REAL CONTRACTS

BPI Investment Corp V. CA (2002)

Facts:

Frank Roa obtained a loan with interest rate of 16 1/4%/annum from Ayala Investment
and Development Corporation (AIDC), the predecessor of BPI Investment Corp. (BPIIC), for
the construction of a house on his lot in New Alabang Village, Muntinlupa.

He mortgaged the house and lot to AIDC as security for the loan.

1980: Roa sold the house and lot to ALS Management & Development Corp. and Antonio
Litonjua for P850K who paid P350K in cash and assumed the P500K indebtness of ROA with
AIDC.

AIDC proposed to grant ALS and Litonjua a new loan for P500K with interested
rate of 20%/annum and service fee of 1%/annum on the outstanding balance payable within
10 years through equal monthly amortization of P9,996.58 and penalty interest of
21%/annum/day from the date the amortization becomes due and payable.

March 1981: ALS and Litonjua executed a mortgage deed containing the new stipulation
with the provision that the monthly amortization will commence on May 1, 1981

August 13, 1982: ALS and Litonjua paid BPIIC P190,601.35 reducing the P500K principal
loan to P457,204.90.

September 13, 1982: BPIIC released to ALS and Litonjua P7,146.87, purporting to be
what was left of their loan after full payment of Roas loan

June 1984: BPIIC instituted foreclosure proceedings against ALS and Litonjua on the
ground that they failed to pay the mortgage indebtedness which from May 1, 1981 to June
30, 1984 amounting to P475,585.31

August 13, 1984: Notice of sheriff's sale was published

February 28, 1985: ALS and Litonjua filed Civil Case No. 52093 against BPIIC alleging
that they are not in arrears and instead they made an overpayment as of June 30, 1984 since
the P500K loan was only released September 13, 1982 which marked the start of the
amortization and since only P464,351.77 was released applying legal compensation the
balance of P35,648.23 should be applied to the monthly amortizations

RTC: in favor of ALS and Litonjua and against BPIIC that the loan granted by BPI to ALS
and Litonjua was only in the principal sum of P464,351.77 and awarding moral damages,
exemplary damages and attorneys fees for the publication

CA: Affirmed reasoning that a simple loan is perfected upon delivery of the object of the
contract which is on September 13, 1982
ISSUE: W/N the contract of loan was perfected only on September 13, 1982 or the second
release of the loan?
HELD: YES. AFFIRMED WITH MODIFICATION as to the award of damages. The award of
moral and exemplary damages in favor of private respondents is DELETED, but the award to
them of attorneys fees in the amount of P50,000 is UPHELD. Additionally, petitioner is
ORDERED to pay private respondents P25,000 as nominal damages. Costs against petitioner.

obligation to pay commenced only on October 13, 1982, a month after the perfection of
the contract

contract of loan involves a reciprocal obligation, wherein the obligation or promise of each
party is the consideration for that of the other. It is a basic principle in reciprocal obligations
that neither party incurs in delay, if the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. Consequently, petitioner could only
demand for the payment of the monthly amortization after September 13, 1982 for it was only
then when it complied with its obligation under the loan contract.

BPIIC was negligent in relying merely on the entries found in the deed of mortgage,
without checking and correspondingly adjusting its records on the amount actually released
and the date when it was released. Such negligence resulted in damage for which an award
of nominal damages should be given

SSS where we awarded attorneys fees because private respondents were compelled to
litigate, we sustain the award of P50,000 in favor of private respondents as attorneys fees
CENTRAL BANK OF THE PHILIPPINES and Acting Director Antonio T. Castro, Jr. of the
Dept. of Commercial and Savings Bank, in his capacity as statutory receiver of Island
Savings Bank, petitioners, vs. COURT OF APPEALS and Sulpicio M. Tolentino,
respondents [1985]

Apr 28, 1965: Tolentinos loan application of P80k w/the Island Savings Bank (ISB) was
approved. As security, he executed a real estate mortgage over his 100-hec land in Cubo,
Las Nievas, Agusan. Terms of the loan:
1. lump sum loan of P80k
2. repayable in semi-annual installments for 3 yrs w/12% annual interest
3. loan to be used solely as an additional capital to develop his other property into a
subdivision

May 22, 1965: P17k partial release. Tolentino & his wife signed a promissory note
for such amount at 12% annual interest payable in 3yrs from date of execution of contract at
semi-annual installments of P3,459.00. Advance 6-month interest for the P80k loan was
deducted from the P17k amounting to P4,800.00. But such amount was refunded to Tolentino
on July 23, 1965. No fund available yet for the P63k balance.

Aug. 13, 1965: Monetary Board of Central Bank issued Resolution No. 1049
finding ISB suffering liquidity problems. Bank was prohibited making new loans & investments
except in govt securities & loans already approved subj to the review of the Supt of Banks
who may impose certain limitations.

June 14, 1968: Monetary Board issued Resolution No. 967 finding that ISB failed
to put up required capital to restore its solvency. Bank prohibited from doing business in RP &
Acting Supt of Banks to take charge of ISBs assets.

Aug. 1, 1968: due to Tolentinos failure to pay P17k covered by promissory note,
ISB filed for extra judicial foreclosure of the real estate mortgage. Sheriff scheduled auction
for Jan. 22, 1969.

Jan. 20, 1969: Tolentino filed a petition for injunction, specific performance or
recission & damages w/prelim injunction alleging that since ISB failed to deliver P63k
balance, hes entitled to specific performance by ordering delivery of balance w/12% per
annum interest from Apr. 28, 1965 & if such cant be done, to rescind mortgage. Court issued
TRO.

CFI: ordered Tolentino to pay ISB P17k + legal interest & charges due and TRO
lifted so foreclosure may proceed.

CA: Affirmed dismissal of Tolentinos petition but ruled that ISB can neither
foreclose mortgage nor collect P17k loan.
Issues & Ratio:

1.

WON ISBs defenses in its failure to fulfill its obligation are acceptable NO
In reciprocal obligations such as in this case, obligation/promise of each party is
the consideration for that of the other. When one party has performed or is ready & willing to
perform his part, the other party who has not yet performed or is not ready & willing incurs in
delay (CC Art. 1169). Thus, consideration for Tolentinos promise to pay was ISBs obligation
to furnish P80k loan. Oblig began when Tolentino executed real estate mortgage and it lasted
until Central Bank issued Resolution No. 967 w/c made it legally impossible for ISB to furnish
the balance. Resolution No. 1049 cant interrupt ISBs default in complying w/its oblig since it
did not prohibit bank from releasing the loan balance of loan agreements previously
contracted.

Mere pecuniary inability to fulfill an engagement does not discharge the oblig of
the contract nor does it constitute any defense to a decree of specific performance (Gutierrez
Repide v. Afzelius) and mere fact of insolvency of a debtor is never an excuse for the nonfulfillment of an oblig but instead its taken as a breach of contract by him (CJS).

Fact that Tolentino demanded & accepted the refund of pre-deducted 6-month
interest of P4,800 cant be taken as a waiver of his rt to collect balance. In fact, collection of
the pre-deducted interest was improper considering that only P17k was released. A person
cant be legally charged interest for a non-existing debt. In accepting the refund, Tolentino
was only exercising his rt.

ISB claims that there was an overvaluation of the loan collateral. But such does
not exempt it from complying w/its reciprocal oblig. Bank officials should exercise caution &
prudence in the discharge of their functions by investigating existence & valuation of
properties being offered as loan security. They cant rely merely on the customers
representation. Besides, lower court prevented petitioner from presenting proof on alleged
over-valuation because of their failure to raise the same in their pleadings in effect waiving
their right to do so (ROC Sec. 9, Rule 9). Thus, such cant be raised in the SC.
2.
WON a an action for specific performance can prosper NO
ISB is now prohibited from doing further business by Monetary Board Resolution No. 967.
3.
WON recission is proper YES

But only for the P63k balance w/c ISB failed to deliver.

Tolentino is bound by the promissory note he released WRT the P17k loan. He
has a reciprocal oblig to pay such when it falls due. So WRT to this amount, hes not entitled
to recission since hes also a party in default (CC Art. 1191). As a matter of fact, rt to rescind
belongs to the aggrieved party, ISB. Had he not signed a promissory note, Tolentino would be
entitled to ask for recission of entire loan there being no date for him to perform his reciprocal
oblig to pay.

Since both parties were in default, theyre both liable for damages.

CC Art. 1192: In case both parties committed a breach of their reciprocal

obligations, the liability of the first infractor shall be equitably tempered by the courts. Thus,
ISBs liability for damages is offset by Tolentinos liability for damages in the form of penalties
& surcharges.

The liability of Tolentino for the interest of the P17k debt shall not be included in
offsetting the liabilities of both parties since he derived some benefit for his use of said
amount. But Tolentinos real estate mortgage cant be entirely foreclosed to satisfy his P17k

debt. Note that the consideration of the accessory contract of the real estate mortgage is the
same as that of the principal contract. In both instances, the consideration of the debtors
oblig to pay is the existence of a valid, voidable or unenforceable debt (CC Art. 2086 in
relation to Art. 2052). The consideration in executing a mortgage may either be a prior or
subsequent matter. But when the consideration is subsequent, the mortgage can only take
effect when the debt secured by it is created as a binding contract to pay. And when theres
partial failure of consideration, the mortgage becomes unenforceable to the extent of such
failure. The mortgage cant be enforced for more than the actual sum due (Metropolitan Life
Ins. v Peterson). Since ISB failed to furnish the P63k balance, the mortgage is unenforceable
to such extent w/c is 78.75% of the total loan. Thus, 78.75 of the 100-hec mortgage is
unenforceable. The remaining 21.25 hec is more than sufficient to secure the P17k debt.
CC Art. 2089s rule on indivisibility of real estate mortgage is not applicable since
such rule presupposes several heirs of the debtor/creditor w/c is not the case here.

Holding:
1.

Tolentino to pay ISB P17k + P41,210.00 as 12% interest per annum from May 22, 1965
to Aug. 22, 1985 and 12% interest on total amount counted from Aug. 22, 1985 until paid.
2.
In case Tolentino fails to pay, his real estate mortgage of 21.25 hec shall be foreclosed to
satisfy his total indebtedness.
3.
78.75 hec real estate mortgage is unenforceable & ordered released in favor of
Tolentino.