Central Bank vs CA 139 SCRA 46 (1985)

FACTS
1. Island Savings Bank approved the loan application for P80K of Sulpicio Tolentino who executed a
real estate mortgage over his 100 hectare land.
2. The loan called for a lump sum of P80K, repayable in semi-annual installments for 3 yrs, w/ 12%
annual interest. It was required that Tolentino shall use the loan solely as additional capital to
develop his other property into a subdivision.
3. A mere P17K partial release of the loan was made by the bank and Tolentino and his wife signed a
promissory note for the P17K at 12% annual interest payable w/in 3 yrs. An advance interest was
deducted from the partial release but this pre-deducted interest was refunded to Tolentino after
being informed that there was no fund yet for the release of the P63K balance.
4. The bank VP and Treasurer promised release of the balance.
5. 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 fr doing business in the Philippines.
6. Island Savings Bank in view of the non-payment of the P17K filed an application for foreclosure of
the real estate mortgage.
7. Tolentino filed petition for specific performance or rescission and damages w/ 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.
8. Trial court found Tolentinos petition unmeritorious.
9. CA affirmed dismissal of Tolentinos petition for specific performance, but it ruled that the bank can
neither foreclose the real estate mortgage nor collect the P17K loan.
ISSUES
1. WON Tolentinos action for specific performance can prosper
2. WON Tolentino is liable to pay the P17K covered by the promissory note
3. If liable to pay P17K, WON Tolentinos real estate mortgage can be foreclosed
HELD
1. NO. 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. 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 non-existing debt. 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. YES. The promissory note gave rise to this liability. His failure to pay made him party in default, hence,
not entitled to rescission. This time, it is the bank which has right to rescind the promissory note. Since both
Tolentino and the bank are in default, both are liable for damages. Liability may be offset.
3. NO. Since the bank failed to furnish the balance, the real estate mortgage became unenforceable to
such extent.