Case Summary (G.R. No. 160758)
Key Dates
• August 5, 1976 – Loan of ₱3,387,000 approved.
• October 5, 1976 – Real estate mortgage executed.
• May 17, 1977 – Chattel mortgage executed.
• February 27 and June 9, 1978 – DBP demands completion of improvements, warns of foreclosure.
• January 15, 1979 – Extrajudicial foreclosure sale held.
• January 6, 1979 – Guariáa Corp. files suit for specific performance and to annul foreclosure.
• January 6, 1998 – RTC renders judgment annulling foreclosure.
• March 26, 2003 – Court of Appeals affirms RTC (deletes attorney’s fees).
• January 15, 2014 – Supreme Court decision.
Applicable Law
• 1987 Philippine Constitution (banking in public interest; duty of highest diligence)
• Civil Code Articles 1933 (loan), 1953 (consummation), 561 (recovery of possession), 1169 (default)
• Presidential Decree No. 385 (real estate mortgage)
• Jurisprudence on reciprocal obligations and mortgage accessory nature (e.g., Areola v. CA; Central Bank v. CA).
Facts
Guariáa Corp. borrowed ₱3,387,000 from DBP to develop a beach resort, executing real estate and chattel mortgages as security. DBP released only ₱3,003,617.49, withholding ₱148,102.98 interest and refusing to release the balance upon finding incomplete improvements. DBP then declared acceleration under a contract clause and published notices of extrajudicial foreclosure, prompting a public auction on January 15, 1979. DBP secured a writ of possession and took over the resort complex, causing business disruption.
Procedural History
Guariáa Corp. sued in the RTC for specific performance and nullification of foreclosure. The trial court voided the sale as premature, ordered restoration of possession, payment of reasonable rent, and mutual settlement of the loan upon repossession. The Court of Appeals affirmed the nullification and restoration orders but deleted the attorney’s fee award. DBP appealed to the Supreme Court.
Issues
- Whether foreclosure was valid despite no demand for payment and incomplete loan release.
- Whether the Court of Appeals erred in applying the law of the case doctrine based on its earlier writ-of-possession ruling.
Ruling
The Supreme Court AFFIRMS the Court of Appeals:
- The extrajudicial foreclosure was premature and void because DBP had not fully performed its obligation to release the loan, no demand for payment had been made, and Guariáa Corp. was not yet in default under the principal obligation.
- The writ-of-possession decision did not constitute law of the case on the foreclosure’s validity, as it involved a separate interlocutory issue.
- Restoration of possession and payment of reasonable rentals by DBP are mandated under Civil Code Article 561.
Reasoning
– A loan is a reciprocal obligation: lender must release t
Case Syllabus (G.R. No. 160758)
Facts and Loan Agreements
- In July 1976, GuariAa Agricultural and Realty Development Corporation (GuariAa Corp.) applied for a P3,387,000 loan from Development Bank of the Philippines (DBP) to develop a resort complex in Trapiche, Oton, Iloilo.
- DBP approved the loan on August 5, 1976; GuariAa Corp. executed a promissory note due November 3, 1988.
- On October 5, 1976, GuariAa Corp. granted DBP a real estate mortgage over several resort properties; on May 17, 1977, it likewise executed a chattel mortgage over resort personal properties.
- Prior to disbursement, DBP required a cash equity of P1,470,951 for construction; it disbursed the loan in several installments totaling P3,003,617.49, withholding P148,102.98 as interest.
Extrajudicial Foreclosure and Administrative Demands
- After GuariAa Corp. demanded release of the remaining balance, DBP refused and directly paid some of its suppliers upon inspecting the project and finding incomplete works.
- By letter dated February 27, 1978, and telegram dated June 9, 1978, DBP warned GuariAa Corp. to complete construction or face foreclosure.
- DBP initiated extrajudicial foreclosure proceedings, published a notice of sale, and held a public auction on January 15, 1979, sparking concerns among GuariAa Corp.’s clients about resort operations.
Procedural Posture through RTC to CA
- On January 6, 1979, GuariAa Corp. sued DBP in the RTC (Civil Case No. 12707) for specific performance and injunctive relief to halt foreclosure.
- DBP moved to dismiss, asserting that a sheriff’s sale had already divested GuariAa Corp. of its mortgaged properties.
- GuariAa Corp. amended its complaint on February 6, 1979, to nullify the foreclosure proceedings and cancel the certificate of sale; DBP answered on December 17, 1979.
- During trial, DBP secured a writ of possession—initially denied, later granted on reconsideration—and obtained possession on June 16, 1982, after GuariAa Corp.’s unsuccessful certiorari to the Court of Appeals (C.A.-