89 Planters Development bank v.

Lopez (2013) [Different Kinds of Obligations: Pure and

Conditional Obligations]
Mier, Keith Jasper

Planters Development bank v. Lopez

G.R. No. 186332
October 23, 2013

Facts: In 1983, the spouses Ernesto and Florentina Lopez applied for and obtained a real estate loan
in the amount of P3,000,000.00 from the petitioner (Planters Development Bank). The loan was
intended to be used for the construction of a four-story concrete dormitory building. In the loan
agreement, dated May 18, 1983, the loan is payable for 14 years bearing interest at 21% per annum
(p.a). Furthermore, partial drawdowns on the loan is based on project completion which is allowed
upon submission of accomplishment reports by the project engineer. To secure payment, the spouses
Lopez mortgaged a parcel of land. On July 23, 1983, the parties signed an agreed amendment to the
loan agreement increasing the interest to 23% p.a. with a loan term shortened to 3 years. On March 9,
1984, a second amendment to the loan agreement was executed by the parties which increased
further the interest to 25% p.a. And that releases on loan are subject to the Planter Bank’s availability
of funds. Due to surrounding circumstances on national economy at the time, the spouses Lopez
obtained an additional loan in the amount of P1,200,000.00 from Planters Bank which resulted in the
third amendment of the loan agreement increasing the loan to P4,200,000.00 and interest to 27% p.a.
with the term shortened to 1 year. On August 15, 1984, the Planters Bank unilaterally increased the
interest rate to 32% p.a. Subsequently, Planters Bank refused to release the remaining amount of
P700,000.00 to the spouses Lopez. On October 13, 1984, the spouses Lopez filed against Planters
Bank a complaint for rescission of the loan agreements and for damages with the RTC of Makati City
alleging that they cannot continue the construction as Planters Bank refused to release the remaining
loan balance. In defense, the Planters Bank argued that the spouses Lopez had no cause of action.
The Planters Bank also have subsequently foreclosed the mortgaged properties in favor of third
parties after spouses Lopez defaulted on their loan. The RTC ruled in favor of the Planters Bank
leading to an appeal to the CA which reversed the RTC’s ruling. The CA initially ruled in reducing the
interest to 12% for the payment of the P3.5 million, minus the proceeds of the foreclosed mortgaged
property, but it was amended pursuant to a comment filed by the Planters Bank which the CA treated
to be as a motion for reconsideration resulting in the rescission of the loan agreement, including all its
accessory contracts.

Issues:
1. Was the rescission of the contract valid?
2. Does the Planters Bank’s pecuniary inability to fulfill engagement of the contract discharges
the spouses Lopez of its obligation in the contract?

Held:
1. No. Despite the affirmation of the CA’s factual findings, the court disagreed with the CA’s
conclusion that the rescision is proper. The refusal of the Planters Bank to release the
remaining balance was merely a slight or causal breach. Its breach was not sufficiently
fundamental to defeat the object of the parties in entering into the loan agreement. The well-
settled rule is that rescission will not be permitted for a slight or casual breach of the contract.
The question of whether a breach of contract is substantial depends upon the attending
circumstances. The factual circumstances of this case lead the court to the conclusion that
Planters Bank substantially complied with its obligation. To reiterate, Planters Bank released
 P3,500,000.00 of the P4,200,000.00 loan. Only the amount of P700,000.00 was not released.
This constitutes 16.66% of the entire loan. Moreover, the progress report dated May 30, 1984
states that 85% of the six-story building was already completed by the spouses Lopez. Even
assuming that Planters Bank substantially breached its obligation, the fourth paragraph of
Article 1191 of the Civil Code expressly provides that rescission is without prejudice to the
rights of third persons who have acquired the thing, in accordance with Article 1385 of the
Civil Code. In turn, Article 1385 states that rescission cannot take place when the things
which are the object of the contract are legally in the possession of third persons who did not
act in bad faith. In the present case, the mortgaged properties had already been foreclosed.
They were already sold to the highest bidder at a public auction. The court recognized that
transferees pendente lite are proper, but not indispensable, parties in this case, as they
would, in any event, be bound by the judgment against Planters Bank. Furthermore, the
spouses Lopez's failure to pay the overdue loan made them parties in default, not entitled to
rescission under Article 1191 of the Civil Code.

2. No. Planters Bank and the spouses Lopez undertook reciprocal obligations when they
entered into a loan agreement. In reciprocal obligations, the obligation or promise of each
party is the consideration for that of the other. The mere pecuniary inability of one contracting
party to fulfill an engagement does not discharge the other contracting party of the obligation
in the contract. Planters Bank's slight breach does not excuse the spouses Lopez from paying
the overdue loan in the amount of P3,500,000.00.