Facts:

This case involves the petitioner-appellant Banco de Oro and the respondents-appellees Jaime Z. Bayuga and Roberto P. Tolentino. On November 2, 1976, a real estate mortgage was executed by the respondents as security for a loan of ₱375,000.00 from Banco de Oro, securing a parcel of land covered by TCT No. 48418, located in Calamba, Laguna. Bayuga acted as attorney-in-fact for Tolentino during this transaction. The mortgage stipulated various conditions including an interest rate of 19% per annum and a monthly amortization of ₱7,000.12. However, the respondents contended they were unaware of several conditions attached to the loan, which were allegedly only recorded in the minutes of the bank's board meeting.

After Banco de Oro released a partial payment of ₱200,000.00 on November 15, 1976, the rest of the loan was halted when the bank suspected that the borrowers were diverting the loan to other uses instead of paying the vendor of the property they intended to acquire. This

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Facts:

Background of the Transaction

• Parties Involved
• Banco de Oro is the petitioner-appellant.
• Jaime Z. Bayuga and Roberto P. Tolentino are the respondents-appellees.
• Nature of the Transaction
• A loan amounting to P375,000.00 was approved by the bank for the purpose of acquiring real estate.
• As security for this loan, a real estate mortgage was executed by Bayuga (acting as attorney‑in‑fact for Tolentino) and Leonardo Zaballero.
• The mortgage was placed on a parcel of land covered by TCT No. 48418, located in Mabato, Calamba, Laguna, with an area of approximately 2 hectares and duly registered.
• Terms and Conditions Incident to the Loan
• The bank approved the loan subject to several conditions including:
• An interest rate of 19% per annum.
• A monthly amortization of P7,000.12.
• A ten‑year payment term.
• The acquisition of an additional property located in Tagaytay City as collateral.
• Specific instructions regarding the registration and direct release of proceeds.
• The loan being subject to the availability of funds.
• Private respondents contended that they were not informed of these additional terms, which were only recorded in the bank’s internal board meeting minutes.

Disbursement and Subsequent Transactions

• On November 15, 1976, the bank made a partial release of funds (P200,000.00, less P6,000.00 in charges), credited to Tolentino’s account.
• Concurrent transactions included:
• Purchase of a certificate of time deposit for P50,000.00.
• Withdrawals amounting to P100,000.00 and P44,000.00.
• Subsequent purchase of a manager’s check aggregating P144,000.00, with partial deposits made in different bank accounts.

Trigger for Legal Proceedings

• The bank halted further release of the loan funds and stopped payment on its manager’s check, alleging diversion of the loan for purposes other than the acquisition of real estate, which it argued constituted fraud and violated Sec. 77 of R.A. No. 337.
• Private respondents initiated an action for Specific Performance with Damages in the Court of First Instance of Rizal, Branch VII, Pasay City, docketed as CC No. 5271-B.
• The trial court, after a preliminary hearing, ordered a Writ of Preliminary Mandatory Injunction directing the bank to release the loan proceeds upon the posting of a bond amounting to P200,000.00.
• Despite this order, the bank failed to release the funds.

Trial Court and Appellate Proceedings

• On December 12, 1977, the trial court rendered a decision awarding:
• Specific performance measures directing the bank to comply with its mortgage obligations.
• Monetary awards to Tolentino and Bayuga for various damages and specific amounts previously transacted (e.g., P144,000.00 and P50,000.00).
• The bank filed an appeal on December 27, 1977 and sought an extension to submit its record.
• On February 10, 1978, pending a petition for enforcement and execution, the trial court reiterated its previous order by issuing a Writ of Preliminary Mandatory Injunction.
• On March 10, 1978, the trial court issued a “Special Order” authorizing execution pending appeal after finding that continued inaction would perpetuate substantial injustice against the respondents.
• Private respondents posted bonds totaling P55,000.00 as required for the special execution.
• Execution was carried out by garnishing the bank’s deposit with the Central Bank (P389,000.00), leading to further motions in the appellate court for restraining and later lifting the execution.

Further Developments and Supreme Court Appeal

• The Court of Appeals, while modifying the trial court order to exclude the damages awarded, upheld the issuance of the writ of execution pending appeal.
• Subsequent motions and filings ensued with private respondents and the bank contesting various aspects of the execution and the adequacy of collateral posted.
• Eventually, the bank filed a Petition for Review by Certiorari before the Supreme Court (G.R. No. L-49568), challenging:
• The trial court’s orders (including the issuance of the writ and its enforcement) and the appellate court’s modifications.
• The propriety of executing the mortgage contract’s provisions pending appeal.
• The contentious point centered on whether the issuance of a writ of execution pending appeal was justified under the circumstances, particularly given the alleged inadequacy of collateral and the deviation from the intended purpose of the loan.

Issue:

Propriety of Issuance of the Writ of Execution Pending Appeal

• Whether the trial court acted within its discretion in authorizing execution pending appeal, especially in light of the alleged “substantial injustice” incurred by the private respondents.
• Whether the issuance of the writ without full collateral support and complete supporting documents undermines the principles of fair play and due process.

Adequacy of the Security and Collateral

• Whether the collateral (the mortgaged property and posted bonds totaling P55,000.00) was sufficient to cover the loan proceeds released, particularly given its lower appraised loan value.
• Whether the use of the mortgage contract as an accessory to the primary loan agreement is affected by the party’s failure to abide by its terms.

Application of Banking Law and Contract Principles

• Whether the bank’s unilateral cessation of further loan release and the subsequent execution contradict the provisions of the General Banking Act (R.A. No. 337), which mandates that the loan is solely for the purpose of acquiring land.
• Whether the execution pending appeal renders the issue of appeal moot, thereby defeating the bank’s intended relief.

Parties’ Conduct and Good Faith

• The extent to which private respondents’ behavior—failure to make monthly amortizations and treating the fund as a money judgment—affected the impartial execution of the loan contract.
• Whether the respondents’ lack of good faith in performing their contractual obligations justifies the bank’s actions.

Ruling:

• (Subscriber-Only)

Ratio:

• (Subscriber-Only)

Doctrine:

• (Subscriber-Only)