Chattel

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[CHATTEL MORTGAGE]LOAN SECURED BY CHATTEL MORTGAGE

MAKATI LEASING AND FINANCE CORPORATION vs. WEAREVER TEXTILE MILLS, INC.

FACTS: In order to obtain financial accommodation from Makati Leasing and Finance Corporation, Wearever Textile Mills, Inc. discounted and assigned several receivables with the former under a Receivable Purchase Agreement. To secure the collection of the receivables assigned, Wearever executed a chattel mortgage over certain raw materials inventory as well as a machinery described as an Artos Aero Dryer Stentering Range.

The machinery was said to be attached to the ground by the means of bolts and only way to remove it from Wearever’s plant will be to drill out or destroy the concrete floor. Upon Wearever’s default, Makati Leasing and Finance Corporation filed a petition for extrajudicial foreclosure of the properties mortgage. However, the deputy sheriff assigned to implement the foreclosure failed to gain entry into Wearever’s premises and was not able to effect the seizure of the machinery.

Thereafter a complaint for the judicial foreclosure was filed. Acting on Makati Finance Corporation’s application for replevin, the lower court issued a writ of seizure. However, the enforcement was subsequently restrain upon Wearever’s filling on a motion for reconsideration. After several incidents, the lower court finally issued an order lifting the restraining order for the enforcement of a writ of seizure and an order to break-open the premises of Wearever to enforce said writ.

Hence, the sheriff enforcing the seizure order repaired to the premises of Wearever and removes the main drive motor of the machinery. The CA sets aside the orders of the lower court and ordered the return of the drive motor seized after ruling that the machinery in suit cannot be the subject of replevin much less a chattel mortgage

because it is a real property pursuant to Art. 415 of the New Civil Code, the same immobilized by destination or purpose.

ISSUE: Whether or not the machinery which was immovable in its nature but become immobilized by destination or purpose can be the subject of a chattel mortgage.

Whether or not the parties are stopped from claiming that the machine is a real property by constituting a chattel mortgage on it.

HELD: Where a chattel mortgage is constituted on machinery permanently attached to the ground that machinery is to be considered as personal property and the chattel mortgage constituted thereon is not null and void, regardless of the who owns the land. However the chattel mortgage binds only the contracting parties and cannot prejudice innocent third party.

The parties to a contract may by agreement treat as personal property that which by nature would be real property as long as no interest of third parties would e prejudice thereby. One who has agreed so is in estoppels from denying the existence of the chattel mortgage. The machinery as movable or immovable was never placed in the issue.________________________________________________________________

FILIPINAS MARBLE CORPOARTION vs. INTERMEDIATE APPELLATE COURT

FACTS: Filipinas Marble Corporation applied for a loan with Development Bank of the Philippines in its desire to develop the full potential of its mining. Particularly, the loan was earmarked to finance the acquisition of machinery, equipment and spare parts for the FMC’s Diamond gangsaw, which machinery were actually imported by it.

DBP granted the loan, however subject to the onerous conditions, among are that FMC shall enter into management contract with Bancom Systems Control, Inc. and that loan shall be secured by a mortgage. The mortgage was not registered. Bancom and their directors/ officers mismanaged and misspent the loan after which Bancom resigned with the approval of the DBP even

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before the expiration date of the management contract.

The machineries, equipment, and spare parts for FMC’s diamond gangsaw arrived in the Philippines but FMC claims that such imported machineries were left to the mercy of the elements as they were never deliver to it. Also, instead of helping FMC to get back on its feet, DBP completely abandoned FMC’s project and proceeded to foreclose the properties mortgaged to it without previous demand. FMC filed an action for the nullification of deeds and damages with a prayer for restraining order and a writ of preliminary injuction.

FMC contends that DBP and BAncom who manage the FMC misspent that proceeds of the loan by taking advantage of the positions they were occupying in the corporation which resulted in its devastation instead of its rehabilitation, Thereby defeating its very purpose and thus, it is as if the loan was never delivered to it for there was failure on the part DBP to deliver the consideration for which the mortgage was executed. If it is really proven that the DBP is responsible for the misappropriation of the loan, even if only in part, then the foreclosure of the FMC’s properties under PD 385 would be a gross mistake. The TC, upheld by the IAC, that while the evidence so far presented by FMC appears to be persuasive, still it cannot enjoin the DBP from complying with the mandatory provision of PD 385.

ISSUE: If there was no valid contract of loan for failure of consideration, whether or not the mortgage can exist or stand by itself being a mere accessory contract.

Whether or not the non-registration of the chattel mortgage affects its validity.

HELD: A mortgage is a mere accessory contract and its validity would depend on the validity of the loan secured by it. Art. 2125 clearly provides that the non-registration of the chattel mortgage does not affect the immediate parties. It is still binding between the parties because registration is necessary only for the purpose of binding third persons.

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ALLIED BANKING CORPORATION vs. SALAS

FACTS: Gencor Marketing, Inc. obtained a time loan evidenced by a promise executed by and from its president, Clarencio Yujuico from General Bank and Trust Company. As security for the time loan, a Deed of Chattel Mortgage was executed by Gencor Marketing in favor of General Bank involving personal properties which included printing machineries and equipment particularly belonging to Clarencio Yujuico and not to Gencor. Said Deed of Chattel Mortgage was duly recorded.

On maturity date and after several subsequent extensions to Gencor to settle its account, Gencor failed to pay its obligations wither to general Bank or to Allied Banking Corporation which took over the affairs an or acquired all the assets and assume the liabilities of General Bank. Consequently, when Allied Banking Corporation extrajudicially foreclosed the chattel mortgage, the city sheriff of Quezon City levied upon the mortgaged property.

On the other hand, Clarencio Yujuico and Jesus Yujuico also owes Metropolitan Bank and Trust Company a sum of money and when they failed to pay, MBTC filed an action for a sum of money with preliminary attachment was issued in the said case and the sheriff of Rizal also levied upon the personal properties mortgaged.

Thereafter MBTC filed an urgent motion to enjoin the sheriff of QC from foreclosing and selling at public auction said properties. MBTC also filed a third party claim. The sheriff of QC was retrained by the RTC from selling at public auction the printing machineries and equipment previously levied. Hence, this petition.

ISSUE: Whether or not the judge of CFI of Rizal may validly enjoin the public sale of extrajudicially foreclose properties granting that proper legal procedures were observed by MBTC in order that CFI of Rizal may validly acquire jurisdiction over the person of Allied Banking Corporation.

HELD: The registration of the chattel mortgage for more than three (3) years prior to the writ of preliminary attachment issued

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by the CFI of Rizal is an effective and binding notice to other creditors of its existence and creates a real right or a lien, which being recorded, follows the chattel wherever it goes. Or it may be. A subsequent attaching creditor acquired the properties in question subject to the creditor’s mortgage lien as it existed thereon at the time of the attachment. What may be attached in this case is only the equity or right of redemption of the mortgagor.

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SERVICEWIDE SPECIALISTS, INC. vs. INTERMEDIATE APPELLATE COURT

FACTS: Galicano Siton purchased from Car Traders Phils. Inc. a vehicle and paid a down payment. For the remaining balance, Siton executed a promissory note in favor of Car Traders expressly stipulating that the unpaid balance shall be payable without need of notice or demand in fixed monthly installments, and if default be made in the payment of any of the installments or interests thereon, and when the same becomes due and payable, the total principal sum then remaining unpaid, together with the accrued interests thereon shall at once become due and payable.

As further security, Siton Executed a chattel mortgage over the motor vehicle in favor Car Traders Phils. In. The credit covered by the promissory note and the chattel mortgage was first assigned by Car Traders in favor of Filinest Credit Corporation, Subsequently, Filinvest likewise reassigned said credit in favor of Servicewide Specialist.

Siton was advised of this second assignment. When Justin and De Dumo wants to buy the motor vehicle from Galicano Siton, the two went to Filinvest and promptly inquired about the possibility of future sale of the mortgaged property. It was upon the advice of Filinvest’s lawyer that a verbal notice is sufficient and that it would be convenient if the account would remain in the name of the mortgagor Siton. Consequently, De Dumo bought the motor vehicle from Siton and took possession of the same.

Since the transfer, it was Atty. De Dumo who had been paying the account, almost invariably withHis personal checks. When there was default in the payment of three monthly installments as a result of the dishonor of the three checks issued as payments. The full amount of the unpaid balance under the promissory note became due and demandable pursuant to the terms of the promissory note. Servicewide Specialists instituted an action for sum of money against Galicano Siton and “John Doe”. After service of summons, Justiano de Dumo, identified himself as John Doe. The RTC, affirmed by CA, ordered Siton and De Dumo to jointly and severally pay Servicewide Specialist and ruled that there was a valid sale of mortgaged motor vehicle between Siton and De Dumo.

ISSUE: Whether or not there was a valid sale of mortgaged vehicle between the mortgagor and the third person.

Whether or not the mortgagee is bound by the Deed of Sale made by the mortgagor in favor of a third person, as neither the mortgagee nor its predecessors has given their written or verbal consent thereto pursuant to the Deed of Chattel Mortgage.

HELD: Since the mortgagor remains the owner of the chattel, he can sell it even if the chattel mortgage agreement prohibits the mortgagor from selling the chattel without the consent of the mortgagee. The sale, however, is without prejudice to his criminal prosecution under the pertinent provisions of the Revised Penal Code.

The mortgagor continues to be the owner of the property and has the power to alienate the same; however, he is obliged under the pain of penal responsibility to secure the written consent of the mortgagee.

The instruments of the mortgage are binding, while they subsist not only upon the parties executing them but also upon those who later, by purchase or otherwise acquired the property reposed therein.

The absence of the written consent of the mortgagee to the sale of the mortgaged property in favor of third person affects NOT

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the validity of the sale but the penal liability of the mortgagor under the Revised Penal Code and the binding effect of such sale under the Deed of Chattel Mortgage.

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BICOL SAVINGS AND LOAN ASSOCIATION vs. GUINHAWA

FACTS: Victorio Depositario together with Jaime Guinhawa, acting as a secondary co-maker, took a loan from Bicol Savings and Loan Association. To secure payment the principal borrower Depositario put up as security a chattel mortgage which was a Yamaha Motorcycle. Said motorcycle was eventually foreclosed by reason of the failure of Depositario and Guinhawa to pay. The foreclosure resulted to a deficiency. Consequently, BISLA made a demand to pay the deficiency. BISLA filed a complaint for the recovery of a sum of money constituting the deficiency after the foreclosure of the mortgage put up by the principal borrower Depositorio.

However, Depositorio was dropped from the case as his whereabouts was unknown and could not be served with summons. The city court ruled in favor of BISLA and ordered Guinhawa, as solidary debtor to pay. However, The CFI reserved, holding that the foreclosure of mortgage precludes any further action against the debtor and his guarantors.

ISSUE: Whether or not a co-maker in a loan who jointly and severally bound himself to pay the loan on the promissory note but is not a party to the chattel mortgage executed to secured the same loan by the principal debtor can be held liable for the deficiency in case of foreclosure.

Whether or not deficiency can still be recovered after foreclosure.

Whether or not the security can be held liable for the deficiency.

HELD: Where the obligation is one of a loan secured by a chattel mortgage and not a sale where the price is payable in installments, an independence civil action may be instituted for the recovery of said deficiency if after

extra-judicial foreclosure of such chattel mortgage a deficiency exists. The payment of the deficiency may be enforced against the principal debtor or his solidary co-maker who also acted as a surety. The brining of an action against the principal debtor to enforce the payment of the obligations is not inconsistent with, and does not preclude, the bringing of another action to compel the surety to fulfill hid obligation under the agreement.

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PAMECA WOOD TREATMENT PLANT, INC vs. CA

FACTS: Pameca Wood Treatment Plant, Inc. obtained a loan from Development Bank of the Philippines. By virtue of this loan, Pameca through its president, Herminio Teves, executed a promissory note. As security for the said loan, a chattel mortgage was also executed over Pameca’s properties consisting of inventories, furniture and equipment, to cover the whole value of the loan. Upon Pameca’s failure to pay, DBP extra-judicially foreclosed the chattel mortgage and as a sole bidder in the public auction purchased the foreclosed properties.

For the collection of the balance, DBP filed a complaint against Pameca, Hermino Teves, Hiram Pulido and Victoria Teves, who solidarily bound themselves to pay under the promissory note. The RTC affirmed in toto by the CA, awarded DBP’s deficiency claim, arising from a loan secured by a chattel mortgage. Hence, this petition.

ISSUE: Whether or not the creditor mortgagee may maintain an action for the deficiency in case of foreclosure of the chattel mortgage.

HELD: Where the obligation is one of a loan secured by a chattel mortgage and not a sale where the price is payable in installments, an independence civil action may be instituted for the recovery of said deficiency if after extra-judicial foreclosure of such chattel mortgage a deficiency exists. The payment of the deficiency may be enforced against the principal debtor or his solidary co-maker who also acted as a surety. The brining of an action against the principal debtor to enforce

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the payment of the obligations is not inconsistent with, and does not preclude, the bringing of another action to compel the surety to fulfill hid obligation under the agreement.

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BA FINANCE CORPORATION v. COURT OF APPEALS

FACTS: Manuel and Lilia Cuady obtained from Supercats, inc. a credit which covered the cost of one unit four-door Sedan. The obligation was evidenced by a promissory note executed by the Cuady spouses in favor of Supercars obligating themselves to pay the latter or order. The Cuady spouses also constituted a chattel mortgage over the vehicle.

Under the Deed of Chattel Mortgage, the mortgagee was constituted attorney-in-fact with full power and authority to file, follow up, prosecute, compromise or settle insurance claims, to sign, execute and deliver the corresponding papers, receipts, and documents to the insurance company as may be necessary to prove the claim and to collect from the latter the proceeds of the insurance to the extent of its interest, in the event that the mortgaged car suffers any loss or damage.

Supercats assigned the promissory note together with the chattel mortgage to BA Finance Corporation. It was BA Finance, as assignee of the mortgage lien who obtained the renewal of the insurance coverage over the vehicle with Zenith Insurance Corporation when the Cuady failed to renew themselves. Under the terms and conditions of the said insurance coverage, any loss under policy shall be payable to BA Finance.

The motor vehicle figured an accident and was badly damaged. The Cuadys asked BA Finance to consider the same a total loss and to claim from the insurer the face value of the car insurance policy and apply the same to the payment of their remaining account and give them the surplus thereof, if any. But instead of heeding the request of the Cuadys, BA Finance insisted on just having the vehicle repaired to which the Cuady reluctantly acceded. Because the repair shop chosen

was not able to restore the motor vehicle to its condition prior to the accident, not long thereafter, the car bogged down.

The subsequent request of the Cuadys for BA Finance to file a claim for total loss with the insurer fell on deaf ears, prompting the Cuadys to stop paying the remaining balance on the promissory note. In view of the failure of the Cuady’s to pay the remaining balance on the note, BA Finance sued them. The Trial Court, affirmed by the appellate court dismissed the complaint.

ISSUE: Whether or not the mortgagor has waived its right to collect the unpaid balance of the mortgage on the promissory note for failure of the former to enforce the total loss provision in the insurance coverage of the motor vehicle subject of the chattel mortgage.

HELD: Where under the terms of a chattel mortgage agreement, the mortgage was constituted attorney in fact to file, prosecute and settle any insurance claim, the assignee failed to file and prosecute the insurance claim when the acr was damaged totally, the mortgagor is relieved from his obligation to pay as he suffered a loss because of the failure of the mortgagee to file the claim.

Petitioner was deemed subrogated to the rights and obligations of Supercats when the latter assigned the promissory note together with the chattel mortgage in favor of the former. Petitioner is bound by the terms and conditions of the chattel mortgage executed between the spouses Cuady and the Supercars. In granting with the petitioner the powers and prerogatives, the Cuady’s created in the former’s favor an agency. Petitioner is bound by its acceptance to carry out the agency and is liable for damages which thru its non-performance, the Cuadys may suffer.

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CERNA vs. COURT OF APPEALS

FACTS: Celerino Delgado obtained a loan from Conrad Leviste which was evidenced by a promissory note. On the same date, Delgado executed chattel mortgage over Willy’s jeep owned by him. As attorney-in-

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fact of Manolo Cerna, Delgado also mortgaged a “Taunus” car owned by Cerna. The period lapse without Delgado paying the loan. Leviste filled a collection suit against Delgado and Cerna as solidary debtors. Cerna filed a motion to dismiss on the grounds of lack of cause of action against him and the death of Delgado.

Moreover, Cerna, also stated that since Leviste already opted to collect on the note, he could no longer foreclose the mortgage. The motion to dismiss was denied.

ISSUE: Whether or not a third party, who is not a debtor under the note but mortgage his property to secure the payment of the loan of another is solidarily liable with the principal debtor.

Whether or not a mortgage who already opted to collect on the note, can still foreclose the mortgage.

HELD: Since the mortgage is merely an accessory contract, a third party who mortgage his motor vehicle to secure the payment of the loan of another does not become solidarily liable with the borrower merely because of the execution of the mortgage. A special power of attorney (SPA) authorizing another to mortgage one’s property as security of latter’s obligation does not in itself make the person executing the same as co-mortgagor thereof. It is only upon default of the principal debtor that third party mortgagor becomes liable and he is liable only to extent of the property mortgaged. He is not liable to pay any deficiency.

In the case at bar, only Delgado signed the Promissory Note, as such, he is the only one bound by the loan contractor. Petitioner was not a co-debtor- there is solidary liability only when the obligation expressly so state or when the law or nature of the obligation requires solidarity.

A chattel mortgage may be accessory to a loan contract but that alone does not make third party mortgagor solidarily bound with the principal or in fulfilling the principal obligation to pay loan. The SPA only authorizes Delgado to mortgage certain property of the petitioner and not make petitioner as mortgagor.

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FILINVEST CREDIT CORPORATION vs. COURT OF APPEALS

FACTS: Spouses Tadiaman purchased a 10 wheeler Isuzu Cargo Truck from Jordan Entreprses, Inc. in installments and executed a promissory note payable in 24 monthly installments and a chattel mortgage over the motor vehicle purchased to secure the payment of the promissory notes in favor of Jordan Enterprises. Jordan Enterprises, Inc. assigned its rights and interests over the said instruments to Filinvest Finance and Leasing Corp. which in turn assigned them to Filinvest Credit Corporation.

Spouses Tadiaman defaulted in the payment of the installments due in the promissory note. Filinvest Credit Corporation filed an action for replevin and damages against the spouses Tadiaman. A writ of replevin was issued and the truck was seized by persons who represented themselves to be special sheriff of the court, but turned out to be employees of Filinvest Credit Corp. When spouses Tadiaman filled a counter bound, the lower court ordered the return of the truck (the writ of seizure was quashed).

This was not immediately implemented because of the delaying tactics of filinvest Credit Corporation (i.e. hiding the truck in some other place and not in their garage, feigning knowledge that the same had been recorded in their incoming ledger books) and when the spouses Tadiaman were finally able to recover the truck, they found the same to be cannibalized (stripped of vital parts).

Because of the said alterations of Filinvest Credit, the spouse Tadiaman filed a counter claim for damages. On the main action, the trial court ordered the spouses Tadiaman to pay Filinvest Credit the balance of the promissory note. On the counter claim, the trial court rendered judgment in favor of the spouses Tadiaman. On appeal by the Filinvest of that portion of the judgment on the counter-claim, the CA affirmed in toto the decision of the Trial Court and ruled that the Filinvest is liable for damages not because it commenced action for replevin to recover the possession if the truck prior to its foreclosure

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but because of the manner it carried out the seizure of the vehicle.

ISSUE: Whether or not Filinvest Corp. should be held liable for commencing an action for replevin to recover the possession of the truck prior to its foreclosure or for the manner it carried out the seizure of the cannibalized vehicle.

HELD: If a mortgage cannot obtain possession of a mortgaged property for its sale on foreclosure, the mortgagee cannot take the property by force but must institute the appropriate action in court. He must bring a civil action in court for replevin either to recover such possession as preliminary step to the extrajudicial foreclosure of the chattel mortagge or for judicial foreclosure. The mortgagee, however, despite exercise of the appropriate remedy (in case, the filling of an action for replevin to recover possession) may be held liable for damages if the manner in carrying out the seizure of the property was attended by bad faith, for applying subterfuge in sezing the truck by misrepresenting its employees as court appointed sheriff and then hiding an cannibalzing it, the mortgagee committed by bad faith in violation of Article 19 of the Civil Code.

Petitioner is liable for damages not because it commented an action for replevin to recover the possession of the truck prior to its foreclosure but because of the manner it carried out the seizure of the vehicle. Petitioner used its own employees who misrepresented themselves as deputy sheriff to seize the truck without being authorized by the court to do so.

Upon default of the mortgagor of his obligation, petitioner as mortgagee had the right to the possession of the property mortgage preparatory to its sale at public auction, However, for employing subterfuge in seizing the truck by misrepresenting its employees and then hiding and cannibalizing it, Pettitioner committed bad faith in violation of Art. 19 of the New Civil Code- “every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due and observe honesty and good faith.

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ACME SHOE, RUBBER AND PLASTIC CORPORATION vs. COURT OF APPEALS

FACTS: Chua Pac, President and General Manager of Acme Shoe, Rubber Shoe and Plastic Corporation executed for and in behalf of the company, a chattel mortgage in favor of Producers Bank of the Philippines. The mortgage stood by way of security for Acme’s Corporate Loan.

A clause in the chattel mortgage purports to likewise extends its coverage to obligations yet to be contracted or incurred and it was to this effect- “In case the mortgagor executes subsequent promissory note or notes, an extension thereof, or as a new loan, or is given any other kind of accommodations XXX this mortgage shall also stands 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 effects as if the said promissory note and/or accommodations were existing on the date thereof. This mortgagor to the mortgagee of whatever kind and nature, whether such obligations have been contracted, before, during or after the constitution of the mortgage.

In due time, the loan was paid by Acme. Subsequently, it obtained from Producers Bank additional financial accommodations. These borrowings on the due dates were also fully paid. Yet again, Producers Bank extended to Acme a loan covered by four promissory notes. Due to financial constrains, the loan was not settled on maturity. Producers bank thereon applied for an extrajudicial foreclosure of the chattel mortgage, prompting Acme to forthwith file an action for injunction.

Ultimately, the court dismissed the complaint and ordered the foreclosure of the chattel mortgage by holding that Acme is bound by the stipulations in the chattel mortgage. Acme appealed to the CA, which in turn, affirmed in all respects the decision of the court a quo.

ISSUE: Whether or not a promise expressed in a chattel mortgage to include debts that

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are yet to be contracted is a binding commitment that can be compelled upon.

Whether or not there is still a need to execute a chattel mortgage agreement covering the newly contracted debt in order for the security to come into existence or arise.

HELD: While a pledge, real estate mortgage, or antichresis may 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 of the mortgage is constituted. Although the 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 conducting a fresh chattel mortgage or by amending the old contract conformably with the form prescribed by the Chattel Mortgage Law.

As a rule, a Chattel mortgage must comply substantially with the form prescribed by Chattel Mortgage law. One of the requisite of the law is an affidavit in good faith. The fact that the statute has provided that the parties to the contract must execute an oath that makes it obvious that the debt referral to in the law is a current, and not an obligation that is yet merely contemplated.

In the case at bar, the only obligation specified in the chattel mortgage was the 3M loan which petitioner later fully paid. Thus, the payment of the obligation automatically rendered the chattel mortgage void or terminated.

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PHIL. COAST GUARD, CEBU INT’L FINANCE CORPORATION vs. COURT OF APPEALS

FACTS: J. Dy owned a cargo vessel known as LCT “Asiatic”. Dy authorized Ang Tay to sell said cargo vessel. Through a Deed of Absolute Sale, Ang Tay sold the subject vessel to Robert Ong. Ong paid through checks. Since payment was not be registered

or transferred to Ong until complete payment.

The said stipulation was handwritten on the original Deed of Sale and does not appear in Ong’s copies. Thereafter, Ong obtained possession of the subject vessel so he can begin deriving economic benefits thereon. Without knowledge of Ang Tay, Ong had his copies of the deed of Absolute sale notarized. Ong presented the notarized Deed to the Philippine Coast Guard which subsequently issued him a Certificate of Ownership and a Certificate of Philippine Registry over the subject vessel.

Ong also succeeded in having the name of the vessel to LCT “Orient Hope”. Thereafter, Ong acquired a loan from Cebu Int’l finance Corporation. As security for the loan, Ong executed a chattel mortgage over the subject vessel, which was registered with the Philippine Coast Guard and annotated on the Certificate of Ownership. Because Ang Tay cannot find Ong, he investigated and inquired with the Office of the Coast guard and learned that the subject vessel was already in the name of Ong, in violation of their agreement.

Ang Tay and Dy filed a case for rescission and replevin with damages against Ong. The trial court issued a writ of replevin and the subject vessel was seized and subsequently delivered to Ang Tay. Ong defaulted also in paying his obligations to CIFC. CIFC filed a separate case for replevin and damages against Ong which the trial court granted. The vessel was seized and put on the custody of the trial court. However, An Tay posted a counter bound and subsequently the vessel was returned to his possession.

In the civil case for rescission, the trial court, affirmed by the CA, rendered judgment in favor of Ang Tay and Dy. In the civil case of replevin, the trial court, affirmed by CA, declared the chattel mortgage as null and void. Hence, this petition for review on certiorari.

ISSUE: Whether or not CIFC is a mortgage in good faith whose lien over the mortgaged vessel should be respected.

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Whether or not the mortgagee has the right to rely on what appears in the Certificate of Ownership.

HELD: The chattel mortgage on a vessel constituted by the buyer who was able to register the vessel in his name despite the agreement with the seller that the vessel would not be so registered until after the full payment of the price, which did not appear in the buyer’s copies of the Deed of Sale is valid, for the mortgagee has the right to rely in good faith, on the certificate of registration. The prevailing jurisprudence is that a mortgagee has the right to rely in good faith on the certificate of title of the mortgagor to the property given as security and in the absence of any sign that might arouse suspicion, has no obligation to undertake further investigation. Hence, even if the mortgagor is not the rightful owner of or does not have valid title to the mortgaged property, The mortgagee or the transferee in good faith is nonetheless entitled to protection. Although this rule generally pertains to real property, particularly registered land, it may also be applied by analogy to personal property, in this case, specifically, since ship-owners are, likewise required by law to register their vessels.

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NICOL vs. BLANCO

FACTS: Salvacion Nicol and her husband were operators of a minibus. They obtained a loan from RF Company which was later restricted due to their failure to pay several monthly installments. As collateral they mortgaged their minibus. Subsequently with the approval of the manager of the RF Corporation, Salvacion pledged the minibus for two months to Engr. Rito to buy spare parts. The spouses again defaulted on their payment to RF Corporation and their chattel was threatened to be foreclosed.

Salvacion went to RF Corporation Office to request the non-foreclosure of their mortgage. There, she met Jose Blanca, who was introduced by RF Corporation as a sheriff. On two different occasions, Blanca went to Salvacion’s Office asking some amounts in consideration of not proceeding of the foreclosure and the auction sale of the

minibus. Thereafter, Salvacion received a notice of auction sale signed by Blanca. Salvacion went to the place of the sale on the scheduled date but obody was there and no sale took place.

Salvacion inquired from the clerk of court regarding the auction sale and was advised to ask Blanca. Blanca told Salvacion that Jose Braga won in the bidding. Salvacion checked with RF Corporation and got the information that it was RF Corporation who won the bidding. Salvacion went to RF Corporation to make some arrangements for the redemption of the minibus and met Blanca there. Salvacion filed a letter-complaint with the Ombudsman alleging the auction sale never took place on the scheduled date and place and that Blanca never gave her the excess of the bid price.

ISSUE: Whether or not the sheriff’s failure to turn over the mortgagor the excess of the bid price constituted, if not dishonesty, gross misconduct prejudicial to the best interests of the service.

HELD: The officer who conducted the foreclosure must demand and actually receive the cash proceeds of the auction sale from the highest bidder and turn over the balance to the mortgagor. It was therefore irregular for the sheriff not to demand and receive the entire bid price in cash from the winning bidder, or at the very least, to demand the excess amount and turn it over to the mortgagor.

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NEELAND vs. VILLANUEVA

FACTS: Neeland executed a Deed of Chattel Mortgage in favor of Daewoo Cars over a Toyota Sedan Cressida which was assigned to the Sugarland Motor Sales. Upon failure to pay, Sugarland Motor Sales filed with the city sheriff a request for foreclosure of the chattel mortgage and sale at public auction.

Acting upon the request, the city sheriff seized the motor vehicle and issued notice of auction sale. Accordingly, on scheduled date, the city sheriff proceeded to conduct the auction sale. Sugarland Motor Sales emerged as the highest bidder.

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However, because the city sheriff did not received the remaining amount form the winning bidder who despite demand applied the amount top cover other charges which Neeland had with Sugarland, hence the remaining balance between the sum at which the vehicle was sold and the obligation sought to be satisfied and expenses of the sale, was not turned over to Neeland. Hence, this complaint.

ISSUE: Whether or not the sheriff’s failure to turn over the mortgagor the excess of the bid price constituted, if not dishonesty, gross misconduct prejudicial to the best interests of the service.

HELD: The officer who conducted the foreclosure must demand and actually receive the cash proceeds of the auction sale from the highest bidder and turn over the balance to the mortgagor. It was therefore irregular for the sheriff not to demand and receive the entire bid price in cash from the winning bidder, or at the very least, to demand the excess amount and turn it over to the mortgagor.________________________________________________________________

TSAI v. COURT OF APPEALS

FACTS: Ever Textile Mills, Inc. obtained two loans from Philippine Bank of Communication on different occasions. The first loan was secured by a Deed of Real and Chattel Mortgage over the lot where the factory of Evertext stands and the chattels enumerated therein in a schedule attached to the mortgage contract. The second loan was also secured by a chattel mortgage over personal properties enumerated in a list attached thereto and were similar to those listed in the schedule attached to the first mortgage deed.

After the execution of the second mortgage, Evertext purchase various machineries and equipments. Due to business reverses, Evertext was declared insolvent and all its assets were taken into the custody of the Insolvency Court, including the collateral real and personal, securing the two mortgages. When Evertext failed to meet their obligations to PBCom, the latter commenced

extrajudicial foreclosure proceedings against Evertext.

In the two public auctions held, PBCom emerged as the highest bidder. Thereafter, PBCom sold the factory, lock, sock, stock and barrel, including the contested machineries which were not included in the first mortgage nor in the second mortgage to Rudy Tsai. The RTC found that the sale of personal properties were illegal because they were not duly foreclosed nor sold at the auction sale since they were not included in the schedule attached to the mortgage contracts.

ISSUE: Whether or not the inclusion of the questioned property in the foreclosed property is proper.

Whether or not the sale of these properties to petitioner Tsai is valid.

HELD: Where the facts, taken together, evince the conclusion that the parties intention is to treat the units of machinery as chattels, a fortiori, the after-acquired properties, which are of the same description as the units referred to earlier must also be referred to as chattels. As such, the Chattel Mortgage Law which provides that a chattel mortgage shall be deemed to cover only the property described therein and not the like or substituted property there-after acquired by the mortgagor and placed in the same depository as the property originally mortgage, anything in the mortgage to the contrary notwithstanding, applies.

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NORDIC ASIA LIMITED AND BANKERS TRUST CORPORATION vs. COURT OF APPEALS

FACTS: Sextant Maritime borrowed money from Nordic Asia Limited and Bankers Trust Co and executed a first preferred mortgage over the vessel M/V Flyppa which Sextant purchased using the loan obtained from Nordic. When Sextant defaulted on the loan, Nordic executed an extrajudicial proceeding. As part of the said proceeding, Nordic filed with the RTC Pasay a petition for the issuance of an arrest order against the vessel, and this was granted.

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On the other hand, on the same day, Nam Ung Marine Co, Ltd. And 27 crew members of the vessel also filed a complaint for sum of money before the RTC Manila to claim their preferred maritime liens, consisting of unpaid wages, overtime pay, allowances and other benefits due to them for services tendered on board the vessel and for manning and provisioning thereof.

Nordic filed with the RTC Manila an urgent motion to intervene in the collection case, alleging that they hold and possess a Panamanian First Preferred Ship Mortgage over the vessel and that their intervention is only for the purpose of opposing the claims of the unpaid crew members. RTC Manila granted the leave. However, despite due notice, Nordic did not participate in the hearings.

RTC Manila rendered judgment in favor of Num Ung Marine Co., Ltd. While Nordic appealed, num Ung moved for the execution pending appeal which the RTC Manila granted. Nordic appealed to the CA but the CA affirmed the RTC decision.

ISSUE: Whether or not a claimant or creditor shall be allowed to intervene in a collection case filed by a co-claimant/co-creditor possessing a superior lien or preferred credit, solely for the purpose of opposing such claims in order that the intervenors share may not be diminished substantially, or to prevent it from being diminished at all.

HELD: A mortgage of a vessel shall not be allowed to intervene in collection case filed by a co-complainant/co-creditor (unpaid crew members) possessing a superior lien or a preferred credit than the mortgagee solely for the purpose of opposing such claims so that its share in the chattel mortgage would not be diminished substantially, or to prevent it from being diminished at all since the higher the claims awarded to the crew members in the collection case, which would be recovered from the attached vessel, the lesser the amount the mortgage can obtain from their extrajudicial foreclosure proceedings.

In the case at bar, the complaint-in-intervention merely alleged that the mortgagee possesses a ortgage lien and it is so situated as to be adversely affected by the

crew’s members’ collection case. Being just a mortgagee, the cause of action lies with the vessel and the mortgagor, and nor with a co-claimant. The mortgagee was unable to allege what specific acts or omission can be attributed to its co-claimant which violated its rights. The complaint-in-intervention therefore failed to state a cause of action. In effect, the complaint-in-intervention is a device to defeat the order of preference of claims enumerated in PD No. 1521 (The Ship Mortgage Decree). If the mortgagee’s tactics were allowed, it will virtually pave way for any creditor with secondary lien or junior mortgage to block the claims of a preferred creditor or claimant by simply intervening to oppose such credits or claims.

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PHILLIP BROTHERS OCEANIC, INC. vs. COURT OF APPEALS

FACTS: San Grace Mining Corp. agreed to sell and ship to Phillip Brothers Oceanic Inc. chrome ores. In consideration, Philbrothers opened a letter of credit with Bank of Philippine Islands (BPI). The full payment was drawn by SAGRAMCO. To secure dollar advances, SAGRAMCO executed a chattel mortgage in favor of Philbro HK over its personal properties. Also, SAGRAMCO separately received several advances from Philbro Oceanci, the principal corporation of Philbro HK.

SAGRAMCO was able to produced chromes ore, 1800 metric tons of which stockpiled in the warehouse of Philbro Oceanic. SAGRAMCO and its corporate officers (spouses de Garcia) obtained from PNB two loans secured by the real estate mortgages. As further security, SAGRAMCO, assigned in favor of BPI, the proceeds of the letter of credit opened by Philbro HK and the trust receipts and quedans over aforementioned 1800 chrome ores.

On the other hand, on January 5, 1982, Philbro HK assigned to Philbro Oceanic all its rights, interests, and collections arising from the dollar advances and from the Deed of Chattel Mortgage securing the same. SAGRAMCO was only able to liquidate partially the dollar advances. For failure to pay loans, BPI filed complaints against

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SAGRAMCO for delivery of the 1800 metric tons of chrome ores with a prayer for the writ of replevin.

The RTC issued a writ of replevin. When the sheriff attempted to enforce the writ, Philbro Oceanic filed a third party claim alleging that its is the rightful owner by virtue of a subsequent agreement on December 2, 1988, to credit the chrome ores by the latter to it. In the same branch of RTC, Philbro Oceanic filed an action for injunction. The cases were then comslidated.

RTC ordered the chrome ores to be sold at public auction to prevent its further deterioration. Philbro Oceanic also filed a complaint-in-intervention to claim ownership over the chrome ores. Philbro Oceanic also files third party complaint for the judicial foreclosure of the chattel mortgage to answer for both of the dollar and peso advances made by SAGRAMCO.

ISSUE: Whether or not the chattel mortgage can only be called upon to satisfy the dollar advances obtained form Philbro HK.

HELD: The chattel mortgage is merely an accessory contract. Hence, it should be deemed automatically extinguished upon the satisfaction of the principal obligation. It can not be extended to guarantee the payment of the obligation of another entity which did not participate in the execution of the contract in its own right and was not an assignee thereof.

Philbro Oceanic is prevented from making use of the chattel mortgage entered exclusively by Philbro HK and SAGRAMCO, to secure its peso advances. Philbro Oceanic did not participate in the execution of the chattel mortgage in its own right and was not an assignee to the chattel mortgage at the time the agreement to credit the chrome ores to the dollar advances was made. Being a third party to the security arrangement, Philbro Ocenic cannot avail of the chattels mortgage to remedy the absence of any security for the peso advances. Hence, the chattel mortgage in this case can only secure dollar advances obtained from Philbro HK and cannot be extended to guarantee the payment of peso advances to another entity.

In the case at bar, the delivery of the chrome ores to Philbro Oceanic has fully satisfied the principal ogligation and even resulted to an excess payment. Since there is no more balance due on dollar advances, there can no longer exist a mortgage to foreclose upon.

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POLIAND INDUSTRIAL LIMITED vs. NATIONAL DEVELOPMENT COMPANY

FACTS: Asian Hardwood Limited (Asian Hardwood), a Hong Kong corporation, extended credit accommodations in favor of GALLEON. At that time, GALLEON, a domestic corporation organized in 1977 and headed by its president, Roberto Cuenca, was engaged in the maritime transport of goods. The advances were utilized to augment GALLEON’s working capital depleted as a result of the purchase of five new vessels and two second-hand vessels in 1979 and competitiveness of the shipping industry. GALLEON had incurred an obligation in the total amount of US$3,391,084.91 in favor of Asian Hardwood.

To finance the acquisition of the vessels, GALLEON obtained loans from Japanese lenders, namely, Taiyo Kobe Bank, Ltd., Mitsui Bank Ltd. and Marubeni Benelux. GALLEON, through Cuenca, and Development Bank of the Philippines (DBP) executed a Deed of Undertaking whereby DBP guaranteed the prompt and punctual payment of GALLEON’s borrowings from the Japanese lenders. To secure DBP’s guarantee under the Deed of Undertaking, GALLEON promised, among others, to secure a first mortgage on the five new vessels and on the second-hand vessels. Thus, GALLEON executed on January 25, 1982 a mortgage contract over five of its vessels.

Meanwhile, President Ferdinand Marcos issued Letter of Instruction (LOI) No. 1155, directing NDC to acquire the entire shareholdings of GALLEON for the amount originally contributed by its shareholders payable in five (5) years without interest cost to the government. In the same LOI, DBP was to advance to GALLEON within three years from its effectivity the principal amount and

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the interest thereon of GALLEON’s maturing obligations.

GALLEON, represented by its president, Cuenca, and NDC, represented by Minister of Trade Roberto Ongpin, forged a Memorandum of Agreement, whereby NDC and GALLEON agreed to execute a share purchase agreement within sixty days for the transfer of GALLEON’s shareholdings. Thereafter, NDC assumed the management and operations of GALLEON although Cuenca remained president until May 9, 1982. Using its own funds, NDC paid Asian Hardwood on January 15, 1982 the amount of US$1,000,000.00 as partial settlement of GALLEON’s obligations.

On February 10, 1982, LOI No. 1195 was issued directing the foreclosure of the mortgage on the five vessels. For failure of GALLEON to pay its debt despite repeated demands from DBP, the vessels were extrajudicially foreclosed on various dates and acquired by DBP for the total amount of P539,000,000.00. DBP subsequently sold the vessels to NDC for the same amount. Asian Hardwood assigned its rights over the outstanding obligation of GALLEON to World Universal Trading and Investment Company, S.A. (World Universal), embodied in a Deed of Assignment executed on April 29, 1989.

POLIAND made written demands on GALLEON, NDC, and DBP for the satisfaction of the outstanding balance in the amount of US$2,315,747.32. For failure to heed the demand, POLIAND instituted a collection suit against NDC, DBP and GALLEON filed on October 10, 1991 with the Regional Trial Court, Branch 61, Makati City. POLIAND claimed that under LOI No. 1155 and the Memorandum of Agreement between GALLEON and NDC, defendants GALLEON, NDC, and DBP were solidarily liable to POLIAND as assignee of the rights of the credit advances/loan accommodations to GALLEON. POLIAND also claimed that it had a preferred maritime lien over the proceeds of the extrajudicial foreclosure sale of GALLEON’s vessels mortgaged by NDC to DBP.

ISSUE: Whether NDC or DBP or both are liable to Poliand on the loan accommodations and credit advances incurred by GALLEON.

Whether Poliand has a maritime lien enforceable against NDC or DBP or both.

HELD: Article 580 of the Code of Commerce providing for the order of payment of creditors in the event of sale of a vessel, had been repealed by PD 1521, otherwise known as the Ship Mortgage Decree of 1978. If the mortgage of the vessel is constituted for the purpose of financing the construction, acquisition, purchase or initial operation of vessels, the mortgagee obtains a preferred status provided the formalities prescribed by law are complied with. Upon enforcement of he preferred mortgagee and eventual foreclosure of the vessel, the proceeds of the sale shall first be applied to the claim of the mortgage creditor unless there are superior or preferential claims under Section 17 of the same law.

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SPOUSES ROSARIO vs. PCI LEASING AND FINANCE

FACTS: Spouses Rosario purchased an Isuzu Elf pick-up utility vehicle from Car Merchants, Inc. which was covered by a Purchase Agreement whereby the spouses undertook to make a down payment of the total purchase price. The spouses then applied for a loan with PCI Leasing to pay for the remaining balance secured by a promissory note payable in monthly installments and a chattel mortgage over the Isuzu Elf. The motor vehicle was delivered to the spouses and it was registered in their names. Despite demands, the spouses Rosario failed to pay the amortizations on their loan to PCI Leasing that prompted the latter to file a Complaint against the Spouses Rosario in the Regional Trial Court for Sum of Money with Damages with a Prayer for a Writ of Replevin.

The Regional Trial Court issued an Order for the issuance of a writ of replevin. The sheriff seized the motor vehicle and after five days, without the court issuing an order discharging the writ, the sheriff turned over the possession of the vehicle to PCI leasing. The Spouses Rosario alleged that the chattel mortgage they executed in favor of PCI Leasing covering the motor vehicle was in effect a contract of sale of personal property, payable in installments to be governed by

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the Recto Law and further alleged that since PCI Leasing, as an assignee of Car Merchants, opted to foreclose the chattel mortgage, it was barred from collecting the balance of their account under the promissory note and chattel mortgage. The trial court rendered judgment in favor of PCI Leasing.

ISSUE: Whether or not PCI Leasing is barred from making a claim for specific performance against the spouses by mere fact that the former was already able to secure a writ of possession.

HELD: PCI Leasing is not an assignee of Car Merchants and therefore the Recto Law is not applicable. Recto Law cannot be applied to a mortgagee who is not a vendor of the property mortgaged. Even assuming that the respondent is the assignee of car Merchants, Inc. and that Recto Law is applicable, it is not proscribed from suing the petitioners for their unpaid balance. The fact of the matter is that the respondent did not foreclose the chattel mortgage, but opted to sue the petitioners for the balance of their account under a promissory note, with a plea for a writ of replevin. By securing a writ of replevin, the respondent did not thereby foreclose the chattel mortgage.

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CHIENG vs. SPOUSES SANTOS

FACTS: Antonio Chieng extended a loan in favor of Spouses Eulogio and Teresita Santos. As security for such loan, the respondents executed in favor of petitioner a Deed of Real Estate Mortgage over a piece of land. Thereafter, respondent Eulogio issued several checks in favor of petitioner as payment for the loan.  Some of these checks were dishonored, prompting the petitioner to file a criminal case against respondent Eulogio for violation of Batas Pambansa Blg. 22.

Respondent Eulogio failed to comply with his obligation in the compromise agreement as agreed upon during pre-trial conference. Petitioner filed with the Olongapo City Regional Trial Court an action for foreclosure of mortgage constituted on respondents’ real property. Petitioner alleged that he extended

a loan of P600,000.00 in favor of respondents for which respondents executed the Deed of Real Estate Mortgage in his favor. Despite his repeated demands, respondents failed to pay the loan.

Respondent Eulogio explained that he issued several checks amounting to P107,000.00 in favor of petitioner as partial payment of the loan as evidenced by a memorandum. He added that some of the checks he issued bounced; thus, he and his wife failed to fully discharge their loan. Instead of foreclosing the mortgage on their property, petitioner chose to institute criminal cases against respondent Eulogio for issuing bouncing checks in violation of Batas Pambansa Blg. 22.

During the trial, the petitioner passed away. Thus, his heirs filed a motion to substitute him.

ISSUE: Whether filing a criminal case for violation of Batas Pambansa Blg. 22 will bar or preclude from availing other civil remedy of the foreclosure of the real estate mortgage.

HELD: Following the rule on alternative remedies of a mortgagee-creditor, the filing of criminal case for violation of Batas Pambansa Blg 22 by the mortgagee-creditor against the mortgagor will bar or preclude the fromer from availing himself of the other civil remedy of the foreclosure of the real estate mortgage because pursuant to Section 1 (b) of Rule 111 of the 2000 Rules on Criminal Procedure, he is deemed to have already availed himself of the remedy of collection suit.

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CHATTEL MORTGAGE ON A PERSONAL PROPERTY SOLD ON INSTALLMENTS

INDUSTRIAL FINANCE vs. TOBIAS

FACTS: Castor Tobias bought on installment one dodge truck from Leelin Motors Inc. Tobias executed a promissory note in favor of Leelin Motors payable in three (3) equal installments. To secure payments on the promissory note, Tobias executed in favor of

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Leelin Motors a chattel mortgage to Industrial Finance Corporation.

As a consequence, Tobias paid six (6) installments on the promissory note directly to IFC. When Tobias in arrear in the payment of more than two installments, IFC through a letter gave Tobias the choice of either paying the balance of the purchase price or to surrender the truck. Tobias responded to the letter voluntarily and willingly surrendering the truck which was still in the custody of Leelin Motors ever since the truck met an accident.

Upon learning that the truck met an accident. IFC decide not to get the truck anymore from Leelin Motors, Inc. Instead, IFC filed an action against Tobias to recover the unpaid balance of the promissory note. The lower court affirmed by the CA, dismissed the complaint on the ground that “inasmuch Tobias voluntarily and willingly surrendered the truck and gave IFC full authority to get the said truck from Leelin Motors, Inc. pursuant to the demand to surrender. Tobias has already complied with the demands of the IFC.

ISSUE: Whether or not the mortgage is estopped to insist on its claim on the balance of the promissory note when it demanded the return or surrender of the truck to which demand the mortgage acceded.

HELD: The mortgage’s letter informing the mortgagor of his intent to foreclose is not yet a foreclosure of the chattel. A mere offer of the mortgagor to surrender the chattel, not accepted by the mortgagee, does not preclude the mortgagee from bringing suit to recover the balance of the purchase price.

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FILINVEST CREDIT CORPORATION vs. PHILIPPINE ACETYLENE CO, INC.

FACTS: Philippine Acetylene Co. Inc. purchased from Alexander Lim, a 1969 model Chevrolet paying down payment and the balance to the payable in 34 monthly installments. As security for the payment of the promissory note, PAC executed a chattel mortgage over the motor vehicle in favor of Lim. Subsequently, Lim assigned all his

rights, title and interest in the promissory note and chattel mortgage to the Filinvest Finance Corp.

Thereafter, FFC merged with Credit and Development Corporation. As a consequence, FFc assigned all its rights, title and interests on the promissory note and a chattel mortgage on the new corporation Filinvest Credit Corporation. The payment of the unpaid balance owed by PAC to Alexnader Lim was financed by FFC such that Lim became fully paid. PAC Failed to comply with the terms and conditions set forth the promissory note and the chattel mortgage.

After it had defaulted in the payment of 9 successive installments, FFC demanded to pay. Instead PAC returned the mortgaged property in full satisfaction of its indebtedness. When FFC cannot sell the motor vehicle as there were unpaid taxes in the said vehicle, it requested PAC to pay installments in arrears and accrued interest. FFC offered to deliver back the motor vehicle to PAC but latter refused to accept it, so FCC instituted an action for collection of sum of money.

The lower court ordered PAC to pay the outstanding unpaid obligation and to accept the delivery of the motor vehicle subject of the chattel mortgage.

ISSUE: Whether or not the return of the mortgaged property by the mortgagor to the mortgagee constituted dation in payment or dacion en pago.

HELD: Under the principle of dacion en pago, mere delivery of mortgaged motor vehicle by mortgagor does not mean transfer of ownership to the mortgagee. Without the consent to transfer ownership, what is merely transferred is merely possession of property. Mortgagee is not therefore stopped from demanding payment of the unpaid obligation of mortgagor by former’s acceptance of delivery of mortgaged motor vehicle.

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ZAYAS JR. vs. LUNETA MOTOR COMPANY

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FACTS: Eutropio Zayas bought a motor vehicle from Escano Enterprises, dealer of Luneta Motors, on installment basis via a promissory note secured by a chattel mortgage on the said vehicle. Zayas, after paying some installments, failed to pay further that made Luneta Motor foreclose the mortgage selling the vehicle in public auction wherein the proceeds were not enough to cover the total amount prompting the latter to file a collection of the deficiency with the Regional Trial Court. Zayas’ answr posists that the situation was covered by the Recto Law while Luneta Motor’s reply contended that it was an ordinary loan secured by a chattel mortgage.

ISSUE: Whether or not Luneta Motors is barred from collecting the deficiency after the Chattel Mortgage has been foreclosed.

HELD: The foreclosure and actual sale of a mortgaged chattel bars further recovery by the vendor of any balance on the purchaser’s outstanding obligation not so satisfied by the sale. This amendment (Recto Law) prevents mortgagees from seizing the mortgaged property, buying it at foreclosure sale for a low price and then bringing suit against the mortgagor for a deficiency judgment. The almost invariable result of this procedure was that the mortgagor found himself minus the property and still owing practically the full amount of his original indebtedness.Under this amendment, the vendor of personal property, the purchase price of which is payable in installments, has the right to cancel the sale or foreclose the mortgage if one has been given the property. Whichever right the vendor elects, he need not return to purchaser the amount of the installments already paid, if there be an agreement to that effect. Further, if the vendor avails himself of the right to foreclose the mortgage, this amendment prohibits him from bringing an action against the purchaser for the unpaid balance.

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RIDAD vs. FILIPINAS INVESTMENT & FINANCE COMPANY

FACTS: The Spouses Ridad bought from the Supreme Sales a two (2) Ford Consuls being payable in 24 equal monthly installments

secured by a promissory note and a chattel mortgage not only on the two vehicles purchased but also on another Chevrolet car and their franchise or certificate of public convenience granted for the operation of a taxi fleet which were assigned afterwards to Filipinas Investment.

An unfortunate failure of payment prompted the foreclosure by the Filipinas Investment of the chattel mortgage selling the two purchased cars at public auction and as well as the other properties mortgaged on a different date because the proceeds of the first auction sale was not to cover the obligation. The Spouses filed an action for annulment of contract before the Court of First Instance which declared the chattel mortgage over the used car and the franchise null and void.

ISSUE: Whether or not the chattel mortgage over the used Chevrolet car and the franchise was valid.

HELD: The chattel mortgage in question is a nullity insofar as the taxicab franchise and the used Chevrolet car of Ridad are concerned, under the authority of the ruling in the case of Levy Hermanos, Inc. vs. Pacific Commercial Co., et al., 71 Phil. 587, the facts of which are similar to those in the present case. There the same situation occurred wherein the vendee offered as security for the payment of the purchase price not only the motor vehicles which were bought on installment, but also a residential lot and a house of strong materials.

The Court sustained the pronouncement made by the lower court on the nullity of the mortgage insofar as it included the house and lot of the vendees, holding that under the law, should the vendor choose to foreclose the mortgage, he has to content himself with the proceeds of the sale at the public auction of the chattels which were sold on installment and mortgaged to him and having chosen the remedy of foreclosure, he cannot nor should be allowed to insist on the sale of the house and lot of the vendees, for to do so would be against them concerning other properties which are separate and distinct from those which were sold on installment. This would indeed be contrary to public policy and the very spirit and purpose

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of law, limiting the vendor’s right to foreclose the chattel mortgage only on the thing sold.

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ESGUERRA vs. COURT OF APPEALS

FACTS: Hilario Lagmay and Bonifacio Masilungan purchased a Ford Trader cargo truck from GA Machineries Inc. (GAMI) and the said truck was resold by the former to Montelibano Esguerra assuming the unpaid purchase price secured by a promissory note and a chattel mortgage over the truck in favor of GAMI. Failure of payment prompted GAMI to seize and appropriate as payment the truck from the petitioner with his consent on the condition that he be allowed to recover its possession upon payment of his back account. The former did not foreclose.

ISSUE: Whether or not GAMI is required to foreclose the chattel mortgage.

HELD: Appropriating the truck as payment is illegal and tantamount to pactum commisorium which is expressly prohibited by Article 2088 of the New Civil Code. GAMI should foreclose the chattel mortgage. Taking, while the mortgagee can take possession of the chattel, did not amount to the foreclosure. Taking of Esguerra without proceeding to the sale but appropriating the same as payment is not lawful.

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BORBON II vs. SERVICEWIDE SPECIALIST

FACTS: Borbon intended to buy a jeepney type Isuzu cab from Pangasinan Auto Mart but what was delivered was Isuzu crew cab because of miscommunication and the latter was not able to replace until the delivered vehicle was seized due to court order for not paying the promissory note and the effect of the chattel mortgage over the subject vehicle which were assigned to Filinvest then further reassigned to Servicewide. The Regional Trial Court, affirmed by the Court of Appeals, ordered the payment of liquidated damages to Servicewide. The petitioner appealed to Supreme Court to remove the award of liquidated damages.

ISSUE: Whether or not the award of liquidated damages is improper.

HELD: The remedies under Article 1484 of the Civil Code are not cumulative but alternative and exclusive. In ordinary alternative obligations, a mere choice categorically and unequivocally made and then communicated by the person entitled to exercise the option concludes the parties. The creditor may not thereafter exercise any other option, unless the chosen alternative proves to be ineffectual or unavailing due to no fault on his part. This rule, in essence, is the difference between alternative obligations, on the one hand, and alternative remedies, upon the other hand, where, in the latter case, the choice generally becomes conclusive only upon the exercise of the remedy.

For instance, in one of the remedies expressed in Article 1484 of the Civil Code, it is only when there has been a foreclosure of the chattel mortgage that the vendee-mortgagor would be permitted to escape from a deficiency liability. Thus, if the case is one for specific performance, even when this action is selected after the vendee has refused to surrender the mortgaged property to permit an extrajudicial foreclosure, that property may still be levied on execution and an alias writ may be issued if the proceeds thereof are insufficient to satisfy the judgment credit.

Thus, also, a mere demand to surrender the object which is not heeded by the mortgagor will not amount to a foreclosure, but the repossession thereof by the vendor-mortgagee would have the effect of foreclosure. The parties here concede that the action for replevin has been instituted for the foreclosure of the vehicle in question. The sole issue raised is the appeal is focused on the judgment by the appellate court of the awards made by the court a quo of liquidated damages and attorney’s fees to private respondent. Petitioners hold that under Article 1484 of the Civil Code, the vendor-mortgagee or its assignees lose any right to recover any unpaid balance of the price and any agreement to the contrary is null and void.

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AGUSTIN vs. COURT OF APPEALS

FACTS: Levillo Agustin purchased an Isuzu diesel truck from ERM Commercial in installment basis secured by a promissory note and chattel mortgage over the subject vehicle which was later assigned to FIlinvest. Failure to pay prompted Filinvest to demand the whole balance or surrender the subject vehicle; the petitioner did neither of the options. Filinvest thereafter filed a complaint with the Regional Trial Court praying the issuance of writ of replevin or payment of the amount. Filinvest hereinafter possessed the subject vehicle but subsequently filed a supplemetal complaint for reimbursement of the expenses incurred. Agustin raised the defense of Recto Law.

ISSUE: Whether or not Filinvest is barred from claiming for reimbursement as allegedly contemplated in the Recto Law.

HELD: The award for reimbursement is proper. The court made an action for replevin is made, the plaintiff will necessarily incur expenses and it is logical to claim for reimbursement which is not part of the purchase price.

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[BANKING]REGISTER OF DEEDS OF MANILA vs. CHINA BANKING CORP.

FACTS: Alfonso Pangilinan and one Guillermo Chua were charged with qualified theft, the money involved amounting to P275,000.00. Pangilinan and his wife Belen Sta. Ana executed a DEED OF TRANSFER whereby, after admitting his civil liability in favor of his employer-the China Banking Corporation, in relation to such offense, he ceded and transferred to CBC a parcel of land

The deed was presented for registration to the Register of Deeds of the City of Manila; but because the transferee — the CBC — was alien-owned and as such, barred from acquiring lands in the Philippines (in accordance with the provisions of Section 5, Article XIII of the Consti.) said officer submitted the matter of its registration to the Land Registration Commission for resolution

The LRC held that "that the deed of transfer in favor of an alien bank, subject of the present Consulta, is unregisterable for being in contravention of the Constitution of the Philippines"

ISSUE: Whether or not cbc - an alien-owned bank - can acquire ownership of the residential lot by virtue of the said deed of transfer

HELD: Related provision: Republic Act 337; SEC. 25. Any commercial bank may purchase, hold, and convey real estate for the following purposes:

x x x           x x x           x x x

(c) Such shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings; .

(d) Such as it shall purchase at sales under judgments, decrees, mortgages, or trust deeds held by it and such as it shall purchase to secure debts due to it.

But no such bank shall hold the possession of any real estate under mortgage or trust deed, or the title and possession of any real estate purchased to secure any debt due to it, for a longer period than five years.

The "debts" referred to in paragraph (c) are only those resulting from previous loans and other similar transactions made or entered into by a commercial bank in the ordinary course of its business as such. Obviously, whatever "civil liability" — arising from the criminal offense of qualified theft — was admitted in favor of appellant bank by its former employee, Alfonso Pangilinan, was not a debt resulting from a loan or a similar transaction had between the two parties in the ordinary course of banking business.

Par. (d) does not also apply since the deed of transfer in question cannot be considered as a sale made by virtue of a judgment, decree, mortgage, or trust deed held by appellant bank. In the same manner it cannot be said that the real property in question was purchased by appellant "to secure debts due to it", considering that, as stated heretofore, the term debt employed in the pertinent legal provision can logically refer only to such debts as may become payable to appellant bank as a result of a banking transaction.

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REPUBLIC vs. SECURITY CREDIT AND ACCEPTANCE CORPORATION, ET AL.

FACTS: Record shows that the Articles of Incorporation of defendant corporation were registered with the Securities and Exchange Commission; that the Board of Directors of the corporation adopted a set of by-laws which were filed with said Commission; that the Superintendent of Banks of the Central Bank of the Philippines asked its legal counsel an opinion on whether or not said corporation is a banking institution, within the purview of Republic Act No. 337, which was later answered in the affirmative; that prior thereto the corporation had applied with SEC for the registration and licensing of its securities under the Securities Act; that the Commission referred it to the Central Bank,

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in line with which, the Commission advised the corporation to comply with the requirements of the General Banking Act; that, upon application of members of the Manila Police Department and an agent of the Central Bank the Municipal Court of Manila issued Search Warrant so they searched the premises of the corporation and seized documents and records relative to its business operations; that upon examination and evaluation of said documents and records, the intelligence division of the Central Bank submitted, to the Acting Deputy Governor thereof, a memorandum finding that the corporation is regularly lending funds obtained from the receipt of deposits and/or the sale of securities. The Corporation therefore is performing 'banking functions' as contemplated in Republic Act No. 337, without having first complied with the provisions of said Act

So the Monetary Board promulgated its Resolution declaring that the corporation is performing banking operations, without having first complied with the provisions of Sections 2 and 6 of Republic Act No. 337

The corporation was advised of the said resolution, but the corporation, and the members of its Board of Directors and the officers have been and still are performing the functions and activities which had been declared to constitute illegal banking operations. It had even established 74 branches in principal cities and towns throughout the Philippines.

So the Solicitor General commenced this quo warranto proceedings for the dissolution of the corporation, with a prayer that, meanwhile, a writ of preliminary injunction be issued ex parte to enjoin the corporation and its branches, as well as its officers and agents, from performing the banking operations complained of, and that a receiver be appointed pendente lite.

ISSUE: Whether or not the defendant is engaged in banking, which if yes, should first secure the required administrative authority

HELD: Defendants deny that its transactions partake of the nature of banking operations. However, they concede that, in consequence of a propaganda campaign therefor, savings account deposits have been made by the

public with the corporation and its 74 branches, with an aggregate deposit of P1,689,136.74, which has been lent out to such persons as the corporation deemed suitable therefor. The defendants are wrong. It is clear that these transactions partake of the nature of banking, as the term is used in Section 2 of the General Banking Act. Indeed, a bank has been defined as: a moneyed institute founded to facilitate the borrowing, lending and safe-keeping of money and to deal, in notes, bills of exchange, and credits.

Also, as held in another case “an investment company which loans out the money of its customers, collects the interest and charges a commission to both lender and borrower, is a bank.

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DAMASO P. PEREZ, ET AL. vs. MONETARY BOARD, ET AL.

FACTS: Petitioner, for himself and in a derivative capacity on behalf of the Republic Bank, instituted mandamus proceedings in the CFI against the Monetary Board, the Superintendent of Banks, the Central Bank and the Secretary of Justice to compel these respondents to prosecute Pablo Roman and several other Republic Bank officials for violations of the General Banking Act (specifically secs. 76-78 and 83 thereof) and the Central Bank Act and for falsification of public or commercial documents in connection with certain alleged anomalous loans amounting to P1,303,400.00 authorized by Roman and the other bank officials

Secretary of Justice claimed that it was not their specific duty to prosecute the persons denounced by Petitioner Perez; Central Bank claimed that they had already done their duty under the law by referring to the special prosecutors of the Department of Justice for criminal investigation and prosecution those cases involving the alleged anomalous loans

Respondents moved to dismiss the petition for lack of cause of action; Petitioners opposed; Lower court denied the motion to dismiss. The Board of Dir. of the Republic Bank filed motion to intervene in the proceedings; granted.

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The Monetary Board of the Central Bank passed a resolution granting the request of Republic Bank for credit accommodations to cover the unusual withdrawal of deposits by its depositors in view of the fact that said Bank was under investigation by the authorities. The grant was conditioned upon the execution by the management of the Republic Bank of a voting trust agreement in favor of a Board of Trustees to be chosen by the RB with the approval of the Central Bank.

Pablo Roman and his family, the controlling stockholders of RB, executed a voting trust agreement in favor of a board of trustees composed of former Chief Justice Ricardo Paras, Hon. Miguel Cuaderno and Mr. Felix de la Costa. Subsequently this agreement was superseded by another one with the Philippine National Bank as the trustee.

So the intervenors filed a motion to dismiss before the lower court claiming that the ouster of Pablo Roman and his family from the management of the Republic Bank effected by the voting trust agreement rendered the mandamus case moot and academic.

Respondents-appellees also filed motion to dismiss raising again the impropriety of mandamus.

CFI granted these motions and dismissed the case; HTP

ISSUE: Whether or not respondents can be compelled to prosecute violations of the banking laws

HELD: We rule that petitioners cannot seek by mandamus to compel respondents to prosecute criminally those alleged violators of the banking laws. Although the Central Bank and its respondent officials may have the duty under the Central Bank Act and the General Banking Act to cause the prosecution of those alleged violators, yet We find nothing in said laws that imposes a clear, specific duty on the former to do the actual prosecution of the latter. The Central Bank is a government corporation created principally to administer the monetary and banking system of the Republic, not a prosecution agency like the fiscal's office. Being an artificial person, the Central Bank is limited

to its statutory powers and the nearest power to which prosecution of violators of banking laws may be attributed is its power to sue and be sued. But this corporate power of litigation evidently refers to civil cases only. For respondents to do the actual prosecuting themselves, as petitioners would have it, would be tantamount to an ultra vires act already.

As for the Secretary of Justice, while he may have the power to prosecute — through the office of the Solicitor General — criminal cases, yet it is settled rule that mandamus will not lie to compel a prosecuting officer to prosecute a criminal case in court.

Also, said violations constitute a public offense, the prosecution of which is a matter of public interest and hence, anyone — even private individuals — can denounce such violations before the prosecuting authorities. Since Perez himself could cause the filing of criminal complaints against those allegedly involved in the anomalous loans, if any, then he has a plain, adequate and speedy remedy in the ordinary course of law, which makes mandamus against respondents improper.

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SIMEX INTERNATIONAL (MANILA), INCORPORATED vs. THE HONORABLE COURT OF APPEALS and TRADERS ROYAL BANK

FACTS: The petitioner is a private corporation engaged in the exportation of food products. It buys these products from various local suppliers and then sells them abroad. Most of its exports are purchased by the petitioner on credit.

The petitioner was a depositor of the respondent bank. It deposited to its account in the said bank the amount of P100,000.00, thus increasing its balance as of that date to P190,380.74. Subsequently, the petitioner issued several checks against its deposit but was suprised to learn later that they had been dishonored for insufficient funds.

As a consequence, the California Manufacturing Corporation sent on June 9, 1981, a letter of demand to the petitioner,

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threatening prosecution if the dishonored check issued to it was not made good. It also withheld delivery of the order made by the petitioner. Similar letters were sent to the petitioner by the Malabon Long Life Trading, on June 15, 1981, and by the G. and U. Enterprises, on June 10, 1981. Malabon also canceled the petitioner's credit line and demanded that future payments be made by it in cash or certified check. Meantime, action on the pending orders of the petitioner with the other suppliers whose checks were dishonored was also deferred.

Investigation disclosed that the sum of P100,000.00 deposited by the petitioner on May 25, 1981, had not been credited to it. The error was rectified on June 17, 1981, and the dishonored checks were paid after they were re-deposited.

Petitioner then filed a complaint in the then CFI of Rizal claiming from the private respondent moral damages in the sum of P1,000,000.00 and exemplary damages in the sum of P500,000.00, plus 25% attorney's fees, and costs.

CFI held that exemplary and moral damages were not called for under the circumstances. However, observing that the plaintiff's right had been violated, It ordered the defendant to pay nominal damages in the amount of P20,000.00 plus P5,000.00 attorney's fees and costs. This decision was affirmed in toto by the respondent CA. It said that although there was omission by defendant to credit petitioner’s deposit of 100,000, the bank has rectified its records. It credited the said amount in less than a month and the dishonored check were eventually paid. These circumstances negate any imputation of wanton and gross bad faith and negligence on the part of the defendant. HTP

ISSUE: Whether or not petitioner is entitled to moral and exemplary damages.

HELD: On moral damages:

It is not enough to say that the private respondent rectified its records and credited the deposit in less than a month as if this were sufficient repentance. The respondent bank has not even explained why the error was committed at all. It is true that the

dishonored checks were, as the CA put it, "eventually" paid. However, this took almost a month when, properly, the checks should have been paid immediately upon presentment.

We shall recognize that the petitioner did suffer injury because of the private respondent's negligence that caused the dishonor of the checks issued by it. The immediate consequence was that its prestige was impaired because of the bouncing checks and confidence in it as a reliable debtor was diminished. As we have found that the petitioner has indeed incurred loss through the fault of the private respondent, the proper remedy is the award to it of moral damages, which we impose, in our discretion, in the same amount of P20,000.00.

On exemplary damages:

Civil Code provisions:

Art. 2229. Exemplary or corrective damages are imposed, by way of example or correction for the public good, in addition to the moral, temperate, liquidated or compensatory damages.

Art. 2232. In contracts and quasi-contracts, the court may award exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.

The depositor expects the bank to treat his account with the utmost fidelity, whether such account consists only of a few hundred pesos or of millions. The bank must record every single transaction accurately, down to the last centavo, and as promptly as possible. This has to be done if the account is to reflect at any given time the amount of money the depositor can dispose of as he sees fit, confident that the bank will deliver it as and to whomever he directs. A blunder on the part of the bank, such as the dishonor of a check without good reason, can cause the depositor not a little embarrassment if not also financial loss and perhaps even civil and criminal litigation.

The point is that as a business affected with public interest and because of the nature of its functions, the bank is under obligation to treat the accounts of its depositors with

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meticulous care, always having in mind the fiduciary nature of their relationship. In the case at bar, it is obvious that the respondent bank was remiss in that duty and violated that relationship. What is especially deplorable is that, having been informed of its error in not crediting the deposit in question to the petitioner, the respondent bank did not immediately correct it but did so only one week later or twenty-three days after the deposit was made. It bears repeating that the record does not contain any satisfactory explanation of why the error was made in the first place and why it was not corrected immediately after its discovery. Such ineptness comes under the concept of the wanton manner contemplated in the Civil Code that calls for the imposition of exemplary damages.

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FIDELITY SAVINGS AND MORTGAGE BANK vs. HON. PEDRO D. CENZON and SPOUSES TIMOTEO AND OLIMPIA SANTIAGO

FACTS: Sometime on May 16, 1968, spouses Santiago deposited with the Fidelity Savings Bank the amount of (P50,000.00); likewise, sometime on July 6, 1968, spouses again deposited the amount of (P50,000.00). Aggregate amount of (100,000).

On February 18, 1969, the Monetary Board, after finding the report of the Superintendent of Banks, that the condition of Fidelity Savings and Mortgage Bank is one of insolvency issued resolution: To forbid the Fidelity Savings Bank to do business in the Philippines and To instruct the Acting Superintendent of Banks to take charge, in the name of the Monetary Board, of the Bank's assets.

Spouses were paid 10,000 on the aggregate deposit of 100,000, thereby leaving a balance of 90,000. Spouses demanded immediate payment of the aforementioned savings and time deposits.

ISSUE: Whether or not an insolvent bank may be adjudged to pay interest on unpaid deposits even after its closure by the Central Bank by reason of insolvency without

violating the provisions of the Civil Code on preference of credits.

Whether or not an insolvent bank may be adjudged to pay moral and exemplary damages, attorney's fees and costs when the insolvency is caused b the anomalous real estate transactions without violating the provisions of the Civil Code on preference of credits. NO

HELD: It is settled jurisprudence that a banking institution which has been declared insolvent and subsequently ordered closed by the Central Bank of the Philippines cannot be held liable to pay interest on bank deposits which accrued during the period when the bank is actually closed and non-operational.

In The Overseas Bank of Manila vs. Court of Appeals and Tony D. Tapia, we held that:What enables a bank to pay stipulated interest on money deposited with it is that thru the other aspects of its operation it is able to generate funds to cover the payment of such interest. Unless a bank can lend money, engage in international transactions, acquire foreclosed mortgaged properties or their proceeds and generally engage in other banking and financing activities from which it can derive income, it is inconceivable how it can carry on as a depository obligated to pay stipulated interest. Conventional wisdom dictates this inexorable fair and just conclusion. And it can be said that all who deposit money in banks are aware of such a simple economic proposition. Consequently, it should be deemed read into every contract of deposit with a bank that the obligation to pay interest on the deposit ceases the moment the operation of the bank is completely suspended by the duly constituted authority, the Central Bank.

There is no valid basis for the award of exemplary damages which is supposed to serve as a warning to other banks from dissipating their assets in anomalous transactions. In the absence of fraud, bad faith, malice or wanton attitude, petitioner bank may, therefore, not be held responsible for damages which may be reasonably attributed to the non-performance of the obligation.

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LUZAN SIA vs. COURT OF APPEALS and SECURITY BANK and TRUST COMPANY

 FACTS: The plaintiff rented on March 22, 1985 the Safety Deposit Box No. 54 of the SECURITY BANK AND TRUST COMPANY (SBTC) at its Binondo Branch wherein he placed his collection of stamps. The said safety deposit box leased by the plaintiff was at the bottom or at the lowest level of the safety deposit boxes of the SBTC.

During the floods that took place in 1985 and 1986, floodwater entered into the defendant bank's premises, seeped into the safety deposit box leased by the plaintiff and caused, according to the plaintiff, damage to his stamps collection. The defendant bank rejected the plaintiff's claim for compensation for his damaged stamps collection, so, the plaintiff instituted an action for damages against the defendant bank.

The defendant bank denied liability for the damaged stamps collection of the plaintiff on the basis of the "Rules and Regulations Governing the Lease of Safe Deposit Boxes" (particularly paragraphs 9 and 13, which reads (sic):

"9. The liability of the Bank by reason of the lease, is limited to the exercise of the diligence to prevent the opening of the safe by any person other than the Renter, his authorized agent or legal representative; "13. The Bank is not a depository of the contents of the safe and it has neither the possession nor the control of the same. The Bank has no interest whatsoever in said contents, except as herein provided, and it assumes absolutely no liability in connection therewith."

SBTC also contended that its contract with the plaintiff over safety deposit box No. 54 was one of lease and not of deposit and, therefore, governed by the lease agreement which should be the applicable law; that the destruction of the plaintiff's stamps collection was due to a calamity beyond obligation on its part to notify the plaintiff about the floodwaters that inundated its premises at

Binondo branch which allegedly seeped into the safety deposit box leased to the plaintiff.

After conducting an ocular inspection, the trial court ruled against SBTC, finding it guilty of negligence. SBTC appealed to CA.

CA reversed RTC’s decision. In reversing the trial court's decision and absolving SBTC from liability, the CA found and ruled that: a) the fine print in the "Lease Agreement " constitutes the terms and conditions of the contract of lease which Sia had voluntarily and knowingly executed with SBTC; b) the contract entered into by the parties regarding Safe Deposit Box No. 54 was not a contract of deposit wherein the bank became a depositary of the subject stamp collection; hence, as contended by SBTC, the provisions of deposits do not apply; c) xxx provisions (9&13) of the questioned lease agreement of the safety deposit box limiting SBTC's liability are valid. d) there is no concrete evidence to show that SBTC failed to exercise the required diligence in maintaining the safety deposit box; what was proven was that the floods of 1985 and 1986, which were beyond the control of SBTC,xxx; said floods were fortuitous events which SBTC should not be held liable for since it was not shown to have participated in the aggravation of the damage to the stamp collection; on the contrary, it offered its services to secure the assistance of an expert in order to save most of the stamps, but the appellee refused; appellee must then bear the lose under the principle of "res perit domino."

ISSUE: Whether the contract executed between Sia and SBTC was merely a contract of lease.

Whether paragraphs 9&13 limiting the liability of SBTC valid.

Whether the inundation is a fortuitous event

HELD: In the recent case CA Agro-Industrial Development Corp. vs. Court of Appeals, this Court explicitly rejected the contention that a contract for the use of a safety deposit box is a contract of lease governed by Title VII, Book IV of the Civil Code. Nor did We fully subscribe to the view that it is a contract of deposit to be strictly governed by the Civil

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Code provision on deposit; it is, as We declared, a special kind of deposit. The prevailing rule in American jurisprudence — that the relation between a bank renting out safe deposit boxes and its customer with respect to the contents of the box is that of a bailor and bailee, the bailment for hire and mutual benefit— has been adopted in this jurisdiction, thus:

In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it is clear that in this jurisdiction, the prevailing rule in the United States has been adopted. Section 72 of the General Banking Act [R.A. 337, as amended] pertinently provides:

"Sec. 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions other than building and loan associations may perform the following services: (a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for the safeguarding of such effects. The banks shall perform the services permitted under subsections (a), (b) and (c) of this section as depositories or as agents. . . ."

Note that the primary function is still found within the parameters of a contract of deposit, i.e., the receiving in custody of funds, documents and other valuable objects for safekeeping. The renting out of the safety deposit boxes is not independent from, but related to or in conjunction with, this principal function. A contract of deposit may be entered into orally or in writing (Art. 1969, Civil Code] and, pursuant to Article 1306 of the Civil Code, the parties thereto may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy. The depositary's responsibility for the safekeeping of the objects deposited xxx is governed by Title I, Book IV of the Civil Code. Accordingly, the depositary would be liable if, in performing its obligation, it is found guilty of fraud, negligence, delay or contravention of the tenor of the agreement [Art. 1170, id.]. In the absence of any stipulation prescribing the degree of diligence required, that of a good father of a family is to be observed [Art. 1173, id.].

Hence, any stipulation exempting the depositary from any liability arising from the loss of the thing deposited on account of fraud, negligence or delay would be void for being contrary to law and public policy.

Furthermore condition 13 stands on a wrong premise and is contrary to the actual practice of the Bank. It is not correct to assert that the Bank has neither the possession nor control of the contents of the box since in fact, the safety deposit box itself is located in its premises and is under its absolute control; moreover, the respondent Bank keeps the guard key to the said box. As stated earlier, renters cannot open their respective boxes unless the Bank cooperates by presenting and using this guard key. Clearly then, to the extent above stated, the foregoing conditions in the contract in question are void and ineffective. It has been said:

"With respect to property deposited in a safe-deposit box by a customer of a safe-deposit company, the parties, since the relation is a contractual one, may by special contract define their respective duties or provide for increasing or limiting the liability of the deposit company, provided such contract is not in violation of law or public policy. It must clearly appear that there actually was such a special contract, however, in order to vary the ordinary obligations implied by law from the relationship of the parties; liability of the deposit company will not be enlarged or restricted by words of doubtful meaning. The company, in renting safe-deposit boxes, cannot exempt itself from liability for loss of the contents by its own fraud or negligence or that, of its agents or servants, and if a provision of the contract may be construed as an attempt to do so, it will be held ineffective for the purpose. Although it has been held that the lessor of a safe-deposit box cannot limit its liability for loss of the contents thereof through its own negligence, the view has been taken that such a lessor may limit its liability to some extent by agreement or stipulation.”

In the second issue, it must be noted that conditions No. 13 and No. 14 in the Contract of Lease of Safety Deposit Box in CA Agro-Industrial Development Corp. are strikingly similar to condition No. 13 in the instant case. On the other hand, both condition No. 8

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in CA Agro-Industrial Development Corp. and condition No. 9 in the present case limit the scope of the exercise of due diligence by the banks involved to merely seeing to it that only the renter, his authorized agent or his legal representative should open or have access to the safety deposit box. In short, in all other situations, it would seem that SBTC is not bound to exercise diligence of any kind at all. Assayed in the light of Our aforementioned pronouncements in CA Agro-lndustrial Development Corp., it is not at all difficult to conclude that both conditions No. 9 and No. 13 of the "Lease Agreement" covering the safety deposit box in question must be stricken down for being contrary to law and public policy as they are meant to exempt SBTC from any liability for damage, loss or destruction of the contents of the safety deposit box which may arise from its own or its agents' fraud, negligence or delay. Accordingly, SBTC cannot take refuge under the said conditions.

As to the last issue, the elements of caso fortuito: (i) the cause of the unforeseen ands unexpected occurrence, or of the failure of the debtor to comply with his obligation, must be independent of the human will; (ii) it must be impossible to foresee the event which constitutes the "caso fortuito," or if it can be foreseen, it must be impossible to avoid; (iii) the occurrence must be such as to render it impossible for one debtor to fulfill his obligation in a normal manner; and (iv) the obligor must be free from any participation in the aggravation of the injury resulting to the creditor.

The facts constituting negligence are enumerated in the petition and have been summarized in this ponencia. SBTC's negligence aggravated the injury or damage to the stamp collection. SBTC was aware of the floods of 1985 and 1986; it also knew that the floodwaters inundated the room where Safe Deposit Box No. 54 was located. In view thereof, it should have lost no time in notifying the petitioner in order that the box could have been opened to retrieve the stamps, thus saving the same from further deterioration and loss. In this respect, it failed to exercise the reasonable care and prudence expected of a good father of a family, thereby becoming a party to the aggravation of the injury or loss. Hence, the

rule on caso fortuito will not apply in this case.

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PHILIPPINE COMMERCIAL INTERNATIONAL BANK vs. COURT OF APPEALS and RORY W. LIM

FACTS: On March 13, 1986, private respondent Rory Lim delivered to his cousin Lim Ong Tian PCIB Check No xxx in the amount of P200k for the purpose of obtaining a telegraphic transfer from petitioner PCIB in the same amount. The money was to be transferred to Equitable Banking Corporation (EB), Cagayan de Oro Branch, and credited to private respondent's (Lim) account at the said bank. Upon purchase of the telegraphic transfer, petitioner issued the corresponding receipt dated March 13, 1986 [T/T No. 284] which contained the assailed provision, to wit: In case of fund transfer, the undersigned hereby agrees that such transfer will be made without any responsibility on the part of the BANK, or its correspondents, for any loss occasioned by errors, or delays in the transmission of message by telegraph or cable companies or by the correspondents or agencies, necessarily employed by this BANK in the transfer of this money, all risks for which are assumed by the undersigned.

Subsequent to the purchase of the telegraphic transfer, Lim in turn issued and delivered 8 EB checks to his suppliers in different amounts as payment for the merchandise that he obtained from them. When the checks were presented for payment, five of them bounced for insufficiency of funds, while the remaining 3 were held overnight for lack of funds upon presentment. xxx The dishonor of the checks came to private respondent's attention only on April 2, 1986, when EB notified him of the penalty charges and after receiving letters from his suppliers that his credit was being cut-off due to the dishonor of the checks he issued.

Upon verification by private respondent with the Gingoog Branch Office of petitioner PCIB, it was confirmed that his telegraphic transfer for the sum of P200k had not yet been remitted to EB. In fact, petitioner PCIB made

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the corresponding transfer of funds only on April 3, 1986, 21 days after the purchase of the telegraphic transfer on March 13, 1986.

Aggrieved, private respondent demanded from PCIB that he be compensated for the resulting damage that he suffered due to PCIB's failure to make the timely transfer of funds which led to the dishonor of his checks. In a letter, PCIB's Branch Manager Rodolfo Villarmia acknowledged their failure to transmit the telegraphic transfer on time as a result of their mistake in using the control number twice and the petitioner bank's failure to request confirmation and act positively on the disposition of the said telegraphic transfer.

Nevertheless, PCIB refused to heed private respondent's demand prompting the latter to file a complaint for damages with the RTC (Gingoog). In his complaint, private respondent alleged that as a result of PCIB's total disregard and gross violation of its contractual obligation to remit and deliver the sum P200K xxx to Equitable, private respondent's checks were dishonored for insufficient funds thereby causing his business and credit standing to suffer considerably for which PCIB should be ordered to pay damages.

Answering the complaint, PCIB denied any liability to private respondent and interposed as special and affirmative defense the lack of privity between it and private respondent as it was not private respondent himself who purchased the telegraphic transfer from petitioner. Additionally, petitioner pointed out that private respondent is nevertheless bound by the stipulation in the telegraphic transfer application/form receipt. (already quoted above)

In its decision dated July 27, 1988 the RTC held PCIB liable for breach of contract and struck down the aforecited provision found in petitioner's telegraphic transfer application form/receipt exempting it from any liability and declared the same to be invalid and unenforceable. As found by the trial court, the provision amounted to a contract of adhesion wherein the objectionable portion was unilaterally inserted by petitioner in all its application forms without giving any

opportunity to the applicants to question the same and express their conformity thereto.

ISSUE: Whether the stipulation in the telegraphic transfer application/form receipt, absolving PCIB from any kind of liability arising from its negligence

HELD: On previous occasions, it has been declared that a contract of adhesion may be struck down as void and unenforceable, for being subversive to public policy, only when the weaker party is imposed upon in dealing with the dominant bargaining party and is reduced to the alternative of taking it or leaving it, completely deprived of the opportunity to bargain on equal footing. And when it has been shown that the complainant is knowledgeable enough to have understood the terms and conditions of the contract, or one whose stature is such that he is expected to be more prudent and cautious with respect to his transactions, such party cannot later on be heard to complain for being ignorant or having been forced into merely consenting to the contract.

The factual backdrop of the instant case, however, militates against applying the aforestated pronouncements. That petitioner( PCIB) failed to discharge its obligation to transmit private respondent's telegraphic transfer on time in accordance with their agreement is already a settled matter as the same is no longer disputed in this petition. Neither is the finding of respondent Court of Appeals that petitioner acted fraudulently and in bad faith in the performance of its obligation, being contested by petitioner.

Having established that petitioner acted fraudulently and in bad faith, we find it implausible to absolve petitioner from its wrongful acts on account of the assailed provision exempting it from any liability. In Geraldez vs. Court of Appeals, it was unequivocally declared that notwithstanding the enforceability of a contractual limitation, responsibility arising from a fraudulent act cannot be exculpated because the same is contrary to public policy. Indeed, Article 21 of the Civil Code is quite explicit in providing that "any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage".

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Freedom of contract is subject to the limitation that the agreement must not be against public policy and any agreement or contract made in violation of this rule is not binding and will not be enforced.

The prohibition against this type of contractual stipulation is moreover treated by law as void which may not be ratified or waived by a contracting party. Article 1409 of the Civil Code states:

Art. 1409. The following contracts are inexistent and void from the beginning: (1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy; These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.

Undoubtedly, the services being offered by a banking institution like petitioner are imbued with public interest. The use of telegraphic transfers have now become commonplace among businessmen because it facilitates commercial transactions. Any attempt to completely exempt one of the contracting parties from any liability in case of loss notwithstanding its bad faith, fault or negligence, as in the instant case, cannot be sanctioned for being inimical to public interest and therefore contrary to public policy. Resultingly, there being no dispute that petitioner acted fraudulently and in bad faith, the award of moral and exemplary damages were proper.

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TEODORO BAÑAS, C. G. DIZON CONSTRUCTION, INC., and CENEN DIZON vs. ASIA PACIFIC FINANCE CORPORATION, substituted by INTERNATIONAL CORPORATE BANK now known as UNION BANK OF THE PHILIPPINES

FACTS: Sometime in August 1980 Teodoro Bañas executed a Promissory Note in favor of C. G. Dizon Construction whereby for value received he promised to pay to the order of C. G. Dizon Construction the sum of P390,000.00 in installments of "P32,500.00 every 25th day of the month starting from September 25, 1980 up to August 25, 1981.

Later, C. G. Dizon Construction endorsed with recourse the Promissory Note to ASIA PACIFIC (Asia), and to secure payment thereof, C. G. Dizon Construction, through its corporate officers, Cenen Dizon, President, and Juliette B. Dizon, Vice President and Treasurer, executed a Deed of Chattel Mortgage covering three units of Caterpillar Bulldozer Crawler Tractors in favor of ASIA. Moreover, Cenen Dizon executed on 25 August 1980 a Continuing Undertaking wherein he bound himself to pay the obligation jointly and severally with C. G. Dizon Construction.

In compliance with the provisions of the Promissory Note, C. G. Dizon Construction made a total payment (on installments) of P130,000.00. Thereafter, however, C. G. Dizon Construction defaulted in the payment of the remaining installments, prompting ASIA to send a Statement of Account to Cenen Dizon for the unpaid balance of P267,737.50 inclusive of interests and charges, and P66,909.38 representing attorney's fees. As the demand was unheeded, ASIA PACIFIC sued Teodoro Bañas, C. G. Dizon Construction and Cenen Dizon.

While petitioners (Banas & Dizon) admitted the genuineness and due execution of the Promissory Note, the Deed of Chattel Mortgage and the Continuing Undertaking, they nevertheless maintained that these documents were never intended by the parties to be legal, valid and binding but a mere subterfuge to conceal the loan of P390,000.00 with usurious interests.

Petitioners claimed that since ASIA could not directly engage in banking business, it proposed to them a scheme wherein plaintiff ASIA could extend a loan to them without violating banking laws: first, Cenen Dizon would secure a promissory note from Teodoro Bañas with a face value of P390,000.00 payable in installments; second, ASIA would then make it appear that the promissory note was sold to it by Cenen Dizon with the 14% usurious interest on the loan or P54,000.00 discounted and collected in advance by ASIA; and, lastly, Cenen Dizon would provide sufficient collateral to answer for the loan in case of default in payment and execute a continuing guaranty to assure continuous and prompt payment of the loan. Defendants also alleged that out of the loan of P390,000.00 defendants actually received only P329,185.00 after ASIA deducted the

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discounted interest, service handling charges, insurance premium, registration and notarial fees.

Sometime in October 1980 Cenen Dizon informed ASIA that he would be delayed in meeting his monthly amortization on account of business reverses and promised to pay instead in February 1981. Cenen Dizon made good his promise and tendered payment to ASIA in an amount equivalent to two (2) monthly amortizations. But ASIA attempted to impose a 3% interest for every month of delay, which he flatly refused to pay for being usurious.

Afterwards, ASIA allegedly made a verbal proposal to Cenen Dizon to surrender to it the ownership of the two (2) bulldozer crawler tractors and, in turn, the latter would treat the former's account as closed and the loan fully paid. Cenen Dizon supposedly agreed and accepted the offer. Defendants averred that the value of the bulldozer crawler tractors was more than adequate to cover their obligation to ASIA.

Meanwhile, on 21 April 1981 the trial court issued a writ of replevin against defendant C. G. Dizon Construction for the surrender of the bulldozer crawler tractors subject of the Deed of Chattel Mortgage. Of the three (3) bulldozer crawler tractors, only 2 were actually turned over by defendants - D8-14A and D8-2U - which units were subsequently foreclosed by ASIA to satisfy the obligation. D8-14A was sold for P120,000.00 and D8-2U for P60,000.00 both to ASIA as the highest bidder.

On 25 September 1992 the Regional Trial Court ruled in favor of ASIA holding the defendants jointly and severally liable for the unpaid balance of the obligation under the Promissory Note in the amount of P87,637.50 at 14% interest per annum, and attorney's fees equivalent to 25% of the monetary award.

ISSUE: Whether the disputed transaction between petitioners and ASIA PACIFIC violated banking laws, hence, null and void.

HELD: Petitioners insist that ASIA PACIFIC was organized as an investment house which could not engage in the lending of funds obtained from the public through receipt of deposits. The disputed Promissory Note, Deed of Chattel Mortgage and Continuing

Undertaking were not intended to be valid and binding on the parties as they were merely devices to conceal their real intention which was to enter into a contract of loan in violation of banking laws.

We reject the argument. An investment company refers to any issuer which is or holds itself out as being engaged or proposes to engage primarily in the business of investing, reinvesting or trading in securities. As defined in Sec. 2, par. (a), of the Revised Securities Act, securities "shall include x x x x commercial papers evidencing indebtedness of any person, financial or non-financial entity, irrespective of maturity, issued, endorsed, sold, transferred or in any manner conveyed to another with or without recourse, such as promissory notes x x x x" Clearly, the transaction between petitioners and respondent was one involving not a loan but purchase of receivables at a discount, well within the purview of "investing, reinvesting or trading in securities" which an investment company, like ASIA PACIFIC, is authorized to perform and does not constitute a violation of the General Banking Act. Moreover, Sec. 2 of the General Banking Act provides in part -

Sec. 2. Only entities duly authorized by the Monetary Board of the Central Bank may engage in the lending of funds obtained from the public through the receipt of deposits of any kind, and all entities regularly conducting such operations shall be considered as banking institutions and shall be subject to the provisions of this Act, of the Central Bank Act, and of other pertinent law.

Indubitably, what is prohibited by law is for investment companies to lend funds obtained from the public through receipts of deposit, which is a function of banking institutions. But here, the funds supposedly "lent" to petitioners have not been shown to have been obtained from the public by way of deposits, hence, the inapplicability of banking laws.

On petitioners' submission that the true intention of the parties was to enter into a contract of loan, we have examined the Promissory Note and failed to discern anything therein that would support such theory. On the contrary, we find the terms and conditions of the instrument clear, free from any ambiguity, and expressive of the real intent and agreement of the parties.

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GREGORIO H. REYES and CONSUELO PUYAT-REYES vs. THE HON. COURT OF APPEALS and FAR EAST BANK AND TRUST COMPANY

FACTS: Philippine Racing Club, Inc. (PRCI) sent four delegates to the 20th ASEAN Racing Conference (ARC) in Australia.

PRCI applied for a foreign exchange demand draft in Australian dollars with the Far East Bank and Trust Company (FEB) which is payable to the ARC Secretariat. Since the bank did not have an Australian dollar account with any bank in Sydney, FEB’s assistant cashier, Mr. Yasis, informed PRCI of a way to effect the requested demand draft whereby FEB would draw a demand draft against Westpac Bank in Sydney (WBS) and have the latter reimburse itself from the US dollar account of FEB in Westpac Bank in New York (WBNY). Such agreement has been customarily resorted to since the 1960’s and the procedure has been proven problem-free, to which PRCI agreed.

FEB approved and issued the draft addressed to WBS as the drawee bank. Upon presentment, the draft was dishonored with the notice of dishonor stating “No account held with Westpac.”

FEB informed WBS of the issuance of the draft drawn and to reimburse itself from FEB’s dollar account in WBNY. Upon its second presentment for payment, it was again dishonored for the same reason.

Petitioner spouses Reyes left for Australia to attend the ARC. When they arrived to the hotel to register as delegates, they were told that they could not register because the draft for their registration fee had been dishonored for the second time. The conference secretariat gave them the dishonored draft upon payment of the registration fees. Petitioners filed a complaint for damages against FEB due to the dishonor of the draft issued by FEB.

ISSUE: Whether or not due to the fiduciary nature of the relationship between the respondent bank and its clients, it should have exercised a higher degree of diligence

than that expected of an ordinary prudent person in the handling of its affairs.

HELD: The degree of diligence required of banks, is more than that of a good father of a family where the fiduciary nature of their relationship with their depositors is concerned. But the said ruling applies only to cases where banks act under their fiduciary capacity, that is, as depositary of the deposits. But the same higher degree of diligence is not expected to be expected to be exerted by banks in commercial transactions that do not involve their fiduciary relationship with their depositors, such as sale and issuance of the foreign exchange demand draft.

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THE CONSOLIDATED BANK and TRUST CORPORATION vs. COURT OF APPEALS and L.C. DIAZ and COMPANY, CPA’s

FACTS: L.C. Diaz opened a savings account with Solidbank. L.C. Diaz through its cashier, Mercedes Macaraya, filled up a savings (cash) deposit slip and a savings (check) deposit slip. Macaraya instructed the messenger of L.C. Diaz, Ismael Calapre, to deposit the money with Solidbank. Macaraya also gave Calapre the Solidbank passbook.

Calapre went to Solidbank and presented to Teller No. 6 the two deposit slips and the passbook. Since the transaction took time and Calapre had to make another deposit for L.C. Diaz with Allied Bank, he left the passbook with Solidbank. Calapre then went to Allied Bank. When Calapre returned to Solidbank to retrieve the passbook, Teller No. 6 informed him that “somebody got the passbook.” Calapre went back to L.C. Diaz and reported the incident to Macaraya.

Macaraya, together with Calapre, went to Solidbank. When Macaraya asked for the passbook, Teller No. 6 told Macaraya that someone got the passbook but she could not remember to whom she gave the passbook. When Macaraya asked Teller No. 6 if Calapre got the passbook, Teller No. 6 answered that someone shorter than Calapre got the passbook.

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The following day, L.C. Diaz through its Chief Executive Officer, Luis C. Diaz, called up Solidbank to stop any transaction using the same passbook until L.C. Diaz could open a new account. It was also on the same day that L.C. Diaz learned of the unauthorized withdrawal the day before, of P300,000 from its savings account. The withdrawal slip for the P300,000 bore the signatures of the authorized signatories of L.C. Diaz. The signatories, however, denied signing the withdrawal slip. A certain Noel Tamayo received the P300,000.

L.C. Diaz filed a Complaint for Recovery of a Sum of Money against Solidbank with the Regional Trial Court of Manila, Branch 8. After trial, the trial court rendered a decision absolving Solidbank and dismissing the complaint.

ISSUE: Whether or not Solidbank is liable for breach of contract due to negligence or culpa contractual

HELD: The fiduciary nature of a bank-depositor relationship does not convert the contract between the banks and its depositors from a simple loan to a trust agreement. Failure by the bank to pay the depositors is failure to pay a simple loan, not a breach of trust.

Banks must exercise a high degree of diligence in insuring that they return the passbook only to the depositor or his authorized representative. The tellers should know that the rules on savings account provide that any person in possession of the passbook is presumptively its owner. If the teller gives the passbook to the wrong person, they would be clothing that person presumptive ownership of the passbook, facilitating unauthorized withdrawals by that person. For failing to return the passbook to the authorized representative of the depositor, the Bank presumptively failed to observe such high degree of diligence in safeguarding the passbook and in insuring its return to the party authorized to receive the same. However, the Bank’s liability is mitigated by the depositor’s contributory negligence in allowing a withdrawal slip signed by its authorized signatories to fall into the hands of an impostor.

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EMERITO M. RAMOS, SUSANA B. RAMOS, EMERITO B. RAMOS, JR., JOSEFA RAMOS DE LA RAMA, HORACIO DE LA RAMA, ANTONIO B. RAMOS, FILOMENA RAMOS LEDESMA, RODOLFO RAMOS, VICTORIA RAMOS TANJUATCO, and TEOFILO TANJUATCO vs. CENTRAL BANK OF THE PHILIPPINES

FACTS: Petitioners are the majority and controlling stockholders of the Overseas Bank of Manila (OBM) which has been suspended by respondent Central Bank of the Philippines (CB) from clearing with the CB and from lending operations for violations of the banking laws.

Petitioners charged that the OBM became financially distressed because of this suspension and the deprivation by the CB of the usual credit accommodations accorded to the other banks.

By 1967, the financial situation of the OBM had caused mounting concern in the CB. Petitioner Ramos and the OBM management met with CB on the necessity and urgency of rehabilitating the OBM through the extension of necessary financial assistance.

The Governor of the CB, upon instructions of the Monetary Board (MB), informed Ramos that if his bank is thrown out of clearing, he and the other stockholders representing a majority will have to sign a trusteeship agreement with the Philippine National Bank (PNB), pursuant to which, the OBM will be managed by the PNB.

In view of the OBM stockholder’s reluctance to execute the Voting Trust suggested, MB adopted a resolution requiring Ramos to submit a listing of his properties and to mortgage the same to the CB to cover the overdraft balance of he OBM and requiring the stockholders of OBM to subscribe to a Voting Trust Agreement (VTA) so that the CB may be able to effect a complete reorganization and/or transfer the management of the bank to a nominee of the MB.

Petitioners executed the VTA prepared by the CB and conveyed, by way of mortgage, to the

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CB all their properties and holdings to secure the obligations of the OBM to the CB. The new management then took over the OBM.

On 1968, the CB announced that only 10M were available as emergency loan to OBM and requested the management of the latter to project how it could help bail out OBM. Upon the recommendation of the Superintendent of banks, the MB ordered the former to liquidate the OBM.

Hence, this petition seeking to restrain the CB from enforcing the MB resolution.

Petitioners aver that no adequate financial assistance was granted to OBM after the execution of the VTA. They further claim that the said agreement is not only bilateral, imposing reciprocal obligations for valuable consideration, but was also entered into by the CB in the performance of its duties under the law; and that under the said agreement, the obligation of the CB was to act and work for the “rehabilitation, normalization and stabilization” of the OBM, through the extension of adequate and necessary financial assistance to stave off liquidation, is legally demandable.

ISSUE: Whether or not the CB can validly order the closure and liquidation of a bank where the management of said bank is controlled by the formerHELD: When the CB made express representations that it would support the bank and avoid its liquidation if its majority stockholders would execute a voting trust agreement turning over the management of the bank to the CB or its nominees and mortgage or assign their properties to CB to cover the overdraft balance of the bank, the CB may not thereafter renege its representation and liquidate the bank after the majority stockholders of the bank complied with the conditions and parted with value to the profit of CB, which thus acquired additional security for its own advances, to the detriment of the bank’s stockholders, depositors and other creditors under the rule of promissory estoppel.

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LIPANA vs. DEVELOPMENT BANK OF RIZAL   FACTS: From 1982 to January, 1984, herein petitioners opened and maintained both time and savings deposits with the herein respondent Development Bank of Rizal all in the aggregate amount of P939,737.32. When some of the Time Deposit Certificates matured, petitioners were not able to cash them but instead were issued a manager's check which was dishonored upon presentment. Demands for the payment of both time and savings deposits having failed, on March 14, 1984 , petitioners filed with the Regional Trial Court of Pasig a Complaint With Prayer For Issuance of a Writ of Preliminary Attachment for collection of a sum of money with damages  A writ of attachment dated March 20, 1984 was issued in favor of the petitioners then it rendered judgment, ordering the bank to pay Lipana spouses  Meanwhile, on August 10, 1984 , the Monetary Board, in its Resolution No. 1009, finding that the condition of respondent bank was one of insolvency and that its continuance in business would result in probable loss to its depositors and creditors, decided to place it under receivership  December 7, 1984 , petitioners filed a Motion for Execution Pending Appeal. judge ordered the issuance of a writ of execution. bank filed a Motion for Reconsideration of order dated January 29, 1985 and to Stay Writ of Execution. Petitioners filed a Motion to Lift Stay of Execution. judge denied the said motion.  ISSUE: Whether or not respondent judge could legally stay execution of judgment that has already become final and executory.   HELD: The rule that once a decision becomes final and executory, it is the ministerial duty of the court to order its execution, admits of certain exceptions as in cases of special and exceptional nature where it becomes imperative in the higher interest of justice to direct the suspension of its execution; whenever it is necessary to accomplish the aims of justice; or when certain facts and circumstances transpired after the judgment

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became final which could render the execution of the judgment unjust.

In the instant case, the stay of the execution of judgment is warranted by the fact that respondent bank was placed under receivership. To execute the judgment would unduly deplete the assets of respondent bank to the obvious prejudice of other depositors and creditors, since, as aptly stated in Central Bank of the Philippines vs. Morfe (63 SCRA 114), after the Monetary Board has declared that a bank is insolvent and has ordered it to cease operations, the Board becomes the trustee of its assets for the equal benefit of all the creditors, including depositors. The assets of the insolvent banking institution are held in trust for the equal benefit of all creditors, and after its insolvency, one cannot obtain an advantage or a preference over another by an attachment, execution or otherwise. Moreover, it will be noted that respondent bank was placed under receivership on August 10, 1984, and the Decision of respondent judge is dated November 13, 1984.

The circumstance that the Fidelity Savings Bank, having stopped operations since February 19, 1969, was forbidden to do business (and that ban would include the payment of time deposits) implies that suits for the payment of such deposits were prohibited. What was directly prohibited should not be encompassed indirectly. ... Petitioners 'complaint should have been dismissed________________________________________________________________

OVERSEAS BANK OF MANILA vs. COURT OF APPEALS   FACTS: In relation to a contract of sale between NAWASA, as vendor and a certain Bonifacio Regalado, as vendee, the amount of P327,257.20 was placed on a time deposit with the Overseas Bank by the NAWASA. The amount corresponding to a payment earlier made by Regalado to the NAWASA, and the time deposit was made so that a refund could quickly be made to Regalado in the event that his contract with the NAWASA be disapproved by the Office of the President. 

A second payment having been made by Regalado in the same sum of P327,257.20, another time deposit was made by the NAWASA Treasurer with the Overseas Bank, this time in the amount of P2,945,314.80, respresenting the balance of the purchase price due from Regalado. The period of this second deposit was fixed at one (1) year;  On April 21, 1966, NAWASA wrote to the Overseas Bank, as regards the first time deposit of P327,257.20 which had already matured on April 6, NAWASA wished to withdraw it immediately, and (2) with respect to the second time deposit of P2,945,314.80, it intended to withdraw it sixty (60) days thereafter as authorized by the parties' agreement set forth in the certificate of the deposit. The Overseas Bank having failed to remit to it.  After maturity of the second time deposit, NAWASA again sent a letter to the Overseas Bank, dated January 4, 1967 , demanding remittance of both time deposits, but there was no response. NAWASA then wrote to the Central Bank Governor about the matter. Apparently, even the Central Bank was ignored by Overseas Bank.  NAWASA thus brought suit to recover its deposits and damages. The Overseas Bank failed to file its answer despite service of summons; it was declared in default; the Court received NAWASA's evidence ex parte and on the basis thereof, thereafter rendered judgment by default.  The Overseas Bank made no effort whatever to have the order of default lifted, or to have the judgment by default reconsidered. After being served with notice of the judgment, it simply brought the case up to the Court of Appeals.  The bank argues that by reason of "punitive action taken by the Central Bank," it had been prevented from undertaking banking operations "which would have generated funds to pay not only its depositors and creditors but likewise, the interests due on the deposits.  ISSUE: Whether or not the bank’s argument was valid to lift the order of default.

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HELD: The argument is palpably without merit. There is in the first place absolutely no evidence of these facts in the record: and this is simply because the petitioner bank had made no effort whatever to set aside the default order against it so that it could present evidence in its behalf before the Trial Court.   Moreover, the suspension of operations which took place in August, 1968, could not possibly excuse non-compliance with the obligations in question which matured in 1966. Again, the claim that the Central Bank, by suspending the Overseas Bank's banking operations, had made it impossible for the Overseas Bank to pay its debts, whatever validity might be accorded thereto, or the further claim that it had fallen into a "distressed financial situation," cannot in any sense excuse it from its obligation to the NAWASA, which had nothing whatever to do with the Central Bank's actuations or the events leading to the bank's distressed state.

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BANCO FILIPINO vs. CENTRAL BANK   FACTS: Banco Filipino Savings and Mortgage Bank was authorized to operate as such under M.B. Resolution No. 223 dated February 14, 1963. Petitioner Bank had an approved emergency advance of P119.7 million under M.B. Resolution No. 839 dated June 29, 1984 . This was augmented with a P3 billion credit line under M.B. Resolution No. 934 dated July 27, 1984. On the same date, respondent Board issued M.B. Resolution No. 955 placing petitioner bank under conservatorship  During conservatorship, several examinations regarding Banco Filipino’s financial condition were done. The examination findings as of July 31, 1984 , as shown earlier, indicate one of insolvency and illiquidity and further confirms the above conclusion that there is justification for forbidding the bank from engaging in banking

On January 25, 1985 , the Monetary Board issued the assailed MB Resolution No. 75 which ordered the closure of BF. Banco Filipino filed suit to set aside the action of the

Monetary Board placing BF under receivership and an instant petition for certiorari and mandamus under Rule 65 of the Rules of Court seeking to annul the resolution of January 25, 1985 as made without or in excess of jurisdiction or with grave abuse of discretion, to order respondents to furnish petitioner with the reports of examination which led to its closure.  On February 14, 1985 , the Central Bank and the receivers filed a motion to dismiss the complaint on the ground that the receivers had not authorized anyone to file the action  On July 19, 1985 , the trial court denied the motion to dismiss. On March 17, 1986 , the respondent appellate court rendered a decision annulling and setting aside the questioned orders of the trial court, and ordering the dismissal of the complaint filed by Banco Filipino with the trial court.  ISSUE: Whether or not the Central Bank and the Monetary Board acted arbitrarily and in bad faith in finding and thereafter concluding that petitioner bank is insolvent, and in ordering its closure.   HELD: There is no doubt that the Central Bank Act vests authority upon the Central Bank and Monetary Board to take charge and administer the monetary and banking system of the country and this authority includes the power to examine and determine the financial condition of banks for purposes provided for by law, such as for the purpose of closure on the ground of insolvency stated in Section 29 of the Central Bank Act. But express grants of power to public officers should be subjected to a strict interpretation, and will be construed as conferring those powers which are expressly imposed or necessarily implied.  We recognize the fact that it is the responsibility of the Central Bank of the Philippines to administer the monetary, banking and credit system of the country and that its powers and functions shall be exercised by the Monetary Board pursuant to Rep. Act No. 265, known as the Central Bank Act. Consequently, the power and authority of the Monetary Board to close banks and liquidate them thereafter when public interest so requires is an exercise of the

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police power of the state. Police power, however, may not be done arbitratrily or unreasonably and could be set aside if it is either capricious, discriminatory, whimsical, arbitrary, unjust or is tantamount to a denial of due process and equal protection clauses of the Constitution  When the issue on the validity of the closure and receivership of Banco Filipino bank was raised in G.R. No. 70054, pendency of the case did not diminish the powers and authority of the designated liquidator to effectuate and carry on the a ministration of the bank. In fact when We adopted a resolute on August 25, 1985 and issued a restraining order to respondents Monetary Board and Central Bank, We enjoined me further acts of liquidation. Such acts of liquidation, as explained in Sec. 29 of the Central Bank Act are those which constitute the conversion of the assets of the banking institution to money or the sale, assignment or disposition of the s to creditors and other parties for the purpose of paying debts of such institution. We did not prohibit however acts a as receiving collectibles and receivables or paying off credits claims and other transactions pertaining to normal operate of a bank. There is no doubt that the prosecution of suits collection and the foreclosure of mortgages against debtors the bank by the liquidator are among the usual and ordinary transactions pertaining to the administration of a bank. their did Our order in the same resolution dated August 25, 1985 for the designation by the Central Bank of a comptroller Banco Filipino alter the powers and functions; of the liquid insofar as the management of the assets of the bank is concerned. The mere duty of the comptroller is to supervise counts and finances undertaken by the liquidator and to d mine the propriety of the latter's expenditures incurred behalf of the bank. Notwithstanding this, the liquidator is empowered under the law to continue the functions of receiver is preserving and keeping intact the assets of the bank in substitution of its former management, and to prevent the dissipation of its assets to the detriment of the creditors of the bank. These powers and functions of the liquidator in directing the operations of the bank in place of the former management or former officials of the bank include the retaining of counsel of his choice in actions

and proceedings for purposes of administration.

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[SECRECY OF BANK DEPOSITS]LOURDES DE LA RAMA vs. AUGUSTO R. VILLAROSA, ET AL.,  LUZON SURETY COMPANY, INC.

FACTS: Plaintiff lessor Lourdes de la Rama brought an action against defendant lessee Augusto R. Villarosa and the latter's surety, the Luzon Surety Co., Inc. for judicial confirmation of the cancellation, rescission and annulment of a contract of lease of sugarland. The court rendered a partial summary judgment decreeing the lease rescinded, cancelled and annulled and ordering defendant Augusto R. Villarosa to surrender and deliver to plaintiff or her representatives the possession of the leased premises, etc.

Lower court issued an order for the immediate execution of the above judgment. Accordingly, the sheriff of Manila garnished the deposit of defendant-appellant with the Philippine Trust Co. to the amount of P71,533.99. The Philippine Trust Co., complying with such notice, set aside the amount.

Before the order could be complied with by the garnishee, the defendant Luzon Surety Co. filed a petition for certiorari with preliminary injunction with the Court of Appeals and upon filing of the petition the sheriff of Manila was enjoined from enforcing the order so the garnishee Philippine Trust did not deliver to the sheriff of Manila any portion of the amount garnished and plaintiff-appellee never received any amount either in full or partial satisfaction of the original judgment of the trial court then under execution.

Luzon Surety thereafter invoked the provisions of Sec. 5 of Rule 39 of the Rules of Court and demanded that an interest of 6% be paid on the difference between the sum actually garnished and the sum obtained in the final judgment.

ISSUE: Whether or not interest in the balance of the amount garnished can be awarded

HELD: The interest on the balance of the amount garnished cannot be awarded.

The amount garnished was not actually taken possession of by the sheriff, even from the time of the garnishment, because upon the perfection of the defendant-appellant's appeal, the CA issued an injunction prohibiting execution of the judgment. The total sum garnished was not delivered to the sheriff in execution, because the order for the execution of the jud8gment of the lower court was suspended in time by the appeal and the preliminary injunction issue on appeal.

The mere garnishment of funds belonging to the party upon order of the court does not have the effect of delivering the money garnished to the sheriff or to the party in whose favor the attachment is issued. The fund is retained by the garnishee or the person holding the money for the defendant.

PHILIPPINE NATIONAL BANK vs. EMILIO A. GANCAYCO

FACTS: Emilio A. Gancayco and Florentino Flor, as special prosecutors of the Department of Justice, required Philippine National Bank to produce at a hearing the records of the bank deposits of Ernesto T. Jimenez, who was then under investigation for unexplained wealth. In declining to reveal its records, the plaintiff bank invoked Republic Act No. 1405. On the other hand, the defendants cited the Anti-Graft and Corrupt Practices Act (Republic Act No. 3019) in support of their claim of authority.

Plaintiffs filed an action for declaratory judgment. After trial, during which Senator Arturo M. Tolentino, author of the Anti-Graft and Corrupt Practices Act testified, the court rendered judgment, sustaining the power of the defendants to compel the disclosure of bank accounts of ACCFA Administrator Jimenez. The court said that, by enacting section 8 of, the Anti-Graft and Corrupt Practices Act, Congress clearly intended to provide an additional ground for the examination of bank deposits. Without such provision, the court added prosecutors would

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be hampered if not altogether frustrated in the prosecution of those charged with having acquired unexplained wealth while in public office.

ISSUE: Whether a bank can be compelled to disclose the records of accounts of a depositor who is under investigation for unexplained wealth.

HELD: Since cases of unexplained wealth are similar to cases of bribery, dereliction of duty, no reason is seen why it cannot be excepted from the rule making bank deposits confidential.

While Republic Act No. 1405 provides that bank deposits are "absolutely confidential ... and thus may not be examined, inquired or looked into," except in those cases enumerated therein, the Anti-Graft Law directs in mandatory terms that bank deposits "shall be taken into consideration in the enforcement of this section, notwithstanding any provision of law to the contrary." The only conclusion possible is that section 8 of the Anti-Graft Law is intended to amend section 2 of Republic Act No. 1405 by providing additional exception to the rule against the disclosure of bank deposits.

RIZAL COMMERCIAL BANKING CORPORATION vs. DE CASTRO

FACTS: An action for recovery of unpaid tobacco deliveries was filed against Philippine Virginia Tobacco Administration. It was ordered to pay jointly and severally Badoc Planters, Inc.

Badoc filed an Urgent Ex-Parte Motion for a Writ of Execution of the said Partial Judgment. Accordingly, on the very same day, issued a Writ of Execution addressed to Special Sheriff who then issued a Notice of Garnishment addressed to the General Manager and/or Cashier of RCBC. Upon receipt of such Notice, RCBC notified PVTA thereof to enable the PVTA to take the

necessary steps for the protection of its own interest.

However, right on the very next day, the respondent Judge issued an Order granting the Ex-Parte Motion and directing the herein petitioner to deliver in check the amount garnished and an order directing the sheriff to encash the same.

Respondent PVTA filed a Motion for Reconsideration which was granted, setting aside the Orders of Execution and of Payment and the Writ of Execution and ordering petitioner RCBC and BADOC to restore, jointly and severally, the account of PVTA with the said bank in the same condition and state it was before the issuance of the aforesaid Orders.

ISSUE:: Whether a bank is liable for releasing its depositor's funds upon orders of the court, pursuant to a writ of garnishment.

HELD: The bank cannot be held liable for the subsequent encashment of the check as this was upon order of the court in the exercise of its power of control over the funds placed in custodia legis by virtue of the garnishment.

RCBC did not deliver the amount on the strength solely of a Notice of Garnishment; rather, the release of the funds was made pursuant to the aforesaid Order. While the Notice of Garnishment contained no demand of payment as it was a mere request for petitioner to withold any funds of the PVTA then in its possession, the Order of January 27, 1970 categorically required the delivery in check of the amount garnished to the special sheriff.The bank had no choice but to comply with the order demanding delivery of the garnished amount in check

No breach of trust or dereliction of duty can be attributed to RCBC in delivering its depositor's funds pursuant to a court order which was merely in the exercise of its power of control over such funds.

MELLON BANK, N.A. vs. HON. CELSO L. MAGSINO

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FACTS: Dolores Ventosa requested the transfer of $1,000 from the First National Bank of Moundsville, West Virginia, U.S.A. to Victoria Javier in Manila through the Prudential Bank. Accordingly, the First National Bank requested the petitioner, Mellon Bank, to effect the transfer. Unfortunately the wire sent by Mellon Bank to Manufacturers Hanover Bank, a correspondent of Prudential Bank, indicated the amount transferred as "US$1,000,000.00" instead of US$1,000.00. Hence Manufacturers Hanover Bank transferred one million dollars to the Prudential Bank for the account of Victoria Javier.

Javier opened a new dollar account in the Prudential Bank and deposited $999,943.70. Immediately thereafter, Javier and her husband, Melchor made withdrawals from the account, deposited them in several banks only to withdraw them later in an apparent plan to conceal, "launder" and dissipate the erroneously sent amount.

Meanwhile, Mellon Bank filed a complaint against Victoria and Melchor Javier to impose constructive trust alleging that it had mistakenly and inadvertently cause the transfer of the sum of $999,000, that it believes that the defendants had withdrawn said funds.

During the trial, Mellon bank sought to introduce testimonies which revealed information of the bank accounts of various persons believed to be responsible for the dissipation of the funds. The admission of the testimonies was objected on the ground that it violates RA 1405.

ISSUE: Whether testimonies were in violation of RA 1405

HELD: RA 1405 specifically allows the disclosure of bank deposits in cases where the money deposited is the subject matter of litigation. In an action filed by the bank to recover money it transmitted by mistake, an inquiry into the wherabouts of the amount extends to whatever is concealed by being held or recorded in the name of the persons other than the one responsible for the illegal acquisition.

PHILIPPINE COMMERCIAL AND INDUSTRIAL BANK vs. COURT OF APPEALS

FACTS: 49 Laborers of Marinduque Mining and Industrial Corporation filed with NLRC an action for the payment of the backwages. Judgement was rendered against Marinduque Mining. To enforce the judgment, the Commission issued a writ of execution. Accordingly, the sheriff issued a Notice of Garnishment addressed to six banks, one of which is the PCIB directing the bank to immediately issue a check in the amount garnished. Upon receipt of said notice, the bank manager Jose HEnares sought the advice of the bank’s house lawyer. Henares also checked twice with the acting Provincial Sheriff who had informed him of the absence of any restraining order. Therafter, Henares issued a manager’s check and allowed encashment of the said check. Marinduque Mining repeatedly demanded the restoration of the account. Marinduque Mining’s requests remain unheeded so it filed a complaint against PCIB and the sheriff alleging unauthorized disclosure of its current deposit with PCIB. The trial court, as affirmed by the Court of Appeals, rendered judgment in favor of Marinduque Mining.

ISSUE: Whether the prohibition against examination of or inquiry into a bank deposit under RA 1405 precludes its being garnished to insure satisfaction of a judgment.

HELD: The prohibition against examination or inquiry into a bank deposit under RA 1405 does not preclude its being garnished to ensure satisfaction of a judgment since the disclosure is purely incidental to the execution process and it was not the intention of the legislature to place bank deposits beyond the reach of judgment creditor.

There was no evidence that PCIB divulged the information that Marinduque Mining had accounts with it.

VAN TWEST vs. COURT OF APPEALS

FACTS: Alexander Van Twest and Gloria Anacleto opened a joint foreign currency savings account with International Corporate Bank to hold funds which belonged entirely and exclusively to Van Twest to facilitate the

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funding of certain business undertakings of both of them and whivh funds were temporarily held in trust by Anacleto.Withdrawals from the account were always made through their joint signatures. When the business relationship turned sour, Anacleto unilaterally closed the account, withdrew the balance and placed the money inher own personal account with the same bank. Van Twest thereafter filed a complaint against Anacleto and Interbank for the recovery of a sum of money with prayer for a writ of preliminary injunction to prevent anacleto from withdrawing the money at anytime. The RTC granted the writ of preliminary injunction. The Court of Appeals reversed the order holding that Anacleto is a co-owner of the funds who could unilaterally control the application therof. Hence, this petition for review seeking the reinstatement of the writ of preliminary injunction. Anacleto contends that the personal foreign currency deposit account she is maintaining is exempt from processes issued by the court pursuant to RA 6426.ISSUE: Whether the privileges extended by RA 6426 may be invoked by a person other than the owner of the account

HELD: The privileges extended by RA 6426 are enjoyed and can be invoked only by Van Twest as the owner of the account. Anacleto’s transactions do not fall within the purview of the statute. Where the foreign currency deposits belonged to one of the depositors and were held in trust for him by the other depositor who unilaterally closed the joint account and transferred the funds to her personal account, the latter cannot invoke the exemption from court process under RA 6426 because she is not the owner of the deposit in the account. Consequently, the depositor who owned the funds can have her enjoined from making withdrawals from her personal account.

EMMANUEL OÑATE vs. ABROGAR

FACTS: Emmanuel Oñate, in his personal capacity as the president of ECON Holdings Corporation offered to sell to Sunlife Assurance treasury bills. Sunlife paid the price by means of a check payable to Brunner Development Corporation. Brunner, through its President Noel L. Diño issued to it a receipt with the undertaking to deliver the

treasury bills to SUnlife. However, Brunner delivered instead a promissory note in which it was made to appear that the transaction was a money placement instead of treasury bills. Hence, Sun Life Assurance Company of Canada (Sun Life) filed a complaint for a sum of money with a prayer for the immediate issuance of a writ of attachment against petitioners and Noel L. Diño.

Sun Life also filed an ex-parte motion to examine the books of accounts and ledgers of petitioner Brunner Development Corporation (Brunner) at the Urban Bank, and to obtain copies thereof, which motion was granted by respondent Judge. Petitioners filed a motion to nullify the proceedings taken thereat since they were not present.Sun Life filed another motion for examination of bank accounts, this time seeking the examination of Account No. 0041-0277-03 with the Bank of Philippine Islands (BPI) — which, incidentally, petitioners claim not to be owned by them — and the records of Philippine National Bank (PNB) with regard to checks payable to Brunner. Said motion was likewise granted by the respondent judge.

ISSUE: Whether the examination of the bank account in a case, where the issue is “whether the money paid was the consideration for the sale of treasury bills or money intended for placement” is prohibited by RA 1405

HELD: The examination of the bank account in which the money paid by the insurance company for treasury bills was deposited is prohibited by RA 1405. Whether the transaction is considered a sale or money placement does not make such money “subject matter of litigation”. It remains prohibited even if the insurance company sued the seller of treasury bills for failure to deliver the same.

SALVACION vs. CENTRAL BANK OF THE PHILIPPINES

FACTS: Greg Bartelli y Northcott, an American tourist, coaxed and lured petitioner Karen Salvacion, then 12 years old to go with him to his apartment.  Therein, Greg Bartelli detained Karen for four days, and was able to rape the child once on February 4, and three

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times each day on February 5, 6, and 7, 1989.  On February 7, 1989, after policemen and people living nearby, rescued Karen, Greg Bartelli was arrested and detained at the Makati Municipal Jail. 

A case was filed against him and on the day of the scheduled hearing for Bartelli’s petition for bail, the latter escaped from jail.

Meanwhile, in Civil Case No. 89-3214, the Judge issued an Order granting the application of herein petitioners, for the issuance of the writ of preliminary attachment.  

The deputy sheriff served a Notice of Garnishment on China Banking Corporation but the latter invoked Section 113 of Central Bank Circular No. 960 to the effect that the dollar deposits of defendant Greg Bartelli are exempt from attachment, garnishment, or any other order or process of any court, legislative body, government agency or any administrative body, whatsoever.

Petitioners aver as heretofore stated that Section 113 of Central Bank Circular No. 960 has

ISSUE: Whether Section 113 of Central Bank Circular No. 960 and Section 8 of R.A. 6426 , otherwise known as the Foreign Currency Deposit Act be made applicable to a foreign transient?

HELD: The provisions of Section 113 of CB Circular No. 960 and PD No. 1246, insofar as it amends Section 8 of R.A. 6426 are hereby held to be  INAPPLICABLE to this case because of its peculiar circumstances. 

The incentive for foreign currency cannot be invoked to provide for a safe haven for criminals like the herein respondent Greg Bartelli y Northcott since criminal could escape civil liability for their wrongful acts by merely converting their money to a foreign currency and depositing it in a foreign currency deposit account with an authorized bank. The garnishment of his foreign currency deposit should be allowed to prevent injustice and for equitable grounds.

One reason for exempting the foreign currency deposits from attachment, garnishment or any other order process of any court, is to assure the development and speedy growth of the Foreign Currency

Deposit System and not to benefit a wrongdoer.

UNION BANK OF THE PHILIPPINES vs. COURT OF APPEALS

FACTS: A check in the amount of 1 Million pesos was drawn against an account with Allied Bank Corp payable to the order of Jose Alvarez. The payee deposited the check with Union Bank of the Philippines which credited the 1 Million pesos to the account of Mr. Alvarez. Union Bank sent the check for clearing through the Philippines Clearing House Corporation. When the check was presented for payment, a discrepancy was committed by Union Bank’s clearing staff when the amount of 1 Million was erroneously undercoded to 1 Thousand pesos only. Union Bank only discovered the undercoding almost a year later. Union Bank notified Allied Bank of the discrepancy by way of a charge slip for 999,000 for automatic debiting against the account of Allied Bank. However, Allied Bank refused to accept the charge slip since the transaction was completed per Union Bank’s original instruction and the client’s account is now insufficiently funded. Union Bank subsequently filed a complaint against Allied Bank before the Arbitration Committee alleging that Allied Bank should have informed it of the undercoding pursuant to PCHC Handbook which states that the receiving bank should inform the erring Bank about the undercoding of the amount not later thank 10:00 am of the following clearing day. The judgment on the arbitration case was held in abeyance pending the resolution of the petition filed by Union Bank with the RTC for the examination of the account against which the check was drawn. The RTC, as affirmed by the Court of Appeals, dismissed the petition holding that the case of union Bank does not fall under any of the foregoing exceptions to warrant a disclosure of the deposit account. The Court of Appeals particularly held that the case was not one where the money deposited is the subject matter of the litigation. Union Bank didn’t even mention in its complaint that it seeks to recover from the account itself but speaks of 999,000 only as an incident of its alleged opportunity losses and interest as a result of its own employees’ admitted error in encoding the check.

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ISSUE: Whether the case at bar falls within the term “money deposited” so as to warrant the examination of bank deposits

HELD: A collecting bank which sued the drawee bank to recover the deficiency between the amount credited to the account of the depositor and the amount obtained from the drawee bank because the latter had erroneously undercoded the amount of the check it presented from 1 Million to 1 Thousand is not entitled to examine the account of the drawer of the check, because the money in the account of the drawer is not the subject matter of litigation. The collecting bank was only fishing for information so it could determine the culpability of the drawee bank and the amount of damages it could recover from the latter. It does not seek recovery of the very money contained in the deposit. The subject matter of the dispute may be the amount of 999,000 that the collecting bank seeks from the drawee bank as a result of the alleged failure to inform the former of the discrepancy, but it is not the 999,000 deposited in the drawer’s account. By the terms of RA 1405, the “money deposited” itself must be the subject matter of the litigation

MARQUEZ vs. DESIERTO

FACTS: Marquez received an Order from the Ombudsman Desierto to produce several bank documents for purposes of inspection in camera relative to various accounts maintained at Union Bank of the Philippines where she was the branch manager. The examination of the account was pursuant to an investigation pending before the Ombudsman involving Amadeo Lagdameo for violation of RA 3019 relative to the Joint Venture Agreement between Public Estates Authority and Amari.

However, petitioner wrote the Ombudsman explaining to him that the accounts in question cannot readily be identified since the checks are issued in cash or bearer and that the accounts have long been dormant.

The Ombudsman found the explanation unjustified and warned Marquez that her continued refusal to comply with the order constitutes disobedience to a lwful order and is punishable as Indirect Contempt. Instead of complying, Petitioner together with Union

Bank of the Philippines filed a petition for declaratory relief, prohibition and injunction.

The petition was intended to clear the rights and duties of petitioner. Thus, petitioner sought a declaration of her rights from the court due to the clear conflict between R. A. No. 6770, Section 15 and R. A. No. 1405, Sections 2 and 3.

ISSUE: Whether the order of the Ombudsman to have an in camera inspection of the questioned account is allowed as an exception to the law on secrecy of bank deposits

HELD: It is a rule that before an in camera inspection may be allowed, there must be a pending case before a court of competent jurisdiction. Further, the account must be clearly identified, the inspection limited to the subject matter of the pending case before the court of competent jurisdiction.  The bank personnel and the account holder must be notified to be present during the inspection, and such inspection may cover only the account identified in the pending case.

In the case at bar, there is yet no pending litigation before any court of competent authority. What is existing is an investigation by the office of the Ombudsman. In short, what the Office of the Ombudsman would wish to do is to fish for additional evidence to formally charge Amado Lagdameo, et. al., with the Sandiganbayan. Clearly, there was no pending case in court which would warrant the opening of the bank account for inspection.

INTENGAN vs. COURT OF APPEALS

FACTS: Vic Lim, in behalf of Citibank, filed a complaint for violation of the Corporation Code against two of its officers, Dante L. Santos and Marilou Genuino. An investigation was undertaken because the bank had found records showing that Mr. Dante L. Santos and Ms. Malou Genuino, contrary to their disclosures and the aforementioned bank policy, appeared to have been actively engaged in business endeavors that were in conflict with the business of the bank. It was found that with the use of two companies in which they have personal financial interest, namely Torrance and Global, they managed

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or caused existing bank clients/depositors to divert their money from Citibank, N.A., such as those placed in peso and dollar deposits and money placements, to products offered by other companies that were commanding higher rate of yields. This was done by first transferring bank clients’ monies to Torrance and Global which in turn placed the monies of the bank clients in securities, shares of stock and other certificates of third parties.

As evidence, Lim annexed bank records purporting to establish the deception practiced by Santos and Genuino. Some of the documents pertained to the dollar deposits of petitioners Carmen Ll. Intengan, Rosario Ll. Neri, and Rita P. Brawner. As an incident to the foregoing, petitioners filed respective motions for the exclusion and physical withdrawal of their bank records that were attached to Lim’s affidavit. Provincial Prosecutor directed the filing of informations against private respondents for alleged violation of Republic Act No. 1405, otherwise known as the Bank Secrecy Law.

ISSUE: Whether private respondents illegally made disclosure of petitioner’s confidential bank deposits in blatant violation of R.A. 1405

HELD: The accounts in question are U.S. dollar deposits; consequently, the applicable law is not Republic Act No. 1405 but Republic Act (RA) No. 6426, known as the “Foreign Currency Deposit Act of the Philippines.

Under R.A. No. 6426 there is only a single exception to the secrecy of foreign currency deposits, that is, disclosure is allowed only upon the written permission of the depositor. Incidentally, the acts of private respondents complained of happened before the enactment on September 29, 2001 of R.A. No. 9160 otherwise known as the Anti-Money Laundering Act of 2001.

A case for violation of Republic Act No. 6426 should have been the proper case brought against private respondents. Private respondents Lim and Reyes admitted that they had disclosed details of petitioners’ dollar deposits without the latter’s written permission. It does not matter if that such disclosure was necessary to establish Citibank’s case against Dante L. Santos and Marilou Genuino. Lim’s act of disclosing

details of petitioners’ bank records regarding their foreign currency deposits is a clear violation of the R.A. 6426.

The filing of the complaint or information in the case at bar for alleged violation of Republic Act No. 1405 did not have the effect of tolling the prescriptive period, for it is the filing of the complaint or information corresponding to the correct offense which produces that effect.

REPUBLIC OF THE PHILIPPINES vs. CABRINI GREEN & ROSS

FACTS: In the exercise of its power under Section 10 of RA 9160 the Anti-Money Laundering Council (AMLC) issued freeze orders against various bank accounts of respondents. The frozen bank accounts were previously found prima facie to be related to the unlawful activities of respondents.

Under RA 9160, a freeze order issued by the AMLC is effective for a period not exceeding 15 days unless extended "upon order of the court." Accordingly, before the lapse of the period of effectivity of its freeze orders, the AMLC filed with the Court of Appeals various petitions for extension of effectivity of its freeze orders.

The AMLC invoked the jurisdiction of the CA in the belief that the power given to the CA to issue a temporary restraining order (TRO) or writ of injunction against any freeze order issued by the AMLC carried with it the power to extend the effectivity of a freeze order. In other words, the AMLC interpreted the phrase "upon order of the court" to refer to the CA.However, the CA disagreed with the AMLC and dismissed the petitions. It uniformly ruled that it was not vested by RA 9160 with the power to extend a freeze order issued by the AMLC.

ISSUE: Whether the Court of appeals has the jurisdiction to extend the effectivity of a freeze order

HELD: During the pendency of these petitions, Congress enacted RA 9194 (An Act Amending Republic Act No. 9160, Otherwise Known as the "Anti-Money Laundering Act of

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2001").It amended Section 10 of RA 9160 as follows:

SEC. 7. Section 10 of [RA 9160] is hereby amended to read as follows: SEC. 10. Freezing of Monetary Instrument or Property. – The Court of Appeals, upon application ex parte by the AMLC and after determination that probable cause exists that any monetary instrument or property is in any way related to an unlawful activity as defined in Sec. 3(i) hereof, may issue a freeze order which shall be effective immediately. The freeze order shall be for a period of twenty (20) days unless extended by the court.

Section 12 of RA 9194 further provides: SEC 12. Transitory Provision. – Existing freeze orders issued by the AMLC shall remain in force for a period of thirty (30) days after the effectivity of this Act, unless extended by the Court of Appeals.

The amendment by RA 9194 of RA 9160 erased any doubt on the jurisdiction of the CA over the extension of freeze orders. As the law now stands, it is solely the CA which has the authority to issue a freeze order as well as to extend its effectivity. It also has the exclusive jurisdiction to extend existing freeze orders previously issued by the AMLC vis-à-vis accounts and deposits related to money-laundering activities.

REPUBLIC vs. JUDGE EUGENIO

FACTS: After the Agan v. PIATCO ruling, a series of investigations concerning the award of the NAIA 3 contracts to PIATCO were undertaken by the Ombudsman and the Compliance and Investigation Staff (“CIS”) of the Anti-Money Laundering Council (“AMLC”).

The OSG wrote AMLC requesting AMLC’s assistance “in obtaining more evidence to completely reveal the financial trail of corruption surrounding the NAIA 3 Project,” and also noting that the Republic was presently defending itself in two international arbitration cases. The CIS conducted an intelligence database search on the financial transactions of certain individuals involved in

the award, including Alvarez (Chairman of the Pre-Qualification Bids and Awards Technical Committee). By this time, Alvarez had already been charged by the Ombudsman with violation of Section 3(J) of the Anti Graft and Corrupt Practices Act.1 The search revealed that Alvarez maintained 8 bank accounts with 6 different banks

The AMLC issued a resolution authorizing its Executive Director to sign and verify an application to inquire into the deposits or investments of Alvarez et al. and to authorize the AMLC Secretariat to conduct an inquiry once the RTC grants the application. The rationale for the resolution was founded on the findings of the CIS that amounts were transferred from a Hong Kong bank account to bank accounts in the Philippines maintained by respondents. The Resolution also noted that by awarding the contract to PIATCO (despite its lack of financial capacity) Alvarez violated Section 3(E) of the Anti Graft and Corrupt Practices Act.2

The MAKATI RTC rendered an Order granting the AMLC the authority to inquire and examine the subject bank accounts of Alvarez et al. In response to a letter of Special Prosecutor Villa-Ignacio, AMLC issued a Resolution authorizing its Executive Director to inquire into and examine the accounts of Alvarez, PIATCO, and several other entities involved in the nullified contract. AMLC filed an application before the MANILA RTC to inquire into the accounts alleged as:

1 Sec. 3. Corrupt practices of public officers. - In addition to acts or omissions of public officers already penalized by existing law, the following shall constitute corrupt practices of any public officer and are hereby declared to be unlawful: (j) Knowingly approving or granting any license, permit, privilege or benefit in favor of any person not qualified for or not legally entitled to such license, permit, privilege or advantage, or of a mere representative or dummy of one who is not so qualified or entitled.

2 (e) Causing any undue injury to any party, including the Government, or giving any private party any unwarranted benefits, advantage or preference in the discharge of his official administrative or judicial functions through manifest partiality, evident bad faith

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or gross inexcusable negligence. This provision shall apply to officers and employees of offices or government corporations charged with the grant of licenses or permits or other concessions. having been used to facilitate corruption in the NAIA 3 Project. The ex parte application was granted and the MANILA RTC issued a bank inquiry order. Alvarez alleged that he fortuitously learned of the bank inquiry order, which was issued following an ex parte application, and he argued that nothing in the Anti- Money Laundering Act (“AMLA”) authorized the AMLC to seek the authority to inquire into bank accountsex parte.

After several motions, manifestations, orders and resolutions the case went up to the SC. Alvarez et al.’s position: 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 the AMLA (17 October 2001). The subject bank accounts, opened in 1989 to 1990, could not be the subject of the bank inquiry order without violating the constitutional prohibition against ex post facto laws.

ISSUE: Whether or not the proscription against ex post facto laws applies to Section 11 of the AMLA (a provision which does not provide a penal sanction BUT which merely authorizes the inspection of suspect accounts and deposits).

HELD: YES. It is clear that no person may be prosecuted under the PENAL provisions of the AMLA for acts committed prior to the enactment of the law (17 October 2001).

With respect to the AUTHORITY TO INSPECT, it should be noted that an ex post facto law is one that (among others) deprives a person accused of a crime of some lawful protection to which he has become entitled, such as the protection of a former conviction or acquittal, or a proclamation of amnesty.

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[PHILIPPINE DEPOSIT INSURANCE CORPORATION]PDIC vs. COURT OF APPEALS (283 SCRA 462)

FACTS: Rosa Aquero,Gerard Yu, Eric Yu, Mina Yun, Merly Cuescano, Leticia Tan, Fely Rumbana and Lorna Acub invested in money market placements with Premiere Financing Corp. for which promissory notes and checks were issued. When John Francis Cotaoco, as their attorney in fact went to PFC to encash the promissory notes and checks, PFC referred him to Regen Savingsbank.

Instead of paying the promissory notes and checks, RSB issued certificates of time deposits which similarly and categorically state that their bearer have a deposit in the RSB and that the certificates are insured by PDIC. On maturity date, Cotaoco sought to encash the certificates. However, RSB requested for a deferment of a few days to enable it to raise the amount to pay for the certificates to which cotaoco agreed. Despite the extension, RSB still failed to pay. Instead, RSB advised Cotaoco to file a claim with the PDIC. Meanwhile, CB suspended the operations of RSB and subsequently ordered for its liquidation. The certificates of time deposit in question were not included in the inventory of assets and liabilities. Hence, for the amount of the certificates, Aquero et al filed their respective claims with PDIC, but such claim was refused by the latter. An action for collection was filed against PDIC, RSB and CB.     

ISSUE: Whether the claim for deposit insurance with PDIC may prosper

HELD: Where no deposit as defined in Section 3 (f) of Republic Act No. 3591 came into existance, PDIC cannot be held liable for the value of time deposit caertificates. The liability of PDIC for insured deposits is statutory and under RA No. 3591, as amended, such liability rests upon the existence with the insured bank, not on the

negotiability or non-negotiability of the certificates evidencing these deposits. The term "deposit" means unpaid balance of money or equivalent received by a bank in the usual course of business and for which it has given or is obliged to give credit to a commercial, checking, savings, time or thrift account or which is evidenced by as passbook, check or certificate of deposit printed or issued in accordance with Central Bank regulations and other applicable laws, together with such other obligations of a bank which, consistent with banking usage and practices, the board of directors shall determine and prescribe byregulations to be deposit liabilities of the Bank.

PDIC vs. COURT OF APPEALS (283 SCRA 462)

FACTS: Prior to the issuance of the Resolution of the Monetary Board prohibiting MBC to do business and placing its asets under receivership, the Abads had individually and jointly with each other, 71 Golden Time Deposits of Manila Banking Corp. The resolution which was issued on a Friday however was not served on MBC until Tuesday the following week, when the designated receiver took over. During the next banking day following the issuance of the MB Resolution, Jose Abad manifested his intent to pre-terminate the 71 aforementioned GTDs and to re-deposit the fund represented thereby into 28 new GTDs in denominations of 40,000.00 or less under the names of herein respondents individually or jointly with each other. Of the 28 new GTDs, Jose Abad pre-terminated 8 and withdrew the value thereof in the total amount of 320,000.00.

Respondents thereafter filed their claims with the PDIC for the payment of the remaining 20 insured GTDs. PDIC paid respondents the value of 3 claims. PDIC, however, withheld payment of the 17 remaining claims after receiving reports that the impending receivership of MBC was somehow already known to many depositors and that the latter spread out big accounts to as many certificates in order to maximize the availment of PDIC coverage. Petitioner points that as MBC was prohibited from doing

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further business by MB Resolution 505, all transactions subsequent to such date were not done “in the usual course of business.”

ISSUE: Whether the amount represented in the faces of the so called “golden time deposits” were insured deposits even as they were mere derivatives of respondents’ previous account balances which were pre-terminated/terminated at the time the manila banking corporation was already in serious financial distress.

HELD: Under its charter, PDIC is liable only for deposits received by a bank “in the usual course of business.”Although it was already suffering from financial distress, MBC and its clients could be given the benefit of the doubt that they were not aware that the MB resolution had been passed, given the necessity of confidentiality of placing a banking institution under receivership. If on the next banking day following the issuance of the Monetary Board Resolution, the depositor pre-terminated his time deposits and re-deposited the funds into smaller denomination, said deposits were still for a consideration and covered by the PDIC insurance coverage.

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[TRUTH IN LENDING]CONSOLIDATED BANK AND TRUST COMPANY vs. COURT OF APPEALS

FACTS: George King Tim Pua, in his personal capacity, applied for, and was granted, by plaintiff bank, six separate loans for which he executed a promissory note. Under the account of George and George Trade Inc., George Kim Tim Pua, together with his co-maker, Pua Ke Seng, obtained several loans as well and for which the executed promissory notes. The promissory notes do not contain any stipulation on the payment of handling charges.

In order to secure the payment of defendant George King Tim Pua's obligation with the plaintiff, he assigned unto the latter the proceeds of a fire insurance policy issued by the Kerr Insurance Company. The proceeds of the insurance policy were subsequently paid to the plaintiff which applied the same to the personal account of defendant George King Tim Pua. The personal account of defendant George King Tim Pua was fully satisfied through the remittances of the fire insurance proceeds.

Alleging that there was still an unpaid balance, petitioner instituted on an action against private respondents for the recovery of the unpaid balances on the three promissory notes, including attorney's fees.

In their Answer with Special and Affirmative Defenses and Counterclaim, private respondents claimed that the loans had been extinguished by way of payment through the assignment by respondent George King Tim Pua of the fire insurance proceeds and that it was in fact petitioner which owed them by reason of its failure to return to the latter the balance of said insurance proceeds.

ISSUE: Whether the lender may collect handling charges where the promissory notes executed do not contain any stipulation pertaining to payment of such handling charges.

HELD: Bank and non-bank financial intermediaries authorized to engage in quasi-banking functions are required to strictly adhere to the provisions of the “Truth in Lending Act”. Where the promissory note signed by the borrowers do not contain any stipulation on the payment of handling charges, the bank cannot collect the same even though a CB Circular 504 authorized banks to collect handling charges on loans over 500,000.

DBP vs. ARCILLA

FACTS: Arcilla was an employee of DBP. He availed of a loan under the individual housing project of the bank for the purchase of a lot and the construction of the house therein for P160k. They executed a deed of conditional sale wherein Arcilla should pay the loan in 25 years, with a monthly amortization of P1,417.91, w/ 9% interest per annum, to be deducted from his monthly salary and DBB in turn will transfer title of propery upon payment of the loan, including any increments thereof, and if Arcilla availed of optional retirement, he could elect to continue paying the loan, provided that the loan/amount would be converted into a regular real estate loan w/ prevailing interest assigned on real estate loans, payable w/n remaining term of the loan account

Arcilla opted to resign from the bank in December 1986. So bank informed him that the balance of his loan account had been converted to a regular housing loan. Arcilla signed Promissory notes and also agreed to pay to DBP insurance premiums, taxes, etc. He also agreed to the reservation of DBP of its right to increase (w/notice to arcilla) therate 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; Provided, that the rate of interest on the loan shall be reduced by law or by the Monetary Board; Provided, further, that the adjustment in the rate of interest shall take effect on or after the effectivity of the increase or

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decrease in the maximum rate of interest.

An additional cash advance of P32k was granted to Arcilla but arcilla failed to pay total obligation due.DBP rescinded the Deed of Conditional Sale by notarial act. DBP tried to give Arcilla a chance to repurchase the property but Arcilla did not respond. Property was advertised for sale at public bidding. Arcilla filed complaint against DBP for failure to furnish him with the disclosure statement required by RA 3765 and CB Circular No. 158 prior to the execution of the deed of conditional sale and the conversion of his loan w/ the bank into a regular housing loan.

DBP still immediately deducted the account from his salary as early as 1984. Morever, the bank applied its own formula and imposed its usurious interests, penalties and charges on his loan and advances.

ISSUE: Whether or not DBP complied w/ disclosure requirement?

HELD: RA 3765, Section 1: Before consummation of 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 CBP, the following information: (1) the cash price or delivered price of the property or service to be acquired; (2) the amounts, if any, to be credited as down payment and/or trade-in; (3) the difference between the amounts set forth under clauses (1)a n d (2); (4) 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.

CBP Circular No. 3765, the information required by RA 3765 shall be included in the contract covering the credit transaction or any document to be acknowledged and signed by the debtor. If the borrower is not duly informed of the data required by law prior to consummation of the availment or drawdown, the lender will have no right to collect such charge or increases thereof, even if stipulated in the PN but failure such not affect the validity or enforcement of any contract or transaction.

DBP failed to disclose the requisite information in the disclosure statement form authorized by CB but did so in the loan transaction documents between DBP and Arcilla. No evidence that DBP would collect other charges other than those disclosed in the deeds. The claim of Arcilla a mere afterthought. Arcilla is a lawyer, so he would not be so gullible to sign documents w/o knowing fully well the legal implications and consequences of his actions. Arcilla is also a former employee so he is presumed to know DBP's business, terms of the loan applied for, including the charges that had to be paid. (DBP's counterclaim that Arcilla vacate property + pay rentals after notarial rescission of the deed of conditional sale was remanded, DBP not showing evidence on the reasonable amount of rentals for Arcilla's occupancy)

If the bank fails to include something in the disclosure form, the bank would not be able to recover from it and section 6: failure to disclose would not affect the validity or enforceability of the transaction. If the lender could not collect what is stated anymore, then failure to disclose affects the validity or enforceability of the transaction.

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[WAREHOUSE RECEIPTS LAW] CONSOLIDATED TERMINALS, INC. vs. ARTEX DEVELOPMENT CO., INC.

FACTS: CTI was the operator of a customs bonded warehouse located at Port Area, Manila. It received on deposit one hundred ninety-three (193) bales of high density compressed raw cotton . It was understood that CTI would keep the cotton in behalf of Luzon Brokerage Corporation until the consignee thereof, Paramount Textile Mills, Inc., had opened the corresponding letter of credit in favor of shipper, Adolph Hanslik Cotton of Corpus Christi, Texas.Allegedly by virtue of a forged permit to deliver imported goods, purportedly issued by the Bureau of Customs, Artex was able to obtain delivery of the bales of cotton. At the time the merchandise was released to Artex, the letter of credit had not yet been opened and the customs duties and taxes due on the shipment had not been paid.

CTI, in its original complaint, sought to recover possession of the cotton by means of a writ of replevin. The writ could not be executed. CTI then filed an amended complaint by transforming its original complaint into an action for damages. The case was dismissed for lack of cause of action. CTI on appeal contends that, as warehouseman, it was entitled to the repossession of the bales of cotton; that Artex acted wrongfully in depriving CTI of the possession of the merchandise because Artex presented a falsified delivery permit, and that Artex should pay damages to CTI.

ISSUE: Whether a warehouse man has a cause of action for repossession and damages against a person to whom it delivered deposited articles on the basis of an alleged falsified delivery permit where the real parties interested in the articles have not yet sued the warehouseman for damages on account of said wrong delivery.

HELD: CTI's appeal has no merit. Its amended complaint does not clearly show that, as warehouseman, it has a cause of action for damages against Artex. The real

parties interested in the bales of cotton were Luzon Brokerage Corporation as depositor, Paramount Textile Mills, Inc. as consignee, Adolph Hanslik Cotton as shipper and the Commissioners of Customs and Internal Revenue with respect to the duties and taxes. These parties have not sued CTI for damages or for recovery of the bales of cotton or the corresponding taxes and duties.The case might have been different if it was alleged in the amended complaint that the depositor, consignee and shipper had required CTI to pay damages, or that the Commissioners of Customs and Internal Revenue had held CTI liable for the duties and taxes. In such a case, CTI might logically and sensibly go after Artex for having wrongfully obtained custody of the merchandise.

PHILIPPINE NATIONAL BANK vs. NOAH'S ARK SUGAR REFINERY

FACTS: Noah’s Ark Sugar Refinery sold sugar deposited in tis warehouse to Rosa Ng Sy of St. Therese Merchandising.  Payments were made in the form of postdated checks. In accordance with Act No. 2137, Noah's Ark Sugar Refinery issued on several dates warehouse receipts  The receipts are substantially in the form, and contain the terms, prescribed for negotiable warehouse receipts by Section 2 of the law.

Subsequently, the warehouse receipts covering sugar deposited by RNS Merchandising were negotiated and indorsed to Luis T. Ramos and Cresencia K. Zoleta. Zoleta and Ramos then used the quedans as security for loans obtained by them from the Philippine National Bank. Both Zoleta and Ramos failed to pay their loans upon maturity. Consequently, PNB wrote to Noah's Ark Sugar Refinery demanding delivery of the sugar covered by the quedans indorsed to it by Zoleta and Ramos. When Noah's Ark refused to comply with the demand, PNB filed with the RTC a complaint for "Specific Performance with Damages and Application for Writ of Attachment" against Noah's Ark.

ISSUE: Whether or not the non-payment of the purchase price for the sugar stock evidenced by the quedans, by the original depositors/ vendees (RNS Merchandising and

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St. Therese Merchandising) rendered invalid the negotiation of said quedans by vendees/first indorsers to indorsers (Ramos and Zoleta) and the subsequent negotiation of Ramos and Zoleta to PNB.

HELD: The validity of the negotiation of the quedans to PNB cannot be impaired by the fact that the negotiation between Noah's Ark and RNS Merchandising and St. Therese Merchandising was made in breach of faith on the part of the merchandising firms or by the fact that the owner (Noah's Ark) was deprived of the possession of the same by fraud, mistake or conversion. The same is true even if the warehouseman who issued a negotiable warehouse receipt was not paid by the buyer. The quedans were negotiable documents and had been duly negotiated to the PNB which thereby acquired the rights set out in Article 1513 of the Civil Code.

PHILIPPINE NATIONAL BANK vs. SE JR.

FACTS: In PNB vs. Noah’s Ark Refinery, the Supreme Court ordered Noah’s Ark to deliver to PNB the sugarstocks covered by the Warehouse Receipts which are now in the latter’s possession as the holder for value. Noah’s Ark moved for reconsideration of this decision but such was denied. Its motion seeking clarification of the decision was likewise denied. Thereupon, Noah’s Ark filed before the trial court omnibus motion seeking among others the defement of the proceedings until it is heard on its claim for warehouseman’s lien. After hearing, the court found that ther exist in favor of Noah’s Ark a valid lien and accordingly execution of the judgment was stayed until the full amount of the lien shall have been satisfied.

ISSUE: Whether the warehouseman can enforce his lien before delivering the sugar as ordered by CA

HELD: While PNB is entitled to the stocks of sugar, delivery to it shall be effected only upon payment of the storage fees. Imperative is the right of the warehouseman to demand payment of his lien becausein accordance with Section 29 of the Warehouse Receipts Lw, the warehouseman lses his lien upon the goods by surrendering possession therof.

PHILIPPINE NATIONAL BANK vs. SAYO, JR.

FACTS: In PNB vs. Noah’s Ark Sugar Refinery, the Supreme Court ordered Noah’s Ark to deliver to PNB, as the holder for value, the sugar stocks covered by the warehouse receipts. In PNB vs. Se Jr., the Court held that while PNB is entitled to the stocks of sugar as the endorsee of the quedans, delivery to it shall be effected only upon payment of the storage fees. This is the third dispute between the same parties to have reached the Supreme Court.After PNB vs. Se Jr. decision became final and executor, Noah’s Ark filed a motion for execution. PNB opposed on the following grounds: 1. The lien claimed by Noah’s Ark is excessive. 2. There is no legal basis for execution unless and until PNB compels delivery of the sugar stocks. 3. Also, the court order failed to state the amount for which execution may be granted, hence, Noah’s Ark should instead file first a separate action to prove its claim.The trial court granted the motion and accordingly computed the accrued storage fees and preservation charges presented in evidence. PNB filed an Urgent Motion seeking the deferment of the enforcement of the Writ of Execution. Nevertheless, the sheriff  levied on execution several properties of PNB. Notice of Garnishment on funds of deposits of PNB was also served upon BSP. PNB then filed a motion for Reconsideration and an Urgent motion to lift garnishment of PNB funds with BSP, but both motions were denied. The Supreme Court granted the petition and directed the trial court to conduct further proceedings to allow PNB to present its evidence on the matter of the warehouse lien, to compute the same, and to determine whether for the relevant period Noah’s Ark maintained a sufficient inventory to cover the volume of sugar specified in the quedans. ISSUE: Whether or not under the special circumstances in this case, Noah’s Ark may enforce their warehouseman’s lien

Whether PNB is liable for storage fees

HELD: The remedies available to a warehouseman to enforce his warehouseman’s lien are to refuse delivery of the goods until his lien is satisfied, to sell the

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goods and apply the proceeds therof to the value of the lien and by other means allowed by law to a creditor against his debtor, for the collection from the depositor of all charges which the depositor expressly or impliedly contracted with the warehouseman to pay. Even in the absence of a provision in the Warehouse Receipts, law and equity dictate the payment of the lien. The refusal of the warehouseman who previously owned the sugar stored with it, to deliver the sugar to the endorsee of the quedans on the ground that it was still the owner because it had not been paid by the buyer is not a valid excuse. The loss of the lien however does not necessarily mean the extinguishment of the obligation to pay the warehousing fees.

In the second issue, PNB’s is liable for storage fees but the extent of liability should not go beyond the value of the credit extended in favor of the pledge.