1-Central Bank vs.
CA and damages with preliminary injunction, alleging that since
The banks asking for advance interest for the loan is improper
considering that the total loan hasnt been released. A person
cant be charged interest for nonexisting debt. The alleged
discovery by the bank of overvaluation of the loan collateral is
not an issue. Since Island Savings Bank failed to furnish the
P63,000.00 balance of the P80,000.00 loan, the real estate
mortgage of Sulpicio M. Tolentino became unenforceable to such
extent.
Facts: Island Savings Bank, upon favorable recommendation
of its legal department, approved the loan application for
P80,000.00 of Sulpicio M. Tolentino, who, as a security for
the loan, executed on the same day a real estate mortgage
over his 100-hectare land located in Cubo, Las Nieves,
Agusan. The loan called for a lump sum of P80,000,
repayable in semi-annual installments for 3 years, with 12%
annual interest. After the agreement, a mere P17K partial
release of the loan was made by the bank and Tolentino and
his wife signed a promissory note for the P17,000 at 12%
annual interest payable w/in 3 years. An advance interest
was deducted from the partial release but this prededucted
interest was refunded to Tolentino after being informed that
there was no fund yet for the release of the P63K balance.
Monetary Board of Central Bank, after finding that bank was
suffering liquidity problems, prohibited the bank fr making
new loans and investments. And after the bank failed to
restore its solvency, the Central Bank prohibited Island
Savings Bank from doing business in the Philippines. Island
Savings Bank in view of the non-payment of the P17K filed
an application for foreclosure of the real estate mortgage.
Tolentino filed petition for specific performance or rescission
the bank failed to deliver P63K, he is entitled to specific
performance and if not, to rescind the real estate mortgage.
Issues: 1) Whether or not Tolentinos can collect from the
bank for damages
2) Whether or not the mortgagor is liable to pay the
amount covered by the promissory note
3) Whether or not the real estate mortgage can be
foreclosed
Held:
1) Whether or not Tolentinos can collect from the bank for
damages
The loan agreement implied reciprocal obligations. When
one party is willing and ready to perform, the other party not
ready nor willing incurs in delay. When Tolentino executed
real estate mortgage, he signified willingness to pay. That
time, the banks obligation to furnish the P80K loan accrued.
Now, the Central Bank resolution made it impossible for the
bank to furnish the P63K balance. The prohibition on the
bank to make new loans is irrelevant because it did not
prohibit the bank from releasing the balance of loans
previously contracted. Insolvency of debtor is not an excuse
for non-fulfillment of obligation but is a breach of contract.
The banks asking for advance interest for the loan is
improper considering that the total loan hasnt been released.
A person cant be charged interest for nonexisting debt. The
alleged discovery by the bank of overvaluation of the loan
collateral is not an issue. The bank officials should have been
more responsible and the bank bears risk in case the
collateral turned out to be overvalued. Furthermore, this was
not raised in the pleadings so this issue cant be raised. The
bank was in default and Tolentino may choose bet specific
performance or rescission w/ damages in either case. But
considering that the bank is now prohibited from doing
business, specific performance cannot be granted.
Rescission is the only remedy left, but the rescission should
only be for the P63K balance.
2) Whether or not the mortgagor is liable to pay the amount
covered by the promissory note
P17,000.00 debt within 3 years as stipulated, they are both
liable for damages.
3) Whether or not the real estate mortgage can be foreclosed
Since Island Savings Bank failed to furnish the P63,000.00
balance of the P80,000.00 loan, the real estate mortgage of
Sulpicio M. Tolentino became unenforceable to such extent.
P63,000.00 is 78.75% of P80,000.00, hence the real estate
mortgage covering 100 hectares is unenforceable to the
extent of 78.75 hectares. The mortgage covering the
remainder of 21.25 hectares subsists as a security for the
P17,000.00 debt. 21.25 hectares is more than sufficient to
secure a P17,000.00 debt.

The promissory note gave rise to Sulpicio M. Tolentinos

reciprocal obligation to pay the P17,000.00 loan when it falls
due. His failure to pay the overdue amortizations under the
promissory note made him a party in default, hence not
entitled to rescission (Article 1191 of the Civil Code). If there
is a right to rescind the promissory note, it shall belong to the
aggrieved party, that is, Island Savings Bank. If Tolentino had
not signed a promissory note setting the date for payment of
P17,000.00 within 3 years, he would be entitled to ask for
rescission of the entire loan because he cannot possibly be
in default as there was no date for him to perform his
reciprocal obligation to pay. Since both parties were in
default in the performance of their respective reciprocal
obligations, that is, Island Savings Bank failed to comply with
its obligation to furnish the entire loan and Sulpicio M.
Tolentino failed to comply with his obligation to pay his