Letters of Credit

MWSS vs. DAWAY AND MAYNILAD

G.R. No. 160732.
June 21, 2004

FACTS: MWSS granted Maynilad under a Concession Agreement to manage,

operate, repair, decommission and refurbish the existing MWSS water delivery and
sewerage services in the West Zone Service Area, for which Maynilad undertook to
pay the corresponding concession fees which, among other things, consisted of
payments of petitioners mostly foreign loans.

To secure the concessionaires performance of its obligations, Maynilad was required

under Section 6.9 of said contract to put up a bond, bank guarantee or other
security acceptable to MWSS.

In compliance with this requirement, Maynilad arranged for a three-year facility with
a number of foreign banks, led by Citicorp Intl Ltd., for the issuance of an
Irrevocable Standby Letter of Credit in favor of MWSS for the full and prompt
performance of Maynilads obligations to MWSS as aforestated.

Later, the parties agreed to resolve the issues between them [Maynilad is asking for
a mechanism by which it hoped to recover the losses it had allegedly incurred and
would be incurring as a result of the depreciation of the Philippine Peso against the
US Dollar and in filing to get what it desired, Maynilad unilaterally suspended the
payment of the concession fees] through an amendment of the Concession
Agreement which was based on the terms set down in MWSS Board of Trustees
Resolution which provided inter alia for a formula that would allow Maynilad to
recover foreign exchange losses it had incurred or would incur under the terms of
the Concession Agreement.

However Maynilad served upon MWSS a Notice of Event of Termination, claiming

that MWSS failed to comply with its obligations under the Concession Agreement
and its Amendment regarding the adjustment mechanism that would cover
Maynilads foreign exchange losses. Maynilad filed a Notice of Early Termination of
the concession, which was challenged by MWSS. This matter was eventually
brought before the Appeals Panel by MWSS. the Appeals Panel ruled that there was
no Event of Termination as defined under Art. 10.2 (ii) or 10.3 (iii) of the Concession
Agreement and that, therefore, Maynilad should pay the concession fees that had
fallen due.

The award of the Appeals Panel became final. MWSS, thereafter, submitted a written
notice to Citicorp Intl Ltd, as agent for the participating banks, that by virtue of
Maynilads failure to perform its obligations under the Concession Agreement, it was
drawing on the Irrevocable Standby Letter of Credit and thereby demanded
payment.

Prior to this, however, Maynilad had filed on a petition for rehabilitation before the
RTC of Quezon City which resulted in the issuance of the Stay Order and the
disputed Order of November 27, 2003.

ISSUE: WON the rehabilitation court sitting as such, act in excess of its authority or
jurisdiction when it enjoined herein petitioner from seeking the payment of the
concession fees from the banks that issued the Irrevocable Standby Letter of Credit
in its favor

HELD: the petition for certiorari is granted.The Order of November 27, 2003 of the
RTC of Quezon City 90, is hereby declared null and voidand set aside.

YES

First, the claim is not one against the debtor but against an entity that respondent
Maynilad has procured to answer for its non-performance of certain terms and
conditions of the Concession Agreement, particularly the payment of concession
fees.

Secondly, Sec. 6 (b) of Rule 4 of the Interim Rules does not enjoin the enforcement
of all claims against guarantors and sureties, but only those claims against
guarantors and sureties who are not solidarily liable with the debtor. Respondent
Maynilads claim that the banks are not solidarily liable with the debtor does not find
support in jurisprudence.

Letters of credit were developed for the purpose of insuring to a seller payment of a
definite amount upon the presentation of documentsand is thus a commitment by
the issuer that the party in whose favor it is issued and who can collect upon it will
have his credit against the applicant of the letter, duly paid in the amount specified
in the letter They are in effect absolute undertakings to pay the money advanced or
the amount for which credit is given on the faith of the instrument. They are primary

obligations and not accessory contracts and while they are security arrangements,
they are not converted thereby into contracts of guaranty. What distinguishes
letters of credit from other accessory contracts, is the engagement of the issuing
bank to pay the seller once the draft and other required shipping documents are
presented to it. They are definite undertakings to pay at sight once the documents
stipulated therein are presented.

The prohibition under Sec 6 (b) of Rule 4 of the Interim Rules does not apply to
herein petitioner as the prohibition is on the enforcement of claims against
guarantors or sureties of the debtors whose obligations are not solidary with the
debtor. The participating banks obligation are solidary with respondent Maynilad in
that it is a primary, direct, definite and an absolute undertaking to pay and is not
conditioned on the prior exhaustion of the debtors assets. These are the same
characteristics of a surety or solidary obligor. And being solidary, the claims against
them can be pursued separately from and independently of the rehabilitation case.

The terms of the Irrevocable Standby Letter of Credit do not show that the
obligations of the banks are not solidary with those of respondent Maynilad. On the
contrary, it is issued at the request of and for the account of Maynilad in favor of the
MWSS as a bond for the full and prompt performance of the obligations by the
concessionaire under the Concession Agreement and herein MWSS is authorized by
the banks to draw on it by the simple act of delivering to the agent a written
certification substantially in the form of the Letter of Credit.

Taking into consideration our own rulings on the nature of letters of credit and the
customs and usage developed over the years in the banking and commercial
practice of letters of credit, we hold that except when a letter of credit specifically
stipulates otherwise, the obligation of the banks issuing letters of credit are solidary
with that of the person or entity requesting for its issuance, the same being a direct,
primary, absolute and definite undertaking to pay the beneficiary upon the
presentation of the set of documents required therein.

The public respondent, therefore, exceeded his jurisdiction, in holding that he was
competent to act on the obligation of the banks under the Letter of Credit under the
argument that this was not a solidary obligation with that of the debtor. Being a
solidary obligation, the letter of credit is excluded from the jurisdiction of the
rehabilitation court and therefore in enjoining petitioner from proceeding against
the Standby Letters of Credit to which it had a clear right under the law and the
terms of said Standby Letter of Credit, public respondent acted in excess of his
jurisdiction.

NOTES:

We held in Feati Bank & Trust Company v. Court of Appeals that the concept of
guarantee visvis the concept of an irrevocable letter of credit are inconsistent with
each other.The guarantee theory destroys the independence of the banks
responsibility from the contract upon which it was opened and the nature of both
contracts is mutually in conflict with each other. In contracts of guarantee, the
guarantors obligation is merely collateral and it arises only upon the default of the
person primarily liable. On the other hand, in an irrevocable letter of credit, the
bank undertakes a primary obligation. We have also defined a letter of credit as an
engagement by a bank or other person made at the request of a customer that the
issuer shall honor drafts or other demands of payment upon compliance with the
conditions specified in the credit.
[G.R. NO. 117913. February 1, 2002]
CHARLES LEE, CHUA SIOK SUY, MARIANO SIO, ALFONSO YAP, RICHARD VELASCO and
ALFONSO CO, petitioners, vs. COURT OF APPEALS and PHILIPPINE BANK OF
COMMUNICATIONS, respondents.
Facts:
On March 2, 1979, Charles Lee, as President of MICO wrote private respondent Philippine Bank of
Communications (PBCom) requesting for a grant of a discounting loan/credit line in the sum of Three
Million Pesos (P3,000,000.00) for the purpose of carrying out MICOs line of business as well as to
maintain its volume of business.
On the same day, Charles Lee requested for another discounting loan/credit line of Three Million Pesos
(P3,000,000.00) from PBCom for the purpose of opening letters of credit and trust receipts.
As per agreement, the proceeds of all the loan availments were credited to MICOs current checking
account with PBCom. To induce the PBCom to increase the credit line of MICO, petitioners executed
another surety agreement in favor of PBCom on July 28, 1980, whereby they jointly and severally
guaranteed the prompt payment on due dates or at maturity of overdrafts, promissory notes, discounts,
drafts, letters of credit, bills of exchange, trust receipts and all other obligations of any kind and nature for
which MICO may be held accountable by PBCom
Upon maturity of all credit availments obtained by MICO from PBCom, the latter made a demand for
payment. Private respondent PBCom extrajudicially foreclosed MICOs real estate mortgage upon
repeated demands & emerged as the highest bidder. For the unpaid balance, PBCom then demanded the
settlement of the aforesaid obligations from herein petitioners-sureties who, however, refused to
acknowledge their obligations to PBCom under the surety agreements. Hence, PBCom filed a complaint
with prayer for writ of preliminary attachment before the Regional Trial Court of Manila.
Petitioners (MICO and herein petitioners-sureties) denied all the allegations of the complaint filed by
respondent PBCom, and alleged that: a) MICO was not granted the alleged loans and neither did it
receive the proceeds of the aforesaid loans; b) Chua Siok Suy was never granted any valid Board
Resolution to sign for and in behalf of MICO; c) PBCom acted in bad faith in granting the alleged loans
and in releasing the proceeds thereof; d) petitioners were never advised of the alleged grant of loans and
the subsequent releases therefor, if any; e) since no loan was ever released to or received by MICO, the

corresponding real estate mortgage and the surety agreements signed concededly by the petitionerssureties are null and void.
Issue: WON the proceeds of the loans or the goods under the trust receipts were ever delivered to and
received by MICO.
Held: It is clear that letters of credit, being usually bank to bank transactions, involve more than just one
bank. Consequently, there is nothing unusual in the fact that the drafts presented in evidence by
respondent bank were not made payable to PBCom.
A trust receipt is considered as a security transaction intended to aid in financing importers and retail
dealers who do not have sufficient funds or resources to finance the importation or purchase of
merchandise, and who may not be able to acquire credit except through utilization, as collateral of the
merchandise imported or purchased.
A trust receipt, therefor, is a document of security pursuant to which a bank acquires a security interest
in the goods under trust receipt. Under a letter of credit-trust receipt arrangement, a bank extends a loan
covered by a letter of credit, with the trust receipt as a security for the loan. The transaction involves a
loan feature represented by a letter of credit, and a security feature which is in the covering trust receipt
which secures an indebtedness

ransfield Philippines vs Luzon Hydro Electric Corp.

(GR No 146717, Nov 22, 2004, Tinga)

Transfield entered into a turn-key contract with Luzon Hydro Corp. (LHC). Under the
contract, Transfield were to construct a hydro-electric plants in Benguet and Ilocos.
The contract provides for a period for which the project is to be completed and also
allows for the extension of the period provided that the extension is based on
justifiable grounds such as fortuitous event. In order to guarantee performance by
Transfield, two stand-by letters of credit were required to be opened. During the
construction of the plant, Transfield requested for extension of time citing fortuitous
events brought about by typhoon, barricades and demonstration. LHC did not give
due course to the extension of the period prayed for but referred the matter to
arbitration committee.

In the meanwhile, because of the delay in the construction of the plant, LHC called
on the stand-by letters of credit because of default. However, the demand was
objected by Transfield on the ground that there is still pending arbitration on their
request for extension of time. LHC invoked the independence principle. On the
other hand, Transfield claims fraud on the part of LHC on calling the stand-by letters
of credit.

Under the independence principle, a LC accommodation is entirely distinct and

separate, independent agreement. It is not supposed to be affected by the main
contract upon which it rests.

The court held for the LHC. Following the independence principle, even granting
that there is still issue to be resolved arising from the turn-key project. This issue is
not supposed to affect the obligation of the bank to pay the letter of credit in
question. The court stressed that a LC accommodation is intended to benefit not
only the beneficiary therein but the applicant thereon. On the issue of fraud, the SC
held that there is nothing in the turn-key contract which states that all issues
between the parties must be resolved first before LHC can call on the stand-by LC
but the contract provides that if Transfield defaults, then LHC can call on these
stand-by LC.

Trust Receipt Law

DBP vs Prudential
Litex could not have subjected the goods under the trust receipt to a chattel
mortgage. Thus, the inclusion in the mortgage was void and had no legal effect.
There being no valid mortgage, there could also be no valid foreclosure or valid
auction sale. Thus, DBP could not be considered either as a mortgagee or as a
purchaser in good faith

Facts: Lirag Textile Mills, Inc. (Litex) opened an irrevocable commercial letter of
credit with respondent Prudential Bank for US$498,000. This was in connection with
its importation of 5,000 spindles for spinning machinery with drawing frame,
simplex fly frame, ring spinning frame and various accessories, spare parts and tool
gauge. These were released to Litex under covering trust receipts it executed in
favor of Prudential Bank. Litex installed and used the items in its textile mill located
in Montalban, Rizal. 9 years later, DBP granted a foreign currency loan in the
amount of US$4,807,551 to Litex. To secure the loan, Litex executed real estate and
chattel mortgages on its plant site in Montalban, Rizal, including the buildings and
other improvements, machineries and equipments there. Among the machineries
and equipments mortgaged in favor of DBP were the articles covered by the trust
receipts. Sometime in June 1982, Prudential Bank learned about DBPs plan for
the overall rehabilitation of Litex. In a July 14, 1982 letter, Prudential Bank notified
DBP of its claim over the various items covered by the trust receipts which had
been installed and used by Litex in the textile mill. Prudential Bank informed DBP
that it was the absolute and juridical owner of the said items and they were thus not
part of the mortgaged assets that could be legally ceded to DBP. For the failure of
Litex to pay its obligation, DBP extra-judicially foreclosed on the real estate and
chattel mortgages, including the articles claimed by Prudential Bank. During the

foreclosure sale held on April 19, 1983, DBP acquired the foreclosed properties as
the highest bidder.
Learning of the intended public auction, Prudential Bank wrote
a letter dated September 6, 1984 to DBP reasserting its claim over the items
covered by trust receipts in its name and advising DBP not to include them in the
auction. It also demanded the turn-over of the articles or alternatively, the payment
of their value.

Issue: Whether or not the chattel mortgage covers the goods under the trust receipt

Held: No. Article 2085 (2) of the Civil Code requires that, in a contract of pledge or
mortgage, it is essential that the pledgor or mortgagor should be the absolute
owner of the things pledged or mortgaged. Article 2085 (3) further mandates that
the person constituting the pledge or mortgage must have the free disposal of his
property, and in the absence thereof, that he be legally authorized for the purpose.
Litex had neither absolute ownership, free disposal nor the authority to freely
dispose of the articles. Litex could not have subjected them to a chattel mortgage.
Their inclusion in the mortgage was void and had no legal effect. There being no
valid mortgage, there could also be no valid foreclosure or valid auction sale. Thus,
DBP could not be considered either as a mortgagee or as a purchaser in good faith.

No one can transfer a right to another greater than what he himself has. Nemo dat
quod non habet. Hence, Litex could not transfer a right that it did not have over the
disputed items. Corollarily, DBP could not acquire a right greater than what its
predecessor-in-interest had. The spring cannot rise higher than its source. DBP
merely stepped into the shoes of Litex as trustee of the imported articles with an
obligation to pay their value or to return them on Prudential Banks demand. By its
failure to pay or return them despite Prudential Banks repeated demands and by
selling them to Lyon without Prudential Banks knowledge and conformity, DBP
became a trustee ex maleficio. As a consequence of the release of the goods and
the execution of the trust receipt, a two-fold obligation is imposed on the entrustee,
namely: (1) to hold the designated goods, documents or instruments in trust for the
purpose of selling or otherwise disposing of them and (2) to turn over to the
entruster either the proceeds thereof to the extent of the amount owing to the
entruster or as appears in the trust receipt, or the goods, documents or instruments
themselves if they are unsold or not otherwise disposed of, in accordance with the
terms and conditions specified in the trust receipt. In the case of goods, they may
also be released for other purposes substantially equivalent to (a) their sale or the
procurement of their sale; or (b) their manufacture or processing with the purpose
of ultimate sale, in which case the entruster retains his title over the said goods
whether in their original or processed form until the entrustee has complied fully
with his obligation under the trust receipt; or (c) the loading, unloading, shipment or
transshipment or otherwise dealing with them in a manner preliminary or necessary
to their sale. Thus, in a trust receipt transaction, the release of the goods to the

entrustee, on his execution of a trust receipt, is essentially for the purpose of their
sale or is necessarily connected with their ultimate or subsequent sale.
Landl & Co. vs Metrobank

The possession by the bank of the goods under the trust receipts does
not bar collection of the loan. Mere possession does not amount to
foreclosure for foreclosure denotes the procedure adopted by the
mortgagee to terminate the rights of the mortgagor on the property
and includes the sale itself. Neither can said repossession amount to
dacion en pago. Dation in payment takes place when property is
alienated to the creditor in satisfaction of a debt in money and the
same is governed by sales. Dation in payment is the delivery and
transmission of ownership of a thing by the debtor to the creditor as
an accepted equivalent of the performance of the obligation.
Facts: Landl Co opened Commercial Letter of Credit No. 4998 with respondent bank, in the
amount of US$19,606.77, which was equivalent to P218,733.92 in Philippine currency at
the time the transaction was consummated. The letter of credit was opened to purchase
various welding rods and electrodes from Perma Alloys, Inc., New York, U.S.A., As an
additional security, and as a condition for the approval of petitioner corporations application
for the opening of the commercial letter of credit, respondent bank required petitioners
Percival G. Llaban and Manuel P. Lucente to execute a Continuing Suretyship Agreement to
the extent of P400,000.00.
Upon arrival of the goods in the Philippines, petitioner corporation took possession and
custody thereof. On the maturity date of the trust receipt, petitioner corporation defaulted in
the payment of its obligation to respondent bank and failed to turn over the goods to the
latter. The goods were sold for P30,000.00 to respondent bank as the highest bidder. The
proceeds of the auction sale were insufficient to completely satisfy petitioners outstanding
obligation to respondent bank, notwithstanding the application of the time deposit account of
petitioner Lucente. Accordingly, respondent bank demanded that petitioners pay the
remaining balance of their obligation. After petitioners failed to do so, respondent bank
instituted the instant case to collect the said deficiency.
Issue: Whether or not possession by the bank of the goods under the trust receipts does not
bar collection of the loan.

Held: The initial repossession by the bank of the goods subject of the trust receipt did not
result in the full satisfaction of the petitioners loan obligation. Petitioners are apparently
laboring under the mistaken impression that the full turn-over of the goods suffices to divest
them of their obligation to repay the principal amount of their loan obligation. The
entrustees possession of the subject machinery and equipment being precisely as a form of
security for the advances given to TCC under the Letter of Credit, said possession by itself
cannot be considered payment of the loan secured thereby. Payment would legally result
only after PNB had foreclosed on said securities, sold the same and applied the proceeds
thereof to TCCs loan obligation. Mere possession does not amount to foreclosure for
foreclosure denotes the procedure adopted by the mortgagee to terminate the rights of the
mortgagor on the property and includes the sale itself. Neither can said repossession
amount to dacion en pago. Dation in payment takes place when property is alienated to the
creditor in satisfaction of a debt in money and the same is governed by sales. Dation in
payment is the delivery and transmission of ownership of a thing by the debtor to the
creditor as an accepted equivalent of the performance of the obligation.
A trust receipt is inextricably linked with the primary agreement between the parties. Time
and again, we have emphasized that a trust receipt agreement is merely a collateral
agreement, the purpose of which is to serve as security for a loan. Thus, in Abad v. Court of
Appeals, we ruled: A letter of credit-trust receipt arrangement is endowed with its own
distinctive features and characteristics. Under that set-up, a bank extends a loan covered by
the letter of credit, with the trust receipt as security for the loan. In other words, the
transaction involves a loan feature represented by the letter of credit, and a security feature
which is in the covering trust receipt. x x x. A trust receipt, therefore, is a security
agreement, pursuant to which a bank acquires a security interest in the goods. It secures
an indebtedness and there can be no such thing as security interest that secures no
obligation. The Trust Receipts Law was enacted to safeguard commercial transactions and
to offer an additional layer of security to the lending bank. Trust receipts are indispensable
contracts in international and domestic business transactions. The prevalent use of trust
receipts, the danger of their misuse and/or misappropriation of the goods or proceeds
realized from the sale of goods, documents or instruments held in trust for entruster banks,
and the need for regulation of trust receipt transactions to safeguard the rights and enforce
the obligations of the parties involved are the main thrusts of the Trust Receipts Law
Ng vs People

In Ng v. People, Anthony Ng, then engaged in the business of building and

fabricating telecommunication towers, applied for a credit line of PhP 3,000,000
with Asiatrust Development Bank, Inc. Prior to the approval of the loan, Anthony Ng
informed Asiatrust that the proceeds would be used for purchasing construction
materials necessary for the completion of several steel towers he was
commissioned to build by several telecommunication companies. Asiatrust
approved the loan but required Anthony Ng to sign a trust receipt agreement. When
Anthony Ng failed to pay the loan, Asiatrust filed a criminal case for Estafa in
relation to PD 115 or the Trust Receipts Law. This Court acquitted Anthony Ng and
ruled that the Trust Receipts Law was created to to aid in financing importers and
retail dealers who do not have sufficient funds or resources to finance the
importation or purchase of merchandise, and who may not be able to acquire credit
except through utilization, as collateral, of the merchandise imported or purchased.
Since Asiatrust knew that Anthony Ng was neither an importer nor retail dealer, it
should have known that the said agreement could not possibly apply to petitioner,
viz:

The true nature of a trust receipt transaction can be found in the whereas clause
of PD 115 which states that a trust receipt is to be utilized as a convenient
business device to assist importers and merchants solve their financing problems.
Obviously, the State, in enacting the law, sought to find a way to assist importers
and merchants in their financing in order to encourage commerce in the Philippines.

[A] trust receipt is considered a security transaction intended to aid in financing

importers and retail dealers who do not have sufficient funds or resources to finance
the importation or purchase of merchandise, and who may not be able to acquire
credit except through utilization, as collateral, of the merchandise imported or
purchased. Similarly, American Jurisprudence demonstrates that trust receipt
transactions always refer to a method of financing importations or financing sales.
The principle is of course not limited in its application to financing importations,
since the principle is equally applicable to domestic transactions. Regardless of
whether the transaction is foreign or domestic, it is important to note that the
transactions discussed in relation to trust receipts mainly involved sales.

Following the precept of the law, such transactions affect situations wherein the
entruster, who owns or holds absolute title or security interests over specified
goods, documents or instruments, releases the subject goods to the possession of
the entrustee. The release of such goods to the entrustee is conditioned upon his
execution and delivery to the entruster of a trust receipt wherein the former binds
himself to hold the specific goods, documents or instruments in trust for the
entruster and to sell or otherwise dispose of the goods, documents or instruments
with the obligation to turn over to the entruster the proceeds to the extent of the
amount owing to the entruster or the goods, documents or instruments themselves

if they are unsold. x x x [T]he entruster is entitled only to the proceeds derived
from the sale of goods released under a trust receipt to the entrustee.

Considering that the goods in this case were never intended for sale but for use in
the fabrication of steel communication towers, the trial court erred in ruling that the
agreement is a trust receipt transaction.
Chattel Mortgage Law
Union Bank vs Juniat
JUNIAT EXECUTED A CHATTEL MORTGAGE IN FAVOR OF UNION BANK COVERING
SEWING MACHINES AND OTHER EQUIPMENT FOR AND ON BEHALF OF WINWOOD
AND WINGYAN. JUNIAT ET AL DID NOT PAY SUBJECT LOAN. UNION BANK SUED THEM
FOR SUM OF MONEY AND MOVED TO ATTACH THE SEWING MACHINES AND
EQUIPMENT. THE MACHINES AND EQUIPMENT WERE IN THE POSSESSION OF
NONWOVEN. COURT ISSUED SUMMONS TO NONWOVEN. NONWOVEN ARGUED THAT
IT HAS A BETTER RIGHT TO THE MACHINES AND EQUIPMENT BECAUSE JUNIAT
EXECUTED DACION EN PAGO IN THEIR FAVOR. THEY THEFORE HOLD THE MACHINES
AS OWNER WHILE PETITIONER HOLDS THE MACHINES ONLY AS MORTGAGEE.
NONWOVEN PRESENTED A DOCUMENT WHERE JUNIAT PLEGED THE MACHINES TO
NONWOVEN TO SECURE AN OBLIGATION. WHO HAS A BETTER RIGHT TO THE
MACHINES AND EQUPMENT?

UNION BANK HAS A BETTER RIGHT. NONWOVEN FAILED TO PROVE THAT THERE WAS
DACION EN PAGO. THE DOCUMENT EXECUTED BY JUNIAT APPEARS TO BE AN
UNNOTARIZED PLEDGE. IN CASE OF DOUBT WHETHER A DEED IS A SALE OR A
PLEDGE, THE DEED IS DEEMED A PLEDGE. SINCE THE PLEDGE WAS NOT NOTARIZED
IT CANNOT BIND THIRD PARTIES.

A perusal of the Agreement dated May 9, 1992 clearly shows that the sewing
machines, snap machines and boilers were pledged to Nonwoven by Juniat to
guarantee his obligation. However, under Article 2096 of the Civil Code, [a] pledge
shall not take effect against third persons if a description of the thing pledged and
the date of the pledge do not appear in a public instrument. Hence, just like the
chattel mortgage executed in favor of petitioner, the pledge executed by Juniat in
favor of Nonwoven cannot bind petitioner.

Neither can we sustain the finding of the CA that: The machineries were ceded to
THIRD PARTY NONWOVEN by way of dacion en pago, a contract later entered into by

WINWOOD/WINGYAN and THIRD PARTY NONWOVEN.[1][53] As aptly pointed out by

petitioner, no evidence was presented by Nonwoven to show that the attached
properties were subsequently sold to it by way of a dacion en pago. Also, there is
nothing in the Agreement dated May 9, 1992 to indicate that the motorized sewing
machines, snap machines and boilers were ceded to Nonwoven as payment for the
Wingyans and Winwoods obligation. It bears stressing that there can be no
transfer of ownership if the delivery of the property to the creditor is by way of
security.[2][54] In fact, in case of doubt as to whether a transaction is one of pledge
or dacion en pago, the presumption is that it is a pledge as this involves a lesser
transmission of rights and interests.[3][55]
Acme Shoe Rubber vs CA
FACTS:
Petitioner Chua Pac, the president and general manager of co-petitioner Acme
executed a chattel mortgage in favor of private respondent Producers Bank as a
security for a loan of P3,000,000. A provision in the chattel mortgage agreement
was to this effect:

"In case the MORTGAGOR executes subsequent promissory note or notes either as a
renewal of the former note, as an extension thereof, or as a new loan, or is given
any other kind of accommodations such as overdrafts, letters of credit, acceptances
and bills of exchange, releases of import shipments on Trust Receipts, etc., this
mortgage shall also stand as security for the payment of the said promissory note
or notes and/or accommodations without the necessity of executing a new contract
and this mortgage shall have the same force and effect as if the said promissory
note or notes and/or accommodations were existing on the date thereof. This
mortgage shall also stand as security for said obligations and any and all other
obligations of the MORTGAGOR to the MORTGAGEE of whatever kind and nature,
whether such obligations have been contracted before, during or after the
constitution of this mortgage."

In due time, the loan of P3,000,000.00 was paid. Subsequently it obtained additional
loan totalling P2,700,000.00 which was also duly paid.

Another loan was again extended (P1,000,000.00) covered by four promissory notes
for P250,000.00 each, but went unsettled prompting the bank to apply for an
extrajudicial foreclosure with the Sheriff.

ISSUE:
Would it be valid and effective to have a clause in a chattel mortgage that purports
to likewise extend its coverage to obligations yet to be contracted or incurred?

HELD:
No. While a pledge, real estate mortgage, or antichresis may exceptionally secure
after-incurred obligations so long as these future debts are accurately described, a
chattel mortgage, however, can only cover obligations existing at the time the
mortgage is constituted. Although a promise expressed in a chattel mortgage to
include debts that are yet to be contracted can be a binding commitment that can
be compelled upon, the security itself, however, does not come into existence or
arise until after a chattel mortgage agreement covering the newly contracted debt
is executed either by concluding a fresh chattel mortgage or by amending the old
contract conformably with the form prescribed by the Chattel Mortgage Law. Refusal
on the part of the borrower to execute the agreement so as to cover the afterincurred obligation can constitute an act of default on the part of the borrower of
the financing agreement whereon the promise is written but, of course, the remedy
of foreclosure can only cover the debts extant at the time of constitution and during
the life of the chattel mortgage sought to be foreclosed.

Servicewide vs CA
SERVICEWIDE SPECIALISTS VS. CA
318 SCRA 493 (1999)
Facts: D purchased on credit a vehicle from P evidenced by a promissory note to be paid on
installments, secured by a chattel mortgage over the vehicle. D failed to pay so P demanded
possession of vehicle. A, who bought the vehicle from another 3rd party, filed 3rd a party claim
contending absolute ownership over the property.
Issue: Whether the case for replevin may be pursued against A, a third party, without
impleading the absconding-mortgagor, D.
Held: Not in this case. Rules 60 requires that an applicant shows that he is the owner of the
property claimed, particularly describing it, or is entitled to the possession. Where the right of
the plaintiff to the possession of the specified property is so evident, the action need only be
maintained against him who has possession.
Thus, in default of the mortgagor, the mortgages is thereby constituted as attorney-infact of the mortgagor, enabling such mortgagee to act for and in behalf of the owner. That the
3rd party is not privy to the chattel mortagage should be inconsequential. By the fact the object of
replevin is traced to his possession, one properly can be a defendant in an action for replevin. It
is here assumed that plaintiffs right to possession is not and cannot be disputed. But if the right
to possession of plaintiff is put to great doubt, it could be essential to have other persons
involved and impleaded for a complete determination and resolution of the controversy. In a suit
for replevin, a clear right of possession must be established. Since the mortgagees right of

possession is conditioned upon the actual fact of default which itself may be controverted, the
inclusion of other parties, like the debtor or the mortgagor himself, may be required to allow full
and conclusive determination of the case.
The debtor in this case, being an indispensable party should have been impleaded. An
indispensable party is one whose interest will be affected by the courts action and without
whom no final determination of the case can be had.
REAL ESTATE MORTGAGE
FORTUNE MOTORS vs. METRO BANK
Fortune Motors obtained loans in different dates from the Metropolitan Bank and
Trust company Metrobank consolidated the loans of P8 Million and P3 Million into
one promissory note, which amounted toP12,650,000.00. This included the interest
that had accrued thereon. To secure the obligation in the total amount of
P34,150,000.00, petitioner mortgaged certain real estate in favor of respondent
bank. Due to financial constraints, petitioner failed to pay the loan upon maturity.
Consequently on May 25, 1984, respondent bank initiated extrajudicial foreclosure
proceedings and in effect, foreclosed the real estate mortgage. The extrajudicial
foreclosure was actually conducted by Senior Deputy Sheriff Pablo Y. Sy who had
sent copies of the Notice of Extrajudicial Sale to the opposing parties by registered
mail. In accordance with law, he posted copies of the Notice of Sheriffs Sale at
three conspicuous public places in Makati 1. the office of the Sheriff, 2. the
Assessors office 3. and the Register of Deeds in Makati. He thereafter executed
the Certificates of Posting on May 20, 1984. The said notice was in fact published
on June 2, 9 and 16, 1984 in three issues of The New Record. An affidavit of
publication, dated June 19, 1984,[2] was executed by Teddy F. Borres, publisher of
the said newspaper. Subsequently, the mortgaged property was sold at public
auction for P47,899,264.91 to the mortgagee bank, the highest bidder. Petitioner
failed to redeem the mortgaged property within the one-year redemption period and
so, the titles thereto were consolidated in the name of respondent bank by which
token the latter was entitled to the possession of the property mortgaged and, in
fact possessed the same. Petitioner then filed a complaint for the annulment of the
extrajudicial foreclosure.
RTC DECISION: the trial court rendered judgment annulling the extrajudicial
foreclosure of the mortgage. CA DECISION: reversed the decision rendered by the
lower court. Subsequently, the motion for Reconsideration filed by petitioner was
denied on April 26, 1994. RULING 1. YES. Publication in a newspaper of general
circulation was satisfied. a. Whether it is a NEWSPAPER OF GENERAL CIRCULATION.
To be a newspaper of general circulation, it is enough that it is published for the
dissemination of local news and general information; that it has a bona fide
subscription list of paying subscribers; that it is published at regular intervals.
(Basa v. Mercado, 61 Phil. 632). The newspaper need not have the largest
circulation so long as it is of general circulation. (Banta v. Pacheco, 74 Phil. 67). In
the case at bench, there was sufficient compliance with the requirements of the law
regarding publication of the notice in a newspaper of general circulation. This is

evidenced by the affidavit of publication executed by the New Records publisher,

Teddy F. Borres, which stated that it is a newspaper edited in Manila and Quezon
City and of general circulation in the cities of Manila, Quezon City et al., and in the
Provinces of Rizal xxx, published every Saturday by the Daily Record, Inc. This was
affirmed by Pedro Deyto, who was the executive editor of the said newspaper and
who was a witness for petitioner. b. whether or not it is valid to plublish the notice
in QC and not in Makati. YES! In 1984, when the publishers affidavit relied upon by
petitioner was executed, Makati, Mandaluyong, San Juan, Paraaque et. al., were
still part of the province of Rizal. Apparently, this is the reason why in the New
Records affidavit of publication executed by its publisher, the enumeration of the
places where it was being circulated, only the cities of Manila, Quezon, Caloocan,
Pasay, Tagaytay, et. al., were named. Furthermore, as aptly ratiocinated by the
Court of Appeals: For what is important is that a paper should be in general
circulation in the place where the properties to be foreclosed are located in order
that publication may serve the purpose for which it was intended.[10]

Petitioner also claims that the New Record is not a daily newspaper because it is
published only once a week. A perusal of Presidential Decree (P.D.) No. 1079 and Act
3135 shows that the said laws do not require that the newspaper which publishes
judicial notices should be a daily newspaper. Under P.D. 1079, for a newspaper to
qualify, it is enough that it be a newspaper or periodical which is authorized by law
to publish and which is regularly published for at least one (1) year before the date
of publication which requirement was satisfied by New Record. Nor is there a
requirement, as stated in the said law, that the newspaper should have the largest
circulation in the place of publication. 2. EXECUTIVE JUDGE CAUSED THE
PUBLICATION. Whether or not the extrajudicial foreclosure should be annulled since
it was the executive Judge who caused the publication of the notice of the sale and
not the sheriff. NO, because Sec. 2 of P.D. No. 1079 clearly provides that: The
executive judge of the court of first instance shall designate a regular working day
and a definite time each week during which the said judicial notices or
advertisements shall be distributed personally by him[11] for publication to
qualified newspapers or periodicals xxx, which distribution shall be done by raffle.
The said provision of the law is clear as to who should personally distribute the
judicial notices or advertisements to qualified newspapers for publication. There
was a substantial compliance with the requirements when it was the Executive
Judge of the Regional Trial Court of Makati who caused the publication of the said
notice by the newspaper selected by means of raffle. 3. PUBLICATION IS ENOUGH
AND NOT PERSONAL NOTICE: Whether or not the petitioner did not personally
receive the notices of extrajudicial foreclosure and sale supposedly sent to it by
Metrobank. NO! Settled is the rule that personal notice to the mortgagor in
extrajudicial foreclosure proceedings is not necessary. Section 3 of Act No. 3135
governing extrajudicial foreclosure of real estate mortgages, as amended by Act No.
4118,
requires only the posting of the notice of sale in three public places and the
publication of that notice in a newspaper of general circulation. It is pristine clear

from the above provision that the lack of personal notice to the mortgagor, herein
petitioner, is not a ground to set aside the foreclosure sale.[12] 4. LOCATION
Petitioner also claims that it had transferred to a different location but the notice
was sent to its old address. Petitioner failed to notify respondent of its supposed
change of address. Needless to say, it can be surmised that respondent had sent
the notice to petitioners official address. 5. NOT LESS THAN THREE PUBLIC PLACES:
Whether or not the posting of the notices of sale by the Sheriff in the Office of the
Sheriff, Office of the Assessor and the Register of Deeds are not the conspicuous
public places required by law. Furthermore, it also questions the non-posting of the
notice of sale on the property itself which was to be sold. NO! Act 3135 does not
require posting of the notice of sale on the mortgaged property. Section 3 of the
said law merely requires that the notice of the sale be posted for not less than
twenty days in at least three public places of the municipality or city where the
property is situated. The aforementioned places, to wit: the Sheriffs Office, the
Assessors Office and the Register of Deeds are certainly the public places
contemplated by law, as these are places where people interested in purchasing
real estate congregate.
GC Dalton vs Equitable PCI bank
GC DALTON INDUSTRIES, INC., vs. EQUITABLE PCI BANK
FACTS: Equitable PCI Bank extended a P30-million credit line to Camden Industries,
Inc. (CII) allowing the latter to avail of several loans (covered by promissory notes)
and to purchase trust receipts.
To facilitate collection, CII executed a hold-out agreement in favor of respondent
authorizing it to deduct from its savings account any amounts due.

To guarantee payment, petitioner GC Dalton Industries, Inc. executed a third-party

mortgage of its real properties in Quezon City and Malolos, Bulacan] as security for
CIIs loans.
CII did not pay its obligations despite respondents demands. Consequently,
respondent filed a petition for extrajudicial foreclosure of petitioners Bulacan
properties in RTC of Bulacan.
On August 3, 2004, the mortgaged properties were sold at a public auction where
respondent was declared the highest bidder. Consequently, a certificate of sale[6]
was issued in respondents favor on August 3, 2004.
Thereafter respondent filed the certificate of sale and an affidavit of consolidation of
ownership in the Register of Deeds of Bulacan pursuant to Section 47 of the
General Banking Law.[Hence, petitioners TCTs covering the Bulacan properties were
cancelled and new ones were issued in the name of respondent.
Respondent filed an ex parte motion for the issuance of a writ of possession] in the
RTC Bulacan.

Previously, however, CII had filed an action for specific performance and damages
in the RTC of Pasig, asserting that it had allegedly paid its obligation in full to
respondent.
CII sought to compel respondent to render an accounting in order to prove that the
bank fraudulently foreclosed on petitioners mortgaged properties.
Because respondent allegedly failed to appear during the trial, the Pasig RTC
rendered a decision based on the evidence presented by CII. It found that, while
CIIs past due obligation amounted only to P14,426,485.66 as of November 30,
2002, respondent had deducted a total of P108,563,388.06 from CIIs savings
account.
Respondent filed a notice of appeal. CII, on the other hand, moved for the
immediate entry and execution of the abovementioned decision.
Pasig RTC DECISION: dismissed respondents notice of appeal due to its failure to
pay the appellate docket fees. It likewise found respondent guilty of forum-shopping
for filing the petition for the issuance of a writ of possession in the Bulacan RTC.
Thus, the Pasig RTC ordered the immediate entry of its March 30, 2005 decision.
Meanwhile, in view of the pending case in the Pasig RTC, petitioner opposed
respondents ex parte motion for the issuance of a writ of possession in the Bulacan
RTC. It claimed that respondent was guilty of fraud and forum-shopping, and that it
was not informed of the foreclosure.
Furthermore, respondent fraudulently foreclosed on the properties since the Pasig
RTC had not yet determined whether CII indeed failed to pay its obligations.
Thereafter Bulacan RTC granted the motion and a writ of possession was issued in
respondents favor on December 19, 2005.
Petitioner immediately assailed the order of the Bulacan RT. It claimed that the
order violated Section 14, Article VIII of the Constitution[17] which requires that
every decision must clearly and distinctly state its factual and legal bases.
CA dismissed the petition for lack of merit on the ground that an order involving the
issuance of a writ of possession is not a judgment on the merits, hence, not covered
by the requirement of Section 14, Article VIII of the Constitution.
ISSUES: 1. Petitioner likewise cites the conflict between the order of the Bulacan
RTC and order the Pasig RTC. Petitioner claims that, since the Pasig RTC already
ordered the entry of its March 30, 2005 decision (in turn ordering respondent to
return TCT No. 351231 and all such other owners documents of title as may have
been placed in its possession by virtue of the subject trust receipt and loan
transactions), the same was already final and executory. Thus, inasmuch as CII had
supposedly paid respondent in full, it was erroneous for the

Bulacan RTC to order the issuance of a writ of possession to respondent.

Respondent, on the other hand, asserts that petitioner is raising a question of fact
as it essentially assails the propriety of the issuance of the writ of possession. It
likewise points out that petitioner did not truthfully disclose the status of the March
30, 2005 decision of the Pasig RTC because, in an order dated April 4, 2006, the
Pasig RTC partially reconsidered its December 7, 2005 order and gave due course to
respondents notice of appeal. (The propriety of the said April 4, 2006 order is still
pending review in the CA.)
RULINGS: Denied Petition
1. The issuance of a writ of possession to a purchaser in an extrajudicial foreclosure
is summary and ministerial in nature as such proceeding is merely an incident in the
transfer of title.
The trial court does not exercise discretion in the issuance thereof. For this reason,
an order for the issuance of a writ of possession is not the judgment on the merits
contemplated by Section 14, Article VIII of the Constitution.
2. The mortgagor loses all legal interest over the foreclosed property after the
expiration of the redemption period.
Under Section 47 of the General Banking Law, if the mortgagor is a juridical person,
it can exercise the right to redeem the foreclosed property until, but not after, the
registration of the certificate of foreclosure sale within three months after
foreclosure, whichever is earlier. Thereafter, such mortgagor loses its right of
redemption.
Respondent filed the certificate of sale and affidavit of consolidation with the
Register of Deeds of Bulacan on September 13, 2004. This terminated the
redemption period granted by Section 47 of the General Banking Law. Because
consolidation of title becomes a right upon the expiration of the redemption period,
[23] respondent became the
owner of the foreclosed properties.[24]Therefore, when petitioner opposed the ex
parte motion for the issuance of the writ of possession on January 10, 2005 in the
Bulacan RTC, it no longer had any legal interest in the Bulacan properties.
Nevertheless, even if the ownership of the Bulacan properties had already been
consolidated in the name of respondent, petitioner still had, and could have availed
of, the remedy provided in Section 8 of Act 3135.
It could have filed a petition to annul the auction sale and to cancel the writ of
possession within 30 days after respondent was given possession. But it did not.
Thus, inasmuch as the 30-day period to avail of the said remedy had already lapsed,
petitioner could no longer assail the validity of the sale.
Any question regarding the validity of the mortgage or its foreclosure cannot be a
legal ground for the refusal to issue a writ of possession. Regardless of whether or
not there is a pending suit for the annulment of the mortgage or the foreclosure
itself, the purchaser is entitled to a writ of possession, without prejudice, of course,
to the eventual outcome of the pending annulment case[

Needless to say, petitioner committed a misstep by completely relying and pinning

all its hopes for relief on its complaint for specific performance and damages in the
Pasig RTC,[29] instead of resorting to the remedy of annulment (of the auction sale
and writ of possession) under Section 8 of Act 3135 in the Bulacan RTC.
DEVELOPMENT BANK OF THE PHILIPPINES vs. ENVIRONMENTAL AQUATICS,
INC., LAND SERVICES AND
MANAGEMENT ENTERPRISES

FACTS: Respondent Environmental Aquatics and Land Services and Management

Enterprises loaned P1,792,600 from petitioner .
As security for the loan, LSMEI
mortgaged to DBP its parcel of land situated in New Manila, Quezon City,

and covered by Transfer Certificate of Title. The mortgage contract stated that: If
at anytime the Mortgagor shall fail or refuse to pay any of the amortization on the
indebtedness, or the interest when due, or whatever other obligation herein secured
or to comply with any of the conditions and stipulations herein agreed, or shall
initiate insolvency proceedings or be declared involuntary insolvent (sic), or uses
the proceeds of the loan for purposes other than those specified herein then all the
amortizations and other obligations of the Mortgagor of any nature, shall become
due, payable and defaulted and the Mortgagee may immediately foreclose this
mortgage judicially or extrajudicially under Act No. 3135 as amended, or under
Republic Act No. 85, as amended and or under Act No. 1508 as amended. EAI and
LSMEI failed to pay the loan. Thus, DBP applied for extrajudicial foreclosure of the
real estate mortgage. During the 19 December 1990 public auction, the ex-officio
sheriff sold the property to DBP as the highest bidder for P1,507,000.
On 15 May 1991, LSMEI transferred its right to redeem the property to respondent
Mario Matute . In his 27 July 1991 letter, Atty. Julian R. Vitug, Jr. (Atty. Vitug, Jr.)
informed DBP that his client Matute was interested in redeeming the property by
paying the P1,507,000 purchase price, plus other costs.
In its 29 August 1991 letter, DBP informed Atty. Vitug, Jr. that Matute could redeem
the property by paying the remaining balance of EAI and LSMEI's loan. Thereafter,
EAI, LSMEI and Matute filed with the RTC a complaint praying that DBP be ordered
to accept x x x Matute's bonafide offer to redeem the foreclosed property. ISSUE
DBP raises as issues that the lower courts erred in finding that the bank chose Act
No. 3135 as the governing law for the extrajudicial foreclosure of the property,
including the determination of the redemption price, and in ruling that the
redemption price is equivalent to the P1,507,000 purchase price. The Court's Ruling
The petition is meritorious.
Section 16 of Executive Order (EO) No. 81
states that the redemption price for properties mortgaged to and foreclosed by DBP
is equivalent to the remaining balance of the loan. Section 16 states that, Any
mortgagor of the Bank whose property has been extrajudicially sold at public
auction shall x x x have the right to redeem the real property by paying to the Bank
all of the latter's claims against him, as determined by the Bank.
In

Development Bank of the Philippines v. West Negros College, Inc.,[23] the Court
held that the redemption price for properties mortgaged to and foreclosed by DBP is
equivalent to the remaining balance of the loan, with interest at the agreed rate.
The Court held that:
It has long been settled that where the real property is
mortgaged to and foreclosed judicially or extrajudicially by the Development Bank
of the Philippines, the right of redemption may be exercised only by paying to the
Bank all the amount he owed the latter on the date of the sale, with interest on the
total indebtedness at the rate agreed upon in the obligation from said date, unless
the bidder has taken material possession of the property or unless this had been
delivered to him, in which case the proceeds of the property shall compensate the
interest.
x x x
The foregoing rule is embodied consistently in the
charters of petitioner DBP and its predecessor agencies. Section 31 of CA 459
creating the Agricultural and Industrial Bank explicitly set the redemption price at
the total indebtedness plus contractual interest as of the date of the auction sale.
Under RA 85 the powers vested in and the duties conferred upon the Agricultural
and Industrial Bank by CA 459 as well as its capital, assets, accounts, contracts, and
choses in action were transferred to the Rehabilitation Finance Corporation. It has
been held that among the salutary provisions of CA 459 ceded to the Rehabilitation
Finance Corporation by RA 85 was Sec. 31 defining the manner of redeeming
properties mortgaged with the corporation. Subsequently, by virtue of RA 2081
(1958), the powers, assets, liabilities and personnel of the Rehabilitation Finance
Corporation under RA 85 and CA 459, particularly Sec. 31 thereof, were transferred
to petitioner DBP. Significantly, Sec. 31 of

CA 459 has been reenacted substantially in Sec. 16 of the present charter of the
DBP, i.e., EO 81 (1986) as amended by RA 8523 (1998).
x x x x
The unavoidable conclusion is that in redeeming the foreclosed property respondent
West Negros College as assignee of Bacolod Medical Center should pay the balance
of the amount owed by the latter to petitioner DBP with interest thereon at the rate
agreed upon as of the date of the public auction on 24 August 1989.[24] (Emphasis
supplied)
In Development Bank of the Philippines v. Mirang,[25] the Court
held that the redemption price for properties morgaged to and foreclosed by DBP is
equivalent to the remaining balance of the loan, with interest at the agreed rate.
The Court held that, The unavoidable conclusion is that the appellant, in
redeeming the foreclosed property, should pay the entire amount he owed to the
Bank on the date of the sale, with interest thereon at the rate agreed upon.[26]
As early as 1960, the Court has already settled the issue. In Nepomuceno, et al. v.
Rehabilitation Finance Corporation,[27]the Court held that the redemption price for
properties morgaged to and foreclosed by DBP is equivalent to the remaining
balance of the loan, with interest at the agreed rate. The Court held that:
The issue posed in this appeal is: considering that the loan of P300,000.00 was
obtained from the Rehabilitation Finance Corporation [now DBP] by spouses Jose
Nepomuceno and Isabela Acua and Jesus Nepomuceno merely acted as
accomodation mortgagor, for what price may the mortgagor redeem his property
after the same has been sold at public auction? Would it be for the price at which
the property was sold, as contended by the mortgagor, or for the balance of the

loan obtained by the borrowers from the banking institution, as contended by

appellant?
x x x x [T]he inescapable conclusion is that the mortgagor
herein or his assignees cannot redeem the property in dispute without paying the
balance of the total
indebtedness then outstanding on the date of the sale to the Rehabilitation Finance
Corporation.[28] (Emphasis supplied)
The lower courts ruled that the
redemption price for the property is equivalent to the P1,507,000 purchase price
because DBP chose Act No. 3135 as the governing law for the extrajudicial
foreclosure. The RTC and Court of Appeals, respectively, stated that:
When
defendant DBP foreclosed the mortgage at issue, it chose Act 3135. That was an
option it freely exercised without the least intervention of plaintiffs. We cannot,
therefore, escape the conclusion that what defendant DBP agreed to in respect to
(sic) the possible foreclosure of its mortgage was to subject the same to the
provisions of Act No. 3135, as amended, should the DBP opt to utilize said law.[29]
Thereunder given the choice of resorting to Act No. 3135 as amended, or Republic
Act No. 85 as amended, or Act No. 1508 as amended, appellant bank undoubtedly
opted for the first of the aforesaid laws as may be gleaned from the following prayer
it interposed in the application for foreclosure of mortgage it filed with the Ex-Officio
Sheriff of Quezon City on October 25, 1990.[30]
The Court disagrees.
Republic Act (RA) No. 85 and Act No. 1508 do not provide a procedure for
extrajudicial foreclosure of real estate mortgage. When DBP stated in its letter to
the ex- officio sheriff that the property be sold at public auction in accordance with
the provisions of Act 3135, it did so merely to find a proceeding for the sale.
In Development Bank of the Philippines v. Zaragoza,[31] Development Bank of the
Philippines v. Mirang,[32] andDevelopment Bank of the Philippines v. Jimenez, et al.,
[33] the Court held that when the bank resorted to Act No. 3135 in order to sell the
mortgaged property extrajudicially, it did so merely to find a proceeding for the
sale.
In its 10 October 2006 petition, DBP claims that when it resorted to Act
No. 3135 in order to sell the mortgaged property extrajudicially, it did so merely to
find a proceeding for the sale. DBP stated that:

[W]hen herein petitioner resorted to Act 3135 in its application for extrajudicial
foreclosure of the subject mortgaged real estate, it did so only to find a proceeding
for the extrajudicial sale. The Court of Appeals should have noted that neither
Republic Act No. 85 (the Charter of the Rehabilitation Finance Corporation) nor Act
1508 (Chattel Mortgage Law) prescribe a procedure for extrajudicial foreclosure of
real estate mortgage as provided under Act 3135. Such action, therefore, cannot be
construed to mean a waiver of petitioner's right to demand the payment of
respondents' entire obligation as the proper redemption price. There is no such
waiver on the part of the petitioner.
[I]t is hereby stressed that DBP did not elect Act 3135 to the exclusion of other laws
in the extrajudicial foreclosure of the subject mortgaged real property. Such a
conclusion is definitely contrary to law and jurisprudence, which settled the rule
that Act 3135 is the general law that governs the procedure and requirements in
extra-judicial foreclosure of real estate mortgage, but in determining the

redemption price of the property mortgaged to the Development Bank of the

Philippines, the DBP Charter shall prevail.
It is of judicial notice that Act
3135 is the only law governing the proceedings in extrajudicial foreclosure of real
estate mortgage. Act No. 1508, on the other hand, governs the extrajudicial
foreclosure of chattel mortgage, and should not be in issue in the instant case which
involves a real estate mortgage.
It should likewise be of judicial notice that
Republic Act No. 85 is the charter of the Rehabilitation Finance Corporation,
predecessor of appellant DBP. RA 85 prescribes the redemption price, not the
proceedings and requirements in an extrajudicial foreclosure of real estate
mortgage such as those found in Act 3135.
x x x When appellant DBP cited
Act 3135 in its Deed of Real Estate Mortgage or even in the application for
foreclosure of mortgage, it was not a matter of making an exclusive option or choice
because Act 3135 governs the procedure and requirements for an extrajudicial
foreclosure or real estate mortgage. In citing said law, Appellant DBP was merely
finding a proceeding for extra-judicial
foreclosure sale x x x. And while the said Act 3135 provides for redemption, such
provision will not apply in the determination of the redemption price on [sic]
mortgages to DBP. In the latter case, the DBP Charter will prevail.[34]
Even
assuming that DBP chose Act No. 3135 as the governing law for the extrajudicial
foreclosure, the redemption price would still be equvalent to the remaining balance
of the loan. EO No. 81, being a special and subsequent law, amended Act No. 3135
insofar as the as redemption price is concerned.
In Sy v. Court of Appeals,
[35] the Court held that RA No. 337 amended Act No. 3135 insofar as the
redemption price is concerned. The Court held that: [T]he General Banking Act
partakes of the nature of an amendment to Act No. 3135 insofar as the redemption
price is concerned, when the mortgagee is a bank or banking or credit institution,
Section 6 of Act No. 3135 being, in this respect, inconsistent with Section 78 of the
General Banking Act. Although foreclosure and sale of the subject property was
done by SIHI pursuant to Act. No. 3135, x x xSection 78 of the General Banking Act,
as amended provides the amount at which the subject property is redeemable from
SIHI, which is, in this case, the amount due under the mortgage deed, or the
outstanding obligation of Carlos Coquinco, plus interest and expenses.)
In
Ponce de Leon v. Rehabilitation Finance Corporation,[37] the Court held that RA No.
337, being a special and subsequent law, amended Act No. 3135 insofar as the
redemption price is concerned. The Court held that: Rep. Act No. 337, otherwise
known as The General Banking Act, is entitled An Act Regulating Banks and
Banking Institutions and for other purposes. Section 78 thereof limits the amount
of the loans that may be given by banks and banking or credit institutions on the
basis of the appraised value of the property given as security, as well as provides
that, in the event of foreclosure of a real estate mortgage to said banks or
institutions, the property sold may be redeemed by paying the amount fixed by the
court in the order of execution, or the amount judicially adjudicated to the creditor
bank. This provision had the effect of amending Section 6 of Act

No. 3135, insofar as the redemption price is concerned, when the mortgagee is a
bank or a banking or credit institution, said Section 6 of Act No. 3135 being, in this
respect, inconsistent with the above-quoted portion of Section 78 of Rep. Act No.
337. In short, the Paraaque property was sold pursuant to said Act No. 3135, but
the sum for which it is redeemable shall be governed by Rep. Act No. 337, which
partakes of the nature of an amendment to Act No. 3135, insofar as mortgages to
banks or banking or credit institutions are concerned, to which class the RFC
belongs. At any rate, the conflict between the two (2) laws must be resolved in
favor of Rep. Act No. 337, both as a special and as the subsequent legislation.

SPS VICTOR and GRACE ONG vs. CA

FACTS:
Kenlene Laboratories, Inc. obtained a loan from Premier Development Bank (PDB) in
the amount of 10million.
Spouses Ong executed a promissory note obligating
themselves to pay PDB the amount of the loan with interest at 31% per annum with
monthly installment ofP292,658.08. The petitioners loan application with the PDB
was secured by a real estate mortgage over Spouses Ongs residential property in
West Greenhills, San Juan. For failure of the Spouses Ong to pay their monthly
amortizations, PDB initiated extrajudicial foreclosure proceedings on the real estate
mortgage with the Provincial Sheriff . . The Notice of Sheriffs Sale dated May 19,
1993 was prepared and issued by the Clerk of Court the deputy sheriff issued a
certificate of posting which was followed by the issuance of an affidavit of
publication by the editor of Alppa Times The deputy sheriff set the public auction
sale of the mortgaged property. The mortgaged property was sold to PDB for
P18,914,349.37. A certificate of sale over the mortgaged property was prepared and
annotation on the title was made. Within the one-year redemption period, PDB filed
a petition for a writ of possession, which was granted by the RTC. A writ of
possession was issued. Spouses Ong filed a motion for reconsideration to recall the
writ of possession, but it was denied by the RTC. Thereafter, Spouses Ong filed a
petition for prohibition and preliminary injunction before the CA
to enjoin the public respondents from taking further action in connection with the
extra-judicial foreclosure sale made including the implementation of the writ of
possession. CA rendered a decision dismissing their petition. Their motion for
reconsideration was likewise denied.
Decision of the RTC: dismissing the complaint filed by Spouses Ong, the dispositive
portion of which reads, as followsThe RTC ruled, among others, that Spouses Ong
voluntarily and intelligently entered into a valid loan contract with the PDB. The
latter was able to prove that Spouses Ong defaulted in the payment of their loan
obligations, so it was proper for it to foreclose their collateral for the subject loan.
The RTC further held that there were no irregularities in the conduct of the
foreclosure proceedings, which resulted in the grant of the writ of possession. First,
Spouses Ongs claim of irregularities was never previously raised and contrary to
their contentions during the proceedings for the issuance of the writ of possession.

In fact, they intervened only at the time PDB requested for the issuance of a writ of
possession. They did not question the conduct of the foreclosure particularly the
alleged defect in the publication of the notice of sheriffs sale by Alppa Times.
Second, the affidavit of publication executed by the editor of Alppa Times entitled
said document to be given full faith and credit in the absence of competent
evidence showing that its due execution was tainted with defects and irregularities
that would warrant a declaration of its nullity.
Third, the Notice of Sale was posted in a conspicuous place within the Municipal Hall
of San Juan. Thus, the presumption of regularity in the performance of duty by the
sheriff prevailed. Fourth, it was established in the certification issued by the Office
of the Clerk of Court that Alppa Times was duly accredited as a publisher of the
notice of sheriffs sale at the time of the foreclosure of the subject property.
Spouses Ongs self-serving statement that Alppa Times was not a newspaper of
general circulation could not prevail over the issued certification by the Clerk of
Court and Ex-Officio Sheriff.

Finally, the RTC found that the newspaper dealer and newspaper vendor presented
by Spouses Ong were not expert witnesses or even competent enough to declare
that Alppa Times was a non-existent publication and not a newspaper of general
circulation.
ISSUE WHETHER OR NOT THE COURT OF APPEALS ERRED IN SUSTAINING THE
VALIDITY OF THE EXTRA-JUDICIAL FORECLOSURE PROCEEDINGS.
Petitioners Position The following arguments were raised by Spouses Ong in support
of their position that the subject foreclosure sale was null and void for noncompliance with the requirements of Act No. 3135. 1] There was no posting of the
notice of sheriffs sale for at least twenty (20) days. 2] There was no showing that
the notice of sale was posted in three (3) public places within the municipality. 3]
There was no adequate showing of newspaper publication for three (3) consecutive
weeks. 4]
There was no proof that the Alppa Times was a newspaper of general
circulation within the Municipality of San Juan, Metro Manila, as required by Act No.
3135, as amended. 5]
The proper party did not execute the certificate of sale. 6]
Respondent banks petition for foreclosure did not specify the amount sought to be
liquidated thereby. 7] Respondent banks computation of the obligation was not in
accordance with the promissory notes. 8]
The RTC erred in admitting in evidence
the bank ledgers. Respondent Banks Position PDB counters that the findings of fact
of the CA and the RTC were in accordance with the evidence presented and the law
applicable in the said case. It further argues that both courts committed no
reversible error in ruling that the foreclosure proceedings were conducted in the
regular performance of duties by the sheriff and strictly in accordance with the
law.PDB likewise asserts that Spouses Ongs default on their loan obligations
warranted the legitimate exercise by PDB of its rights under the loan and mortgage
contracts. It likewise contends that to entertain the challenge of Spouses Ong will
allow them to re-open the merits of a final
and already executed decision of this Court on the writ of possession given to PDB.

RULING : The petition lacks merit. First of all, the issue raised by Spouses Ong of
whether the legal requirements for a valid foreclosure sale under Act No. 3135 has
been actually followed is a question of fact that does not deserve a review by this
Court. The recent case of Century Savings Bank v. Spouses Danilo T. Samonte and
Rosalinda M. Samonte[9] is instructive: The main issue in the case at bar is whether
the extrajudicial foreclosure sale of respondents mortgaged properties was valid.
The resolution of said issue, however, is dependent on the answer to the question of
whether the legal requirements on the notice of sale were complied with.
Necessarily, the Court must review the evidence on record, most especially, Notary
Public Magpantays Certificate of Posting, to determine the weight and probative
value to accord the same. Non-compliance with the requirements of notice and
publication in an extrajudicial foreclosure sale is a factual issue.
The resolution thereof by the lower courts is binding and conclusive upon this
Court. However, this rule is subject to exceptions, as when the findings of the trial
court and the Court of Appeals are in conflict. Also, it must be noted that noncompliance with the statutory requisites could constitute a jurisdictional defect that
would invalidate the sale.
In the case at bench, the RTC and the CA ruled that the foreclosure proceedings
conducted on the mortgaged property of Spouses Ong enjoyed the presumption of
regularity in the absence of evidence to the contrary. The Court respects the ruling
of the courts below.
It is an elementary rule that the burden of proof is the duty of a party to present
evidence on the facts in issue necessary to establish his claim or defense as
required by law. The Court has likewise ruled in previous cases that foreclosure
proceedings enjoy the presumption of regularity and that the mortgagor who
alleges absence of a requisite has the burden of proving such fact.
In this case, Spouses Ong failed to overcome this presumption with no sufficient
evidence to prove the

contrary. Except for their bare allegations, no convincing proof of non-compliance

with the posting requirement was presented. On the other hand, the foreclosure
procedure undertaken by PDB was supported by an authenticated and duly
executed Affidavit of Publication,[11] Certification of the Office of the Clerk of Court
that Alppa Times is an accredited publisher of Notice of Sheriffs Sale,[12] Notice of
Sheriffs Sale[13] and Certificate of Posting.[14] Spouses Ong likewise failed to
present solid evidence of collusion between the Clerk of Court and Deputy Sheriff,
on one hand, and PDB, on the other.
Without doubt, the documents shown by PDB prove that the subject foreclosure
proceedings were conducted in a regular manner and in accordance with law.
With respect to the computation of Spouses Ongs loan obligation, the Court agrees
with the ruling of the CA that there was no error committed by PDB in computing
their total loan obligation. The loan documents presented by PDB which included

the
promissory
notes,
real
estate
mortgage,
and
the
continuing
guaranty/comprehensive security all prove that Spouses Ong owed PDB a sum of
money and failed to settle that obligation. Naturally, the petitioners default on their
loan obligations warranted the legitimate exercise by the respondent bank of its
rights under the loan and mortgage contracts.
Spouses Basilio and Norma Hilaga vs. Rural Bank of Isulan, etc., G.R. No. 179781.
April 7, 2010
FACTS:
Petitioners obtained a loan from respondent Rural Bank of Isulan Inc., in the amount
of P2,500.00. To secure the loan, they executed a Real Estate Mortgage4over their
land property.
When petitioners failed to pay their obligation when it became due, the respondent
bank initiated foreclosure proceedings.
The subject property was sold at a public auction by the Provincial Sheriff on April
20, 1977 and a Certificate of Extrajudicial Sale a was issued in favor
of the Rural Bank of Isulan (Cotabato) Inc. as the highest bidder. The respondent
bank then took possession of the foreclosed property.
Meanwhile, unknown to respondent bank, a Free Patent title7(Original Certificate of
Title No. P- 19766) had been issued in favor of petitioners on August 4, 1976 or
before the foreclosure sale.
On September 21, 1994, or more than seventeen (17) years after the foreclosure
sale, petitioner Basilio Hilaga sent a letter to the respondent bank's lawyer, the late
Atty. Ismail Arceno, conveying his desire to redeem the subject property.
When the letter remained unanswered, petitioners, through their counsel, again
sent a letter, seeking to redeem the foreclosed property. The second letter,
however, also remained unheeded.
Thus, on June 3, 1999, petitioners filed a complaint a for Redemption of Foreclosed
Mortgaged Property Under [Act No. 3135], seeking to redeem the subject property
from the respondent bank under the provisions of Act No. 3135.
In their complaint, petitioners alleged that the mortgage and subsequent
foreclosure of the subject property had not been annotated on the title nor
registered with the Register of Deeds. Also, no annotation and consolidation of
ownership was made in favor of the respondent bank.
Thus, the one (1)-year redemption period under Act No. 3135, which commences
from the date of registration of the sale, has not yet started. They insisted that,
indeed, their right of redemption has not yet expired because under Section 119 of
Commonwealth Act No. 141 or the Public Land Act, a homesteader whose
homestead has been sold at a public auction by virtue of an extrajudicial
foreclosure, may repurchase said land within five (5) years from the date of
registration of the sale. Thus, they can still exercise their right of redemption. They

signified their willingness to redeem or repurchase the foreclosed property by

depositing the amount of P10,000.00 with the court.

In its Answer with Counterclaim, the respondent bank averred that when the real
estate mortgage in its favor was executed, the parcel of land was merely covered by
a tax declaration. That unknown to the respondent bank, petitioners proceeded to
apply for and cause the issuance in 1976 of a free patent and torrens title to the
land; hence, they are estopped to claim that the parcel of land mortgaged is
covered by a free patent and torrens title. They likewise cannot avail of the benefits
afforded to a grantee of a public land under the Homestead and Free Patent Laws
because they violated the terms and conditions of their application to avail of a
grant by homestead or free patent when they mortgaged the land.
As aforesaid, the trial court rendered judgment in favor of petitioners. The trial court
ruled that because the certificate of sale was not registered, petitioners can still
redeem the subject property.
On appeal, the CA reversed the trial court. According to the CA, the right of
petitioners to redeem their foreclosed property can only be exercised within two (2)
years from the date of foreclosure, as provided under Republic Act No. 72013ca or
the Rural Banks' Act, as amended by Republic Act No. 2670. The CA also ruled that
petitioners are guilty of laches.
CA Denied the MR of the petitioners.
ISSUE: Whether or not the petitioners have only 2 years to redeem their property
from the issuance certificate of sale after the same was foreclosed.
RULING: Section 5 of Republic Act No. 720, as amended by Republic Act Nos. 2670
and 5939, specifically provides for the redemption period for lands foreclosed by
rural banks. It provides in part as follows: Loans may be granted by rural banks on
the security of lands without Torrens titles where the owner of private property can
show five years or more of peaceful, continuous and uninterrupted possession in the
concept of an owner; x x x or of homesteads or free patent lands pending the
issuance of titles but already approved, the provisions of any law or regulations to
the contrary notwithstanding:
Provided, That when the corresponding titles are issued the same shall be delivered
to the register of deeds of the province where such lands are situated for the
annotation of the encumbrance: x x x Provided, That when a homestead or free
patent land is foreclosed, the homesteader or free patent holder, as well as their
heirs shall have the right to redeem the same within two years from the date of
foreclosure in case of a land not covered by a Torrens title or two years from the
date of the registration of the foreclosure in case of a land covered by a Torrens title
x x x.
In Sta. Ignacia Rural Bank, Inc. v. Court of Appeals, we summarized the rules on
redemption in the case of an extrajudicial foreclosure of land acquired under our
free patent or homestead statutes as follows. If the land is mortgaged to a rural

bank under Republic Act No. 720, as amended, the mortgagor may redeem the
property within two (2) years from the date of foreclosure or from the registration of
the sheriffs certificate of sale at such foreclosure if the property is not covered or is
covered, respectively, by a Torrens title. If the mortgagor fails to exercise such right,
he or his heirs may still repurchase the property within five (5) years from the
expiration of the two (2)-year redemption period pursuant to Section 119 of the
Public Land Act (C.A. No. 141). If the land is mortgaged to parties other than rural
banks, the mortgagor may redeem the property within one (1) year from the
registration of the certificate of sale pursuant to Act No. 3135. If he fails to do so, he
or his heirs may repurchase the property within five (5) years from the expiration of
the redemption period also pursuant to Section 119 of the Public Land Act.
In the present case, petitioners admit that when the property was mortgaged, only
the tax declaration was presented. Although a free patent title was subsequently
issued in their favor on August 4, 1976, petitioners failed to inform the creditor rural
bank of such issuance. As a result, the certificate of sale was not registered or
annotated on the free patent title.

Petitioners are estopped from redeeming the property based on the free patent title
which was not presented during the foreclosure sale nor delivered to the Register of
Deeds for annotation of the certificate of sale as required under Section 5 of
Republic Act No. 720, as amended. Estoppelin pais arises when one, by his acts,
representations or admissions, or by his own silence when he ought to speak out,
intentionally or through culpable negligence, induces another to believe certain
facts to exist and such other rightfully relies and acts on such belief, so that he will
be prejudiced if the former is permitted to deny the existence of such facts.
Petitioners cannot fault respondent for the non- registration of the certificate of sale
because petitioners did not inform the respondent bank that a Torrens title had
already been acquired by them on August 4, 1976. By their silence and inaction,
petitioners misled the respondent bank to believe that their only proof of ownership
was the tax declaration.
Thus, the two (2)-year redemption period shall be
reckoned from the date of the foreclosure. For the same reason, petitioners
assertion that they will have five (5) years from the date of registration of the sale
to redeem the foreclosed property under Section 119 of the Public Land Act has no
merit, the reckoning period for the redemption period being properly from the date
of sale. But even assuming arguendo that petitioners can avail of the five (5)-year
redemption period provided under Section 119 of the Public Land Act, they still
failed to exercise their right of redemption within the reglementary period provided
by law.
As mentioned earlier, Section 119 of said Act expressly provides that where the land
involved is acquired as a homestead or under a free patent, if the mortgagor fails to
exercise the right of redemption, he or his heirs may still repurchase the property
within five (5) years from the expiration of the two (2)-year redemption period. The
auction sale having been conducted on April 20, 1977, petitioners had until April 20,

1984 within which to redeem the mortgaged property. Since petitioner only filed
the
instant suit in 1999, their right to redeem had already lapsed. It took petitioners
twenty-two (22) years before instituting an action for redemption. The considerable
delay in asserting ones right before a court of justice is strongly persuasive of the
lack of merit in petitioners claim, since it is human nature for a person to enforce
his right when the same is threatened or invaded.

DBP v. Arcilla Jr.

Facts:
Atty. Felipe Arcilla Jr. was employed by the DBP. After he was assigned to the legal
department, he decided to avail of a loan under the Individual Housing Project (IHP) of the
bank for the payment of the parcel of land purchased by him and for its construction. When
Arcilla resigned grom DBP, the bank notified him that his loan has been converted to a
regular housing loan. Arcilla agreed to the reservation by the DBP of its right to increase the
rate of interest on the loan, as well as all other fees and charges on loans and advances
pursuant to such policy as it may adopt from time to time during the period of the loan.
Issue:
Whether or not DBP violated RA 3765 otherwise known as The Truth in Lending Act.
Ruling:
Section 1 of R.A. No. 3765 provides that prior to the consummation of a loan transaction, the
bank, as creditor, is obliged to furnish a client with a clear statement, in writing, setting
forth, to the extent applicable and in accordance with the rules and regulations prescribed
by the Monetary Board of the Central Bank of the Philippines, the following information:
1.
2.
3.
4.

the cash price or delivered price of the property or service to be acquired;

the amounts, if any, to be credited as down payment and/or trade-in;
the difference between the amounts set forth under clauses (1) and (2);
the charges, individually itemized, which are paid or to be paid by such person
in connection with the transaction but which are not incident to the extension
of credit;
5. the total amount to be financed;
6. the finance charges expressed in terms of pesos and centavos; and
7. the percentage that the finance charge bears to the total amount to be
financed expressed as a simple annual rate on the outstanding unpaid
balance of the obligation.
If the borrower is not duly informed of the data required by the law prior to the
consummation of the availment or drawdown, the lender will have no right to collect such
charge or increases thereof, even if stipulated in the promissory note. However, such failure
shall not affect the validity or enforceability of any contract or transaction.

UCPB v. Spouses Beluso

Facts:
The UCPB granted the spouses Beluso a Promissory Note Line under a Credit Agreement.
The spouses Beluso constituted other than their promissory notes, a real estate mortgage
over parcels of land as additional security for the obligation. In any case, UCPB applied
interest rates on the differenct promissory notes ranging from 18% to 34%. The spouses,
however, failed to make any payment of their obligations with the bank. Spouses Beluso
filed a petition for the annulment , accounting and damages against UCPB.
Issue:
Whether or not UCPB is authorized to unilaterally fix the interest rates.
Ruling:
A promissory note which grants the creditor the power to unilaterally fix the interest rate
means that the promissory note does not contain a clear statement in writing of the finance
charge. Such provision is illegal not only because it violates the provisions of the Civil Code
on mutuality of contracts but also because it violates the Truth in Lending Law. The penalty
for the violation of the law is P100.00 or an amount equal to twice of the finance charge
required by such creditor in connection with such transaction, whichever is greater, except
that such liability shall not exceed P2,000 on any credit transaction. The action to recover
the penalty should be brought within one year from the date of the occurrence of the
violation. As the penalty depends on the finance charge required of the borrower, the
borrowers cause of action would only accrue when such finance charge is required. The
action to recover the penalty may be instituted by the aggrieved private person separately
and independently from the criminal case for the same offense.
Republic vs. Eugenio, GR 176429, Feb 14, 2008

Lilia Cheng argues that the AMLA, being a substantive penal statute, has no retroactive
effect and the bank inquiry order could not apply to deposits or investments opened prior to
the effectivity of Rep. Act No. 9164, or on 17 October 2001. Thus, she concludes, her subject
bank accounts, opened between 1989 to 1990, could not be the subject of the bank inquiry
order lest there be a violation of the constitutional prohibition against ex post facto laws.

ISSUE: Can the AMLA bank inquiry order be applied into records of transactions entered into
prior to the passage of the AMLA?
HELD: No ex post facto law may be enacted, and no law may be construed in such fashion as
to permit a criminal prosecution offensive to the ex post facto clause. As applied to the
AMLA, it is plain that no person may be prosecuted under the penal provisions of the AMLA
for acts committed prior to the enactment of the law on 17 October 2001. As much was
understood by the lawmakers since they deliberated upon the AMLA, and indeed there is no
serious dispute on that point.
Republic of the Philippines v GLASGOW
Credit and Collection Services Inc
Facts: On July 18, 2003, the Republic filed a complaint in the RTC for civil forfeiture of assets
against the bank deposits maintained by Glasgow in CSBI. The case filed pursuant to RA

9160 (AMLA 2001). Acting on the Republics urgent plea for the issuance of TRO, the
executive judge of RTC issued a 72-hour of a writ of preliminary injunction. The trial court
issued an order granting the issuance of a writ of preliminary injuction. In order, the trial
court directed the issuance of alias summons. However, no mention was made of the motion
for leave of court to serve summons by publication. In an order, the trial court archived the
case allegedly for failure of the Republic to serve the motion for leave of court to serve
summons by publication. In an order, the trial court ordered the reinstatement of the case
and directed the Republic to serve the alias summons on Glasgow and CSBI within 15 days.
However, it did not resolve the Republics motion for leave of court to serve summons by
publication. Because the Republics motion for leave of court to serve summons by
publication remain unresolved, the Republic filed a manifestation and ex parte motion to
resolve its motion for leave of court to serve summons by publication. Glasgow filed for
motion to dismiss. It alleged that the court had no jurisdiction over its person as summons
had not yet been served on it; and that the complaint was premature and stated no cause of
action; and there was failure to prosecute on the part of the Republic. The RP opposed
Glasgows motion to dismiss. It contended that its suit was an action quasi in rem where
jurisdiction over the person of the defendant was not a prerequisite to confer jurisdiction on
the court. It asserted that prior conviction for unlawful activity was not a precondition to the
filing of a civil forfeiture case and that its complaint alleged ultimate facts sufficient to
establish a cause of action. It denied that it failed to prosecute the case. The trial court
issued the assailed order. It dismissed the case on the grounds of improper venue;
insufficiency of the complaint in form and substance; and failure to prosecute. It lifted the
writ of preliminary injunction and directed CSBI to release to Glasgow the funds.
Issue: Whether or not the complaint for civil forfeiture was correctly dismissed on grounds
of (a) improper venue, (b) insufficiency in form and substance; and (c) failure to prosecute

Held: the case is remanded to the RTC, which shall proceed with the case. (a) The trial court
was a proper venue. Sec. 3. Venue of cases cognizable by the regional trial court. A
petition for civil forfeiture shall be filed in any regional trial court of the judicial region where
the monetary instrument, property or proceeds representing, involving, or relating to an
unlawful activity or to a money laundering offense are located; provided, however, that
where all or any portion of the monetary instrument, property or proceeds is located outside
the Philippines, the petition may be filed in the regional trial court in Manila or of the judicial
region where any portion of the monetary instrument, property, or proceeds is located, at
the option of the petitioner. (emphasis supplied) Under Section 3, Title II of the Rule of
Procedure in Cases of Civil Forfeiture, therefore, the venue of civil forfeiture cases is any RTC
of the judicial region where the monetary instrument, property or proceeds representing,
involving, or relating to an unlawful activity or to a money laundering offense are located.
Pasig City, where the account sought to be forfeited in this case is situated, is within the
National Capital Judicial Region (NCJR). Clearly, the complaint for civil forfeiture of the
account may be filed in any RTC of the NCJR. Since the RTC Manila is one of the RTCs of the
NCJR,10 it was a proper venue of the Republics complaint for civil forfeiture of Glasgows
account. (b) The test of the sufficiency of the facts alleged in the complaint is whether or
not, admitting the facts alleged, the court could render a valid judgment upon the same in
accordance with the prayer of the complaint. Regardless of the absence, pendency or
outcome of a criminal prosecution for the unlawful activity or for money laundering, an
action for civil forfeiture may be separately and independently prosecuted and resolved. (c)
Given the circumstances, how could the Republic be faulted for failure to prosecute the
complaint for civil forfeiture? While there was admittedly a delay in the proceeding, it could
not be entirely or primarily ascribed to the Republic. That Glasgows whereabouts could not
be ascertained was not only beyond the Republics control, it was also attributable to
Glasgow which left its principal office address without informing the Securities and Exchange
Commission or any official regulatory body (like the Bureau of Internal Revenue or the
Department of Trade and Industry) of its new address. Moreover, as early as October 8,
2003, the Republic was already seeking leave of court to serve summons by publication. In
Marahay v. Melicor,18 this Court ruled: While a court can dismiss a case on the ground of
non prosequitur, the real test for the exercise of such power is whether, under the
circumstances, plaintiff is chargeable with want of due diligence in failing to proceed with
reasonable promptitude. In the absence of a pattern or scheme to delay the disposition of
the case or a wanton failure to observe the mandatory requirement of the rules on the part
of the plaintiff, as in the case at bar, courts should decide to dispense with rather than wield
their authority to dismiss. (emphasis supplied) We see no pattern or scheme on the part of
the Republic to delay the disposition of the case or a wanton failure to observe the
mandatory requirement of the rules. The trial court should not have so eagerly wielded its
power to dismiss the Republics complaint.
FOREIGN INVESTMENT ACT
Hahn vs CA
HAHN v. CA
G.R. No. 113074; January 22, 1997
FACTS:
Petitioner Alfred Hahn is a Filipino citizen doing business under the name and style "HahnManila". On the other hand, private respondent (BMW) is a nonresident foreign corporation
existing under the laws of the former Federal Republic of Germany, with principal office at
Munich, Germany.

On March 7, 1967, petitioner executed in favor of private respondent a "Deed of Assignment

with Special Power of Attorney. Per the agreement, the parties "continue[d] business
relations as has been usual in the past without a formal contract."
But on February 16, 1993, in a meeting with a BMW representative and the president of
Columbia Motors Corporation (CMC), Jose Alvarez, petitioner was informed that BMW was
arranging to grant the exclusive dealership of BMW cars and products to CMC, which had
expressed interest in acquiring the same.
On February 24, 1993, petitioner received confirmation of the information from BMW which,
in a letter, expressed dissatisfaction with various aspects of petitioner's business,
mentioning among other things, decline in sales, deteriorating services, and inadequate
showroom and warehouse facilities, and petitioner's alleged failure to comply with the
standards for an exclusive BMW dealer.
Nonetheless, BMW expressed willingness to continue business relations with the petitioner
on the basis of a "standard BMW importer" contract, otherwise, it said, if this was not
acceptable to petitioner, BMW would have no alternative but to terminate petitioner's
exclusive dealership effective June 30, 1993.
Because of Hahn's insistence on the former business relations, BMW withdrew on March
26, 1993 its offer of a "standard importer contract" and terminated the exclusive dealer
relationship effective June 30, 1993.
On April 29, 1993, BMW proposed that Hahn and CMC jointly import and distribute BMW cars
and parts.
Hahn found the proposal unacceptable. On May 14, 1993, he filed a complaint for specific
performance and damages against BMW to compel it to continue the exclusive dealership.
ISSUE:
Whether petitioner Alfred Hahn is the agent or distributor in the Philippines of private
respondent BMW
HELD:
Alfred Hahn is an agent of BMW.
The Supreme Court held that agency is shown when Hahn claimed he took orders for BMW
cars and transmits them to BMW. Then BMW fixes the down payment and pricing charges
and will notify Hahn of the scheduled production month for the orders, and reconfirm the
orders by signing and returning to Hahn the acceptance sheets.
The payment is made by the buyer directly to BMW. Title to cars purchased passed directly
to the buyer and Hahn never paid for the purchase price of BMW cars sold in the Philippines.
Hahn was credited with a commission equal to 14% of the purchase price upon the invoicing
of a vehicle order by BMW. Upon confirmation in writing that the vehicles had been
registered in the Philippines and serviced by him, Hahn received an additional 3% of the full
purchase price. Hahn performed after-sale services, including, warranty services. for which
he received reimbursement from BMW. All orders were on invoices and forms of BMW.
Moreover, the Court distinguished an agent from a broker. The court ruled that an agent
receives a commission upon the successful conclusion of a sale. On the other hand, a broker
earns his pay merely by bringing the buyer and the seller together, even if no sale is
eventually made.

Cargill Inc. vs Intra Strata Assurance Corporation

Facts: Cargill (foreign) is a corporation organized and existing under the laws of the State
of Delaware. Cargill executed a contract with Northern Mindanao Corporation (NMC)
(domestic), whereby NMC agreed to sell to petitioner 20,000 to 24,000 metric tons of
molasses to be delivered from Jan 1 to 30 1990 for $44 per metric ton The contract
provided that CARGILL was to open a Letter of Credit with the BPI. NMC was permitted to
draw up 500,000 representing the minimum price of the contract The contract was
amended 3 times (in relation to the amount and the price). But the third amendment
required NMC to put up a performance bond which was intended to guarantee NMCs
performance to deliver the molasses during the prescribed shipment periods In
compliance, INTRA STRATA issued a performance bond to guarantee NMCs delivery. NMC
was only able to deliver 219551 metric tons out of the agreed 10,500. Thus CARGILL sent
demand letters to INTRA claiming payment under the performance and surety bonds. When
INTRA failed to pay, CARGILL filed a complaint. CARGILL NMC and INTRA entered into a
compromise agreement approved by the court, such provided that NMC would pay CARGILL
3 million upon signing and would deliver to CARGILL 6,991 metric tons of molasses. But NMC
still failed to comply RTC in favor of CARGILL CA CARGILL does not have the capacity
to file suit since it was a foreign corporation doing business in the PH without the requisite
license. The purchase of molasses were in pursuance of its basic business and not just mere
isolated and incidental transactions
Issue: Whether or not petitioner is doing or transacting business in the Philippines in
contemplation of the law and established jurisprudence/ Whether or not CARGILL, an
unlicensed foreign corporation, has legal capacity to sue before Philippine courts.

Held: YES According to Article 123 of the Corporation Code, a foreign corporation must first
obtain a license and a certificate from the appropriate government agency before it can
transact business in the Philippines. Where a foreign corporation does business in the
Philippines without the proper license, it cannot maintain any action or proceeding before
Philippine courts, according to Article 133 of the Corporation Code Doing
Business o .. and any other act or acts that imply a continuity of commercial dealings or
arrangements, and contemplate to that extent the performance of acts or works, or the
exercise of some of the functions normally incident to, and in progressive prosecution of,
commercial gain or of the purpose and object of the business organization. Since INTRA is
relying on Section 133 of the Corporation Code to bar petitioner from maintaining an action
in Philippine courts, INTRA bears the burden of proving that CARGILL was doing business in
the PH. In this case, we find that INTRA failed to prove that CARGILLs activities in the
Philippines constitute doing business as would prevent it from bringing an action. There is no
showing that the transactions between petitioner and NMC signify the intent of petitioner to
establish a continuous business or extend its operations in the Philippines. In this case, the
contract between petitioner and NMC involved the purchase of molasses by petitioner from
NMC. It was NMC, the domestic corporation, which derived income from the transaction and
not petitioner. To constitute doing business, the activity undertaken in the Philippines
should involve profit-making. Other factors which support the finding that petitioner is not
doing business in the Philippines are: (1) petitioner does not have an office in the
Philippines; (2) petitioner imports products from the Philippines through its non-exclusive
local broker, whose authority to act on behalf of petitioner is limited to soliciting purchases
of products from suppliers engaged in the sugar trade in the Philippines; and (3) the local
broker is an independent contractor and not an agent of petitioner. To be doing or
transacting business in the Philippines for purposes of Section 133 of the Corporation
Code, the foreign corporation must actually transact business in the Philippines, that is,
perform specific business transactions within the Philippine territory on a continuing basis in
its own name and for its own account CARGILL is a foreign company merely importing
molasses from a Philipine exporter. A foreign company that merely imports goods from a
Philippine exporter, without opening an office or appointing an agent in the Philippines, is
not doing business in the Philippines.