DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner,

vs.GUARIÑA AGRICULTURAL AND REALTY DEVELOPMENT

CORPORATION, Respondent. G.R. No. 160758 January 15, 2014

FACTS: Respondent applied for a loan (P3,387,000.00) from petitioner DBP for the construction
of a resort complex in Iloilo. Prior to the release of the loan, petitioner required respondent to put
up a cash equity of P1,470,951.00 for the construction of the buildings and other improvements
on the resort complex. The loan was released in several installments, which respondent used to
cover the additional improvements. In all, the amount released totaled P3,003,617.49, from
which petitioner withheld P148,102.98 as interest.

Upon inspection, petitioner found that Guariña had not completed the construction works and
demanded in a letter that respondent expedite the completion and warned that it would initiate
foreclosure proceedings should they not comply. The non-action and objection of respondent led
DBP to initiate extrajudicial foreclosure proceedings, which gave its clients and patrons the
impression that business operation had slowed down and that the resort had closed.

Respondent filed a complaint to the RTC to seek the nullification of the foreclosure proceedings
and cancellation of certificate of sale, which ruled in their favor –rendered the extrajudicial sale
as null and void, ordered petitioner to give back the properties foreclosed and for respondent to
pay back the loan. On appeal, the CA sustained the trial court’s decision with the modification
deleting the award of attorney’s fees.

ISSUE: Whether the respondent is in default when it failed to perform the terms of the mortgage
contract securing the promissory note.

HELD: No. Petition denied. CA decision is affirmed. The Court held that the agreement between
petitioner and respondent was a loan, which requires the delivery of money or any other
consumable object by one party to another on the condition that the same amount or quality shall
be paid. Loan is a reciprocal obligation, as it arises from the same cause where one party is the
creditor, and the other the debtor – which means that the creditor should release the full loan
amount and the debtor repays it when it becomes due and demandable.

The failure of petitioner to release the proceeds of the loan in its entirety, gave them no right to
demand from respondent to comply with their obligations. Indeed, if a party in a reciprocal
contract like a loan does not perform its obligation, the other party cannot be obliged to perform
what is expected of it while the other’s obligation remains unfulfilled. In other words, (Hence,)
the latter party does not incur delay. . Moreover, the fact that appellee was not yet in default
rendered the foreclosure proceedings premature and improper.