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DBP V Guariña - CD

The Supreme Court ruled that the Development Bank of the Philippines (DBP) prematurely initiated foreclosure proceedings against Guariña Agricultural and Realty Development Corporation, as Guariña was not in default on its loan obligations. The court emphasized that the loan agreement was a reciprocal obligation, and since DBP had not released the full loan amount, it could not demand payment from Guariña. Consequently, the foreclosure was deemed void and the DBP was required to restore possession of the property to Guariña and pay reasonable rent for its use during the foreclosure period.

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76 views2 pages

DBP V Guariña - CD

The Supreme Court ruled that the Development Bank of the Philippines (DBP) prematurely initiated foreclosure proceedings against Guariña Agricultural and Realty Development Corporation, as Guariña was not in default on its loan obligations. The court emphasized that the loan agreement was a reciprocal obligation, and since DBP had not released the full loan amount, it could not demand payment from Guariña. Consequently, the foreclosure was deemed void and the DBP was required to restore possession of the property to Guariña and pay reasonable rent for its use during the foreclosure period.

Uploaded by

Gino Ricafort
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner,

vs.

GUARIÑA AGRICULTURAL AND REALTY DEVELOPMENT CORPORATION,


Respondent.

G.R. No. 160758 January 15, 2014

PONENTE: Bersamin, J.

TOPIC: Contracts, Delay

FACTS:

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

ISSUE:

Whether or not Guarina was in delay in performing its obligation making


DBP’s action to foreclose the mortgage proper.

HELD:
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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