Case Summary (G.R. No. 74834)
Background of the Loans and Security
In 1976 and 1977, the Mendoza spouses secured two loans totaling P600,000.00 from Philam Life, with the obligation to pay in equal installments over five years. To guarantee these payments, the Mendozas obtained two irrevocable standby letters of credit from IBAA, secured by a real estate mortgage on their property. The first letter covered P500,000.00 expiring on October 1, 1981, while the second letter, for P100,000.00, expired on January 1, 1982. Additionally, the Mendozas executed two promissory notes in favor of IBAA.
Failure to Pay and Foreclosure Proceedings
The Mendozas defaulted on their loan payments beginning June 1, 1978. Despite Philam Life declaring the loans due and demandable, it continued to draw on the standby letters of credit for several amortizations due to a dispute between the parties. By April 21, 1980, IBAA extrajudicially foreclosed the real estate mortgage, purchasing the property for P775,000.00. Subsequently, Philam Life filed a suit against the Mendozas and IBAA for recovery of the outstanding loan balance.
Decision of the Regional Trial Court
The Regional Trial Court ruled that IBAA had paid only P342,127.05 of the claimed amount, as it deducted the stale check payment. The court charged the Mendozas with repayment of P322,000.00 to Philam Life, alongside penalties and attorney's fees, while ordering Philam Life to refund IBAA the overpayment of P22,420.16. The trial court concluded that, as a surety, IBAA was discharged of its liability to the amount already paid by the Mendozas.
Appeal and Judgment of the Intermediate Appellate Court
Both Philam Life and the Mendozas appealed, leading to a ruling by the Intermediate Appellate Court that reversed the trial court's findings. It held that IBAA's liability was not diminished by the Mendozas' payments and ordered IBAA to pay P222,000.00 to Philam Life, which included 2% per month penalty interest and awarded additional attorney's fees of P25,000.00.
Key Legal Issues Presented
The central issues raised by IBAA involved: the effect of the Mendozas' partial payments on IBAA's obligation; the handling of probative evidence regarding payments made; the appellate court's oversight of significant points raised by IBAA; and the propriety of the attorney's fees awarded.
Construction of the Letters of Credit
The court emphasized that the terms governing letters of credit, like other commercial contracts, should reflect the parties' intentions and be construed reasonably. The standby letters of credit secured the Mendozas' obligations and were explicit that each drawing under the credit is independent from any performance by the principal obligors.
Final Interpretation of Liabilities
The court
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Case Citation
- G.R. No. 74834
- Date of Decision: November 17, 1988
- Court: Supreme Court of the Philippines, Second Division
Background
- The case arises from a petition for certiorari by the Insular Bank of Asia and America (IBAA), now known as the Philippine Commercial International Bank, challenging the judgment of the Intermediate Appellate Court.
- The dispute involves two loans obtained by spouses Ben S. Mendoza and Juanita M. Mendoza from the Philippine American Life Insurance Company (Philam Life) in the total amount of P600,000.00 for the construction of their residential house in Mandaue City.
Loan Details and Security
- The loans were secured with a 14% nominal interest rate, to be paid through equal amortizations over five years, from March 1977 to March 1982.
- To facilitate the loan, the Mendozas secured two irrevocable standby letters of credit from IBAA, one for P500,000.00 and another for P100,000.00, guaranteed by a real estate mortgage on the Mendozas' property.
- Additionally, the Mendozas executed two promissory notes in favor of IBAA for P100,000.00 each, promising to pay with interest.
Default and Foreclosure
- The Mendozas defaulted on their amortization payments, which led Philam Life to declare the loans "entirely due and demandable."
- After several transactions and attempts at payment, the real estate mortgage was extrajudicially foreclosed, resulting in IBAA acquiring the property for P775,000.00.
Legal Proceedings
- Philam Life subsequently filed a suit against the Mendozas and IBAA seeking