By: Atty. Gregorio B. Austral, CPA
When can the lender demand the repayment of loan?
In July 1976, Guariña Corporation applied for a loan from DBP to finance the development of its resort complex situated in Trapiche, Oton, Iloilo. The loan, in the amount of P3,387,000.00, was approved on August 5, 1976. Guariña Corporation executed a promissory note that would be due on November 3, 1988. On October 5, 1976, Guariña Corporation executed a real estate mortgage over several real properties in favor of DBP as security for the repayment of the loan. On May 17, 1977, 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, also to secure the performance of the obligation. Prior to the release of the loan, DBP required Guariña Corporation to put up a cash equity of P1,470,951.00 for the construction of the buildings and other improvements on the resort complex.
The loan was released in several installments, and Guariña Corporation used the proceeds to defray the cost of additional improvements in the resort complex. In all, the amount released totaled P3,003,617.49, from which DBP withheld P148,102.98 as interest.
Guariña Corporation demanded the release of the balance of the loan, but DBP refused. Instead, DBP directly paid some suppliers of Guariña Corporation over the latter’s objection. DBP found upon inspection of the resort project, its developments and improvements that Guariña Corporation had not completed the construction works. In a letter dated February 27, 1978, and a telegram dated June 9, 1978, DBP thus demanded that Guariña Corporation expedite the completion of the project, and warned that it would initiate foreclosure proceedings should Guariña Corporation not do so.
Unsatisfied with the non-action and objection of Guariña Corporation, DBP initiated extrajudicial foreclosure proceedings. A notice of foreclosure sale was sent to Guariña Corporation. The notice was eventually published, leading the clients and patrons of Guariña Corporation to think that its business operation had slowed down, and that its resort had already closed.
DBP submits that the loan had been granted under its supervised credit financing scheme for the development of a beach resort, and the releases of the proceeds would be subject to conditions that included the verification of the progress of works in the project to forestall diversion of the loan proceeds; and that under Stipulation No. 26 of the mortgage contract, further loan releases would be terminated and the account would be considered due and demandable in the event of a deviation from the purpose of the loan, including the failure to put up the required equity and the diversion of the loan proceeds to other purposes. It assails the declaration by the CA that Guariña Corporation had not yet been in default in its obligations despite violations of the terms of the mortgage contract securing the promissory note.
Guariña Corporation counters that it did not violate the terms of the promissory note and the mortgage contracts because DBP had fully collected the interest notwithstanding that the principal obligation did not yet fall due and become demandable.
Was there a perfected contract of loan between DBP and Guariña Corporation?
No. There was no perfected contract of loan.
The agreement between DBP and Guariña Corporation was a loan. Under the law, a loan requires the delivery of money or any other consumable object by one party to another who acquires ownership thereof, 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. The obligation of one party in a reciprocal obligation is dependent upon the obligation of the other, and the performance should ideally be simultaneous. This means that in a loan, the creditor should release the full loan amount and the debtor repays it when it becomes due and demandable.
DBP’s actuations were legally unfounded. 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. By its nature, however, a mortgage remains an accessory contract dependent on the principal obligation, such that enforcement of the mortgage contract will depend on whether or not there has been a violation of the principal obligation. While a creditor and a debtor could regulate the order in which they should comply with their reciprocal obligations, it is presupposed that 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. In other words, Guariña Corporation would not incur in delay before DBP fully performed its reciprocal obligation.