regulations prescribed by the Monetary
Board of the Central Bank of the Philippines, 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 charges expressed in terms of pesos and centavos; and
(7) the percentage that the finance charge bears to the total amount to be financed
expressed as a simple annual rate on the outstanding unpaid balance of the obligation.
2
Also from the case: Under Circular No. 158 of the Central Bank, the information required by R.A. No. 3765 shall be
conversion of his loan account with the bank into a regular housing loan account. DBP
countered that it substantially complied with R.A. No. 3765 and CB Circular No. 158
because the details required were disclosed in the promissory notes, deed of conditional
sale and the required notices sent to Arcilla. DBP further argued that its failure to
comply strictly with R.A. No. 3765 did not affect the validity and enforceability of the
loan agreement. DBP interposed a counterclaim for the possession of the property.

The RTC ruled in Arcilla’s favor, ordering DBP to furnish Arcilla with the required
disclosures, and rendered DBP’s rescission null and void. On appeal, however, the Court
of Appeals reversed the RTC, ruling that DBP substantially complied with R.A. No.
3765 and CB Circular No. 158. Both parties appealed to the Supreme Court: Arcilla, for
a reversal of the CA ruling and reversion to the RTC ruling, and DBP for partial
reconsideration in asking the CA to order Arcilla to vacate the property.

Issues:

1. Was DBP compliant with R.A. No. 3765 and CB Circular No. 158?
2. Was Arcilla liable to vacate the property and pay rentals for his occupation of the
property from the time of the notarial rescission?

Ratio: If the borrower is not duly informed of the data required by the law prior to the
consummation of the availment or drawdown, the lender will have no right to collect
such charge or increases thereof, even if stipulated in the promissory note. However,
such failure shall not affect the validity or enforceability of any contract or transaction.

Held:

1. Yes, DBP substantially complied with R.A. No. 3765 and CB Circular No. 158.
The Court found that DBP failed to disclose the requisite information in the disclosure
statement form. Ordinarily, the lender has no right to collect any interest, charges, or
fees without due notice to the borrower. However, DBP , did include such information
on interests, charges, fees, and penalties in the loan transaction documents between it
and Arcilla. The Court considered this as subtantial compliance. Additionally, there was
no evidence that DBP sought to collect interest, charges, or fees beyond what was
contained in the documents provided to Arcilla.

2. Yes, Arcilla is liable to vacate the property, but the Court made no ruling on the
issue of rentals. The Court adopted the findings of the CA, stating that had Arcilla been
an ordinary borrower, it would have been inclined to be stricter in the application of the

included in the contract covering the credit transaction or any other document to be acknowledged and signed by the
debtor, thus:

The contract covering the credit transaction, or any other document to be acknowledged and signed by the debtor,
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.

Furthermore, 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.
Truth in Lending Act, insisting that the borrower be fully informed of what he is
entering into. However, the Court noted that Arcilla was a lawyer, and so presumed that
Arcilla would not be so negligent as to sign papers he had not carefully studied.
Additionally, as an employee of DBP, Arcilla ought to have known the terms of the loan
he was applying for.

The Court remanded the matter of the determination of rental payments to the RTC,
as no evidence was adduced by DBP with respect to such rentals.

Disposition: Arcilla’s appeal is DENIED, CA ruling is UPHELD; case remanded to RTC

for determination of reasonable rental payments.