ANCHOR SAVINGS BANK v.

PINZMAN REALTY DEVELOPMENT CORPORATION,

MARYLIN MAÑALAC AND RENATO GONZALES
GR No. 192304, AUGUST 13, 2014, VILLARAMA, JR., J.

FACTS

Pinzman Realty, through Marylin Mañalac obtained a loan from Anchor Savings Bank in
the amount of P3, 000,000 secured by a real estate mortgage over parcels of land located in
Cubao, Quezon City. Mañalac executed a Promissory Note and Disclosure Statement in favor of
the Bank, it imposed a monthly 5% late-payment charge, 25% attorney's fees, and 25% liquidated
damages in case of unpaid installments. Pinzman was only able to pay the first installment. They
received a Second Notice of Extrajudicial Sale for the satisfaction of an obligation. On June 1,
1999, the foreclosure sale was held where the Bank emerged as the highest bidder. Mañalac tried
to settle the loan but was surprised when the Bank issued a Statement of Account stating that as
of October 29, 1999, Pinzman Realty owed the Bank P12, 525,673.44 computed as follows:

STATEMENT OF ACCOUNT
AS OF OCTOBER 29, 1999
PARTICULAR PAYMENT SYSTEM
METHOD
Principal Balance 3,012,525.32
Interest 2,026,062.38
Penalty Interest @ 60% 3,129,879.85
Forfeited Rebate 8,620.00
Litigation Expenses 158,595.41
Others 14,766.00
Sub-total 8,350,448.96
Attorney's fees 2,087,612.24
Liquidated Damages 2,087,612.24
Total Amount Due 12,525,673.44

ISSUE

Will the imposition of a usurious interest rate on a loan obligation secured by a real estate
mortgage result in the invalidity of the subsequent foreclosure sale of the mortgage?

RULING

Yes. It is jurisprudential axiom that a foreclosure sale arising from a usurious mortgage
cannot be given legal effect. In Heirs of Zoilo Espiritu v. Sps. Landrito, the court held that a
mortgagor cannot be legally compelled to pay for a grossly inflated loan. It was held that “A
judgment ordering a foreclosure sale is conditioned upon a finding on the correct amount of the
unpaid obligation and the failure of the debtor to pay the said amount. If the proceeds of the sale
together with its reasonable rates of interest were applied to the obligation, only a small part of its
original loans would actually remain outstanding, but because of the unconscionable interest
rates, the larger part corresponded to said excessive and iniquitous interest.” In Castro v. Tan,
the court affirmed the above doctrinal pronouncements and nullified a foreclosure proceeding
where the amount demanded as outstanding loan was clearly overstated due to exorbitant interest
rates.

In the case at bar, the unlawful interest charge which led to the demand for P4,577,269.42
as stated in the Notice of Extrajudicial Sale resulted in the invalidity of the subsequent foreclosure
sale held on June 1, 1999. The private respondents cannot be obliged to pay an inflated or
overstated mortgage indebtedness on account of excessive interest charges without offending
the basic tenets of due process and equity.
 GOLDEN VALLEY EXPLORATION, v. PINKIAN MINING CO. AND COPPER VALLEY, INC
G.R. NO. 190080, JUNE 11, 2014, PERLAS-BERNABE, J.

FACTS

On October 30, 1987 Pinkian Mining Company (PMC) entered into an Operating
Agreement with Golden valley Exploration Inc. (GVEI) granting the latter "full, exclusive and
irrevocable possession, use, occupancy, and control over the mining claims, and every matter
pertaining to the examination, exploration, development and mining of the mining claims and the
processing and marketing of the products for a period of 25 years. In a Letter dated June 8, 1999,
PMC extra-judicially rescinded the Operating Agreement upon GVEI's violation of several
provisions thereof.
GVEI contested PMC's extra-judicial rescission of the OA through a Letter dated
December 7, 1999, averring therein that its obligation to pay royalties to PMC arises only when
the mining claims are placed in commercial production which condition has not yet taken place.
It also reminded PMC of its prior payment of the amount of P185, 000.00 as future royalties in
exchange for PMC's express waiver of any breach or default on the part of GVEI. PMC no longer
responded to GVEI's letter. Instead, it entered into a Memorandum of Agreement dated May 2,
2000 with Copper Valley Inc. GVEI filed a complaint for specific performance, annulment of
contract and damages.

ISSUE

Was there was a valid rescission of the Operating Agreement?

RULING

Yes. In reciprocal obligations, either party may rescind the contract upon the other's
substantial breach of the obligation/s he had assumed thereunder. The right of rescission under
Article 1191 is predicated on a breach of faith that violates the reciprocity between parties to the
contract. This retaliatory remedy is given to the contracting party who suffers the injurious breach
on the premise that it is unjust that a party be held bound to fulfill his promises when the other
violates his. As a general rule, the power to rescind an obligation must be invoked judicially and
cannot be exercised solely on a party's own judgment that the other has committed a breach of
the obligation. This is so because rescission of a contract will not be permitted for a slight or
casual breach, but only for such substantial and fundamental violations as would defeat the very
object of the parties in making the agreement. As a well-established exception, however, an
injured party need not resort to court action in order to rescind a contract when the contract itself
provides that it may be revoked or cancelled upon violation of its terms and conditions.
The Court upheld PMC's unilateral rescission of the OA due to GVEI's non-payment of
royalties considering the parties' express stipulation in the Operating Agreement that said
agreement may be cancelled on such ground. This is found in Section 8.01, Article VIII in relation
to Section 5.01, Article V of the Operating Agreement. By expressly stipulating in the Operating
Agreement that GVEI's non-payment of royalties would give PMC sufficient cause to cancel or
rescind the agreement, the parties clearly had considered such violation to be a substantial
breach of their agreement. Thus PMC's extra-judicial rescission of the OA based on the said
ground was valid.
 RAMON E. REYES AND CLARA R. PASTOR v. BANCOM DEVELOPMENT CORP.
G.R. No. 190286, JANUARY 11, 2018, SERENO, C.J.

FACTS

Angel Reyes and several others executed a Continuing Guarantee in favor of Bancom
Development Corporation. They agreed to guarantee the full and due payment of obligations
incurred by Marbella under an Underwriting Agreement with Bancom. These obligations included
certain Promissory Notes issued by Marbella in favor of Bancom. Marbella was unable to pay
back the notes at the time of their maturity. Because of Marbella's continued failure to pay back
the loan despite repeated demands, Bancom filed a Complaint for Sum of Money with a prayer
for damages. The case, which sought payment of the total sum of P4, 300,247.35, was instituted
against (a) Marbella as principal debtor; and (b) the individuals comprising the Reyes Group as
guarantors of the loan.

ISSUE

Are the Petitioner’s solidarily liable with Marbella?

RULING

Yes. Having executed a Continuing Guaranty in favor of Bancom, petitioners are solidarily
liable with Marbella for the payment of the amounts indicated on the Promissory Notes. The
obligations of Marbella and the Reyes Group under the Promissory Notes and the Continuing
Guaranty, respectively, are plain and unqualified. Under the notes, Marbella promised to pay
Bancom the amounts stated on the maturity dates indicated. The Reyes Group, on the other hand,
agreed to become liable if any of Marbella's guaranteed obligations were not duly paid on the due
date. As to the Reyes group, the Continuing Guaranty evidently binds them to pay Bancom the
amounts indicated on the original set of Promissory Notes, as well as any and all instruments
issued upon the renewal, extension, amendment or novation thereof.