DISPOSITIVE:

WHEREFORE, the Petition is DENIED. The October 11 , 2016 Decision and December 28, 2016 Resolution of the Court of Appeals in CA[1]G.R. CV No. 105531 is AFFIRMED.

Petitioner Philippine National Bank is ordered to furnish respondents AIC Construction Corporation and the spouses Rodolfo and Aurora Bacani, within 30 days from finality of this judgment, a written detailed accounting of their outstanding loan obligation, with clear explanation of the computation thereof.

The computation of interest on the principal loan obligation of P65 million shall be at the rate of 12% per annum, computed from effectivity of the pertinent loan agreement up to November 17, 2003, the date of issuance of the certificate of sale by the Ex-Officio Sheriff of Mandaluyong City. Interest rate on the conventional interest shall be at the rate of 12% per annum from January 21, 2002, the date of judicial demand, to November 17, 2003.

 The penalty charge imposed on respondents’ loan obligation shall be excluded from the amount secured by the real estate mortgage.

SO ORDERED.

SUBJECTS/DOCTRINES/DIGEST:

WHAT HAPPENED IN THIS CASE?

RESPONDENTS BORROWED FROM PNB. IN 1998 THE PRINCIPAL WAS P40M. BECAUSE OF INTEREST THIS BALOONED TO P162M. PNB THEN FORCLOSED THE PROPERTIES OF RESPONDENTS. RESPONDENTS FILED A CASE FOR ANNULMENT OF INTEREST AND PENALTY INCREASES, ACCOUNTING, EXEMPTION OF FAMILY HOME AND DAMAGES ALLEGING THAT THE INTERESTS WERE EXORBITANT. RTC RULED AGAINST RESPONDENTS. COURT OF APPEALS FOUND THE INTERESTS AS EXORBITANT AND REDUCED THE INTEREST TO THE LEGAL RATE OF 12% PER ANNUM. THE SUPREME COURT AFFIRMED C.A. JUDGMENT.

In this case, this Court notes that petitioner did not contest respondents’ allegations as to the breakdown of the amounts due to it: (i) that respondents’ obligation of P65 million when the loan matured was composed of their actual loan availment of P40 million and P25 million for interest charges; (ii) that at around May 2000, without any additional availments, the amount due became P92 million; (iii) that by April 30, 2001, respondents’ obligation increased to more than Pl 40 million; (iv) that when the amount due became P 162,553,680.50 and after petitioner foreclosed the mortgaged properties, it still wanted to collect deficiency judgment in the amount of Pl 57 million. 63
This Court also notes that respondents have already argued against the loss of
their family home.

DISCUSSION ON WHY THE INTERESTS OF PNB ARE EXORBITANT:

THE INTEREST RATE WAS IMPOSED BY PNB AND RESPONDENTS WERE LEFT WITH NO CHOICE BUT TO AGREE TO IT. THIS VIOLATES REPUBLIC ACT NO.  3765 OR THE TRUTH IN LENDING ACT, WHICH REQUIRES CREDITORS TO FULLY DISCLOSE TO THE DEBTOR ALL AMOUNTS INCIDENTAL TO THE EXTENSION OF THE CREDIT, INCLUDING INTERESTS, DISCOUNTS OR FEES, TO PROTECT DEBTORS FROM A LACK OF AWARENESS OF THE TRUE COST OF CREDIT.

The facts of this case are similar to the facts in Spouses Silos. The interest rates are yet to be determined through a subjective and one-sided criterion. These rates are no longer subject to the approval of respondents. The parties did not agree on the interest rate. Rather, the interest rate was imposed by petitioner, and respondents were left with no choice but to agree to it. This arrangement violates Republic Act No. 3765 or the Truth in Lending Act, which requires creditors to fully disclose to the debtor all amounts incidental to the extension of the credit, including interests, discounts or fees, to protect debtors from a lack of awareness of the true cost of credit.61

RESPONDENTS ARE NOT BOUND BY THE INTEREST RATES UNDER THE CIRCUMSTANCES:

It also cannot be argued that respondents are bound by the interest rates. Spouses Silos also discussed the inequality between the parties in loan and credit arrangements:

The fact that petitioners later received several statements of account detailing its outstanding obligations does not cure respondent’s breach. To repeat, the belated discovery of the true cost of credit does not reverse the ill effects of an already consummated business decision. Neither may the statements be considered proposals sent to secure the petitioners’ conformity; they were sent after the imposition and application of the interest rate, and not before. And even if it were to be presumed that these are proposals or offers, there was no acceptance by petitioners. “No one receiving a proposal to modify a loan contract, especially regarding interest, is obliged to answer the proposal.”

BORROWERS SUCCUMED TO WHATEVER CHARGES THE LENDERS IMPOSE BECAUSE THEY DREAD LEGAL COMPLICATIONS AND CANNOT AFFORD LITIGATIONS. BUT BORROWERS SHOULD BE CHARGED RIGHTLY.

Loan and credit arrangements may be made entlcmg by, or “sweetened” with, offers of low initial interest rates, but actually accompanied by provisions written in fine print that allow lenders to later on increase or decrease interest rates unilaterally, without the consent of the borrower, and depending on complex and subjective factors. Because they have been lured into these contracts by initially low interest rates, borrowers get caught and stuck in the web of subsequent steep rates and penalties, surcharges and the like. Being ordinary individuals or entities, they naturally dread legal complications and cannot afford com1 litigation; they succumb to whatever charges the lenders impose. At the very least, borrowers should be charged rightly; but then again this is not possible in a one-sided credit system where the temptation to abuse is strong and the willingness to rectify is made weak by the eternal desire for profit.

………………………

Besides, that petitioners are given the right to question the interest rates imposed is, under the circumstances, irrelevant; we have a situation where the petitioners do not stand on equal footing with the respondent. It is doubtful that any borrower who finds himself in petitioners’ position would dare question respondent’s power to arbitrarily modify interest rates at any time. In the second place, on what basis could any borrower question such power, when the criteria or standards – which are really one-sided, arbitrary and subjective – for the exercise of such power are precisely lost on him?62 (Emphasis in the original, citations omitted).

INTEREST SHOULD BE CONSISTENT WITH THE DEMANDS FOR SOCIAL JUSTICE.

In a concurring and dissenting opinion in Lara’s G(fts & Decors, Inc. v. Midtown Industrial Sales, Inc. 64 it was discussed how interest should be consistent with the demands of social justice:

As a matter of principle, money itself should not beget money. Money is only generally a store of value. It “has value because people are willing to accept it in exchange for goods and services and in payment for debts.”

Allowing money to produce more money – for instance, lending money at excessive interest rates as a way of increasing money – lays the foundation for a growing wealth disparity, since loans are usually extended by those who are richer (with capital) to those who are poorer (without capital). This does not serve the demands of social justice; that is, “the humanization of laws and the equalization of social and economic forces by the State so that justice in its rational and objectively secular conception may at least be approximated.”

Money should be put to productive use so that the owner, the society, and the less privileged may all share in the benefits to be derived from it. Passive income “adds no new good or service into the market that would be of use to real persons. Instead, it has the tendency to alter the price of real goods and services to the detriment of those who manufacture, labor, and consume products.” The practice of making money out of money skews the economy in favor of speculation and provides a disincentive for real economies.65 (Citations omitted)

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DISPOSITIVE:

WHEREFORE, the petition is GRANTED. The assailed Decision dated March 27, 2014 and Resolution dated July 11, 2014 of the Court of Appeals in CA-G.R. SP No. 122846 are hereby REVERSED and SET ASIDE. The Resolution of the Department of Agrarian Reform Adjudication Board dated December 16, 2011 which declared Lot No. 554-D-3 EXEMPT from the coverage of the Comprehensive Agrarian Reform Program and consequently ordered the CANCELLATION of the Certificates of Land Ownership Award issued in the name of respondents is hereby REINSTATED.

SO ORDERED.

SUBJECTS/DOCTRINES/DIGEST:

WHAT HAPPENED IN THIS CASE?

IN THIS CASE RESPONDENT AND CA RELIED ON AN ORDER OF THE DAR SECRETARY WHICH PERTAINS TO OTHER LOTS. THE LOT IN QUESTION WAS ALREADY DECLARED AS EXEMPTED FROM DAR COVERAGE AND IN FACT WAS ALREADY EXPROPRIATED AND IS NOW PART OF SCTEX.

To the Court’s mind, the resolution of the DAR Secretary in DARCO Order No. EX-0712-489 was precisely the reason why the DARAB reversed its earlier decision and upheld the exemption granted to SVHFI. As correctly found by the DAR Secretary, respondents could not have derived any vested right over the subject property despite the issuance of CLOAs in their favor because the coverage of the property was erroneous to begin with. SVHFI, as original owner of Lot No. 554-D-3, was never divested of its rights over the same, including the right to apply for exemption. What is more, the results of the ocular inspection revealed that majority of the portions of Lot No. 554-D[1]3 have already been developed into what is now known as the SCTEX. This, in itself, is a clear indication that the land had indeed been reclassified into non-agricultural purposes and no longer feasible for agricultural production. To hold otherwise would not only be a waste of government resources, but also expand the scope of the agrarian reform program which has been limited to lands devoted to or suitable for agriculture.

As pronounced by the CA itself, the findings of the DAR Secretary are accorded great weight and respect. Considering his technical expertise on the matter, courts cannot simply brush aside his pronouncements regarding status of a land, a subject well within his field, absent palpable and overriding error or grave abuse of discretion that would result in manifest injustice and grave misapplication of the law.

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DISPOSITIVE:

WHEREFORE, premises considered, the petition is GRANTED. The Decision dated April 16, 2015 and Resolution dated February 4, 2016 of the Court of Appeals (CA) in CA-G.R. SP No. 131302 are hereby REVERSED and SET ASIDE. The formal charge and order of suspension are hereby declared invalid and without legal effect.

The payment of back salaries owed to Stefani C. Sano shall be either in the form of leave credits, ifhe is still active in government service, OR leave credits monetized at the current rate for the position he formerly occupied, at his option.

SO ORDERED.

SUBJECTS/DOCTRINES/DIGEST:

WHAT HAPPENED IN THIS CASE?

GARCIA ISSUED A FORMAL CHARGE AGAINST SANO FOR GRAVE MISCONDUCT, GROSS NEGLECT OF DUTY  ETC WITHOUT CONDUCTING PRELIMINARY INVESTIGATION SINCE HE SAID HE PERSONALLY WITNESSED THE ACTS OF PETITIONER. SUPREME COURT SAID THIS IS IN VIOLATION OF DUE PROCESS. THERE SHOULD BE A SHOW CAUSE ORDER FIRST AND THEN A PRELIMINARY INVESTIGATION.

In the present case, Garcia gravely deviated from the procedure outlined in the RRACCS .. Garcia issued a formal charge arid order of preventive suspension charging petitioner with grave misconduct, gross neglect of duty, dishonesty and cj:mduct prejudicial to the interest of the · service without undergoing preliminary investigation. Garcia claimed that he need not conduct preliminary investigation since he personallywitnessed the acts of petitioner, hence, there is already a prima facie case to support a formal charge.

To recapitulate, if it is the disciplining authority that initiated the administrative process, there is a need to issue a show-cause order directing the person complained of, to explain the acts complained of. Then there should be a preliminary investigation to determine whether there is a clear-cut case.

WHAT IS THE PURPOSE OF THE REQUIRED PROCEDURE OF PRELIMINARY INVESTIGATION?

TO PROTECT THE CONSTITUTIONAL RIGHT OF A PERSON CHARGED OF AN ADMINISTRATIVE OFFENSE TO BE HEARD.

After the determination of a prima facie case, a formal charge will be issued, and the person charged will be made to submit an answer. These procedural steps are anchored on protecting the constitutional right of a person charged of an administrative offense, to be heard. This is because a violation of such process raises a serious jurisdictional issue that cannot be glossed over or disregarded at will. The constitutional guarantee that no man shall be deprived of life, liberty, or property without due process is unqualified by the type of proceedings where he/she stands to lose the same.

WHAT IS THE EFFECT OF VIOLATING THE DUE PROCESS PROCEDURE?

THE FORMAL CHARGE AND ORDER OF PREVENTIVE SUSPENSION ARE INVALID AND WITHOUT LEGAL EFFECT.

In the present case, the procedural faux pas committed by Garcia consists in committing a shortcut on the administrative process by issuing a formal charge and the order of suspension without issuing a show cause order and subsequently conducting a preliminary investigation. As a result of violating the constitutional right of petitioner to due process, the formal charge and the order of preventive suspension has no legal leg to stand on. Thus, the formal charge and the order of preventive suspension are declared to be invalidly issued and without legal effect.

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