DEVELOPMENT BANK OF

THE PHILIPPINES
VS
GUARIA AGRICULTURAL
AND
REALTY DEVELOPMENT
CORPORATION
(G.R. No. 160758, January 15, 2014)
FACTS OF THE CASE
 Guaria Corporation applied for a loan in the amount
of P3,387,000 from DBP to finance the development of
its resort complex situated in Iloilo.

The Corporation executed a promissory note, a real

estate mortgage, and a chattel mortgage in favor of
DBP as security for the repayment of the loan.

The DBP released the loan in several installments but

had remained a balance to be release. Guaria
Corporation demanded the release of the balance of the
loan but the bank refused. Instead, directly paid some
suppliers of Guaria Corporation over the latter's
objection.
 DBP inspected and found that the resort had not yet
been completed the construction works. Thus, DBP
demanded that Guaria Corporation expedite the
completion of the project, and warned that it would
initiate foreclosure proceedings for its non-
performance.

However, the corporation did not comply and object the

bank which lead to the initiation of extrajudicial
foreclosure proceedings of the mortgage property of
Guaria Corporation to the DBP.
ISSUE OF THE CASE
Whether or not the DBP (mortgagee) may
validly foreclose the mortgage of Guaria
Corporation which was executed to secure
the loan when said loan was not fully
released by the former?
THE RULING OF THE
SUPREME COURT
 NO. The Court held that DBP foreclosure of a
mortgage prior to Guaria Corporation default on
the principal obligation is premature.

Under the law, the foreclosure of mortgage shall be

made upon the default or non-payment of the
mortgagor.

In this case, the loan agreement between DBP and

Guaria Corporation is not yet fulfilled because the
bank refused to release the remaining proceeds in
favor to the said corporation.
 Thus, DBP acted beyond his authority that should
be undone for being void and ineffectual, and
should restore the possession of the property to
Guaria Corporation and to pay reasonable rent
for the use of the property during the intervening
period.
OTHER IMPORTANT
ISSUE AND TERMS
What is a Loan and
the Significance of Loan being a
reciprocal obligation?
 A Loan requires the delivery of money or any other
consumable object by one party to another who
acquires ownership thereof, on the condition that the
same amount or quality shall be paid.

A Loan is a reciprocal obligation, where the obligation

of one party is dependent upon the obligation of the
other, and the performance should ideally be
simultaneous.
 The significance of a loan being reciprocal
obligation:
-The creditor should release the full loan
amount before he can demand the payment or the
debtor repays it when it becomes due and
demandable.
-The debtor cannot be obliged to pay while the
creditors obligation remains unfulfilled.
-The debtor does not incur delay if the creditor
does not perform the condition of the agreement.
What is the degree of diligence required
of banks in their acts of accepting mortgages
and foreclosing said mortgages?
 Banking Institution need to exercise the highest
degree of diligence, as well as to observe the high
standards of integrity and performance in all its
transactions because its business was imbued with
public interest.

The purpose is to ensure public confidence in the

banking system

Philippine National Bank v. Pike:

-The stability of banks largely depends on the
confidence of the people in the honesty and efficiency
of banks."
 Doctrine
of the
Law of the Case
 It is defined as the opinion delivered on a former appeal,
and means, more specifically, that whatever is once
irrevocably established as the controlling legal rule of
decision between the same parties in the same case
continues to be the law of the case, whether correct on
general principles or not, so long as the facts on which
such decision was predicated continue to be the facts of
the case before the court

Without the rule, there would be no end to criticism, re-

agitation, reexamination, and reformulation. In short,
there would be endless litigation.
 THE END
THANK YOU!!!