In other words, the loans of petitioner corporation from respondent bank were supposed to become due only at the time that it receives from the NIDC and PDCP the proceeds of the approved financing scheme. As it is, the conditions did not happen. NIDC refused to make further releases after it had made two releases totalling P200,000.00 which were all applied to the payment of the preferred stock NIDC subscribed in petitioner corporation to partially implement its P1,000,000.00 investment scheme (Brief for Petitioner, p. 9). The efficacy or obligatory force of a conditional obligation is subordinated to the happening of a future and uncertain event so that if the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed (Gaite v. Fonacier, 2 SCRA 831 [1961]).chanroblesvirtualawlibrary chanrobles virtual law library

Petitioner corporation alleges that there had been no demand on the part of respondent bank previous to its filing a complaint against petitioner and Rene Knecht personally for collection on petitioner's indebtedness (Brief for Petitioner, p. 13). For an obligation to become due there must generally be a demand. Default generally begins from the moment the creditor demands the performance of the obligation. Without such demand, judicial or extrajudicial, the effects of default will not arise (Namarco v. Federation of United Namarco Distributors, Inc. 49 SCRA 238 [1973]; Borje v. CFI of Misamis Occidental, 88 SCRA 576 [1979]). Whether petitioner corporation is already in default or not and whether demand had been properly made or not had to be determined in the lower court.chanroblesvirtualawlibrary chanrobles virtual law library

Granting that the findings of the lower court after trial on the merits answer both questions in the affirmative, another question that had to be determined was the question of cause or consideration.chanroblesvirtualawlibrary chanrobles virtual law library

The loan agreements between petitioner and respondent Bank are reciprocal obligations (the obligation or promise of each party is the consideration for that of the other Penacio v. Ruaya, 110 SCRA 46 [1981], cited. in Central Bank of the Philippines v. Court of Appeals, 139 SCRA 46 [1985] ). A contract of loan is not a unilateral contract as respondent Bank thinks it is (Brief for the Respondent, p. 19). The promise of petitioner to pay is the consideration for the obligation of respondent bank to furnish the loan (Ibid.).chanroblesvirtualawlibrary chanrobles virtual law library

Respondent bank had complete control of the financial affairs and the management of petitioner corporation. It appointed its executive vice-president Roberto S. Benedicto as its representative in petitioner's board of directors, giving him the position of
vice-president in petitioner corporation (Brief for Petitioner, p. 7). Upon the resignation of Roberto S. Benedicto as vice-president and member of the board of directors of petitioner corporation on December 29, 1965 (Brief for Petitioner, p. 8), respondent bank designated Rafael Ledesma as its representative in petitioner corporation's board of directors, due representation in the board of petitioner being a condition for the loan granted to the petitioner (Rollo, p. 166). In fact, Rafael Ledesma was designated Chairman of the Board of Directors (Rollo, p. 169). Respondent bank required petitioner to appoint Sycip, Gorrez, Velayo & Co. as full-time comptroller-treasurer of the corporation at a monthly salary of P1,500.00 (Brief for Petitioner, p. 9; Brief for the Respondent, p. 41). On January 2, 1967, it also required petitioner to replace its then manager, the Management & Investment Development Associates (MIDA) and to appoint instead Edmundo Ledesma at a monthly salary of P3,000.00 and transportation allowance of P1,000.00 plus an assistant manager, Venancio Concepcion at a salary of P1,000.00 a month. During the next 18 months' management by defendant's designated manager, no meeting of the board of directors of petitioner was called- Edmundo Ledesma exercised full control and management (Brief for Petitioner, pp. 10-11; Rollo, p. 167). Respondent Bank has not given up management of petitioner's food canning industry and continues to hold it. Even Atty. Juan de Ocampo has been retained by petitioner as corporate counsel, at the insistence of respondent bank (Brief for Petitioner, p. 14). This has not been denied by respondent bank.chanroblesvirtualawlibrary chanrobles virtual law library

Respondent bank's designation of its own choice of people holding key positions in petitioner corporation tied the hands of petitioner's board of directors to make decisions for the interest of petitioner corporation, in fact, undermined the latter's financial stability. During the 18 months of Edmundo Ledesma's management, petitioner's factory produced some P200,000.00 worth of canned goods which according to petitioner is only equivalent to its normal production in three weeks (Brief for Petitioner, pp.10-11). Respondent bank justifies the underproduction by averring that petitioner at that time did not have sufficient capital to operate the factory, and that said factory was only operating for the purpose of avoiding spoilage and deterioration of the raw materials then in store at the petitioner's factory (Rollo. p. 168) and yet respondent bank insists, that it had released the entire amount of P500,000.00 loan to petitioner (Rollo, p. 167) earmarked for operating capital purposes (Brief for the Respondent, p. 43) and admits having granted a P40,000.00 loan at a higher interest of 14% per annum to petitioner at the request of the same Edmundo Ledesma (Rollo, p. 167). After the Development Bank of the Philippines had approved on June 29, 1967 a loan of P1,840,000.00 applied for by petitioner in 1961, respondent bank informed of the availability of P800,000.00 to pay off partially petitioner's account with it and requested to release the titles of the Pasig parcels for delivery to the Development Bank of the Philippines, and the amount actually released by the Development Bank, Rafael Ledesma, in his capacity as Chairman of petitioner's board of directors wrote a letter to the Development Bank of the Philippines stating that Rene Knecht, petitioner's president, had no authority to borrow for petitioner, being a mere figurehead president, although Rene Knecht, controlled 87% of the stockholding of petitioner and the by-laws authorized the president to borrow for the company (Brief for Petitioner, pp. 11-13). That Rafael Ledesma wrote a letter to the Development Bank of the Philippines is admitted by respondent bank (Rollo, p. 169). The Development Bank of the Philippines refused to make further releases on the approved loan or to issue the dollar guaranty for the importation of can making machinery. It was Atty. Juan de Ocampo, the corporate counsel retained by petitioner at the insistence of respondent bank that instituted the collection suit and
extra-judicial foreclosure for respondent bank against petitioner (Brief for Petitioner, pp. 13-14; Rollo, p. 79).chanroblesvirtualawlibrarychanrobles virtual law library

It is apparent that it is respondent bank practically managing petitioner corporation through its representatives occupying key positions therein. Not even the president of petitioner corporation could escape control by respondent bank through the Comptroller Treasurer assigned "to countersign all checks and other disbursements and decide on all financial matters regarding the operations and who shall see to it that operations are carried out" (Brief for the Respondent, p. 41). There is basis for petitioner's complaint of interference by respondent bank with petitioner's financing (Brief for Petitioner, pp. 3132) and such interference is only a consequence of respondent bank's management of petitioner corporation through the officers occupying key positions therein. Thus, if ever petitioner corporation was in financial straits instead of being rehabilitated this can be attributed to the mismanagement of respondent corporation through its representatives in petitioner corporation.chanroblesvirtualawlibrarychanrobles virtual law library

In a similar case, Filipinas Marble Corporation v. Intermediate Appellate Court (142 SCRA 180 [1986]) where the lending institution took over the management of the borrowing corporation and led that corporation to bankcruptcy through mismanagement or misappropriation of the funds, defeating the very purpose of the loan which is to develop the projects of the corporation, the Court ruled that it is as if the loan was never delivered to it and thus, there was failure on the part of the respondent DBP to deliver the consideration for which the mortgage and the assignment of deed were executed.chanroblesvirtualawlibrary chanrobles virtual law library

It cannot be determined at this point how much of the total loan, most especially the P500,000.00 loan for operating capital and the P40,000.00 loan of the manager, Edmundo Ledesma, had been mismanaged or misspent by respondent bank through its representatives. This matter should rightfully be litigated below in the main action (Filipinas Marble Corportion v. Intermediate Appellate Court. (supra).chanroblesvirtualawlibrarychanrobles virtual law library

Furthermore, respondent bank was in default in fulfilling its reciprocal obligation under their loan agreement. By its own admission it failed to release the P710,000.00 loan (Rollo, p. 167) it approved on October 13, 1966 (Brief for Respondent, p. 44) in which case, petitioner corporation, under Article 1191 of the Civil Code, may choose between specific performance or rescission with damages in either case (Central Bank of the Philippines v. Court of Appeals, 139 SCRA 46 [1985]).chanroblesvirtualawlibrary chanrobles virtual law library

As a consequence, the real estate mortgage of petitioner corporation cannot be entirely foreclosed to satisfy its total debt to respondent bank. (Central Bank of the Philippines v. Court of Appeals, supra.)chanrobles virtual law library

The issue of whether the foreclosure sale of the mortgaged properties en masse was valid or not must be answered in the negative. The rule of indivisibility of a real estate mortgage refers to the provisions of Article 2089 of the Civil Code, which provides:

Art. 2089. A pledge or mortgage is indivisible, even though the debt may be divided among the successors in interest of the debtor or of the creditor.chanroblesvirtualawlibrarychanrobles virtual law library

Therefore the debtor's heir who has paid a part of the debt cannot ask for the proportionate extinguishment of the pledge or mortgage as the debt is not completely satisfied.chanroblesvirtualawlibrary chanrobles virtual law library

Neither can the creditor's heir who received his share of the debt return the pledge or cancel the mortgage, to the prejudice of the other heirs who have not been paid.chanroblesvirtualawlibrary chanrobles virtual law library

From these provisions is excepted the case in which, there being several things given in mortgage or pledge, each one of them guarantees only a determinate portion of the credit.chanroblesvirtualawlibrary chanrobles virtual law library

The debtor, in this case, shall have a right to the extinguishment of the pledge or mortgage as the portion of the debt for which each thing is specially answerable is satisfied.