PHILIPPINE NATIONAL BANK, petitioner, vs. ROSARIO TAJONERA, respondent, G.R. No. 195889, Sept. 24, 2014

 Doctrine:      Failure to perform a reciprocal obligation is a Breach of Contract.  Under the law, a loan 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 is the debtor. The obligation of one party in a reciprocal obligation is dependent upon the obligation of the other, and the performance should ideally be simultaneous. This means that in a loan, the creditor should release the full loan amount and the debtor repays it when it becomes due and demandable.

Facts:

Through Rosario, the Vice President of Eduarosa Realty Development, Inc. (ERDI) obtained loans from Philippine National Bank (PNB) and entered into several credit agreements to finance the completion of the construction of their 20-storey Eduarosa Tower Condominium.

Pursuant to the Credit Agreement, ERDI obtained from PNB a loan in the amount of ₱60,000,000.00 plus ₱5,000,000.00 Domestic Bills. To secure this initial loan, ERDI mortgaged in favor of PNB its Paranaque properties together with the 20-storey condominium building to be erected thereon.

Subsequently, ERDI and PNB entered into The First Amendment wherein the former obtained an additional loan of ₱40,000,000.00. As security for the additional loan, the ERDI’s Greenhills property was mortgaged as evidenced by the Supplement to Mortgage.

Thereafter, the parties made Second Amendment was likewise entered into by the parties for the purpose of extending the repayment dates of the loan and the additional loan. Afterward, A Third Amendment was entered into by the parties wherein the respondents were granted a second additional loan of ₱55,000,000.00.

Nevertheless, ERDI failed to settle its obligation. As a consequence, PNB filed an application for foreclosure of the Greenhills property. As the highest bidder, PNB was issued the Certificate of Sale. Upon ERDI’s failure to redeem the property, PNB consolidated its title and caused the cancellation of the title in the name of the respondent. A new title was issued in the name of PNB.

This prompted the respondents to file a complaint against PNB for annulment of sale, cancellation of title, cancellation of mortgage, and damages before the RTC.

The RTC rendered its judgment in favor of the respondents on the ground that PNB did not release the remaining balance of the approved loan under the Third Amendment.   PNB appealed to CA, but CA affirms TRC’s decision with modification.

Issue:           Whether or not the CA erred in annulling the mortgage contract constituted over the Greenhills property of the respondents?

Held:            PNB insists that there was no breach of its contractual obligation when it did not release the remaining balance of the approved loan to the respondents considering that the latter had no history of any payment either on interest or principal of the loan.

The agreement between PNB and the respondents was one of a loan. Under the law, a loan requires the delivery of money or any other consumable object by one party to another who acquires ownership thereof, 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. The obligation of one party in a reciprocal obligation is dependent upon the obligation of the other, and the performance should ideally be simultaneous. This means that in a loan, the creditor should release the full loan amount and the debtor repays it when it becomes due and demandable.

PNB, not having released the balance of the last loan proceeds in accordance with the Third Amendment had no right to demand from the respondent compliance with their own obligation under the loan. 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 them while the other's obligation remains unfulfilled.

In view of the foregoing, the court a quo aptly ruled that the refusal of PNB to release portion of the additional loan granted under the Third Amendment to Credit Transaction is not justified. In this jurisdiction, breach of contract is defined as:

It is the failure without legal reason to comply with the terms of a contract. It is also defined as the failure, without legal excuse, to perform any promise which forms the whole or part of the contract.

Undoubtedly, PNB breached its contractual obligation when it failed to release to Appellees the remaining balance of the approved loan.

WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of Appeals are AFFIRMED.