Title
Government Service Insurance System vs. Calsons, Inc.
Case
G.R. No. L-19867
Decision Date
May 29, 1968
Calsons, Inc. defaulted on a P2M GSIS loan, violating mortgage terms by failing to pay amortizations, complete construction, and reduce the account, leading to foreclosure upheld by the Supreme Court.

Case Summary (G.R. No. L-19867)

Loan Application and Mortgage Agreement

On April 11, 1957, Calsons, Inc. applied for a loan of P2,000,000 from the Government Service Insurance System, intended to settle the purchase price of certain parcels of land and to construct a two-storey textile market. The loan was approved by the Board of Trustees on August 26, 1957, with the execution of a promissory note and a mortgage on October 31, 1957, which stipulated joint and several liability of the appellants for the loan amount, at an interest of 7% per annum, payable over 120 monthly installments.

Mortgage Conditions

The mortgage included several noteworthy conditions: restrictions on the sale or encumbrance of the mortgaged property without prior consent from the mortgagee, default clauses specifying immediate foreclosure rights upon failure to meet payment obligations, and various conditions governing the release of loan amounts contingent on compliance with the stated requirements.

Breach of Contract and Foreclosure Proceedings

Calsons, Inc. received two disbursements from the loan—P819,000 in November 1957 and P30,000 in May 1958—but subsequently defaulted on payment obligations and failed to complete the construction of the promised building. Consequently, the Government Service Insurance System filed for foreclosure in August 1958, citing numerous breaches of the mortgage contract.

Judgment and Appeal

On March 3, 1962, the trial court ruled in favor of the plaintiff, affirming that the defendants had indeed violated multiple provisions of the mortgage agreement, which included unpaid amortizations and the failure to complete construction within the stipulated time. The defendants appealed, alleging various errors in the trial court’s judgment.

Arguments Relating to Encumbrances

The appellants contended that the judgment improperly considered a vendor's lien corresponding to the unrepaid balance of the property’s purchase price. They argued that the lender was estopped from asserting such a lien due to prior knowledge and agreements. The court, however, upheld that the lien constituted a legal encumbrance, confirming the lender's rights as detailed in the mortgage contract.

Issues of Property and Equipment

The dispute also addressed whether the machinery on the mortgaged properties constituted part of the collateral. The court held that the machinery was permanently attached and, therefore, was included in the mortgage, reinforcing the appellee's claim for foreclosure based on the removal of these items.

Defaults and Payment Obligations

A central argument from the appellants was that there was no specified timeline within which to commence payments under the promissory note. The c

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