Development Bank of the Philippines v.

Guaria Agricultural and Realty

Development Corporation
G.R. no. 160758, January 15, 2014
Bersamin, J.

Facts:
Respondent Guaria Corporation applied for a loan (Php 3,387,000.00) from
petitioner DBP for the construction of a resort complex. It also executed real estate
mortgage and chattel mortgage as security for the repayment of the loan. Prior to
the release of the loan, petitioner required respondent to put up a cash equity for
the construction of the buildings and other improvements on the resort complex.
The loan was released in several installments which the responded used to cover
the additional improvements. In all, the amount release totaled to Php 3,003,617.49
from which the petitioner withheld Php 148,102.98 as interest. Respondent
demanded the release of the balance of the load but DBP refused.

Upon inspection, petitioner found that the respondent had not completed the
construction works and demanded that it must expedite the completion and warned
that it would initiate foreclosure proceedings should they not comply. Because of
non-action and objection of the respondent, petitioner initiated extrajudicial
foreclosure of the mortgages which gave the clients and patrons of the petitioner
the impression that the business had slowed down and that the resort had closed.

Thus, respondent filed an action for specific performance with nullification of

the foreclosure proceedings. The RTC ruled in favor of the respondent holding that
the foreclosure sale is null and void. The CA sustained RTCs decision.

Issue:
Whether the respondent is in defaut when it failed to perform the terms of
the mortgage contract securing its loan.

Ruling:
No. Petition must be denied.

The Court held that the agreement between the petitioner and respondent
was a loan which requires the delivery of money or any other consumable object by
one party to another on the condition that the same amount or quality shall be paid.
Loan is a reciprocal obligation as it arises from the same cause where one party is
the creditor and the other the debtor. It means that that the creditor should release
the full loan amount and the debtor must repay it when it becomes due and
demandable.

The failure of petitioner to release the proceeds of the loan in its entirety
gave them no right to demand from the respondent to comply with their obligations.
Indeed, if a party in a reciprocal contract like a loan does not perform its obligation,
the other party cannot be obliged to perform what is expected of it while the other
partys obligation remains unfulfilled. In other words, the latter party does not incur
delay.