G.R. No. 172428 - Crystal vs. Bank of the Philippine Islands

On March 28, 1978, spouses Raymundo I. Crystal and Desamparados C. Crystal obtained a ₱300,000 loan for Cebu Contractors Consortium Co. (CCCC) from BPI-Butuan, secured by a chattel mortgage on CCCC’s heavy equipment and machinery. On the same date they executed a Continuing Suretyship binding themselves as sureties up to ₱300,000.
On March 29, 1979, Raymundo Crystal executed a separate promissory note for ₱300,000 in favor of BPI-Butuan.
In August 1979, CCCC renewed its loan with BPI-Cebu City via a promissory note (August 13, 1979) signed by the spouses in their personal capacity and as managing partners, stipulating joint and several liability. To secure this renewal, the spouses executed:

A real estate mortgage on their Lot 6098-B-2 (TCT No. T-16118) on September 22, 1977, and
A second real estate mortgage on the same property on October 3, 1977, for an additional ₱20,000 loan.

CCCC defaulted on its obligations to both BPI-Butuan and BPI-Cebu City. The spouses likewise failed to pay despite demands. BPI-Butuan foreclosed the chattel mortgage, consummating the sale on February 28, 1988, with proceeds of ₱240,000 applied against the loan balance (₱707,393.90).
On July 7, 1981, Insular Bank of Asia and America (IBAA) offered to purchase the mortgaged lot and pay CCCC’s indebtedness directly to BPI, which BPI refused. BPI then sued CCCC and the spouses in RTC Butuan for the loan deficiency and instituted extrajudicial foreclosure of the real estate mortgages.

On April 10, 1985, the spouses filed an Injunction with Damages action in RTC Cebu, alleging (a) illegal foreclosure without exhausting CCCC’s assets first, (b) unjust refusal to accept payment scheme, and (c) wrongful detention of an FCDU savings passbook used as security for a ₱450,000 BPI-Makati loan. They prayed for injunctive relief, moral and exemplary damages, attorney’s fees, and costs.
The RTC dismissed their complaint, upheld BPI’s right to foreclose (holding the spouses solidarily liable), found no entitlement to the “exhaustion” benefit, and awarded moral and exemplary damages plus attorney’s fees to BPI.
The spouses’ appeal and motion for reconsideration in the Court of Appeals were denied (CA G.R. CV No. 72886, October 24, 2005; March 31, 2006). They elevated the case to the Supreme Court via petition for review.

Whether the spouses’ loan obligation was extinguished by BPI’s refusal to accept payment from a third-party purchaser (IBAA).
Whether the spouses, as guarantors-mortgagors, were entitled to the benefit of exhausting the principal debtor’s (CCCC’s) assets before foreclosure.
Whether the spouses could recover moral damages for alleged wrongful foreclosure and refusal to accept payment.
Whether BPI, as a juridical person, was properly awarded moral damages, exemplary damages, and attorney’s fees due to the spouses’ suit.