Pagsibigan v CA

G.R. No. 90169. April 7, 1993

Art. 1234 – When obligation has been substantial perform in good faith.

Art. 1235 – When oblige accepts incomplete or irregular performance.

Facts:

·          Petitioner, through her daughter as attorney-in-fact, obtained another agricultural loan from the Planters Development Bank in the same amount of P4,500.00 secured by a mortgage over a parcel of land.

·          The Promissory Note for the second loan stipulated that:

a.    for a first payment to be made on May 3, 1977

b.    payments every 6 months thereafter at P1,018.14 with 19% interest for unpaid amortizations

c.     contains an acceleration clause

·          Initial payment was made, followed by several payments in the total amount of P11,900.00.

·          But only four of these payments were applied to the loan, while the rest were "temporarily lodged to accounts payable since the account was already past due".

·          On the basis of a Petition for Extrajudicial Foreclosure of Mortgage and the statement of Account, the property was foreclosed extrajudicially for failure to pay an outstanding balance of P29,554.81.

Issues:

(1) WoN the payment made by the petitioner constitute substantial performance so that she can recover the foreclosed property.
(2) WoN the bank waived its right under the acceleration clause and right to foreclose by virtue of its acceptance of the delayed payments for a period of more than six years.

Held:

            (1) Yes, the Court holds that such payment made by the petitioner constitute substantial performance in good faith.

            Article 1234 of the Civil Code provides that if the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee.

            In the instant case, petitioner has the right to move for the cancellation of the mortgage and the release of the mortgaged property, upon payment of the balance of the loan. Definitely, it would not be in the amount demanded by the bank, which the trial court held to be P29,554.81.

            Thus, the Court orders the annulment of the foreclosure sale and the reconveyance of the property subject of the real estate mortgage pursuant to the annotation of lis pendens in the certificate of title of the subject property, with payment of damages and attorney's fees against the bank.

(2) Yes, the Court holds that the application of such payment to the interest and the principal during the first three payments constitutes a virtual waiver of the acceleration clause provided in the contract, and of the right to foreclosure when it received delayed and partial payment of the petitioner.

            Under Article 1235 of the Civil Code, when the creditor accepts performance, knowing its incompleteness and irregularity without protest or objection, the obligation is deemed complied with.

            In the case at bar, the bank received the payment of the petitioner and lodged it to account payable based on the flimsy reason that she had been in default for more than four years. This is to be understood that her obligation was deemed complied with.

Hence, considering the entire debt pursuant to an acceleration clause as earning interest and penalty charges and the foreclosure of said property is unlawful.
           Thus, the appealed decision is hereby SET ASIDE and a new one entered ordering the reconveyance of the foreclosed property and the payment of moral damages, exemplary damages and attorney's fees as above specified, with costs against private respondent Planters Development Bank.