2014 Case Digest: Development Bank v. Guarina




G.R. No. 160758               January 15, 2014


PONENTE: Bersamin, J.

TOPIC: Contracts, Delay


                In July 1976, Guariña Corporation applied for a loan from DBP to finance the development of its resort complex. The loan, in the amount of P3,387,000.00, was approved on August 5, 1976. Guariña Corporation executed a promissory note that would be due on November 3, 1988. On October 5, 1976, Guariña Corporation executed a real estate mortgage over several real properties in favor of DBP as security for the repayment of the loan. On May 17, 1977, Guariña Corporation executed a chattel mortgage over the personal properties existing at the resort complex and those yet to be acquired out of the proceeds of the loan, also to secure the performance of the obligation. Prior to the release of the loan, DBP required Guariña Corporation to put up a cash equity of P1,470,951.00 for the construction of the buildings and other improvements on the resort complex.

                The loan was released in several installments, and Guariña Corporation used the proceeds to defray the cost of additional improvements in the resort complex. In all, the amount released totaled P3,003,617.49, from which DBP withheld P148,102.98 as interest.

                Guariña Corporation demanded the release of the balance of the loan, but DBP refused. Instead, DBP directly paid some suppliers of Guariña Corporation over the latter’s objection. DBP found upon inspection of the resort project, its developments and improvements that Guariña Corporation had not completed the construction works. In a letter dated February 27, 1978, and a telegram dated June 9, 1978, DBP thus demanded that Guariña Corporation expedite the completion of the project, and warned that it would initiate foreclosure proceedings should Guariña Corporation not do so.10

                Unsatisfied with the non-action and objection of Guariña Corporation, DBP initiated extrajudicial foreclosure proceedings


                Whether or not Guarina was in delay in performing its obligation making DBP’s action to foreclose the mortgage proper.


                NO. The Court held that the foreclosure of a mortgage prior to the mortgagor’s default on the principal obligation is premature, and should be undone for being void and ineffectual. The mortgagee who has been meanwhile given possession of the mortgaged property by virtue of a writ of possession issued to it as the purchaser at the foreclosure sale may be required to restore the possession of the property to the mortgagor and to pay reasonable rent for the use of the property during the intervening period.

                The agreement between DBP and Guariña Corporation was a loan. Under the law, 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. Loan is a reciprocal obligation, as it arises from the same cause where one party is the creditor, and the other the debtor. The obligation of one party in a reciprocal obligation is dependent upon the obligation of the other, and the performance should ideally be simultaneous. This means that in a loan, the creditor should release the full loan amount and the debtor repays it when it becomes due and demandable.

                The loan agreement between the parties is a reciprocal obligation. Appellant in the instant case bound itself to grant appellee the loan amount of P3,387,000.00 condition on appellee’s payment of the amount when it falls due. The appellant did not release the total amount of the approved loan. Appellant therefore could not have made a demand for payment of the loan since it had yet to fulfil its own obligation. Moreover, the fact that appellee was not yet in default rendered the foreclosure proceedings premature and improper.

                By its failure to release the proceeds of the loan in their entirety, DBP had no right yet to exact on Guariña Corporation the latter’s compliance with its own obligation under the loan. Indeed, if a party in a reciprocal contract like a loan does not perform its obligation, the other party cannot be obliged to perform what is expected of it while the other’s obligation remains unfulfilled. In other words, the latter party does not incur delay.

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