QUISUMBING, 

J.:

This petition for certiorari assails the decision dated February 28, 1997, of the Court of Appeals and its
resolution dated April 21, 1998, in CA-G.R. CV No. 38887. The appellate court affirmed the judgment of
the Regional Trial Court of Pasig City, Branch 151, in (a) Civil Case No. 11831, for foreclosure of
mortgage by petitioner BPI Investment Corporation (BPIIC for brevity) against private respondents ALS
Management and Development Corporation and Antonio K. Litonjua, 1 consolidated with (b) Civil Case No.
52093, for damages with prayer for the issuance of a writ of preliminary injunction by the private
respondents against said petitioner.

The trial court had held that private respondents were not in default in the payment of their monthly
amortization, hence, the extrajudicial foreclosure conducted by BPIIC was premature and made in bad
faith. It awarded private respondents the amount of ₱300,000 for moral damages, ₱50,000 for exemplary
damages, and ₱50,000 for attorney’s fees and expenses for litigation. It likewise dismissed the
foreclosure suit for being premature.

The facts are as follows:

Frank Roa obtained a loan at an interest rate of 16 1/4% per annum from Ayala Investment and
Development Corporation (AIDC), the predecessor of petitioner BPIIC, for the construction of a house on
his lot in New Alabang Village, Muntinlupa. Said house and lot were mortgaged to AIDC to secure the
loan. Sometime in 1980, Roa sold the house and lot to private respondents ALS and Antonio Litonjua for
₱850,000. They paid ₱350,000 in cash and assumed the ₱500,000 balance of Roa’s indebtedness with
AIDC. The latter, however, was not willing to extend the old interest rate to private respondents and
proposed to grant them a new loan of ₱500,000 to be applied to Roa’s debt and secured by the same
property, at an interest rate of 20% per annum and service fee of 1% per annum on the outstanding
principal balance payable within ten years in equal monthly amortization of ₱9,996.58 and penalty interest
at the rate of 21% per annum per day from the date the amortization became due and payable.

Consequently, in March 1981, private respondents executed a mortgage deed containing the above
stipulations with the provision that payment of the monthly amortization shall commence on May 1, 1981.

On August 13, 1982, ALS and Litonjua updated Roa’s arrearages by paying BPIIC the sum of
₱190,601.35. This reduced Roa’s principal balance to ₱457,204.90 which, in turn, was liquidated when
BPIIC applied thereto the proceeds of private respondents’ loan of ₱500,000.

On September 13, 1982, BPIIC released to private respondents ₱7,146.87, purporting to be what was left
of their loan after full payment of Roa’s loan.

In June 1984, BPIIC instituted foreclosure proceedings against private respondents on the ground that
they failed to pay the mortgage indebtedness which from May 1, 1981 to June 30, 1984, amounted to
Four Hundred Seventy Five Thousand Five Hundred Eighty Five and 31/100 Pesos (₱475,585.31). A
notice of sheriff’s sale was published on August 13, 1984.

On February 28, 1985, ALS and Litonjua filed Civil Case No. 52093 against BPIIC. They alleged, among
others, that they were not in arrears in their payment, but in fact made an overpayment as of June 30,
1984. They maintained that they should not be made to pay amortization before the actual release of the
₱500,000 loan in August and September 1982. Further, out of the ₱500,000 loan, only the total amount of
₱464,351.77 was released to private respondents. Hence, applying the effects of legal compensation, the
balance of ₱35,648.23 should be applied to the initial monthly amortization for the loan.

On August 31, 1988, the trial court rendered its judgment in Civil Case Nos. 11831 and 52093, thus:
WHEREFORE, judgment is hereby rendered in favor of ALS Management and Development Corporation
and Antonio K. Litonjua and against BPI Investment Corporation, holding that the amount of loan granted
by BPI to ALS and Litonjua was only in the principal sum of P464,351.77, with interest at 20% plus
service charge of 1% per annum, payable on equal monthly and successive amortizations at P9,283.83
for ten (10) years or one hundred twenty (120) months. The amortization schedule attached as Annex "A"
to the "Deed of Mortgage" is correspondingly reformed as aforestated.

The Court further finds that ALS and Litonjua suffered compensable damages when BPI caused their
publication in a newspaper of general circulation as defaulting debtors, and therefore orders BPI to pay
ALS and Litonjua the following sums:

a) P300,000.00 for and as moral damages;

b) P50,000.00 as and for exemplary damages;

c) P50,000.00 as and for attorney’s fees and expenses of litigation.

The foreclosure suit (Civil Case No. 11831) is hereby DISMISSED for being premature.

Costs against BPI.

SO ORDERED.2

Both parties appealed to the Court of Appeals. However, private respondents’ appeal was dismissed for
non-payment of docket fees.

On February 28, 1997, the Court of Appeals promulgated its decision, the dispositive portion reads:

WHEREFORE, finding no error in the appealed decision the same is hereby AFFIRMED in toto.

SO ORDERED.3

In its decision, the Court of Appeals reasoned that a simple loan is perfected only upon the delivery of the
object of the contract. The contract of loan between BPIIC and ALS & Litonjua was perfected only on
September 13, 1982, the date when BPIIC released the purported balance of the ₱500,000 loan after
deducting therefrom the value of Roa’s indebtedness. Thus, payment of the monthly amortization should
commence only a month after the said date, as can be inferred from the stipulations in the contract. This,
despite the express agreement of the parties that payment shall commence on May 1, 1981. From
October 1982 to June 1984, the total amortization due was only ₱194,960.43. Evidence showed that
private respondents had an overpayment, because as of June 1984, they already paid a total amount of
₱201,791.96. Therefore, there was no basis for BPIIC to extrajudicially foreclose the mortgage and cause
the publication in newspapers concerning private respondents’ delinquency in the payment of their loan.
This fact constituted sufficient ground for moral damages in favor of private respondents.

The motion for reconsideration filed by petitioner BPIIC was likewise denied, hence this petition, where
BPIIC submits for resolution the following issues:

I. WHETHER OR NOT A CONTRACT OF LOAN IS A CONSENSUAL CONTRACT IN THE

II. WHETHER OR NOT BPI SHOULD BE HELD LIABLE FOR MORAL AND EXEMPLARY
DAMAGES AND ATTORNEY’S FEES IN THE FACE OF IRREGULAR PAYMENTS MADE BY
 ALS AND OPPOSED TO THE RULE LAID DOWN IN SOCIAL SECURITY SYSTEM VS. COURT
OF APPEALS, 120 SCRA 707.

On the first issue, petitioner contends that the Court of Appeals erred in ruling that because a simple loan
is perfected upon the delivery of the object of the contract, the loan contract in this case was perfected
only on September 13, 1982. Petitioner claims that a contract of loan is a consensual contract, and a loan
contract is perfected at the time the contract of mortgage is executed conformably with our ruling
in Bonnevie v. Court of Appeals, 125 SCRA 122. In the present case, the loan contract was perfected on
March 31, 1981, the date when the mortgage deed was executed, hence, the amortization and interests
on the loan should be computed from said date.

Petitioner also argues that while the documents showed that the loan was released only on August 1982,
the loan was actually released on March 31, 1981, when BPIIC issued a cancellation of mortgage of
Frank Roa’s loan. This finds support in the registration on March 31, 1981 of the Deed of Absolute Sale
executed by Roa in favor of ALS, transferring the title of the property to ALS, and ALS executing the
Mortgage Deed in favor of BPIIC. Moreover, petitioner claims, the delay in the release of the loan should
be attributed to private respondents. As BPIIC only agreed to extend a ₱500,000 loan, private
respondents were required to reduce Frank Roa’s loan below said amount. According to petitioner,
private respondents were only able to do so in August 1982.

In their comment, private respondents assert that based on Article 1934 of the Civil Code, 4 a simple loan
is perfected upon the delivery of the object of the contract, hence a real contract. In this case, even
though the loan contract was signed on March 31, 1981, it was perfected only on September 13, 1982,
when the full loan was released to private respondents. They submit that petitioner misread Bonnevie.  To
give meaning to Article 1934, according to private respondents, Bonnevie  must be construed to mean
that the contract to extend the loan was perfected on March 31, 1981 but the contract of loan itself was
only perfected upon the delivery of the full loan to private respondents on September 13, 1982.

Private respondents further maintain that even granting, arguendo,  that the loan contract was perfected
on March 31, 1981, and their payment did not start a month thereafter, still no default took place.
According to private respondents, a perfected loan agreement imposes reciprocal obligations, where the
obligation or promise of each party is the consideration of the other party. In this case, the consideration
for BPIIC in entering into the loan contract is the promise of private respondents to pay the monthly
amortization. For the latter, it is the promise of BPIIC to deliver the money. In reciprocal obligations,
neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with
what is incumbent upon him. Therefore, private respondents conclude, they did not incur in delay when
they did not commence paying the monthly amortization on May 1, 1981, as it was only on September 13,
1982 when petitioner fully complied with its obligation under the loan contract.

We agree with private respondents. A loan contract is not a consensual contract but a real contract. It is
perfected only upon the delivery of the object of the contract. 5 Petitioner misapplied Bonnevie. The
contract in Bonnevie  declared by this Court as a perfected consensual contract falls under the first clause
of Article 1934, Civil Code. It is an accepted promise to deliver something by way of simple loan.

In Saura Import and Export Co. Inc. vs. Development Bank of the Philippines, 44 SCRA 445, petitioner
applied for a loan of ₱500,000 with respondent bank. The latter approved the application through a board