Central Bank of The Philippines vs. Court of Appeals

SUPREME COURT REPORTS ANNOTATED VOLUME 139 1/23/18, 10:38 PM
46 SUPREME COURT REPORTS ANNOTATED

Central Bank of the Philippines vs. Court of Appeals
*
No. L-45710. October 3, 1985.
CENTRAL BANK OF THE PHILIPPINES and ACTING

DIRECTOR ANTONIO T. CASTRO, JR. OF THE
DEPARTMENT OF COMMERCIAL AND SAVINGS
BANK, in his capacity as statutory receiver of Island
Savings Bank, petitioners, vs. THE HONORABLE COURT
OF APPEALS and SULPICIO M. TOLENTINO,
respondents.
Banks; Obligations; Loans; Where a bank approved a loan for

P80,000.00 but was able to deliver only P1 7,000.00, it is in default
for P63,000.00 to the borrower.·When Island Savings Bank and
Sulpicio M. Tolentino entered into an P80,000.00 loan agreement on
April 28, 1965, they undertook reciprocal obligations. In reciprocal
obligations, the obligation or promise of each party is the
consideration for that of the other (Penaco vs. Ruaya, 110 SCRA 46
[1981]; Vda. de Quirino vs. Pelarca, 29 SCRA 1 [1969]); and when
one party has performed or is ready and willing to perform his part
of the contract, the other party who has not performed or is not
ready and willing to perform incurs in delay (Art. 1169 of the Civil
Code). The promise of Sulpicio M. Tolentino to pay was the
consideration for the obligation of Island Savings Bank to furnish
the ?80,000.00 loan. When Sulpicio M. Tolentino executed a real
estate mortgage on April 28, 1965, he signified his willingness to
pay the P80,000.00 loan. From such date, the obligation of Island
Savings Bank to furnish the P80,000.00 loan accrued. Thus, the
Bank's delay in furnishing the entire loan started
_______________
* SECOND DIVISION.
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VOL. 139, OCTOBER 3, 1985 47
on April 28, 1965, and lasted for a period of 3 years or when the
Monetary Board of the Central Bank issued Resolution No. 967 on
June 14, 1968, which prohibited Island Savings Bank from doing
further business. Such prohibition made it legally impossible for
Island Savings Bank to furnish the P63,000.00 balance of the
P80,000.00 loan. The power of the Monetary Board to take over
insolvent banks for the protection of the public is recognized by
Section 29 of R.A. No. 265, which took effect on June 15, 1948, the
validity of which is not in question.
Same; Same; Same; The fact that the creditor is insolvent or
was stopped by the Central Bank from granting further loans is no
defense to its fulfillment to extend the loan applied for and approved
by it to the full amount.·The Monetary Board Resolution No. 1049
issued on August 13, 1965 cannot interrupt the default of Island
Savings Bank in complying with its obligation of releasing the
P63,000.00 balance because said resolution merely prohibited the
Bank from making new loans and investments, and nowhere did it
prohibit Island Savings Bank from releasing the balance of loan
agreements previously contracted. Besides, the mere pecuniary
inability to fulfill an engagement does not discharge the obligation
of the contract, nor does it constitute any defense to a decree of
specific performance (Gutierrez Repide vs. Afzelius and Afzelius, 39
Phil. 190 [1918]). And, the mere fact of insolvency of a debtor is
never an excuse for the non-fulfillment of an obligation but instead
it is taken as a breach of the contract by him (Vol. 17A, 1974 ed.,
CJS p. 650).
Same; Same; Same; Acceptance of refund of excess pre-deducted
interest for a supposed loan of P80,000.00 does not constitute a
waiver of right to collect the P63,000.00 unreleased balance of the
P80,000.00 loans.·The fact that Sulpicio M. Tolentino demanded
and accepted the refund of the pre-deducted interest amounting to
P4,800.00 for the supposed P80,000.00 loan covering a 6-month
period cannot be taken as a waiver of his right to collect the
P63,000.00 balance. The act of Island Savings Bank, in asking the
advance interest for 6 months on the supposed P80,000.00 loan, was
improper considering that only P17,000.00 out of the P80,000.00
loan was released. A person cannot be legally charged interest for a

non-existing debt. Thus, the receipt by Sulpicio M. Tolentino of the
pre-deducted interest was an exercise of his right to it, which right
exist independently of his right to demand the completion of the
P80,000.00 loan. The exercise of one right does not affect, much less
neutralize, the exercise of the other.
48
Same; Same; Same; The bank must not rely on representations

by its borrowers of the value of their collaterals. The bank shall bear
the risk in case of over-valuation.·The mere reliance by bank
officials and employees on their customer's representation
regarding the loan collateral being offered as loan security is a
patent non-performance of this responsibility. If ever, bank officials
and employees totally rely on the representation of their customers
as to the valuation of the loan collateral, the bank shall bear the
risk in case the collateral turn out to be over-valued. The
representation made by the customer is immaterial to the bank's
responsibility to conduct its own investigation. Furthermore, the
lower court, on objections of Sulpicio M. Tolentino, had enjoined
petitioners from presenting proof on the alleged over-valuation
because of their failure to raise the same in their pleadings (pp.
198-199, t.s.n., Sept. 15, 1971). The lower court's action is
sanctioned by the Rules of Court, Section 2, Rule 9, which states
that "defenses and objections not pleaded either in a motion to
dismiss or in the answer are deemed waived." Petitioners, thus,
cannot raise the same issue before the Supreme Court.
Same; Same; Same; Due to CB prohibition, release of the entire
loan cannot be granted; only rescission of the loan agreement to the
extent of the unreleased loan balance can be granted by the courts.
·Rescission is the only alternative remedy left. WE rule, however,
that rescission is only for the P63,000.00 balance of the P80,000.00
loan, because the bank is in default only insofar as such amount is
concerned, as there is no doubt that the bank failed to give the
P63,000.00. As far as the partial release of P17,000.00, which
Sulpicio M. 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.
Same; Same; Same; A bank borrower who did not pay the
partial loan release as per the terms of the promissory note signed by
him is in default to that extent even if the entire loan cannot be
released anymore.·The promissory note gave rise to Sulpicio M.
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 (Article 1191 of the Civil Code). If there is a right to
rescind the promissory note, it shall belong to the aggrieved party,
that is, Island Savings Bank. If Tolentino had not signed a
promissory note setting the date for payment of P17,000.00 within 3
years, he would be entitled to ask for rescission of the entire loan
because he cannot possibly be in
49
VOL. 139, OCTOBER 3, 1985 49
default as there was no date for him to perform his reciprocal

obligation to pay.
Same; Same; Same; Damages; Where the bank failed to release
the entire approved loan, but the borrower also failed to pay the
partial loan release he got after it fell due, both are in default and
their respective liability for damages shall be offset equitably,
exclusive of the interest due on the overdue loan portion.·Article
1192 of the Civil Code provides that in case both parties have
committed a breach of their reciprocal obligations, the liability of
the first infractor shall be equitably tempered by the courts, WE
rule that the liability of Island Savings Bank for damages in not
furnishing the entire loan is offset by the liability of Sulpicio M.
Tolentino for damages, in the form of penalties and surcharges, for
not paying his overdue P17,000.00 debt. The liability of Sulpicio M.
Tolentino for interest on his P17,000.00 debt shall not be included
in offsetting the liabilities of both parties. Since Sulpicio M.
Tolentino derived some benefit for his use of the P17,000.00, it is
just that he should account for the interest thereon.
Same; Same; Same; Mortgages; Where only P 17,000.00 of the
approved P80,000.00 loan was released, the real estate mortgage
thereon can be foreclosed only to the extent of 21.25%.·Since Island
Savings Bank failed to furnish the P63,000.00 balance of the
P80,000.00 loan, the real estate mortgage of Sulpicio M. Tolentino
became unenforceable to such extent. P63,000.00 is 78.75% of
P80,000.00, hence the real estate mortgage 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 P17,000.00 debt 21.25 hectares is more than sufficient to secure
a P17,000.00 debt.
Same; Same; Same; Same; Rule of indivisibility of a mortgage
under Art. 2089, NCC does not apply where bank released only part
of the approved mortgage loan.·The rule of indivisibility, of a real
estate mortgage provided for by Article 2089 of the Civil Code is
inapplicable to the facts of this case. x x x The rule of indivisibility
of the mortgage as outlined by Article 2089 above-quoted
presupposes several heirs of the debtor or creditor which does not
obtain in this case. Hence, the rule of indivisibility of a mortgage
cannot apply.
PETITION for certiorari to review the decision of the Court

of Appeals.
The facts are stated in the opinion of the Court.
50

I.B. Regalado, Jr., Fabian S. Lombos and Marino E.

Eslao for petitioners.
Antonio R. Tupaz for private respondent,
MAKASIAR, C.J.:
This is a petition for review on certiorari to set aside as

null and void the decision of the Court of Appeals, in C.A.-
G.R. No. 52253-R dated February 11, 1977, modifying the
decision dated February 15, 1972 of the Court of First
Instance of Agusan, which dismissed the petition of
respondent Sulpicio M. Tolentino for injunction, specific
performance or rescission, and damages with preliminary
injunction.
On April 28, 1965, Island Savings Bank, upon favorable
recommendation of its legal department, 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, and covered by TCT No. T-305, and
which mortgage was annotated on the said title the next

day. The approved loan application called for a lump sum
P80,000.00 loan, repayable in semi-annual installments for
a period of 3 years, with 12% annual interest. It was
required that Sulpicio M. Tolentino shall use the loan
proceeds solely as an additional capital to develop his other
property into a subdivision.
On May 22, 1965, a mere P17,000.00 partial release of
the P80,000.00 loan was made by the Bank; and Sulpicio
M. Tolentino and his wife Edita Tolentino signed a
promissory note for P17,000.00 at 12% annual interest,
payable within 3 years from the date of execution of the
contract at semi-annual installments of P3,459.00 (p. 64,
rec.). An advance interest for the P80,000.00 loan covering
a 6-month period amounting to P4,800.00 was deducted
from the partial release of P17,000.00. But this pre-
deducted interest was refunded to Sulpicio M. Tolentino on
July 23, 1965, after being informed by the Bank that there
was no fund yet available for the release of the P63,000.00
balance (p. 47, rec.). The Bank, thru its vicepresident and
treasurer, promised repeatedly the release of the
P63,000.00 balance (p. 113, rec.).
51
VOL. 139, OCTOBER 3, 1985 51

On August 13, 1965, the Monetary Board of the Central

Bank, after finding Island Savings Bank was suffering
liquidity problems, issued Resolution No. 1049, which
provides:
"In view of the chronic reserve deficiencies of the Island Savings

Bank against its deposit liabilities, the Board, by unanimous vote,
decided as follows:
"1) To prohibit the bank from making new loans and investments [except
investments in government securities] excluding extensions or renewals
of already approved loans, provided that such extensions or renewals
shall be subject to review by the Superintendent of Banks, who may
impose such limitations as may be necessary to insure correction of the
bank's deficiency as soon as possible;
xx x x" (p. 46, rec.).
On June 14, 1968, the Monetary Board, after finding that

Island Savings Bank failed to put up the required capital to
restore its solvency, issued Resolution No. 967 which
prohibited Island Savings Bank from doing business in the
Philippines and instructed the Acting Superintendent of
Banks to take charge of the assets of Island Savings Bank
(pp. 48-49, rec.).
On August 1, 1968, Island Savings Bank, in view of
nonpayment of the P 17,000.00 covered by the promissory
note, filed an application for the extra-judicial foreclosure
of the real estate mortgage covering the 100-hectare land of
Sulpicio M. Tolentino; and the sheriff scheduled the auction
for January 22, 1969.
On January 20, 1969, Sulpicio M. Tolentino filed a
petition with the Court of First Instance of Agusan for
injunction, specific performance or rescission and damages
with preliminary injunction, alleging that since Island
Savings Bank failed to deliver the P63,000.00 balance of
the P80,000.00 loan. he is entitled to specific performance
by ordering Island Savings Bank to deliver the P63,000.00
with interest of 12% per annum from April 28, 1965, and if
said balance cannot be delivered, to rescind the real estate
mortgage (pp. 32-43, rec.).
52

On January 21, 1969, the trial court, upon the filing of a

P5,000.00 surety bond, issued a temporary restraining
order enjoining the Island Savings Bank from continuing
with the foreclosure of the mortgage (pp. 86-87, rec.).
On January 29, 1969, the trial court admitted the
answer in intervention praying for the dismissal of the
petition of Sulpicio M. Tolentino and the setting aside of
the restraining order, filed by the Central Bank and by the
Acting Superintendent of Banks (pp. 65-76, rec.).
On February 15, 1972, the trial court, after trial on the
merits, rendered its decision, finding unmeritorious the
petition of Sulpicio M. Tolentino, ordering him to pay
Island Savings Bank the amount of P17,000.00 plus legal
interest and legal charges due thereon, and lifting the
restraining order so that the sheriff may proceed with the
foreclosure (pp. 135-136, rec.).

On February 11, 1977, the Court of Appeals, on appeal
by Sulpicio M. Tolentino, modified the Court of First
Instance decision by affirming the dismissal of Sulpicio M.
Tolentino's petition for specific performance, but it ruled
that Island Savings Bank can neither foreclose the real
estate mortgage nor collect the P1 7,000.00 loan (pp. 30-31,
rec.).
Hence, this instant petition by the Central Bank.
The issues are:
1. Can the action of Sulpicio M. Tolentino for specific

performance prosper?
2. Is Sulpicio M. Tolentino liable to pay the P1
7,000.00 debt covered by the promissory note?
3. If Sulpicio M. Tolentino's liability to pay the P1
7,000.00 subsists, can his real estate mortgage be
foreclosed to satisfy said amount?
When Island Savings Bank and Sulpicio M. Tolentino

entered into an P80,000.00 loan agreement on April 28,
1965, they undertook reciprocal obligations. In reciprocal
obligations, the obligation or promise of each party is the
consideration for that of the other (Penaco vs. Ruaya, 110
SCRA 46
53
VOL. 139, OCTOBER 3, 1985 53

Central Bank of the Philippines vs, Court of Appeals
[1981]; Vda. de Quirino vs. Pelarca, 29 SCRA 1 [1969]); and

when one party has performed or is ready and willing to
perform his part of the contract, the other party who has
not performed or is not ready and willing to perform incurs
in delay (Art. 1169 of the Civil Code). The promise of
Sulpicio M. Tolentino to pay was the consideration for the
obligation of Island Savings Bank to furnish the P80,000.00
loan. When Sulpicio M. Tolentino executed a real estate
mortgage on April 28, 1965, he signified his willingness to
pay the P80,000.00 loan. From such date, the obligation of
Island Savings Bank to furnish the P80,000.00 loan
accrued. Thus, the Bank's delay in furnishing the entire
loan started on April 28, 1965, and lasted for a period of 3
years or when the Monetary Board of the Central Bank

issued Resolution No. 967 on June 14, 1968, which
prohibited Island Savings Bank from doing further
business. Such prohibition made it legally impossible for
Island Savings Bank to furnish the P63,000.00 balance of
the P80,000.00 loan. The power of the Monetary Board to
take over insolvent banks for the protection of the public is
recognized by Section 29 of R.A. No. 265, which took effect
on June 15, 1948, the validity of which is not in question.
The Monetary Board Resolution No. 1049 issued on
August 13, 1965 cannot interrupt the default of Island
Savings Bank in complying with its obligation of releasing
the P63,000.00 balance because said resolution merely
prohibited the Bank from making new loans and
investments, and nowhere did it prohibit Island Savings
Bank from releasing the balance of loan agreements
previously contracted. Besides, the mere pecuniary
inability to fulfill an engagement does not discharge the
obligation of the contract, nor does it constitute any defense
to a decree of specific performance (Gutierrez Repide vs.
Afzelius and Afzelius, 39 Phil. 190 [1918]), And, the mere
fact of insolvency of a debtor is never an excuse for the
nonfulfillment of an obligation but instead it is taken as a
breach of the contract by him (Vol. 17A, 1974 ed., CJS p.
650).
The fact that Sulpicio M. Tolentino demanded and
accepted the refund of the pre-deducted interest amounting
to P4,800.00 for the supposed P80,000.00 loan .covering a
6-month period cannot be taken as a waiver of his right to
collect the
54

P63,000.00 balance. The act of Island Savings Bank, in

asking the advance interest for 6 months on the supposed
P80,000.00 loan, was improper considering that only P1
7,000.00 out of the P80,000.00 loan was released. A person
cannot be legally charged interest for a non-existing debt.
Thus, the receipt by Sulpicio M. Tolentino of the pre-
deducted interest was an exercise of his right to it, which
right exist independently of his right to demand the
completion of the P80,000.00 loan. The exercise of one right

does not affect, much less neutralize, the exercise of the
other.
The alleged discovery by Island Savings Bank of the
overvaluation of the loan collateral cannot exempt it from
complying with its reciprocal obligation to furnish the
entire P80,000.00 loan. This Court previously ruled that
bank officials and employees are expected to exercise
caution and prudence in the discharge of their functions
(Rural Bank of Caloocan, Inc. vs. C.A., 104 SCRA 151
[1981]). It is the obligation of the bank's officials and
employees that before they approve the loan application of
their customers, they must investigate the existence and
valuation of the properties being offered as a loan security.
The recent rush of events where collaterals for bank loans
turn out to be non-existent or grossly over-valued
underscore the importance of this responsibility. The mere
reliance by bank officials and employees on their
customer's representation regarding the loan collateral
being offered as loan security is a patent non-performance
of this responsibility. If ever, bank officials and employees
totally rely on the representation of their customers as to
the valuation of the loan collateral, the bank shall bear the
risk in case the collateral turn out to be over-valued. The
representation made by the customer is immaterial to the
bank's responsibility to conduct its own investigation.
Furthermore, the lower court, on objections of Sulpicio M.
Tolentino, had enjoined petitioners from presenting proof
on the alleged over-valuation because of their failure to
raise the same in their pleadings (pp. 198-199, t.s.n., Sept.
15, 1971). The lower court's action is sanctioned by the
Rules of Court, Section 2, Rule 9, which states that
"defenses and objections not pleaded either in a motion to
dismiss or in the answer are deemed waived." Petitioners,
thus, cannot raise the same issue before the Supreme
Court.
55
VOL. 139, OCTOBER 3, 1985 55

Since Island Savings Bank was in default in fulfilling its

reciprocal obligation under their loan agreement, Sulpicio
M. Tolentino, under Article 1191 of the Civil Code, may

choose between specific performance or rescission with
damages in either case. But since Island Savings Bank is
now prohibited from doing further business by Monetary
Board Resolution No. 967, WE cannot grant specific
performance in favor of Sulpicio M. Tolentino.
Rescission is the only alternative remedy left. WE rule,
however, that rescission is only for the P63,000.00 balance
of the P80,000.00 loan, because the bank is in default only
insofar as such amount is concerned, as there is no doubt
that the bank failed to give the P63,000.00. As far as the
partial release of P17,000.00, which Sulpicio M. 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 Sulpicio M. 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 (Article 1191 of the Civil Code). If
there is a right to rescind the promissory note, it shall
belong to the aggrieved party, that is, Island Savings Bank.
If Tolentino had not signed a promissory note setting the
date for payment of P17,000.00 within 3 years, 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.
Since both parties were in def ault in the perf ormance
of their respective reciprocal obligations, that is, Island
Savings Bank failed to comply with its obligation to furnish
the entire loan and Sulpicio M. Tolentino failed to comply
with his obligation to pay his P17,000.00 debt within 3
years as stipulated, they are both liable for damages.
Article 1192 of the Civil Code provides that in case both
parties have committed a breach of their reciprocal
obligations, the liability of the first infractor shall be
equitably tempered by the courts. WE rule that the liability
of Island Savings Bank for damages in not furnishing the
entire loan is offset by
56

the liability of Sulpicio M. Tolentino for damages, in the

form of penalties and surcharges, for not paying his
overdue P17,000.00 debt. The liability of Sulpicio M.
Tolentino for interest on his P17,000.00 debt shall not be
included in offsetting the liabilities of both parties. Since
Sulpicio M. Tolentino derived some benefit for his use of the
P17,000.00, it is just that he should account for the interest
thereon.
WE hold, however, that the real estate mortgage of
Sulpicio M. Tolentino cannot be entirely foreclosed to
satisfy his P17,000.00 debt.
The consideration of the accessory contract of real estate
mortgage is the same as that of the principal contract
(Banco de Oro vs. Bayuga, 93 SCRA 443 [1979]). 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 (Art. 2086, in relation to
Art. 2052, of the Civil Code).
The fact that when Sulpicio M. 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
(Bonnevie vs. C.A., 125 SCRA 122 [1983]). 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 (Parks vs. Sherman, Vol. 176 N.W. p. 583,
cited in the 8th ed., Jones on Mortgage, Vol. 2, pp. 5-6).
And, when there is partial failure of consideration, the
mortgage becomes unenforceable to the extent of such
failure (Dow, et al. vs. Poore, Vol. 172 N.E. p. 82, cited in
Vol. 59, 1974 ed. CJS, p. 138). 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 (Metropolitan
Life Ins. Co. vs. Peterson, Vol. 19, F(2d) p. 88, cited in 5th
ed., Wiltsie on Mortgage, Vol. 1, p. 180).
57
VOL. 139, OCTOBER 3, 1985 57

Since Island Savings Bank failed to furnish the P63,000.00

balance of the P80,000.00 loan, the real estate mortgage of
Sulpicio M. Tolentino became unenforceable to such extent.
P63,000.00 is 78.75% of P80,000.00, hence the real estate
mortgage 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
P1 7,000.00 debt. 21.25 hectares is more than sufficient to
secure a P1 7,000.00 debt.
The rule of indivisibility of a real estate mortgage
provided for by Article 2089 of the Civil Code is
inapplicable to the facts of this case.
Article 2089 provides:
"A pledge or mortgage is indivisible even though the debt may be

divided among the successors in interest of the debtor or creditor.
'Therefore, the debtor's heirs who has paid a part of the debt can
not ask for the proportionate extinguishment of the pledge or
mortgage as long as the debt is not completely satisfied.
"Neither can the creditor's heir who have received his share of
the debt return the pledge or cancel the mortgage, to the prejudice
of other heirs who have not been paid."
The rule of indivisibility of the mortgage as outlined by

Article 2089 above-quoted presupposes several heirs of the
debtor or creditor which does not obtain in this case.
Hence, the rule of indivisibility of a mortgage cannot apply.
WHEREFORE, THE DECISION OF THE COURT OF
APPEALS DATED FEBRUARY 11, 1977 IS HEREBY
MODIFIED, AND
1. SULPICIO M. TOLENTINO IS HEREBY

ORDERED TO PAY IN FAVOR OF HEREIN
PETITIONERS THE SUM OF P17,000.00, PLUS
P41,210.00 REPRESENTING 12% INTEREST PER
ANNUM COVERING THE PERIOD FROM MAY
22, 1965 TO AUGUST 22. 1985, AND 12%
INTEREST ON THE TOTAL AMOUNT COUNTED
FROM AUGUST 22, 1985 UNTIL PAID;
2. IN CASE SULPICIO M. TOLENTINO FAILS
58

TO PAY, HIS REAL ESTATE MORTGAGE

COVERING 21.25 HECTARES SHALL BE
FORECLOSED TO SATISFY HIS TOTAL
INDEBTEDNESS; AND
3. THE REAL ESTATE MORTGAGE COVERING
78.75 HECTARES IS HEREBY DECLARED
UNENFORCEABLE AND IS HEREBY ORDERED
RELEASED IN FAVOR OF SULPICIO M.
TOLENTINO.
NO COSTS. SO ORDERED.
Concepcion, Jr., Escolin, Cuevas and Alampay, JJ.,

concur.
Aquino (Chairman) and Abad Santos, JJ., no part.
Decision modified.
Notes.·A bank is a moneyed institute founded to

facilitate the borrowing, lending, and safekeeping of money
and to deal in notes, bills of exchange and credits.
(Republic vs. Security Credit and Acceptance Corporation,
19 SCRA 58.)
It is incumbent on the part of the mortgagee bank to
prove its allegation that it was in good faith in extending a
mortgage loan to a person who later appeared to have
deceived the court into issuing to her a new Torrens Title
based on her petition when she was not actually an heir of
the registered owner who is still alive. (Tomas vs. Tomas,
97 SCRA 280.)
A bank is required to exercise due care and prudence by
making proper inquiry where a person borrows money and
mortgages another person's property to secure the loan.
(Rural Bank of Caloocan us. Court of Appeals, 104 SCRA
151.)
Where Torrens Title were issued as a result of regular
land registration proceedings and were later given as
security to a bank loan, the subsequent declaration of said
torrens titles as null and void, does not authorize the
cancellation of the mortgaged rights of the bank which
acted in good faith. (Penuliar vs. Philippine National Bank,
120 SCRA 171.)
··o0o··
59
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Central Bank of The Philippines vs. Court of Appeals

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SUPREME COURT REPORTS ANNOTATED VOLUME 139 1/23/18, 10:38 PM

46 SUPREME COURT REPORTS ANNOTATED

CENTRAL BANK OF THE PHILIPPINES and ACTING

Banks; Obligations; Loans; Where a bank approved a loan for

VOL. 139, OCTOBER 3, 1985 47

Central Bank of the Philippines vs. Court of Appeals

loan was released. A person cannot be legally charged interest for a

48 SUPREME COURT REPORTS ANNOTATED

Central Bank of the Philippines vs. Court of Appeals

Same; Same; Same; The bank must not rely on representations

VOL. 139, OCTOBER 3, 1985 49

Central Bank of the Philippines vs. Court of Appeals

default as there was no date for him to perform his reciprocal

P80,000.00, hence the real estate mortgage covering 100 hectares is

PETITION for certiorari to review the decision of the Court

The facts are stated in the opinion of the Court.

50 SUPREME COURT REPORTS ANNOTATED

I.B. Regalado, Jr., Fabian S. Lombos and Marino E.

This is a petition for review on certiorari to set aside as

which mortgage was annotated on the said title the next

VOL. 139, OCTOBER 3, 1985 51

On August 13, 1965, the Monetary Board of the Central

"In view of the chronic reserve deficiencies of the Island Savings

On June 14, 1968, the Monetary Board, after finding that

52 SUPREME COURT REPORTS ANNOTATED

On January 21, 1969, the trial court, upon the filing of a

foreclosure (pp. 135-136, rec.).

1. Can the action of Sulpicio M. Tolentino for specific

When Island Savings Bank and Sulpicio M. Tolentino

VOL. 139, OCTOBER 3, 1985 53

[1981]; Vda. de Quirino vs. Pelarca, 29 SCRA 1 [1969]); and

years or when the Monetary Board of the Central Bank

54 SUPREME COURT REPORTS ANNOTATED

P63,000.00 balance. The act of Island Savings Bank, in

completion of the P80,000.00 loan. The exercise of one right

VOL. 139, OCTOBER 3, 1985 55

Since Island Savings Bank was in default in fulfilling its

M. Tolentino, under Article 1191 of the Civil Code, may

56 SUPREME COURT REPORTS ANNOTATED

the liability of Sulpicio M. Tolentino for damages, in the

VOL. 139, OCTOBER 3, 1985 57

Since Island Savings Bank failed to furnish the P63,000.00

"A pledge or mortgage is indivisible even though the debt may be

The rule of indivisibility of the mortgage as outlined by

1. SULPICIO M. TOLENTINO IS HEREBY

58 SUPREME COURT REPORTS ANNOTATED

TO PAY, HIS REAL ESTATE MORTGAGE

Concepcion, Jr., Escolin, Cuevas and Alampay, JJ.,

Notes.·A bank is a moneyed institute founded to

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