Development Bank of the Philippines v.

Arcilla
Petition for certiorari
June 30, 2005
Ponente: Callejo, Sr., J.
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 Arcillas 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 DBP rescinded the Conditional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)
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)

Circular No. 1582 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. 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 Arcillas favor, ordering DBP to furnish Arcilla with the required
disclosures, and rendered DBPs 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
(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
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.

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
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: Arcillas appeal is DENIED, CA ruling is UPHELD; case remanded to RTC
for determination of reasonable rental payments.
Prepared by: Juan G. M. Ragragio