CivReb– Art.

1191– Maguigad - 36
PLANTERS DEVELOPMENT BANK vs. LOPEZ
G.R. No. 186332 |October 23, 2013|BRION J.,
FACTS
SPS. LOPEZ OBTAINED A LOAN FROM PLANTERS AND
THEY MORTGAGED THEIR LAND
Sps. Lopez obtained a real estate loan of P3M from Planters
Bank intended to finance the construction of a 4-story
dormitory building. The loan is payable for 14 years with
21% interest per annum. Sps. mortgaged a parcel of land.
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.
PLANTERS BREACH WAS CASUAL OR SLIGHT
Planters Bank’s refusal to release the remaining balance was
merely a slight or casual breach. Its breach is not sufficiently
fundamental to defeat the object of the parties in entering
into the loan agreement.

THE INTEREST RATE WAS INCREASED AND TERM
DECREASED
The parties signed an amendment to the loan agreement
increasing the interest rate to 23% and shortening the term
of the loan to 3 years. A second amendment was executed:
25% p.a. interest rate.
Meanwhile, Philippine economy deteriorated. The cost of
construction increased. Sps. Lopez obtained an additional
loan of P1.2M from Planters Bank.
PLANTERS UNILATERALLY INCREASED THE INTEREST
RATE
3rd amendment was executed: loan was increased to P4.2M
and the interest rate is at 27% p.a., the term of the loan
became 1 year. Subsequently, Planters Bank unilaterally
increased the interest rate to 32% p.a.
SPS. FILED A COMPLAINT FOR RESCISSIOON OF LOAN
AGREEMENT
Sps. Lopez failed to avail of the full amount of the loan
because Planters refused to release the remaining amount
of P700k. They filed a complaint for rescission of loan
agreement and for damages with the RTC.
In defense, Planters Bank argued that its refusal to release
the loan was due to Sps. Lopez’s violations of the loan
agreement: (1) non-submission of accomplishment reports
(2) construction of a 6-story building. Planters Bank
foreclosed the mortgaged properties.
• In this case, Planters Bank substantially
complied with its obligation. It released P3.5M
of the P4.2M loan. Only P700k or 16.66% of the
loan was not released.
Even assuming that Planters Bank substantially breached its
obligation, the 4th paragraph of Art. 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 Art. 1385, which 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 THIS CASE, THE MORTGAGED PROPERTIES HAD
ALREADY BEEN FORECLOSED. Respondents did not
overcome the presumption that the buyers bought the
foreclosed properties in good faith. Sps. Lopez did not cause
the annotation of lis pendens at the back of the title of the
mortgaged lot.
Furthermore, Sps. Lopez’s failure to pay the overdue loan
made them parties in default, not entitled to rescission
under Art. 1191.
WHEREFORE, premises considered, the assailed amended
decision dated July 30, 2007 and resolution dated February 5,
2009 of the Court of Appeals are hereby REVERSED.

RTC ruled in favor of Planters Bank. It held that the Sps

had no right to rescind because they were not the
injured parties and that they violated the loan
agreement.

Sps. died during the pendency of the case. On appeal, CA

reversed the RTC ruling and held that Planters Bank’s refusal
to release the loan was a substantial breach of the contract.

Respondents (who substituted the Sps) filed an MR seeking

clarification of the ruling which did not declare the
rescission of the loan. The CA modified the dispositive
portion of its ruling. It declared the loan agreement
rescinded and ordered Planters Bank to return the amount
of P2.8M with interest and the foreclosed property.

ISSUE(S)

Whether or not rescission is proper? NO

RULING