Central Bank vs CA

Facts: Island Savings Bank, 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 yrs, 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 yrs. 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.
Later, Monetary Board of Central Bank, after finding that bank was suffering liquidity problems,
prohibited the bank from 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 and damages with
preliminary injunction, alleging that since the bank failed to deliver P63K, he is entitled to specific
performance and if not, to rescind the real estate mortgage.

Issue 1: Can Tolentino collect the P63k unreleased by the bank?

Ruling 1: No. First, 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. The bank was in default for not being able to furnish the entire amount and Tolentino may
choose between specific performance or rescission w/ damages in either case. But considering that the
bank is now prohibited fomr doing business, specific performance cannot be granted. Rescission is the
only remedy left, but the rescission should only be for the P63K balance.

Issue 2: Is Tolentino liable to pay the initial partial release of 17k by the bank to him?

Ruling 2: Yes. The bank was only in default as to the 63K . As far as the partial release of P17,000.00,
which Tolentino accepted and executed a promissory note to cover it, the bank was deemed to have
complied with its reciprocal obligation to furnish a P17,000.00 loan. The promissory note gave rise to
Tolentino's 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.

Issue 3: Can Tolentinos real estate mortgage be foreclosed to satisfy the 17k?

Ruling 3: Only partially and not entirely to satisfy the 17k debt.
The consideration of the accessory contract of real estate mortgage is the same as that of the
principal contract. For the debtor, the consideration of his obligation to pay is the existence of a debt.
Thus, in the accessory contract of real estate mortgage, the consideration of the debtor in furnishing the
mortgage is the existence of a valid, voidable, or unenforceable debt.
The fact that when Tolentino executed his real estate mortgage, no consideration was then in
existence, as there was no debt yet because Island Savings Bank had not made any release on the loan,
does not make the real estate mortgage void for lack of consideration. It is not necessary that any
consideration should pass at the time of the execution of the contract of real mortgage. It may either be
a prior or subsequent matter. But when the consideration is subsequent to the mortgage, the mortgage
can take effect only when the debt secured by it is created as a binding contract to pay. And, when
there is partial failure of consideration, the mortgage becomes unenforceable only to the extent of such
failure.
Since Island Savings Bank failed to furnish the P63,000.00 balance of the P8O,000.00 loan, the
real estate mortgage of Tolentino became unenforceable only to such extent.