Central Bank V CA
Central Bank V CA
Central Bank V CA
Petitioners: CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR ANTONIO T. CASTRO,
JR. OF THE DEPARTMENT OF COMMERCIAL AND SAVINGS BANK, in his capacity as statutory
receiver of Island Savings Bank
FACTS:
1 In vie of the chronic reserve deficiencies of the ISB against its deposit liabilities, the Board, by unanimous vote decides as follows:
1) To prohibit the bank from making new loans and investments [except investments in government securities] excluding extensions
or renewals of already approved loans, provided that such extensions or renewals shall be subject to review by the Superintendent
of Banks, who may impose such limitations as may be necessary to insure correction of the bank's deficiency as soon as possible;
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8/1/1968, ISB filed an application for the extrajudicial foreclosure on Tolentinos mortgage covering
the 100-hectare land
o In view of the non-payment of the 17,000.00 covered by the promissory note
1/22/1969, the sheriff scheduled an auction to the land
CA RULING
2/11/1977, modified the CFI decision
o Affirmed dismissal of Tolentinos petition for specific performance
o Ruled that ISB cannot foreclose the mortgage or collect the 17,000.00
Central Bank appeals from this decision
ISSUE/S:
HELD:
1. No, Tolentinos action for specific performance to order ISB to release the 63,000.00 blanace
cannot prosper.
ISB and Tolentino undertook a reciprocal obligation in entering into the 80,000.00 loan agreement
The promise of Tolentino to pay was the consideration for the obligation of ISB to furnish the
80,000.00 loan
When one part has performed or is ready to perform his part of the contract, the other part who has
not performed or is not ready and willing to perform incurs delay2
ISBs obligation to furnish the 80,000.00 loan accrued from the date Tolentino signified his willingness
to pay by executing a real estate mortgage
There was legal impossibility to ISBs furnishing the 63,000.00 balance of the 80,000.00 loan
ISBs delay to furnish the loan started on 4/28/1965, and lasted for 3 years or when the Monetary
Board issued Resolution No. 967 on 6/15/1968, which prohibited ISB from doing business
The Board Resolution No. 1049 issued on 8/13/1965 cannot interrupt the default of ISB in
complying with its obligation of releasing the 63,000.00
Fact of Tolentinos demand and acceptance of the refund of the pre-deducted interest cannot
be taken as a waiver of his right to collect the 63,000.00 balance
ISBs act of asking the advance interest for 6 months of the supposed 80,000.00 was improper
o Considering that only 17,000.00 of the total balance was released
A person cannot be legally charged interest for a non-existing debt
The acceptance of Tolentino of the pre-deducted interest was an exercise of his right to demand
the completion of the 80,000.00 loan
An exercise of a right does not affect the exercise of the other
The alleged discovery of ISB of the overvaluation of the loan collateral cannot exempt it from
complying with its reciprocal obligation to furnish the 80,000.00 loan
Rural Bank of Caloocan, Inc. vs. CA bank officials and employees are expected to exercise
caution and prudence in the discharge of their functions
o It is the obligation of the bank's officials and employees that before they approve the loan
application of their customers, they must investigate the existence and evaluation of the
properties being offered as a loan security
o Mere reliance by bank officials and employees on their customer's representation regarding
the loan collateral being offered as loan security is a patent non-performance of this
responsibility
o The bank shall bear the risk in case the collateral turn out to be over-valued if ever its officials
rely on the representation of their customers as to the valuation of the loan collateral
The CFI also enjoined Central Bank from presenting proof on the alleged over-valuation because
of their failure to raise the issue in their pleadings and thus cannot raise the same in the Supreme
Court
Tolentino may choose between specific performance or rescission with damages in either case
Since ISB was in default in fulfilling its reciprocal obligation
2. No, but he is liable for the only interest due on the 17,000.00 as both he and ISB are liable for
damages.
If there is a right to rescind the contract, it belongs to ISB, the aggrieved party
ISB was deemed to have complied with its obligation in furnishing the 17,000.00 loan
The promissory note signed by Tolentino and his wife have rise to his reciprocal obligation to pay the
17,000.00 when it fell due
Tolentino is not entitled to rescission
o He failed to pay the overdue amortizations made him in default
o If he did not sign the promissory note to pay 17,000.00 within 3 years, he would have been
entitled to the rescission of the entire loan
He could not have been in default if there was no date for him to perform his reciprocal
obligation
The liability of ISB for damages in not furnishing the entire loan is offset by Tolentinos liability for
damages for not paying the overdue 17,000.00 debt
Both parties were in default in performing their respective reciprocal obligations
NCC1192 in case both parties have committed a breach of their reciprocal obligations, the
liability of the first infractor shall be equitably tempered by the courts
The liability of Tolentino for interest on the 17,000.00 deby shall not be included in offsetting the
liabilities of both parties and it is only just that he be accountable for such
Tolentino derived some benefit for using the money
3. The real estate mortgage cannot be entirely foreclosed to satisfy the 17,000.00 debt.
In accessory contracts of real estate mortgages, the consideration of the debtor in furnishing the
mortgage is the existence of a valid, voidable, or unenforceable contract
BDO v Bayuga the consideration of the accessory contract of real estate mortgage is the same as
that of the principal contract
Fact that when Tolentino executed his real estate mortgage, no consideration was then in
existence, does not make the mortgage void for lack of consideration
There was no debt yet as ISB had not released the whole loan
But it is not necessary that any consideration should pass at the time of execution of real estate
mortgage
When the consideration is subsequent to the mortgage, the mortgage can take effect only when the
debt secured by it is created as a binding contract to pay
When there is partial failure of consideration, the mortgage becomes unenforceable to the extent of
such failure
Where the indebtedness actually owing the holder of the mortgage is less than the sum names in the
mortgage, the mortgage cannot be enforced for more than the actual sum due
The real estate mortgage can only be enforced to 21.25 hectares of the total 100 hectares
ISB failed to furnish 63,000.00 of the loan
63,000.00 is 78.75% of the total loan
the mortgage is unenforceable to 78.75% of the 100 hectare land
RULING: CA MODIFIED.
2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL ESTATE MORTGAGE COVERING
21.25 HECTARES SHALL BE FORECLOSED TO SATISFY HIS TOTAL INDEBTEDNESS; AND
3. THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS HEREBY DECLARED UNEN
FORCEABLE AND IS HEREBY ORDERED RELEASED IN FAVOR OF SULPICIO M. TOLENTINO.