CASE DIGEST: DBP vs. Guarina

G.R. No. 160758 : JANUARY 15, 2014




Guari Corporation applied for a loan from Development Bank of the Philippines (DBP) to finance the development of its resort complex situated in Trapiche, Oton, Iloilo. The loan, in the amount of P3,387,000.00 was approved on August 5, 1976. Guari Corporation executed a promissory note that would be due on November 3, 1998. Guari Corporation executed a real estate mortgage over several real properties existing at the resort complex and those yet to be acquired out of the proceeds of the load, also to secure the performance of the obligation. Prior to the release of the loan, DBP required Guari Corporation to put up a cash equity for the construction of the buildings and other improvements on the resort complex.

The loan was released in several instalments. Guari Corporation demanded the release of the balance of the load, but DBP refused. Instead, DBP directly paid some suppliers of Guari Corporation over the latters objection. In a letter, DBP demanded that Guari Corporation expedite the completion of the project, and warned that it would initiate foreclosure proceedings should Guari Corporation not do so. Unsatisfied with the non-action and objection of Guari Corporation, DBP initiated extrajudicial foreclosure proceedings. A notice of foreclosure was sent to Guari Corporation. Notice was eventually published, leading clients and patrons ofGuari Corporation to think that its business had slowed down, and that its resort had already closed.

Guari Corporation sued DBP in the RTC to demand specific performance of the latters obligations under the loan agreement, and to stop the foreclosure of the mortgages. DBP moved for the dismissal of the complaint, stating that the mortgaged properties had already been sold at a public auction. Due to this, Guari Corporation amended its complaint to seek the nullification of the foreclosure proceedings and he cancellation of the certificate of sale.

DBP applied for the issuance of a writ of possession which the RTC later granted upon DBPs motion for reconsideration. Guari Corporation filed a petitioner for certiorari before the CA which the latter dismissed. On January 6, 1998, in another case, the RTC rendered a decision declaring the extra-judicial sales of the mortgaged properties, null and void. The CA sustained RTC judgment.

ISSUE: Whether or not the CA erred in denying petitioners motion for reconsideration?

HELD: The findings of the CA were supported by the evidence as well as by law and jurisprudence

Civil law : reciprocal obligation

The agreement between DBP and Guari 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.

By DBPs failure to release the proceeds of the loan in their entirety, DBP had no right yet to exact on Guari Corporation the latters 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 others obligation remains unfulfilled. In other words, the latter party does not incur delay.

While a creditor and a debtor could regulate the order in which they should comply with their reciprocal obligations, it is presupposed that in a loan the lender should perform its obligation the release of the full loan amount before it could demand that the borrower repay the loaned amount. In other words, Guari Corporation would not incur in delay before DBP fully performed its reciprocal obligation.

Considering that it had yet to release the entire proceeds of the loan, DBP could not yet make an effective demand for payment upon Guari Corporation to perform its obligation under the loan. According toDevelopment Bank of the Philippines v. Licuanan, it would only be when a demand to pay had been made and was subsequently refused that a borrower could be considered in default, and the lender could obtain the right to collect the debt or to foreclose the mortgage. Hence, Guari Corporation would not be in default without the demand.

Under the circumstances, DBPs foreclosure of the mortgage and the sale of the mortgaged properties at its instance were premature, and, therefore, void and ineffectual.

The Court AFFIRMS the decision of the Court of Appeals.