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Pacific Banking Corporation vs CA G.R. No. L-45656, May 5, 1989 Gutierrez, Jr., J.

: FACTS: Joseph and Eleanor Hart, herein private respondents, organized Insular Farms, Inc. (IFI). They approached John Clarkin for financial assistance. They signed a Memorandum of Agreement that stated that the division of shares outstanding, 510 for Clarkin and 490 for the Harts. Due to financial problems, IFI borrowed P250,000 from Pacific Banking Corporation (PBC) in July 1956. Then, a promissory note of P250,000 to PBC payable for 5 equal annual installments and the first installment payable on or before July 1957. In addition to this, in case of default in the payment of any installment when due, all others shall become due and payable. This loan was effected without any security except for the Continuing Guaranty of Clarkin. The business floundered but PBC and its then Executive Vice President, Chester Babst, did not demand payment for the initial July 1957 installment nor the entire obligation. The business further deteriorated so Hart pledged all IFI shares of stocks to PBC in lieu of additional collateral and to insure an extension of the periods to pay the July 1957 installment. This was executed on February 19, 1958. On March 3, 1958, Pacific Farms Inc. (PFI) was created and was engage in the same business as IFI. The next day, PBC ,through Babst, wrote IFI that the entire obligation is due in 48 hours. On March 7, 1958, Hart received a notice that the shares of stocks would be sold at a public auction. This was temporarily halted upon the courts grant of the preliminary injunction along with the complaint for reconveyance abd danages. However, this was lifted by the court and on March 21, the 1,000 shares of stocks of IFI was sold to PFI. Hart filed a case which contends the validity of the sale of the shares because there was an indefinite extension of time to pay their obligation under the promissory note and no demand was made by the bank and the latter merely asked for more collateral. The trial court decided against the private respondents but had a favorable judgment on appeal; hence, this petition. ISSUE: Whether or not the CA erred in committing grave error in finding that petitioner bank agreed to an indefinite extension. RULING: In case the period of extension is not precise, the provisions of Art. 1197 should apply. In the case, there was an agreement to extend the payment of the loan, including the first installment thereon which was due on or before July 1957. The court is convinced that Hart had been given the assurance by the conduct of Babst that the payment would not as yet be pressed and following the said provision, the meaning must be that there having been intended a period to pay modifying the fixe period in original promissory note. The cause of action of PBC would have been to ask the Courts for fixing the term. Furthermore, the pledge executed on February 1958 contained no longer the provision on an installment of P50,000 due on or before July 1957 which can mean no other thing that the payment for the said installment was extended. Moreover, the pledge on February 1958 on the shares of stocks of IFI was sufficient consideration for the extension. Moreover, the pledge which modified the fixed period in the original promissory note did not provide for dates of payment of installments nor of any fixed date of maturity of the whole amount of indebtedness. Therefore, under Art. 1197, the date of maturity should be determined by the proper court. Hence, the disputed foreclosure and the subsequent sale were premature.

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