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Loan Foreclosure Dispute: DBP vs. Guariña

DBP provided a loan to Guariña Corporation to finance development of a resort complex. DBP released the loan in installments but refused to release the full amount. DBP directly paid some suppliers against the corporation's objections. DBP then demanded completion of construction and threatened foreclosure for failure to complete. The court ruled that as a reciprocal obligation, DBP had to fully release the loan amount before demanding repayment. As the full amount was not released, the corporation could not be considered in delay and foreclosure was not warranted.

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111 views2 pages

Loan Foreclosure Dispute: DBP vs. Guariña

DBP provided a loan to Guariña Corporation to finance development of a resort complex. DBP released the loan in installments but refused to release the full amount. DBP directly paid some suppliers against the corporation's objections. DBP then demanded completion of construction and threatened foreclosure for failure to complete. The court ruled that as a reciprocal obligation, DBP had to fully release the loan amount before demanding repayment. As the full amount was not released, the corporation could not be considered in delay and foreclosure was not warranted.

Uploaded by

Michael Vincent Bautista
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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DEVELOPMENT BANK OF THE PHILIPPINES v.

GUARIÑA AGRICULTURAL
AND REALTY DEVELOPMENT CORPORATION G.R. No. 160758, January
15, 2014

BERSAMIN, J.

DOCTRINE: There can be no delay in payment by the borrower in cases of a


contract of loan which is a reciprocal obligation when the lender has not fully
released the loan amount to the borrower.

FACTS

To finance the development of its resort complex, Guariña Corporation (the


Corporation for brevity) applied for a loan from Development Bank of the
Philippines (DBP). A real estate mortgage over several real properties in favor of
DBP as security was then executed. Also executed was a chattel mortgage over
the personal properties existing at the resort complex and those yet to be
acquired out of the proceeds of the loan. Additionally, DBP required the
Corporation to put up a cash equity of P1.4M for the construction of the
buildings and other improvements on the resort complex. The loan was
released in several installments and totaled P3,000,000. The Corporation
demanded the release of the balance of the loan, but DBP refused. Instead,
DBP directly paid some suppliers of the Corporation over its objection. Upon
inspection, DBP found that the Corporation had not completed the
construction works. DBP thus demanded the Corporation to expedite the
completion of the project and warned that it would initiate foreclosure
proceedings should the Corporation not do so. For failure of the completion,
DBP initiated extrajudicial foreclosure proceedings and applied for the issuance
of a writ of possession, before the RTC which it granted. The Corporation sued
DBP in the RTC to seek the nullification of the foreclosure proceedings and the
cancellation of the certificate of sale. The RTC declared that the extrajudicial
sales of the mortgaged properties were null and void. The CA sustained the
RTC's judgment. Hence, this appeal by DBP befor the Supreme Court.

ISSUE

Did the Corporation incur in delay to warrant the foreclosure of the mortgaged
properties?

RULING

There was no delay. The agreement between DBP and the Corporation was a
contract of loan. By its failure to release the proceeds of the loan in their
entirety, DBP had no right yet to exact on the Corporation compliance with its
own obligation under the loan. Indeed, if a party in a reciprocal contract does
not perform its obligation, the other party cannot be obliged to perform what is
expected of it while the other's obligation remains unfulfilled. A contract of loan
is a reciprocal obligation, as it arises from the same cause where one party is
the creditor, and the other the debtor. In a loan, the lender should perform its
obligation - the release of the full loan amount - before it could demand that
the borrower repay the loaned amount. The corporation could not have
incurred in delay before DBP fully performed its reciprocal obligation.

Considering that it had yet to release the entire proceeds of the loan, DBP
could not yet make an effective demand for payment upon the Corporation to
perform its obligation under the loan. Also, it would only be when a demand to
pay had been made and was subsequently refused that a borrower could be
considered in default, and the lender could obtain the right to collect the debt
or to foreclose the mortgage. Hence, the Corporation would not be in default
without the demand.

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