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G.R. No. 187403
February 12, 2014
FACTS: Asia Paces Corporation (ASPAC) and Paces Industrial Corporation (PICO) entered
into a sub-contracting agreement with the Electrical Projects Company of Libya (ELPCO for
the construction and erection of a double circuit bundle phase conductor transmission line
in the country of Libya. To finance its working capital requirements, ASPAC obtained loans
from foreign banks Banque Indosuez and PCI Capital (Hong Kong) Limited (PCI Capital)
which were secured by several Letters of Guarantee issued by Trade and Investment
Development Corporation of the Philippines (TIDCORP), then Philippine Export and
Foreign Loan Guarantee Corp. Under the Letters of Guarantee, TIDCORP irrevocably and
unconditionally guaranteed full payment of ASPAC’s loan obligations to Banque Indosuez
and PCI Capital in the event of default by the latter.
As a condition precedent to the issuance by TIDCORP of the Letters of Guarantee, ASPAC,
PICO, and ASPAC’s President, Nicolas C. Balderrama (Balderrama) had to execute several
Deeds of Undertaking, binding themselves to jointly and severally pay TIDCORP for
whatever damages or liabilities it may incur under the aforementioned letters. In the same
light, ASPAC, as principal debtor, entered into surety agreements (Surety Bonds) with
Paramount, Phoenix, Mega Pacific and Fortune (bonding companies), as sureties, also
holding themselves solidarily liable to TIDCORP, as creditor, for whatever damages or
liabilities the latter may incur under the Letters of Guarantee.
ASPAC eventually defaulted on its loan obligations to Banque Indosuez and PCI Capital.
Demand letters to the bonding companies were sent but to no avail. Taking into account the
moratorium request issued by the Minister of Finance of the Republic of the Philippines,
TIDCORP and its various creditor banks, such as Banque Indosuez and PCI Capital, forged
a Restructuring Agreement extending the maturity dates of the Letters of Guarantee. The
bonding companies were not privy to the Restructuring Agreement and, hence, did not give
their consent to the payment extensions. Nevertheless, following new payment schedules,
TIDCORP fully settled its obligations. Seeking payment for the damages and liabilities it had
incurred under the Letters of Guarantee and with its previous demands therefor left
unheeded, TIIDCORP filed a collection case against: (a) ASPAC, PICO, and Balderrama on
account of their obligations under the deeds of undertaking; and (b) the bonding companies
on account of their obligations under the Surety Bonds.
The RTC partially granted TIDCORP’s complaint and thereby found ASPAC, PICO, and
Balderrama jointly and severally liable to TIDCORP but absolved the bonding companies

from liability on the ground that the moratorium request and the consequent payment
extensions granted by Banque Indosuez and PCI Capital in TIDCORP’s favor without their
consent extinguished their obligations under the Surety Bonds. On appeal, the CA upheld
the ruling of RTC. Hence, this appeal filed by TIDCORP.
ISSUE: Whether or not the bonding companies’ liabilities to TIDCORP under the
Surety Bonds have been extinguished by the payment extensions granted by Banque
Indosuez and PCI Capital to TIDCORP under the Restructuring Agreement.
HELD: NO. The Court finds that the payment extensions granted by Banque Indosuez
and PCI Capital to TIDCORP under the Restructuring Agreement did not have the
effect of extinguishing the bonding companies’ obligations to TIDCORP under the
Surety Bonds, notwithstanding the fact that said extensions were made without their
consent. This is because Article 2079 of the Civil Code refers to a payment extension
granted by the creditor to the principal debtor without the consent of the guarantor or surety.
In this case, the Surety Bonds are suretyship contracts which secure the debt of ASPAC,
the principal debtor, under the Deeds of Undertaking to pay TIDCORP, the creditor, the
damages and liabilities it may incur under the Letters of Guarantee, within the bounds of the
bonds’ respective coverage periods and amounts. No payment extension was, however,
granted by TIDCORP in favor of ASPAC in this regard; hence, Article 2079 of the Civil
Code should not be applied with respect to the bonding companies’ liabilities to
TIDCORP under the Surety Bonds.
The payment extensions granted by Banque Indosuez and PCI Capital pertain to
TIDCORP’s own debt under the Letters of Guarantee wherein it (TIDCORP) irrevocably and
unconditionally guaranteed full payment of ASPAC’s loan obligations to the banks in the
event of its (ASPAC) default. In other words, the Letters of Guarantee secured ASPAC’s
loan agreements to the banks. Under this arrangement, TIDCORP therefore acted as a
guarantor, with ASPAC as the principal debtor, and the banks as creditors.
Proceeding from the foregoing discussion, it is quite clear that there are two sets of
transactions that should be treated separately and distinctly from one another
following the civil law principle of relativity of contracts "which provides that contracts
can only bind the parties who entered into it, and it cannot favor or prejudice a third person,
even if he is aware of such contract and has acted with knowledge thereof." Verily, as the
Surety Bonds concern ASPAC’s debt to TIDCORP and not TIDCORP’s debt to the banks,
the payments extensions would not deprive the bonding companies of their right to
pay their creditor (TIDCORP) and to be immediately subrogated to the latter’s
remedies against the principal debtor (ASPAC) upon the maturity date. It must be
stressed that these payment extensions did not modify the terms of the Letters of
Guarantee but only provided for a new payment scheme covering TIDCORP’s liability to the
banks. In fine, considering the inoperability of Article 2079 of the Civil Code in this
case, the bonding companies’ liabilities to TIDCORP under the Surety Bonds – except
those issued by Paramount and covered by its Compromise Agreement with
TIDCORP – have not been extinguished.

Concepcion failed to pay the loan. petitioner testified that a representative of respondent bank went to her house to inform her that the loan secured by her house and lot was long overdue. substituted by REQUILDA B. explicitly shows on its face. Without these words.30 Petitioner also denied appearing before the notary public. the signatures of petitioner and her husband had already been affixed. 2014 PHILIPPINE NATIONAL BANK. presented the testimonies of its employees 36 and respondent sheriff. sheriff’s sale and certificate of title null and void. consistent with the law on agency and established jurisprudence. SPS.40 The RTC decreed the SPA. For even if the SPA was valid. MISAMIS ORIENTAL.38 that she offered as collateral petitioner’s house and lot using the SPA. vs.00 from Rural Bank. the Real Estate Mortgage. that it was signed by Concepcion in her own name and in her own personal capacity. it appears that on June 8. . there is no need to delve on the issues of forgery of the SPA and the nullity of the foreclosure sale. Based on their testimonies. On appeal. Third Party Defendants. Bucton is not liable. and REYNALDO CUYONG. who notarized the SPA. the house and lot were foreclosed by respondent sheriff without a Notice of Extra-Judicial Foreclosure or Notice of Auction Sale. ARNEL J. is covered by a different title. Concepcion borrowed the title on the pretext that she was going to show it to an interested buyer.28 She insisted that her signature and her husband’s signature on the SPA were forged29 and that ever since she got married. Thus. the CA reversed the findings of the RTC. when in fact. which was mortgaged and foreclosed. 26 Since she did not mortgage any of her properties nor did she obtain a loan from respondent bank." or "for and on behalf of.00 was approved. 174433 February 24. the authorized agent failed to indicate in the mortgage that she was acting for and on behalf of her principal. vs.000.34 and that Lugod instructed her not to tell petitioner about the SPA. Respondent bank was negligent. RURAL BANK OF EL SALVADOR. and Bucton’s house and lot were sold in an auction sale in favor of Rural Bank. petitioner cannot be bound by the acts of Concepcion. ARNOLD J. in signing documents. any mortgage. We need not belabor that the words "as attorney-in-fact of. 3838. In this case. Respondents. FACTS: Bucton is the owner of a parcel of land covered by a TCT. G. Respondents. Petitioner. petitioner presented Emma Nagac who testified that when she was at Concepcion’s boutique. BUCTON (deceased). Concepcion applied for a loan for her coconut productionbusiness37 in the amount of P40. The CA found no cogent reason to invalidate the SPA.R. TCT No.00 but only the amount of P30. although signed by the agent. 1987 to inquire about the matter. At this point. the Real Estate Mortgage would still not bind petitioner as it was signed by Concepcion in her personal capacity and not as an agent of petitioner. the Real Estate Mortgage is void and unenforceable against petitioner. Doctrine: A mortgage executed by an authorized agent who signed in his own name without indicating that he acted for and on behalf of his principal binds only the agent and not the principal. she was asked by the latter to sign as a witness to the SPA. The Real Estate Mortgage was entered into by Concepcion in her own personal capacity. Concepcion mortgaged Bucton’s house and lot to Rural bank using a SPA allegedly executed by Bucton in favor of Concepcion. she no longer used her maiden name. there is nothing in the document to show that she was acting or signing as an agent of petitioner. is a vacant lot and that the house. In light of the foregoing. During the trial. INC. As security for the loan. In fact. 27 It was only then that she discovered that her house and lot was mortgaged by virtue of a forged SPA. and ARMA J. HELD: NO. INC.. she obtained a loan in the amount of P30. MANALO. MANALO. 2014 NICANORA G. Hence. RURAL BANK OF EL SALVADOR. No. 1982. Simply put. TCT No. Nicanora Gabar. 1982. MANALO G. The Real Estate Mortgage. Not only did it act with undue haste when it granted and released the loan in less than three days. 179625 February 24. 35 Respondent bank. and Foreclosure Sale as it was not convinced that the SPA was forged. real estate mortagage. SPOUSES ENRIQUE MANALO & ROSALINDA JACINTO." are vital in order for the principal to be bound by the acts of his agent. ISSUE: Whether or not Bucton is liable to pay the real estate mortgage entered into by Concepcion with the Rural Bank of El Salvador. vs. No. this appeal. MANALO. Petitioner.CASE 2: BUCTON vs.33 that when she signed the SPA. CASE 3: PNB vs." "as agent of. cannot bind the principal as it is considered to have been signed by the agent in his personal capacity. ERLINDA CONCEPCION AND HER HUSBAND AND AGNES BUCTON LUGOD. it also acted negligently in preparing the Real Estate Mortgage as it failed to indicate that Concepcion was signing it for and on behalf of petitioner. thus.000. 3839. we find it significant to mention that respondent bank has no one to blame but itself.000. she decided to go to respondent bank on June 22.31 She also testified that the property referred to in the SPA.R. YRAY. on the other hand.39 and that the proceeds of the loan were released to Concepcion and Lugod on June 11.32 To support her claim of forgery.

Doctrine: Although banks are free to determine the rate of interest they could impose on their borrowers.00 with Philippine National Bank (PNB) to finance the construction of their house. PNB claimed that their last recorded payment was made on December. Thus. In reply. However. The Court has declared that a contract where there is no mutuality between the parties partakes of the nature of a contract of adhesion. . any stipulation on interest unilaterally imposed and increased by them shall be struck down as violative of the principle of mutuality of contracts. No. PNB should then suffer the consequences of its failure to specifically indicate the rates of interest in the credit agreement. the RTC rendered its decision in favor of PNB. PNB thereby arrogated unto itself the sole prerogative to determine and increase the interest rates imposed on the Spouses Manalo. they can do so only reasonably. We rule that the CA.000. v. 2000.000. the latter being presumed the stronger party to the agreement. the CA affirmed the decision of the RTC insofar as it upheld the validity of the foreclosure proceedings initiated by PNB. 1997. After trial. ASUNCION P. PNB and Antoninus Yuvienco denied the allegations of the Spouses Manalo. rightly concluded that "a borrower is not estopped from assailing the unilateral increase in the interest made by the lender since no one who receives a proposal to change a contract.000. On appeal. PNB foreclose the mortgage. that the credit agreements had explicitly provided that prior notice would be necessary before PNB could increase the interest rates. therefore. vs." Lastly. They alleged that they had obtained a loan for P1. It found that PNB did not adduce proof showing that the Spouses Manalo had been notified before the increased interest rates were imposed.000. that had been declared in default of their obligations. and that PNB’s unilateral imposition of the increased interest rate was null and void for being violative of the principle of mutuality of contracts enshrined in Article 1308 of the Civil Code. They may not take advantage of the ordinary borrowers' lack of familiarity with banking procedures and jargon. as amended. CASE 4: HOMEOWNERS SAVINGS AND LOAN BANK vs. PNB was the highest bidder for P15. therefore. PNB violated the stipulations of the very contract that it had prepared. RespondentsAppellees.000. The credit facility was renewed and increased several times over the years. citing Philippine National Bank v. As a consequence. After the Spouses Manalo still failed to settle their unpaid account despite the two demand letters. Petitioner-Appellant. and in their place an interest rate of 12% per annum computed from their default is fixed pursuant to the ruling in Eastern Shipping Lines. all surnamed Manalo.00 of the mortgaged properties of the Spouses Manalo. PNB sent another demand letter because they failed to heed the first demand. that they had been made to understand and had been assured that the P1. Court of Appeals.00 from a certain Benito Tan upon arrangements made by Antoninus Yuvienco. After more than a year after the Certificate of Sale had been issued to PNB. Reinforcing its "contract of adhesion" conclusion. and Arma.000. Inc. and who caused the obscurity. During the foreclosure sale. 189477 February 26. PNB sent a demand letter to them on their overdue account and required them to settle the account. they executed a Real Estate Mortgage in favor of PNB over their property covered by Transfer Certificate of Title (TCT) as security for the loan. Thus. to which he is a party. Arnel. ISSUE: Whether or not the stipulation on interest unilaterally imposed and increased by PNB is violative of the principle of mutuality of contracts HELD: YES. the CA observed. but modified the Spouses Manalo’s liability for interest. Hence. Such a unilateral determination of the interest rates contravened the principle of mutuality of contracts embodied in Article 1308 of the Civil Code. prevailing at the current month." This stipulation was carried over to or adopted by the subsequent renewals of the credit agreement. After PNB granted their application. DE GUZMAN. that they had been surprised to learn. Court of Appeals. represented by MARIBEL FRIAS. 3135.000. The CA further held that PNB could not unilaterally increase the rate of interest considering that the credit agreements specifically provided that prior notice was required before an increase in interest rate could be effected. In failing to notify the Spouses Manalo before imposing the increased rates of interest. and that their loan would be restructured and converted into a long-term loan. is obliged to answer the same and said party’s silence cannot be construed as an acceptance thereof.127. the parties executed a Supplement to and Amendment of Existing Real Estate Mortgage whereby another property was added as security for the loan. 2014 HOMEOWNERS SAVINGS AND LOAN BANK. it added that the Spouses Manalo’s being in dire need of money rendered them to be not on an equal footing with PNB. FACTS: Spouses Manalo applied for an All-Purpose Credit Facility in the amount of P1. It was agreed upon that the Spouses Manalo would make monthly payments on the interest.00 would be used to update their account. and that the mortgage on their property had been foreclosed and their property had been sold. PNB could not also justify the increases it had effected on the interest rates by citing the fact that the Spouses Manalo had paid the interests without protest. The credit agreement executed succinctly stipulated that the loan would be subjected to interest at a rate "determined by the Bank to be its prime rate plus applicable spread. The sheriff issued to PNB the Certificate of Sale dated November 13. the varying interest rates imposed by PNB have to be vacated and declared null and void. and any obscurity will be construed against the party who prepared the contract. FELONIA G. who were their children. FELONIA and LYDIA C. the Spouses Manalo instituted this action for the nullification of the foreclosure proceedings and damages. then the General Manager of PNB’s Bangkal Branch where they had transacted. Hence. It was registered in the names of respondents Arnold. thi appeal filed by PNB. and that PNB did not comply with Section 3 of Act No. not arbitrarily. and had renewed the loan several times. and properly so. Anthony.R.

TCT No. Aggrieved. When the property was mortgaged to HSLB. the Notice of Lis Pendens was already annotated on the title. had a right to rely in good faith on Delgado’s title. Hence. instead of a real estate mortgage. it does not apply.19 When a prospective buyer is faced with facts and circumstances as to arouse his suspicion.00. Felonia and De Guzman filed an action for Reformation of Contract (Reformation case). T-402 issued by the register of deeds of Las Piñas City. The contract of sale in favor of Delgado was ordered reformed into a contract of mortgage. causing the issuance of a new title in its name. the parties executed a Deed of Absolute Sale with an Option to Repurchase. HSLB. but of whether or not HSLB is a purchaser in good faith. The records indicate that Delgado was at the time of the mortgage in possession of the subject property and Delgado’s title did not contain any annotation that would arouse HSLB’s suspicion. TCT No. the CA annulled and set aside the decision of the RTC in the Consolidation case. Meanwhile. was canceled and TCT No. registered in the names of Felonia and De Guzman. The RTC rendered a judgment favorable to Felonia and De Guzman. there was yet no annotated Notice of Lis Pendens. or that he/she gambles on the result of the litigation over the property. instituted the instant complaint against Delgado. is the "Reformation case" filed against Delgado by the herein respondents. serving as a warning that anyone who acquires an interest over the property does so at his/her own risk.000. And. Register of Deeds of Las Piñas City and Rhandolfo B. Lis pendens is a Latin term which literally means. After trial. As correctly found by the CA. the registered owner of the subject property was Delgado who had in her name TCT No. Thus. After an exparte hearing. HSLB is not such a purchaser. HSLB had no obligation to undertake further investigation. covered by Transfer of Certificate of Title (TCT) No. There is no doubt that at the time appellant purchased the subject property. represented by Maribel Frias (Frias). and finally. HSLB foreclosed the subject property and later consolidated ownership in its favor. The case was decided with finality by the CA in favor of herein respondents. TCT No. the property and pays full and fair price at the time of purchase or before he has notice of the claim or interest of other persons in the property. Three (3) days later. On 29 April 2003. Annulment of Titles of Delgado and HSLB. the CA affirmed with modifications the trial court decision. 44848 in the name of Delgado. the title issued in its favor was subject to the outcome of said litigation. at the time HSLB purchased the subject property. The decision of the CA.” The subject of the lis pendens on the title of HSLB’s vendor. Reconveyance of Possession and Ownership of the subject property in their favor. However. They mortgaged the property to Delgado to secure the loan in the amount of P1. A purchaser in good faith is defined as one who buys a property without notice that some other person has a right to. he must take precautionary steps to qualify as a purchaser in good faith. HSLB. Felonia and De Guzman. Delgado mortgaged the subject property to Homeowners Savings and Loan Bank (HSLB) using her newly registered title. HSLB caused the annotation of the mortgage. Indeed. the RTC ordered the issuance of a new title under Delgado’s name. whereas the foreclosure sale. Felonia and De Guzman elevated the case to the CA through a Petition for Annulment of Judgment. However.655. the RTC ruled in favor of Felonia and De Guzman as the absolute owners of the subject property. Delgado transferred the title to her name. HSLB had actual knowledge of the annotated Notice of Lis Pendens. On appeal. where the appellant was declared as the highest bidder. 44848. T-402. this petition. Felonia and De Guzman caused the annotation of a Notice of Lis Pendens on Delgado’s title. However. HSLB took upon itself the risk that the Notice of Lis Pendens leads to. On 20 November1997. Instead of heeding the same. took place sometime in 1997. 44848. At the time the subject property was mortgaged. or interest in. HSLB cannot be faulted in relying on the face of Delgado’s title. Hence. (HSLB is not a “purchaser in good faith”. it was aware of the pending litigation concerning the same property and thus. ISSUE: Whether or not the doctrine of mortgagee in good faith applies in the instant case.HELD: NO. "the notice of lis pendens was annotated on 14 September 1995. claiming to be the absolute owners of the subject property. Inspite of the pendency of the Reformation case in which she was the defendant. . declaring Felonia and De Guzman as the absolute owners of the subject property and ordering the cancellation of Delgado’s title. the rights of the parties to the present case are defined not by the determination of whether or not HSLB is a mortgagee in good faith. at the time HSLB bought the subject property. HSLB utterly failed to take the necessary precautions. Aggrieved.) FACTS: Felonia and De Guzman were the registered owners of a parcel of land consisting of 532 square meters with a five-bedroom house. was issued. On 27 October 2000. In the case at bar. HSLB’s vendor. 64668. HSLB continued with the purchase knowing the legal repercussions a notice of lis pendens entails. It is a warning to prospective buyers to take precautions and investigate the pending litigation. Delgado filed a "Petition for Consolidation of Ownership of Property Sold with an Option to Repurchase and Issuance of a New Certificate of Title" (Consolidation case). By virtue of the RTC decision. as a mortgagee. Delgado elevated the case to the CA where the latter affirmed the trial court decision. Amansec before the RTC of Las Piñas City for Nullity of Mortgage and Foreclosure Sale. Delgado. By final decision of the CA. "a pending suit or a pending litigation" while a notice of lis pendens is an announcement to the whole world that a real property is in litigation. and in the absence of any sign that might arouse suspicion.

DBP initiated extrajudicial foreclosure proceedings. and to stop the foreclosure of the mortgages. from which DBP withheld P148. and the other the debtor.470. The agreement between DBP and Guariña Corporation was a loan. That the mortgagor be the absolute owner of the thing mortgaged is an essential requisite of a contract of mortgage. if a party in a reciprocal contract like a loan does not perform its obligation. On October 5. 1976. Iloilo. Oton.98 as interest.00. the amount released totalled P3. DBP had no right yet to exact on Guariña Corporation the latter's compliance with its own obligation under the loan. GUARIÑA AGRICULTURAL AND REALTY DEVELOPMENT CORPORATION. Over Guariña Corporation's opposition. Prior to the release of the loan. 1988.000. After the CA dismissed the petition for certiorari. The loan of P3. No. there is no longer any public interest in upholding the indefeasibility of the certificate of title of its mortgagor. Both the RTC and CA ruled that the extrajudicial sale of the mortgaged properties is null and void. A notice of foreclosure sale was sent to Guariña Corporation. 1976. Guariña Corporation executed a promissory note that would be due on November 3. DBP thus demanded that Guariña Corporation expedite the completion of the project. the .Delgado. has likewise been nullified in the very same decision that restored the certificate of title in respondents' name. the foreclosure of the mortgage is premature and should be nullified. The loan was released in several instalments. The obligation of one party in a reciprocal obligation is dependent upon the obligation of the other. but DBP refused. Guariña Corporation demanded the release of the balance of the loan. Unsatisfied with the non-action and objection of Guariña Corporation. 2085. a loan requires the delivery of money or any other consumable object by one party to another who acquires ownership thereof.003. The following requisites are essential to the contracts of pledge and mortgage: xxxx (2) That the pledgor or mortagagor be the absolute owner of the thing pledged or mortgaged. as it arises from the same cause where one party is the creditor. Such title has been nullified in a decision that had become final and executory. DBP moved for the dismissal of the complaint. Article 2085 (2) of the Civil Code specifically says so: Art. is not the property owner but only a mortgagee. leading the clients and patrons of Guariña Corporation to think that its business operation had slowed down. This means that in a loan. vs. ISSUE: Whether or not the foreclosure of a mortgage prior to the mortgagor’s default on the principal obligation is valid. GUARIÑA CORPORATION G. FACTS: Guariña Corporation applied for a loan from DBP to finance the development of its resort complex situated in Trapiche. HELD: NO.102. was approved on August 5. and that its resort had already closed. On May 17. In all. and should be undone for being void and ineffectual. CASE 5: DBP vs. There is absolutely no reason that can support the prayer of HSLB to have its mortgage lien carried over and into the restored certificate of title of respondents. derived from the foreclosure of Delgado's mortgage in its favor. its developments and improvements that Guariña Corporation had not completed the construction works. Hence. 2014 DEVELOPMENT BANK OF THE PHILIPPINES. DBP required Guariña Corporation to put up a cash equity of P1. Guariña Corporation executed a real estate mortgage over several real properties in favor of DBP as security for the repayment of the loan. 1977. DBP sought the implementation of the order for the issuance of the writ of possession. Guariña Corporation amended the complaint to seek the nullification of the foreclosure proceedings and the cancellation of the certificate of sale. the RTC denied the application but later granted it upon DBP's motion for reconsideration. DBP directly paid some suppliers of Guariña Corporation over the latter's objection. However. Its own title. and the performance should ideally be simultaneous. Delgado. Guariña Corporation assailed the granting of the application before the CA on certiorari. Doctrine: The foreclosure of a mortgage prior to the mortgagor's default on the principal obligation is premature. and Guariña Corporation used the proceeds to defray the cost of additional improvements in the resort complex. 1982. Instead. the RTC issued the writ of possession on June 16. on the condition that the same amount or quality shall be paid. Respondent. 160758 January 15. the creditor should release the full loan amount and the debtor repays it when it becomes due and demandable. In the meantime. Guariña Corporation sued DBP in the RTC to demand specific performance of the latter's obligations under the loan agreement. this appeal by DBP. Petitioner. stating that the mortgaged properties had already been sold to satisfy the obligation of Guariña Corporation at a public auction. As it turned out. DBP applied for the issuance of a writ of possession by the RTC. Guariña Corporation executed 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. Loan is a reciprocal obligation.49. Indeed.00 for the construction of the buildings and other improvements on the resort complex. Insofar as the HSLB is concerned. Delgado could not have constituted a valid mortgage on the property. At first.951. DBP found upon inspection of the resort project. By its failure to release the proceeds of the loan in their entirety. Aggrieved. The notice was eventually published. Under the law.387.617. and warned that it would initiate foreclosure proceedings should Guariña Corporation not do so. Due to this. The mortgagee who has been meanwhile given possession of the mortgaged property by virtue of a writ of possession issued to it as the purchaser at the foreclosure sale may be required to restore the possession of the property to the mortgagor and to pay reasonable rent for the use of the property during the intervening period. also to secure the performance of the obligation.R.

26 as its basis to accelerate the obligation of Guariña Corporation. the latter party does not incur delay. or else it would foreclose the mortgages. void and ineffectual. DBP's foreclosure of the mortgage and the sale of the mortgaged properties at its instance were premature. DBP failed in its duty to exercise the highest degree of diligence by prematurely foreclosing the mortgages and unwarrantedly causing the foreclosure sale of the mortgaged properties despite Guariña Corporation not being yet in default. . Under the circumstances. Yet. DBP's actuations were legally unfounded. DBP had to act with great care in applying the stipulations of its agreement with Guariña Corporation. While a creditor and a debtor could regulate the order in which they should comply with their reciprocal obligations. Hence. DBP owed it to Guariña Corporation to exercise the highest degree of diligence. a mortgage remains an accessory contract dependent on the principal obligation. By its nature.before it could demand that the borrower repay the loaned amount.. Considering that it had yet to release the entire proceeds of the loan. therefore. as well as to observe the high standards of integrity and performance in all its transactions because its business was imbued with public interest. 26).other party cannot be obliged to perform what is expected of it while the other's obligation remains unfulfilled. DBP wrongly relied on Stipulation No. DBP could not yet make an effective demand for payment upon Guariña Corporation to perform its obligation under the loan. In other words. it is presupposed that in a loan the lender should perform its obligation . Guariña Corporation would not incur in delay before DBP fully performed its reciprocal obligation. Stipulation No. In other words.the release of the full loan amount . for the stipulation was relevant to an Omnibus Agricultural Loan. DBP called upon Guariña Corporation to make good on the construction works pursuant to the acceleration clause written in the mortgage contract (i. It is true that loans are often secured by a mortgage constituted on real or personal property to protect the creditor's interest in case of the default of the debtor. to Guariña Corporation's loan which was intended for a project other than agricultural in nature. Still. such that enforcement of the mortgage contract will depend on whether or not there has been a violation of the principal obligation. and. lest it erodes such public confidence.e. Being a banking institution. however. Guariña Corporation would not be in default without the demand. Thus.