CENTRAL BANK OF THE PHILIPPINES V.
CA deliver the remaining balance of P63,000, he is entitled to
DOCTRINE: The rule of indivisibility of a real mortgage provided for by
Article 2089 of the Civil Code is inapplicable to the facts of the case as
the said rule presupposes several heirs of the debtor or creditor which
does not obtain in this case.
FACTS:
Island Savings Bank (BANK) approved the loan application for
P80,000 of Sulpicio Tolentino (TOLENTINO), who, as a security
of the loan, executed a REM over his 100-hectare land. The
approved loan application called for a lump sum of P80,000 loan,
repayable in semi-annual installments for a period of 3 years,
with 12% annual interest. The purpose of the loan was to serve
as an additional capital to develop his property into a subdivision.
However, out of the P80,000 loan to be released, only P17,000
was made by the BANK, and TOLENTINO signed a PN for
P17,000 at 12% annual interest, payable within 3 years from the
date of the execution of the contract. Moreover, the BANK
demanded an advanced interest for the P80,000. But this pre-
deducted interest was refunded to TOLENTINO after being
informed that there was no fund yet available for the release of
the P63,000 balance. The BANK repeatedly promised to release
the remaining balance.
The Monetary Board of the Central Bank, after finding Island
Savings Bank was suffering from liquidity problems, issued a
Resolution which prohibited the bank from making NEW LOANS
and investments and later on, through another resolution,
prohibited the BANK from doing business in the Philippines.
In view of TOLENTINOs non-payment of the P17,000 covered
by the PN, the BANK filed an application for the extra-judicial
foreclosure of the REM and scheduled an auction. TOLENTINO,
on the other hand, filed a petition for injunction, specific
performance or rescission alleging that since the BANK failed to
specific performance by ordering the BANK to deliver the same
with interest, and if the said balance cannot be delivered, to
rescind the REM.
TC: ruled in favor of the BANK. Ordered TOLENTINO to pay the
BANK P17,000 due to the non-payment of the PN.
CA: ruled in favor of TOLENTINO. BANK can neither foreclose
the REM nor collect P17,000
ISSUES:
1. Can the action of TOLENTINO for specific performance prosper?
(NO)
2. Is TOLENTINO liable to pay the P17,000 covered by the PN?
(YES)
3. If the liability to pay P17,000 subsists, can TOLENTINOs entire
REM be foreclosed to satisfy said amount? (NO)
HELD (1 & 2):
The loan agreement entered into between the BANK and
TOLENTINO is a reciprocal obligation where the promise of each
party is the consideration of the other. The rule is that default
commences only when one of the party has performed his
obligation or shows his willingness to perform the said obligation.
The other party who is not ready nor is willing to perform shall be
in delay.
When TOLENTINO executed the REM, he signified his
willingness to pay P80,000. From such date, the BANKs
obligation to furnish P80,000 accrued. Thus, the BANKs delay
strated when the the Monetary Bank of the Central Bank issued
the Resolution prohibiting the BANK from doing further business.
Such prohibition made it legally impossible for the BANK to
furnish P63,000.
 The Resolution issued by the Monetary Board cannot interrupt
the BANK s failure of releasing the remaining balance of
P63,000 because the said resolution merely prohibited the BANK
from making NEW LOANS AND INVESTMENTS, and nowhere
did it prohibit the bank from releasing the balance of loan
agreements PREVIOUSLY CONTRACTED.
The mere insolvency of a debtor is never an excuse for the non-
fulfillment of an obligation but instead is taken as a breach of the
contract by him. Since the BANK was in default in fulfilling its
reciprocal obligation under the loan agreement, TOLENTINO,
may choose between specific performance or rescission with
damages to both cases. But since the BANK is now prohibited
from doing further business as mentioned by the Resolution,
specific performance cannot be granted.
Rescission, on the other hand, cannot also be granted for
TOLENTINO was also at fault for his non-payment of the
P17,000 loan he received after signing the PN. His failure to pay
the overdue amortizations under the PN made him a party in
default. If TOLENTINO had not signed the PN, 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.
And where there is partial failure of consideration, the mortgage
becomes unenforceable to the extent of such failure. Where the
indebtedness actually owing to the holder of the mortgage is less
than the sum named in the mortgage, the mortgage cannot be
enforced for more than the actual sum due.
Since the BANK failed to furnish the P63, 000 balance of the
P80,000 loan, the REM of TOLENTINO became
UNENFORCEABLE to such extent. P63,000 is 78.75% of
P80,000, hence, the REM 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 debt.
The rule on indivisibility of a real estate mortgage provided for by
Article 2089 is inapplicable for the provision presupposes several
heirs of the debtor or creditor which does not obtain in this case.
Hence, the indivisibility of a mortgage cannot apply.

Since both parties were in default, both shall be liable for

damages.

HELD (3):

The consideration of the accessory contract of real estate

mortgage is the same as that of the principal contract. For the
debtor, the consideration is 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.