Credit Transactions Case Digest: BPI Investment Corp V.

CA (2002)

G.R. No. 133632 February 15, 2002

Lessons Applicable: Simple Loan

Laws Applicable:

Facts:

 Frank Roa obtained a loan with interest rate of 16 1/4%/annum from Ayala Investment and
Development Corporation (AIDC), the predecessor of BPI Investment Corp. (BPIIC), for the
construction of a house on his lot in New Alabang Village, Muntinlupa.
 He mortgaged the house and lot to AIDC as security for the loan.
 1980: Roa sold the house and lot to ALS Management & Development Corp. and Antonio
Litonjua for P850K who paid P350K in cash and assumed the P500K indebtness of ROA
with AIDC.
 AIDC proposed to grant ALS and Litonjua a new loan for P500K with interested rate of
20%/annum and service fee of 1%/annum on the outstanding balance payable within 10
years through equal monthly amortization of P9,996.58 and penalty interest of
21%/annum/day from the date the amortization becomes due and payable.
 March 1981: ALS and Litonjua executed a mortgage deed containing the new stipulation
with the provision that the monthly amortization will commence on May 1, 1981
 August 13, 1982: ALS and Litonjua paid BPIIC P190,601.35 reducing the P500K principal
loan to P457,204.90.
 September 13, 1982: BPIIC released to ALS and Litonjua P7,146.87, purporting to be what
was left of their loan after full payment of Roa’s loan
 June 1984: BPIIC instituted foreclosure proceedings against ALS and Litonjua on the
ground that they failed to pay the mortgage indebtedness which from May 1, 1981 to June
30, 1984 amounting to P475,585.31
 August 13, 1984: Notice of sheriff's sale was published
 February 28, 1985: ALS and Litonjua filed Civil Case No. 52093 against BPIIC alleging that
they are not in arrears and instead they made an overpayment as of June 30, 1984 since the
P500K loan was only released September 13, 1982 which marked the start of the
amortization and since only P464,351.77 was released applying legal compensation the
balance of P35,648.23 should be applied to the monthly amortizations
 RTC: in favor of ALS and Litonjua and against BPIIC that the loan granted by BPI to ALS
and Litonjua was only in the principal sum of P464,351.77 and awarding moral damages,
exemplary damages and attorneys fees for the publication
 CA: Affirmed reasoning that a simple loan is perfected upon delivery of the object of the
contract which is on September 13, 1982
ISSUE: W/N the contract of loan was perfected only on September 13, 1982 or the second
release of the loan?

HELD: YES. AFFIRMED WITH MODIFICATION as to the award of damages. The award of
moral and exemplary damages in favor of private respondents is DELETED, but the award to
them of attorney’s fees in the amount of P50,000 is UPHELD. Additionally, petitioner is
ORDERED to pay private respondents P25,000 as nominal damages. Costs against petitioner.
 obligation to pay commenced only on October 13, 1982, a month after the perfection of the
contract
 contract of loan involves a reciprocal obligation, wherein the obligation or promise of each
party is the consideration for that of the other. It is a basic principle in reciprocal obligations
that neither party incurs in delay, if the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. Consequently, petitioner could only
demand for the payment of the monthly amortization after September 13, 1982 for it was
only then when it complied with its obligation under the loan contract.
 BPIIC was negligent in relying merely on the entries found in the deed of mortgage, without
checking and correspondingly adjusting its records on the amount actually released and the
date when it was released. Such negligence resulted in damage for which an award of
nominal damages should be given
 SSS where we awarded attorney’s fees because private respondents were compelled to
litigate, we sustain the award of P50,000 in favor of private respondents as attorney’s fees
 BPI Investment Corporation vs. Court of Appeals and ALS Mgt. & Dev. Corp.
G.R. No. 133632 | Feb. 15, 2002

Facts: Frank Roa obtained a loan with an interest rate of 16 ¼ % per annum from Ayala Investment
and Development Corporation, predecessor of BPIIC. To secure the loan, Roa's house and lot were
mortgaged. Later, Roa sold the house and lot to ALS and Antonio Litonjua, who assumed Roa's
P500,000 debt with Ayala Investment. Ayala Investment, however, was unwilling to grant ALS
and Litonjua the same interest rate so they granted a new loan to be applied to Roa's debt, secured
by the same property at a different interest rate of 20% per annum. The amortization for this loan
was to begin on May 1, 1981. In Aug. 1982, BPIIC applied the loan of ALS and Litonjua to the
balance of Roa’s debt, P457,204.90. However it was only on Sept. 13, 1982 that BPIIC released
P7,146.87, the balance of the loan after applying the proceeds to the full payment of Roa’s loan.

In June 1984, BPIIC instituted the foreclosure of mortgage alleging that ALS and Litonjua failed
to pay their debt from May 1, 1981 up to June 30, 1984.

On Feb. 28, 1985, ALS and Litonjua filed a civil case against BPIIC alleging that they were not in
arrears in their payment, but they in fact made an overpayment as of June 30, 1984. They contend
that they should not be made to pay amortization before the actual release of the P500,000 loan in
Aug. and Sept. 1982. And that out of the P500,000 loan, only the total amount of P464,351.77 was
released to them, thus, the balance of P35,648.23 should be applied to the initial monthly
amortization for the loan.

The trial court rendered a judgment in favor of ALS and Litonjua holding that the amount of loan
granted by BPI to ALS and Litonjua was only in the principal sum of P464,351.77 and that suffered
compensable damages when BPI caused their publication in a newspaper of general circulation as
defaulting debtors. This was affirmed by the CA which also ruled that a simple loan is perfected
upon the delivery of the object of the contract, thus, the loan contract in this case was perfected
only on Sept. 13, 1982.

BPIIC claims that a contract of loan is a consensual contract, and a loan contract is perfected at
the time the contract of mortgage is executed.

Issue: WON a contract of loan is a consensual contract? NO.

Held: A loan contract is not a consensual contract but a real contract. It is perfected only upon the
delivery of the object of the contract. Although a perfected consensual contract can give rise to an
action for damages, it does not constitute a real contract which requires delivery for perfection. A
perfected real contract gives rise only to obligations on the part of the borrower.
In this case, the loan contract was only perfected on Sept. 13, 1982, which was the second release
of the loan. The payment of amortization should accrue from the time BPIIC released the loan
amount to ALS and Litonjua because it was only at that time (the delivery of the amount -- the
object of the contract) that the loan contract was perfected.

A contract of loan involves a reciprocal obligation, wherein the obligation or promise of each party
is the consideration for that of the other. In reciprocal obligations neither party incurs in delay, if
the other does not comply or is not ready to comply in a proper manner with what is incumbent
upon him. It is only when a party has performed his part of the contract can he demand that the
other party also fulfills his own obligation and if the latter fails, default sets in.

Thus, BPIIC could only demand payment of amortization after Sept. 13, 1982 for it was only then
that it complied with its obligation under the loan contract. Therefore, in computing the amount
due as of the date when BPIIC extrajudicially caused the foreclosure of the mortgage, the starting
date is Oct. 13, 1982 and not May 1, 1981.
 SECOND DIVISION

[G.R. No. 133632. February 15, 2002]

BPI INVESTMENT CORPORATION, petitioner, vs. HON. COURT OF

APPEALS and ALS MANAGEMENT & DEVELOPMENT
CORPORATION, respondents.

DECISION
QUISUMBING, J.:

This petition for certiorari assails the decision dated February 28, 1997, of
the Court of Appeals and its resolution dated April 21, 1998, in CA-G.R. CV No.
38887. The appellate court affirmed the judgment of the Regional Trial Court of
Pasig City, Branch 151, in (a) Civil Case No. 11831, for foreclosure of mortgage
by petitioner BPI Investment Corporation (BPIIC for brevity) against private
respondents ALS Management and Development Corporation and Antonio K.
Litonjua, consolidated with (b) Civil Case No. 52093, for damages with prayer
[1]

for the issuance of a writ of preliminary injunction by the private respondents

against said petitioner.
The trial court had held that private respondents were not in default in the
payment of their monthly amortization, hence, the extrajudicial foreclosure
conducted by BPIIC was premature and made in bad faith.It awarded private
respondents the amount of P300,000 for moral damages, P50,000 for
exemplary damages, and P50,000 for attorneys fees and expenses for
litigation. It likewise dismissed the foreclosure suit for being premature.
The facts are as follows:
Frank Roa obtained a loan at an interest rate of 16 1/4% per annum from
Ayala Investment and Development Corporation (AIDC), the predecessor of
petitioner BPIIC, for the construction of a house on his lot
in New Alabang Village, Muntinlupa. Said house and lot were mortgaged to
AIDC to secure the loan. Sometime in 1980, Roa sold the house and lot to
private respondents ALS and Antonio Litonjua for P850,000. They
paid P350,000 in cash and assumed the P500,000 balance of Roas
indebtedness with AIDC. The latter, however, was not willing to extend the old
interest rate to private respondents and proposed to grant them a new loan
of P500,000 to be applied to Roas debt and secured by the same property, at
an interest rate of 20% per annum and service fee of 1% per annum on the
outstanding principal balance payable within ten years in equal monthly
amortization of P9,996.58 and penalty interest at the rate of 21% per annum
per day from the date the amortization became due and payable.
Consequently, in March 1981, private respondents executed a mortgage
deed containing the above stipulations with the provision that payment of the
monthly amortization shall commence on May 1, 1981.
On August 13, 1982, ALS and Litonjua updated Roas arrearages by paying
BPIIC the sum of P190,601.35. This reduced Roas principal balance
to P457,204.90 which, in turn, was liquidated when BPIIC applied thereto the
proceeds of private respondents loan of P500,000.
On September 13, 1982, BPIIC released to private respondents P7,146.87,
purporting to be what was left of their loan after full payment of Roas loan.
In June 1984, BPIIC instituted foreclosure proceedings against private
respondents on the ground that they failed to pay the mortgage indebtedness
which from May 1, 1981 to June 30, 1984, amounted to Four Hundred Seventy
Five Thousand Five Hundred Eighty Five and 31/100 Pesos (P475,585.31). A
notice of sheriffs sale was published on August 13, 1984.
On February 28, 1985, ALS and Litonjua filed Civil Case No. 52093 against
BPIIC. They alleged, among others, that they were not in arrears in their
payment, but in fact made an overpayment as of June 30, 1984. They
maintained that they should not be made to pay amortization before the actual
release of the P500,000 loan in August and September 1982. Further, out of
the P500,000 loan, only the total amount of P464,351.77 was released to
private respondents. Hence, applying the effects of legal compensation, the
balance of P35,648.23 should be applied to the initial monthly amortization for
the loan.
On August 31, 1988, the trial court rendered its judgment in Civil Case Nos.
11831 and 52093, thus:

WHEREFORE, judgment is hereby rendered in favor of ALS Management and

Development Corporation and Antonio K. Litonjua and against BPI Investment
Corporation, holding that the amount of loan granted by BPI to ALS and Litonjua was
only in the principal sum of P464,351.77, with interest at 20% plus service charge of
1% per annum, payable on equal monthly and successive amortizations at P9,283.83
for ten (10) years or one hundred twenty (120) months. The amortization schedule
attached as Annex A to the Deed of Mortgage is correspondingly reformed as
aforestated.
The Court further finds that ALS and Litonjua suffered compensable damages when
BPI caused their publication in a newspaper of general circulation as defaulting
debtors, and therefore orders BPI to pay ALS and Litonjua the following sums:

a) P300,000.00 for and as moral damages;

b) P50,000.00 as and for exemplary damages;

c) P50,000.00 as and for attorneys fees and expenses of litigation.

The foreclosure suit (Civil Case No. 11831) is hereby DISMISSED for being
premature.

Costs against BPI.

SO ORDERED. [2]

Both parties appealed to the Court of Appeals. However, private

respondents appeal was dismissed for non-payment of docket fees.
On February 28, 1997, the Court of Appeals promulgated its decision, the
dispositive portion reads:

WHEREFORE, finding no error in the appealed decision the same is hereby

AFFIRMED in toto.

SO ORDERED. [3]

In its decision, the Court of Appeals reasoned that a simple loan is perfected
only upon the delivery of the object of the contract. The contract of loan between
BPIIC and ALS & Litonjua was perfected only on September 13, 1982, the date
when BPIIC released the purported balance of the P500,000 loan after
deducting therefrom the value of Roas indebtedness. Thus, payment of the
monthly amortization should commence only a month after the said date, as
can be inferred from the stipulations in the contract. This, despite the express
agreement of the parties that payment shall commence on May 1, 1981. From
October 1982 to June 1984, the total amortization due was only P194,960.43.
Evidence showed that private respondents had an overpayment, because as of
June 1984, they already paid a total amount of P201,791.96.Therefore, there
was no basis for BPIIC to extrajudicially foreclose the mortgage and cause the
publication in newspapers concerning private respondents delinquency in the
payment of their loan. This fact constituted sufficient ground for moral damages
in favor of private respondents.
 The motion for reconsideration filed by petitioner BPIIC was likewise denied,
hence this petition, where BPIIC submits for resolution the following issues:
I. WHETHER OR NOT A CONTRACT OF LOAN IS A CONSENSUAL CONTRACT IN
THE LIGHT OF THE RULE LAID DOWN IN BONNEVIE VS. COURT OF APPEALS,
125 SCRA 122.
II. WHETHER OR NOT BPI SHOULD BE HELD LIABLE FOR MORAL AND
EXEMPLARY DAMAGES AND ATTORNEYS FEES IN THE FACE OF IRREGULAR
PAYMENTS MADE BY ALS AND OPPOSED TO THE RULE LAID DOWN
IN SOCIAL SECURITY SYSTEM VS. COURT OF APPEALS, 120 SCRA 707.

On the first issue, petitioner contends that the Court of Appeals erred in
ruling that because a simple loan is perfected upon the delivery of the object of
the contract, the loan contract in this case was perfected only on September
13, 1982. Petitioner claims that a contract of loan is a consensual contract, and
a loan contract is perfected at the time the contract of mortgage is executed
conformably with our ruling in Bonnevie v. Court of Appeals, 125 SCRA 122. In
the present case, the loan contract was perfected on March 31, 1981, the date
when the mortgage deed was executed, hence, the amortization and interests
on the loan should be computed from said date.
Petitioner also argues that while the documents showed that the loan was
released only on August 1982, the loan was actually released on March 31,
1981, when BPIIC issued a cancellation of mortgage of Frank Roas loan. This
finds support in the registration on March 31, 1981 of the Deed of Absolute Sale
executed by Roa in favor of ALS, transferring the title of the property to ALS,
and ALS executing the Mortgage Deed in favor of BPIIC. Moreover, petitioner
claims, the delay in the release of the loan should be attributed to private
respondents. As BPIIC only agreed to extend a P500,000 loan, private
respondents were required to reduce Frank Roas loan below said
amount. According to petitioner, private respondents were only able to do so in
August 1982.
In their comment, private respondents assert that based on Article 1934 of
the Civil Code, a simple loan is perfected upon the delivery of the object of the
[4]

contract, hence a real contract. In this case, even though the loan contract was
signed on March 31, 1981, it was perfected only on September 13, 1982, when
the full loan was released to private respondents. They submit that petitioner
misread Bonnevie. To give meaning to Article 1934, according to private
respondents, Bonnevie must be construed to mean that the contract to extend
the loan was perfected on March 31, 1981 but the contract of loan itself was
only perfected upon the delivery of the full loan to private respondents
on September 13, 1982.
 Private respondents further maintain that even granting, arguendo, that the
loan contract was perfected on March 31, 1981, and their payment did not start
a month thereafter, still no default took place.According to private respondents,
a perfected loan agreement imposes reciprocal obligations, where the
obligation or promise of each party is the consideration of the other party. In this
case, the consideration for BPIIC in entering into the loan contract is the
promise of private respondents to pay the monthly amortization. For the latter,
it is the promise of BPIIC to deliver the money. In reciprocal obligations, neither
party incurs in delay if the other does not comply or is not ready to comply in a
proper manner with what is incumbent upon him. Therefore, private
respondents conclude, they did not incur in delay when they did not commence
paying the monthly amortization on May 1, 1981, as it was only on September
13, 1982 when petitioner fully complied with its obligation under the loan
contract.
We agree with private respondents. A loan contract is not a consensual
contract but a real contract. It is perfected only upon the delivery of the object
of the contract. Petitioner
[5]
misapplied Bonnevie. The contract
in Bonnevie declared by this Court as a perfected consensual contract falls
under the first clause of Article 1934, Civil Code. It is an accepted promise to
deliver something by way of simple loan.
In Saura Import and Export Co. Inc. vs. Development Bank of the
Philippines, 44 SCRA 445, petitioner applied for a loan of P500,000 with
respondent bank. The latter approved the application through a board
resolution. Thereafter, the corresponding mortgage was executed and
registered. However, because of acts attributable to petitioner, the loan was not
released. Later, petitioner instituted an action for damages. We recognized in
this case, a perfected consensual contract which under normal circumstances
could have made the bank liable for not releasing the loan. However, since the
fault was attributable to petitioner therein, the court did not award it damages.
A perfected consensual contract, as shown above, can give rise to an action
for damages. However, said contract does not constitute the real contract of
loan which requires the delivery of the object of the contract for its perfection
and which gives rise to obligations only on the part of the borrower. [6]

In the present case, the loan contract between BPI, on the one hand, and
ALS and Litonjua, on the other, was perfected only on September 13, 1982, the
date of the second release of the loan. Following the intentions of the parties
on the commencement of the monthly amortization, as found by the Court of
Appeals, private respondents obligation to pay commenced only on October 13,
1982, a month after the perfection of the contract. [7]
 We also agree with private respondents that a contract of loan involves a
reciprocal obligation, wherein the obligation or promise of each party is the
consideration for that of the other. As averred by private respondents, the
[8]

promise of BPIIC to extend and deliver the loan is upon the consideration that
ALS and Litonjua shall pay the monthly amortization commencing on May 1,
1981, one month after the supposed release of the loan. It is a basic principle
in reciprocal obligations that neither party incurs in delay, if the other does not
comply or is not ready to comply in a proper manner with what is incumbent
upon him. Only when a party has performed his part of the contract can he
[9]

demand that the other party also fulfills his own obligation and if the latter fails,
default sets in. Consequently, petitioner could only demand for the payment of
the monthly amortization after September 13, 1982 for it was only then when it
complied with its obligation under the loan contract. Therefore, in computing the
amount due as of the date when BPIIC extrajudicially caused the foreclosure of
the mortgage, the starting date is October 13, 1982 and not May 1, 1981.
Other points raised by petitioner in connection with the first issue, such as
the date of actual release of the loan and whether private respondents were the
cause of the delay in the release of the loan, are factual. Since petitioner has
not shown that the instant case is one of the exceptions to the basic rule that
only questions of law can be raised in a petition for review under Rule 45 of the
Rules of Court, factual matters need not tarry us now. On these points we are
[10]

bound by the findings of the appellate and trial courts.

On the second issue, petitioner claims that it should not be held liable for
moral and exemplary damages for it did not act maliciously when it initiated the
foreclosure proceedings. It merely exercised its right under the mortgage
contract because private respondents were irregular in their monthly
amortization. It invoked our ruling in Social Security System vs. Court of
Appeals, 120 SCRA 707, where we said:

Nor can the SSS be held liable for moral and temperate damages. As concluded by the
Court of Appeals the negligence of the appellant is not so gross as to warrant moral
and temperate damages, except that, said Court reduced those damages by only
P5,000.00 instead of eliminating them. Neither can we agree with the findings of both
the Trial Court and respondent Court that the SSS had acted maliciously or in bad
faith. The SSS was of the belief that it was acting in the legitimate exercise of its right
under the mortgage contract in the face of irregular payments made by private
respondents and placed reliance on the automatic acceleration clause in the contract.
The filing alone of the foreclosure application should not be a ground for an award of
moral damages in the same way that a clearly unfounded civil action is not among the
grounds for moral damages.
 Private respondents counter that BPIIC was guilty of bad faith and should
be liable for said damages because it insisted on the payment of amortization
on the loan even before it was released. Further, it did not make the
corresponding deduction in the monthly amortization to conform to the actual
amount of loan released, and it immediately initiated foreclosure proceedings
when private respondents failed to make timely payment.
But as admitted by private respondents themselves, they were irregular in
their payment of monthly amortization. Conformably with our ruling in SSS, we
can not properly declare BPIIC in bad faith. Consequently, we should rule out
the award of moral and exemplary damages. [11]

However, in our view, BPIIC was negligent in relying merely on the entries
found in the deed of mortgage, without checking and correspondingly adjusting
its records on the amount actually released to private respondents and the date
when it was released. Such negligence resulted in damage to private
respondents, for which an award of nominal damages should be given in
recognition of their rights which were violated by BPIIC. For this purpose, the
[12]

amount of P25,000 is sufficient.

Lastly, as in SSS where we awarded attorneys fees because private
respondents were compelled to litigate, we sustain the award of P50,000 in
favor of private respondents as attorneys fees.
WHEREFORE, the decision dated February 28, 1997, of the Court of
Appeals and its resolution dated April 21, 1998, are AFFIRMED WITH
MODIFICATION as to the award of damages. The award of moral and
exemplary damages in favor of private respondents is DELETED, but the award
to them of attorneys fees in the amount of P50,000 is UPHELD. Additionally,
petitioner is ORDERED to pay private respondents P25,000 as nominal
damages. Costs against petitioner.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.