Philippine National Bank v. Vito
REITERATIONFacts
The Antecedents: On July 25, 1918, defendant spouses mortgaged realty to the Philippine National Bank (PNB) to secure a P24,000 loan. The mortgage was recorded on July 26, 1918. The spouses agreed to pay P24,000 plus 8% annual interest in ten annual installments. On July 18, 1920, after a partial payment, a balance of P16,248.84 remained, with a new agreement to pay this balance with 8% annual interest in eight annual installments of P2,844.68 each, starting July 18, 1920. Procedural History: The defendant spouses failed to pay the installments from July 1920 to July 1926. On May 31, 1927, PNB filed an action to recover the unpaid installments, including those for 1927 and 1928. The defendants answered with a general denial and did not appear at trial. The trial court ordered the defendants to pay P13,404.18 with interest, but reserved PNB's action for the last annual installment of P2,844.88 and its interest. The Petition: PNB excepted to the trial court's reservation regarding the last installment, contending it was also demandable.
Issue(s)
Whether a mortgagee can demand the payment of the entire mortgage debt, including future installments not yet due by their original terms, when the mortgagor defaults on previous installments under a contract containing an acceleration clause.
Ruling
The Supreme Court modified the trial court's judgment, declaring that the entire debt, including the last installment of P2,844.88 and its interest, was demandable, and PNB could proceed with the foreclosure of the mortgage for the whole amount.
Ratio Decidendi
On Issue 1: The Court held that according to Article 1255 of the Civil Code, contracting parties are free to establish any agreements they deem proper, provided they do not violate law, morals, or public order. The Court found Paragraph 5 of the mortgage contract to be a valid and binding resolutory condition. While Article 1125 generally provides that obligations with a fixed day are only demandable when that day arrives, this period can be resolved by the will of the parties through specific conditions. The Court reasoned that the intention of the parties in authorizing foreclosure upon the violation of 'any' stipulation was to allow the creditor to declare the remaining installments due. The Court cited several American precedents, such as Phillips v. Taylor and Biedka v. Ashkenas, to support the doctrine that in cases where parties agree the entire debt becomes due upon partial default at the mortgagee's election, foreclosure for the entire amount is proper. Therefore, the defendants' non-fulfillment of the payment conditions rendered the original period ineffective and made the entire obligation demandable at the will of PNB. The Court concluded that it would be inconsistent to allow foreclosure while simultaneously holding that part of the debt being foreclosed upon is not yet due.
Main Doctrine
Failure to pay any installment on a mortgage obligation, where the contract contains a stipulation allowing the mortgagee to declare the entire debt due upon such default, renders the entire obligation demandable, including future installments, and permits foreclosure for the whole amount.