1/23/2015

G.R.No.L45710

TodayisFriday,January23,2015

RepublicofthePhilippines
SUPREMECOURT
Manila
SECONDDIVISION
G.R.No.L45710October3,1985
CENTRALBANKOFTHEPHILIPPINESandACTINGDIRECTORANTONIOT.CASTRO,JR.OFTHE
DEPARTMENTOFCOMMERCIALANDSAVINGSBANK,inhiscapacityasstatutoryreceiverofIsland
SavingsBank,petitioners,
vs.
THEHONORABLECOURTOFAPPEALSandSULPICIOM.TOLENTINO,respondents.
I.B.Regalado,Jr.,FabianS.LombosandMarinoE.Eslaoforpetitioners.
AntonioR.Tupazforprivaterespondent.
MAKASIAR,CJ.:
ThisisapetitionforreviewoncertioraritosetasideasnullandvoidthedecisionoftheCourtofAppeals,inC.A.
G.R.No.52253RdatedFebruary11,1977,modifyingthedecisiondatedFebruary15,1972oftheCourtofFirst
InstanceofAgusan,whichdismissedthepetitionofrespondentSulpicioM.Tolentinoforinjunction,specific
performanceorrescission,anddamageswithpreliminaryinjunction.
OnApril28,1965,IslandSavingsBank,uponfavorablerecommendationofitslegaldepartment,approvedthe
loanapplicationforP80,000.00ofSulpicioM.Tolentino,who,asasecurityfortheloan,executedonthesame
dayarealestatemortgageoverhis100hectarelandlocatedinCubo,LasNieves,Agusan,andcoveredbyTCT
No.T305,andwhichmortgagewasannotatedonthesaidtitlethenextday.Theapprovedloanapplication
calledforalumpsumP80,000.00loan,repayableinsemiannualinstallmentsforaperiodof3years,with12%
annualinterest.ItwasrequiredthatSulpicioM.Tolentinoshallusetheloanproceedssolelyasanadditional
capitaltodevelophisotherpropertyintoasubdivision.
OnMay22,1965,amereP17,000.00partialreleaseoftheP80,000.00loanwasmadebytheBankandSulpicio
M.TolentinoandhiswifeEditaTolentinosignedapromissorynoteforP17,000.00at12%annualinterest,
payablewithin3yearsfromthedateofexecutionofthecontractatsemiannualinstallmentsofP3,459.00(p.64,
rec.).AnadvanceinterestfortheP80,000.00loancoveringa6monthperiodamountingtoP4,800.00was
deductedfromthepartialreleaseofP17,000.00.ButthispredeductedinterestwasrefundedtoSulpicioM.
TolentinoonJuly23,1965,afterbeinginformedbytheBankthattherewasnofundyetavailablefortherelease
oftheP63,000.00balance(p.47,rec.).TheBank,thruitsvicepresidentandtreasurer,promisedrepeatedlythe
releaseoftheP63,000.00balance(p.113,rec.).
OnAugust13,1965,theMonetaryBoardoftheCentralBank,afterfindingIslandSavingsBankwassuffering
liquidityproblems,issuedResolutionNo.1049,whichprovides:
InviewofthechronicreservedeficienciesoftheIslandSavingsBankagainstitsdepositliabilities,the
Board,byunanimousvote,decidedasfollows:
1)Toprohibitthebankfrommakingnewloansandinvestments[exceptinvestmentsingovernment
securities]excludingextensionsorrenewalsofalreadyapprovedloans,providedthatsuch
extensionsorrenewalsshallbesubjecttoreviewbytheSuperintendentofBanks,whomayimpose
suchlimitationsasmaybenecessarytoinsurecorrectionofthebank'sdeficiencyassoonas
possible
xxxxxxxxx
(p.46,rec.).
OnJune14,1968,theMonetaryBoard,afterfindingthatIslandSavingsBankfailedtoputuptherequiredcapital
torestoreitssolvency,issuedResolutionNo.967whichprohibitedIslandSavingsBankfromdoingbusinessin
http://www.lawphil.net/judjuris/juri1985/oct1985/gr_l45710_1985.html

1/5

1/23/2015

G.R.No.L45710

thePhilippinesandinstructedtheActingSuperintendentofBankstotakechargeoftheassetsofIslandSavings
Bank(pp.4849,rec).
OnAugust1,1968,IslandSavingsBank,inviewofnonpaymentoftheP17,000.00coveredbythepromissory
note,filedanapplicationfortheextrajudicialforeclosureoftherealestatemortgagecoveringthe100hectare
landofSulpicioM.TolentinoandthesheriffscheduledtheauctionforJanuary22,1969.
OnJanuary20,1969,SulpicioM.TolentinofiledapetitionwiththeCourtofFirstInstanceofAgusanfor
injunction,specificperformanceorrescissionanddamageswithpreliminaryinjunction,allegingthatsinceIsland
SavingsBankfailedtodelivertheP63,000.00balanceoftheP80,000.00loan,heisentitledtospecific
performancebyorderingIslandSavingsBanktodelivertheP63,000.00withinterestof12%perannumfromApril
28,1965,andifsaidbalancecannotbedelivered,torescindtherealestatemortgage(pp.3243,rec.).
OnJanuary21,1969,thetrialcourt,uponthefilingofaP5,000.00suretybond,issuedatemporaryrestraining
orderenjoiningtheIslandSavingsBankfromcontinuingwiththeforeclosureofthemortgage(pp.8687,rec.).
OnJanuary29,1969,thetrialcourtadmittedtheanswerininterventionprayingforthedismissalofthepetitionof
SulpicioM.Tolentinoandthesettingasideoftherestrainingorder,filedbytheCentralBankandbytheActing
SuperintendentofBanks(pp.6576,rec.).
OnFebruary15,1972,thetrialcourt,aftertrialonthemeritsrendereditsdecision,findingunmeritoriousthe
petitionofSulpicioM.Tolentino,orderinghimtopayIslandSavingsBanktheamountofPI7000.00pluslegal
interestandlegalchargesduethereon,andliftingtherestrainingordersothatthesheriffmayproceedwiththe
foreclosure(pp.135136.rec.
OnFebruary11,1977,theCourtofAppeals,onappealbySulpicioM.Tolentino,modifiedtheCourtofFirst
InstancedecisionbyaffirmingthedismissalofSulpicioM.Tolentino'spetitionforspecificperformance,butitruled
thatIslandSavingsBankcanneitherforeclosetherealestatemortgagenorcollecttheP17,000.00loanpp.30
:31.rec.).
Hence,thisinstantpetitionbythecentralBank.
Theissuesare:
1.CantheactionofSulpicioM.Tolentinoforspecificperformanceprosper?
2.IsSulpicioM.TolentinoliabletopaytheP17,000.00debtcoveredbythepromissorynote?
3.IfSulpicioM.Tolentino'sliabilitytopaytheP17,000.00subsists,canhisrealestatemortgagebe
foreclosedtosatisfysaidamount?
WhenIslandSavingsBankandSulpicioM.TolentinoenteredintoanP80,000.00loanagreementonApril28,
1965,theyundertookreciprocalobligations.Inreciprocalobligations,theobligationorpromiseofeachpartyis
theconsiderationforthatoftheother(Penacovs.Ruaya,110SCRA46[1981]Vda.deQuirinovs,Pelarca29
SCRA1[1969])andwhenonepartyhasperformedorisreadyandwillingtoperformhispartofthecontract,the
otherpartywhohasnotperformedorisnotreadyandwillingtoperformincursindelay(Art.1169oftheCivil
Code).ThepromiseofSulpicioM.TolentinotopaywastheconsiderationfortheobligationofIslandSavings
BanktofurnishtheP80,000.00loan.WhenSulpicioM.TolentinoexecutedarealestatemortgageonApril28,
1965,hesignifiedhiswillingnesstopaytheP80,000.00loan.Fromsuchdate,theobligationofIslandSavings
BanktofurnishtheP80,000.00loanaccrued.Thus,theBank'sdelayinfurnishingtheentireloanstartedonApril
28,1965,andlastedforaperiodof3yearsorwhentheMonetaryBoardoftheCentralBankissuedResolution
No.967onJune14,1968,whichprohibitedIslandSavingsBankfromdoingfurtherbusiness.Suchprohibition
madeitlegallyimpossibleforIslandSavingsBanktofurnishtheP63,000.00balanceoftheP80,000.00loan.The
poweroftheMonetaryBoardtotakeoverinsolventbanksfortheprotectionofthepublicisrecognizedbySection
29ofR.A.No.265,whichtookeffectonJune15,1948,thevalidityofwhichisnotinquestion.
TheBoardResolutionNo.1049issuedonAugust13,1965cannotinterruptthedefaultofIslandSavingsBankin
complyingwithitsobligationofreleasingtheP63,000.00balancebecausesaidresolutionmerelyprohibitedthe
Bankfrommakingnewloansandinvestments,andnowherediditprohibitislandSavingsBankfromreleasingthe
balanceofloanagreementspreviouslycontracted.Besides,themerepecuniaryinabilitytofulfillanengagement
doesnotdischargetheobligationofthecontract,nordoesitconstituteanydefensetoadecreeofspecific
performance(GutierrezRepidevs.AfzeliusandAfzelius,39Phil.190[1918]).And,themerefactofinsolvencyof
adebtorisneveranexcuseforthenonfulfillmentofanobligationbut'insteaditistakenasabreachofthe
contractbyhim(vol.17A,1974ed.,CJSp.650)
ThefactthatSulpicioM.Tolentinodemandedandacceptedtherefundofthepredeductedinterestamountingto
P4,800.00forthesupposedP80,000.00loancoveringa6monthperiodcannotbetakenasawaiverofhisright
http://www.lawphil.net/judjuris/juri1985/oct1985/gr_l45710_1985.html

2/5

1/23/2015

G.R.No.L45710

tocollecttheP63,000.00balance.TheactofIslandSavingsBank,inaskingtheadvanceinterestfor6monthson
thesupposedP80,000.00loan,wasimproperconsideringthatonlyP17,000.00outoftheP80,000.00loanwas
released.Apersoncannotbelegallychargedinterestforanonexistingdebt.Thus,thereceiptbySulpicioM.
'Tolentinoofthepredeductedinterestwasanexerciseofhisrighttoit,whichrightexistindependentlyofhisright
todemandthecompletionoftheP80,000.00loan.Theexerciseofonerightdoesnotaffect,muchlessneutralize,
theexerciseoftheother.
TheallegeddiscoverybyIslandSavingsBankoftheovervaluationoftheloancollateralcannotexemptitfrom
complyingwithitsreciprocalobligationtofurnishtheentireP80,000.00loan.'ThisCourtpreviouslyruledthat
bankofficialsandemployeesareexpectedtoexercisecautionandprudenceinthedischargeoftheirfunctions
(RuralBankofCaloocan,Inc.vs.C.A.,104SCRA151[1981]).Itistheobligationofthebank'sofficialsand
employeesthatbeforetheyapprovetheloanapplicationoftheircustomers,theymustinvestigatetheexistence
andevaluationofthepropertiesbeingofferedasaloansecurity.Therecentrushofeventswherecollateralsfor
bankloansturnouttobenonexistentorgrosslyovervaluedunderscoretheimportanceofthisresponsibility.
Themerereliancebybankofficialsandemployeesontheircustomer'srepresentationregardingtheloan
collateralbeingofferedasloansecurityisapatentnonperformanceofthisresponsibility.Ifeverbankofficials
andemployeestotallyreIyontherepresentationoftheircustomersastothevaluationoftheloancollateral,the
bankshallbeartheriskincasethecollateralturnouttobeovervalued.Therepresentationmadebythe
customerisimmaterialtothebank'sresponsibilitytoconductitsowninvestigation.Furthermore,thelowercourt,
onobjectionsof'SulpicioM.Tolentino,hadenjoinedpetitionersfrompresentingproofontheallegedover
valuationbecauseoftheirfailuretoraisethesameintheirpleadings(pp.198199,t.s.n.Sept.15.1971).The
lowercourt'sactionissanctionedbytheRulesofCourt,Section2,Rule9,whichstatesthat"defensesand
objectionsnotpleadedeitherinamotiontodismissorintheansweraredeemedwaived."Petitioners,thus,
cannotraisethesameissuebeforetheSupremeCourt.
SinceIslandSavingsBankwasindefaultinfulfillingitsreciprocalobligationundertheirloanagreement,Sulpicio
M.Tolentino,underArticle1191oftheCivilCode,maychoosebetweenspecificperformanceorrescissionwith
damagesineithercase.ButsinceIslandSavingsBankisnowprohibitedfromdoingfurtherbusinessbyMonetary
BoardResolutionNo.967,WEcannotgrantspecificperformanceinfavorofSulpicioM,Tolentino.
Rescissionistheonlyalternativeremedyleft.WErule,however,thatrescissionisonlyfortheP63,000.00balance
oftheP80,000.00loan,becausethebankisindefaultonlyinsofarassuchamountisconcerned,asthereisno
doubtthatthebankfailedtogivetheP63,000.00.AsfarasthepartialreleaseofP17,000.00,whichSulpicioM.
Tolentinoacceptedandexecutedapromissorynotetocoverit,thebankwasdeemedtohavecompliedwithits
reciprocalobligationtofurnishaP17,000.00loan.ThepromissorynotegaverisetoSulpicioM.Tolentino's
reciprocalobligationtopaytheP17,000.00loanwhenitfallsdue.Hisfailuretopaytheoverdueamortizations
underthepromissorynotemadehimapartyindefault,hencenotentitledtorescission(Article1191oftheCivil
Code).Ifthereisarighttorescindthepromissorynote,itshallbelongtotheaggrievedparty,thatis,Island
SavingsBank.IfTolentinohadnotsignedapromissorynotesettingthedateforpaymentofP17,000.00within3
years,hewouldbeentitledtoaskforrescissionoftheentireloanbecausehecannotpossiblybeindefaultas
therewasnodateforhimtoperformhisreciprocalobligationtopay.
Sincebothpartieswereindefaultintheperformanceoftheirrespectivereciprocalobligations,thatis,Island
SavingsBankfailedtocomplywithitsobligationtofurnishtheentireloanandSulpicioM.Tolentinofailedto
complywithhisobligationtopayhisP17,000.00debtwithin3yearsasstipulated,theyarebothliablefor
damages.
Article1192oftheCivilCodeprovidesthatincasebothpartieshavecommittedabreachoftheirreciprocal
obligations,theliabilityofthefirstinfractorshallbeequitablytemperedbythecourts.WErulethattheliabilityof
IslandSavingsBankfordamagesinnotfurnishingtheentireloanisoffsetbytheliabilityofSulpicioM.Tolentino
fordamages,intheformofpenaltiesandsurcharges,fornotpayinghisoverdueP17,000.00debt.Theliabilityof
SulpicioM.TolentinoforinterestonhisPI7,000.00debtshallnotbeincludedinoffsettingtheliabilitiesofboth
parties.SinceSulpicioM.TolentinoderivedsomebenefitforhisuseoftheP17,000.00,itisjustthatheshould
accountfortheinterestthereon.
WEhold,however,thattherealestatemortgageofSulpicioM.Tolentinocannotbeentirelyforeclosedtosatisfy
hisP17,000.00debt.
Theconsiderationoftheaccessorycontractofrealestatemortgageisthesameasthatoftheprincipalcontract
(BancodeOrovs.Bayuga,93SCRA443[1979]).Forthedebtor,theconsiderationofhisobligationtopayisthe
existenceofadebt.Thus,intheaccessorycontractofrealestatemortgage,theconsiderationofthedebtorin
furnishingthemortgageistheexistenceofavalid,voidable,orunenforceabledebt(Art.2086,inrelationtoArt,
2052,oftheCivilCode).
ThefactthatwhenSulpicioM.'Tolentinoexecutedhisrealestatemortgage,noconsiderationwasthenin
existence,astherewasnodebtyetbecauseIslandSavingsBankhadnotmadeanyreleaseontheloan,does
notmaketherealestatemortgagevoidforlackofconsideration.Itisnotnecessarythatanyconsiderationshould
http://www.lawphil.net/judjuris/juri1985/oct1985/gr_l45710_1985.html

3/5

1/23/2015

G.R.No.L45710

passatthetimeoftheexecutionofthecontractofrealmortgage(Bonnevievs.C.A.,125SCRA122[1983]).lt
mayeitherbeapriororsubsequentmatter.Butwhentheconsiderationissubsequenttothemortgage,the
mortgagecantakeeffectonlywhenthedebtsecuredbyitiscreatedasabindingcontracttopay(Parksvs,
Sherman,Vol.176N.W.p.583,citedinthe8thed.,JonesonMortgage,Vol.2,pp.56).And,whenthereis
partialfailureofconsideration,themortgagebecomesunenforceabletotheextentofsuchfailure(Dow.etal.vs.
Poore,Vol.172N.E.p.82,citedinVol.59,1974ed.CJS,p.138).Wheretheindebtednessactuallyowingtothe
holderofthemortgageislessthanthesumnamedinthemortgage,themortgagecannotbeenforcedformore
thantheactualsumdue(MetropolitanLifeIns.Co.vs.Peterson,Vol.19,F(2d)p.88,citedin5thed.,Wiltsieon
Mortgage,Vol.1,P.180).
SinceIslandSavingsBankfailedtofurnishtheP63,000.00balanceoftheP8O,000.00loan,therealestate
mortgageofSulpicioM.Tolentinobecameunenforceabletosuchextent.P63,000.00is78.75%ofP80,000.00,
hencetherealestatemortgagecovering100hectaresisunenforceabletotheextentof78.75hectares.The
mortgagecoveringtheremainderof21.25hectaressubsistsasasecurityfortheP17,000.00debt.21.25
hectaresismorethansufficienttosecureaP17,000.00debt.
TheruleofindivisibilityofarealestatemortgageprovidedforbyArticle2089oftheCivilCodeisinapplicableto
thefactsofthiscase.
Article2089provides:
Apledgeormortgageisindivisibleeventhoughthedebtmaybedividedamongthesuccessorsin
interestofthedebtororcreditor.
Therefore,thedebtor'sheirswhohaspaidapartofthedebtcannotaskfortheproportionate
extinguishmentofthepledgeormortgageaslongasthedebtisnotcompletelysatisfied.
Neithercanthecreditor'sheirwhohavereceivedhisshareofthedebtreturnthepledgeorcancel
themortgage,totheprejudiceofotherheirswhohavenotbeenpaid.
TheruleofindivisibilityofthemortgageasoutlinedbyArticle2089abovequotedpresupposesseveralheirsof
thedebtororcreditorwhichdoesnotobtaininthiscase.Hence,theruleofindivisibilityofamortgagecannot
apply
WHEREFORE,THEDECISIONOFTHECOURTOFAPPEALSDATEDFEBRUARY11,1977ISHEREBY
MODIFIED,AND
1.SULPICIOM.TOLENTINOISHEREBYORDEREDTOPAYINFAVOROFHEREINPETITIONERSTHESUM
OFP17.000.00,PLUSP41,210.00REPRESENTING12%INTERESTPERANNUMCOVERINGTHEPERIOD
FROMMAY22,1965TOAUGUST22,1985,AND12%INTERESTONTHETOTALAMOUNTCOUNTEDFROM
AUGUST22,1985UNTILPAID
2.INCASESULPICIOM.TOLENTINOFAILSTOPAY,HISREALESTATEMORTGAGECOVERING21.25
HECTARESSHALLBEFORECLOSEDTOSATISFYHISTOTALINDEBTEDNESSAND
3.THEREALESTATEMORTGAGECOVERING78.75HECTARESISHEREBYDECLAREDUNENFORCEABLE
ANDISHEREBYORDEREDRELEASEDINFAVOROFSULPICIOM.TOLENTINO.
NOCOSTS.SOORDERED.
Concepcion,Jr.,Escolin,CuevasandAlampay,JJ.,concur.
Aquino(Chairman)andAbadSantos,JJ.,tooknopart.
TheLawphilProjectArellanoLawFoundation

http://www.lawphil.net/judjuris/juri1985/oct1985/gr_l45710_1985.html

4/5

1/23/2015

http://www.lawphil.net/judjuris/juri1985/oct1985/gr_l45710_1985.html

G.R.No.L45710

5/5