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DBP v. Arcilla Jr.

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

1. 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) and (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.

If the borrower is not duly informed of the data required by the law prior to the consummation of the availment or
drawdown, the lender will have no right to collect such charge or increases thereof, even if stipulated in the
promissory note. However, such failure shall not affect the validity or enforceability of any contract or transaction.

BANK OF THE PHILIPPINE ISLANDS, INC., Petitioner, vs. SPS. NORMAN AND ANGELINA YU and
TUANSON BUILDERS CORPORATION represented by PRES. NORMAN YU, Respondents.

Facts:


Sec ond.

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BPI also imposed a charge of P4,052,046.11 in attorneys fees, the equivalentof 10% of the principal,
interest, and penalty charges.
T hi rd
. BPI did not provide documents to support its claim for foreclosure expenses of P446,726.74 and cost
of publication of P518,059.21.As an alternative to their three causes of action, the Yus claimed that BPI
was inestoppel to claim more than the amount stated in its published notices. Consequently, itmust
turn over the excess bid of P6,035,311.46.After pre-trial, the Yus moved for summary judgment,
pointing out that based on theanswer, the common exhibits of the parties, and the answer to the
writteninterrogatories to the sheriff, no genuine issues of fact exist in the case. The Yuswaived their
claim for moral damages so the RTC can dispose of the case through asummary judgment.Initially, the
RTC granted only a partial summary judgment. It reduced the penaltycharge of 36% per annum to 12%
per annum until the debt would have been fully paidbut maintained the attorneys fees as reasonable
considering that BPI already waivedthe P1,761,511.36 that formed part of the attorneys fees and
reduced the rate of attorneys fees it collected from 25% to 10% of the amount due. The RTC ruled
thatfacts necessary to resolve the issues on penalties and fees had been admitted by theparties thus
dispensing with the need to receive evidence.Still, the RTC held that it needed to receive evidence for
the resolution of the issues of (1) whether or not the foreclosure and publication expenses were
justified; (2) whether or not the foreclosure of the lot in Pili, Camarines Sur, was valid given that the
proceedsof the foreclosure of the properties in Legazpi City sufficiently covered the debt; and
(3)whether or not BPI was entitled to its counterclaim for attorneys fees, moral damages,and
exemplary damages. The Yus moved for partial reconsideration. On January 3, 2006 the RTC
reconsideredits earlier decision.BPI appealed the decision to the Court of Appeals (CA) in CA-G.R. CV
86577. But theCA rendered judgment on January 23, 2008, affirming the RTC decision in all
respects.And when BPI asked for reconsideration, the CA denied it on July 14, 2008, hence, thebanks
recourse to this Court.

ISSUE: WHETHER OR NOT THE LOAN AGREEMENTS BETWEEN THEM WERE VALID ANDENFORCEABLE.

RULING:
BPI contends that a summary judgment was not proper given the following issues thatthe parties raised:
1) whether or not the loan agreements between them were valid andenforceable; 2) whether or not the
Yus have a cause of action against BPI; 3) whether or not the Yus are proper parties in interest; 4)
whether or not the Yus are stopped from questioning the foreclosure proceeding after entering into a
compromiseagreement with Magnacraft; 5) whether or not the penalty charges and fees and expenses
of litigation and publication are excessive; and 6) whether or not BPI violatedthe Truth in Lending
Act.But these are issues that could be readily resolved based on the facts established bythe pleadings
and the admissions of the parties. Indeed, BPI has failed to name any

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Bank ruling declared valid the penalty charges that were stipulated in the promissory notes. What the
Court disallowed in that case was the collection of a handling chargethat the promissory notes did not
contain. The Court has affirmed that financial charges are amply disclosed if stated in the promissory
note in the case of Development Bank of the Philippines v. Arcilla,Jr.


The Court there said, Under Circular 158 of the Central Bank, the lender is required to include the
information required by R.A. 3765 in the contract covering the credit transaction or any other document
to be acknowledged and signed by the borrower. In addition, the contract or document shall specify
additional charges, if any, which will becollected in case certain stipulations in the contract are not met
by the debtor. In this case, the promissory notes signed by the Yus contained data, including
penaltycharges, required by the Truth in Lending Act. They cannot avoid liability based on arigid
interpretation of the Truth in Lending Act that contravenes its goal. Nonetheless,the courts have
authority to reduce penalty charges when these are unreasonable andiniquitous. Considering that BPI
had already received over P2.7 million in interest andthat it seeks to impose the penalty charge of 3%
per month or 36% per annum on thetotal amount dueprincipal plus interest, with interest not paid
when due added to andbecoming part of the principal and also bearing interest at the same ratethe
Courtfinds the ruling of the RTC in its original decision reasonable and fair. Thus, the penaltycharge of
12% per annum or 1% per month is imposed.
Three.As for the award of attorneys fee, it bei

In Bank of Philippine Islands vs. Spouses Norman and Angelina Yu, the Supreme Court explained that to
resolve the issue of the excessive charges allegedly incorporated into the auction bid price, the RTC
simply had to look at a) the pleadings of the parties; b) the loan agreements, the promissory note, and
the real estate mortgages between them; c) the foreclosure and bidding documents; and d) the
admissions and other disclosures between the parties during pre-trial. Since the parties admitted not
only the existence, authenticity, and genuine execution of these documents but also what they stated,
the trial court did not need to hold a trial for the reception of the evidence of the parties.

Be that as it may, BPI contends that a summary judgment was not proper given the following
issues that the parties raised: 1) whether or not the loan agreements between them were valid and
enforceable; 2) whether or not the Yus have a cause of action against BPI; 3) whether or not the Yus are
proper parties in interest; 4) whether or not the Yus are estopped from questioning the foreclosure
proceeding after entering into a compromise agreement with Magnacraft; 5) whether or not the penalty

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charges and fees and expenses of litigation and publication are excessive; and 6) whether or not BPI
violated the Truth in Lending Act.(RULES OF COURT, Rule 35, Section 5).

But, the Supreme Court held that these are issues that could be readily resolved based on the
facts established by the pleadings and the admissions of the parties.(A.M. No. 03-1-09-SC, Guidelines to
be Observed by Trial Court Judges and Clerks of Court in Conduct of Pre-trial and Use of Deposition-
Discovery Measures, August 16, 2004). Indeed, BPI has failed to name any document or item of fact that
it would have wanted to adduce at the trial of the case. A trial would have been such a great waste of
time and resources. Otherwise stated, a summary judgment is apt when the essential facts of the case
are uncontested or the parties do not raise any genuine issue of fact.(BANK OF THE PHILIPPINE ISLANDS,
INC., vs. SPS. NORMAN AND ANGELINA YU, G.R. No. 184122, January 20, 2010, ABAD, J.).

13. Ejercito v. Sandiganbayan, 509 SCRA 190 (2006)
FACTS:
-[In the case of Pp. v. Estrada] Special Prosecution Panel (composed of the Ombudsman, the Special
Prosecutor, Deputy Special Prosecutor, Asst. Ombudsman, Special Prosecution III and SP II), filed before
Sandiganbayan a request for the issuance of subpoena duces tecum directing the president of Export
and Industry Bank (EIB) or his/her representative to produce documents relating to the acts therein
specified.
-The Special Prosecution Panel likewise requested for issuance of Subpoena Duces Tecum / Ad
testificandum directed to the authorized representative of Equitable-PCI Bank to produce statements of
accounts in the name of Jose Velarde and testify thereon.
-Estrada, claiming to have learned from the media that the Special Prosecution Panel had requested for
the issuance of subpoenas the examination of bank accounts belonging to him, attended the hearing of
the case and filed before the Sandiganbayan a letter of opposition and requested that he be given time
to retain the services of a lawyer and prayed that the issuance of the subpoena be held in abeyance for
at least 10 days to enable him to take appropriate legal steps.
-In open court, Associate Justice Sandoval of Sandiganbayan advised Estrada that his remedy was to file
a motion to quash, for which he was given up to 12nn the following day.
-Estrada unassisted by counsel filed a motion to quash claiming that his bank accounts are covered by
RA 1405 and do not fall under any of the exceptions stated therein.
-Other requests for issuance of Subpoenas were filed, and thus issued, hence, motion to quash was filed
by Estrada but was denied by Sandiganbayan. Sandiganbayan further denied Motion for
reconsideration.

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ISSUES:
1. Whether or not Estradas Account is covered by the term deposit as used in RA 1405.
2. Whether or not Estradas Trust and Savings accounts are excepted from the protection of RA
1405.
HELD:
-An examination of RA 1405 shows that the term deposits used therein is to be understood broadly
and not limited to accounts which give rise to a creditor-debtor relationship between the depositor and
the bank. If the money deposited under an account may be used by banks for authorized loans to third
persons, then such account, regardless of whether it creates a creditor-debtor relationship between the
depositor and the bank falls under the category of accounts which the law precisely seeks to protect.
The phrase of whatever nature proscribes any restrictive interpretation of deposits. RA 1405 applies
not only to money which are invested, such as those placed in a trust account.
-These accounts are no longer protected by the Secrecy of Bank Deposits Law, there being two
exceptions applicable in this case namely: (1) the examination of bank accounts is upon order of a
competent court in cases of bribery or dereliction of duty of public officials, and (2) the money
deposited or invested is the subject matter of the litigation. Exception 1 applies since the plunder case
pending against former President Estrada is analogous to bribery or dereliction of duty, while exception
2 applies because the money deposited in Estradas bank accounts is said to form part of the subject
matter of the same plunder case.

14. China Bank Corporation v. Court of Appeals, 511 SCRA 110 (2006)
FACTS:
- Jose Gotianuy accused his daughter Mary Margaret Dee of stealing, among his other properties, US
dollar deposits with Citibank N.A. amounting to not less than P35,000,000.00 and US$864,000.00. Mary
Margaret Dee received these amounts from Citibank N.A. through checks which she allegedly deposited
at China Banking Corporation (China Bank). He likewise accused his son-in-law, George Dee, husband of
his daughter, Mary Margaret, of transferring his real properties and shares of stock in George Dees
name without any consideration. Jose Gotianuy, died during the pendency of the case before the trial
court. He was substituted by his daughter, Elizabeth Gotianuy Lo. The latter presented the US Dollar
checks withdrawn by Mary Margaret Dee from his US dollar placement with Citibank.
-Upon motion of Elizabeth Gotianuy Lo, the trial court issued a subpoena to Cristota Labios and Isabel
Yap, employees of China Bank, to testify on the case.
-China Bank opposed.
TC:

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-The disclosure is only as to the name or whose name the said fund is deposited is not violative of the
law
CA:
-Affirmed TC. The law protects only the deposit itself but not the name of depositor.
CBs Contention:
-Jose Gotianuy is not the owner of the questioned foreign currency deposit, thus, he cannot invoke the
aid of the court in compelling the disclosure of someone elses foreign currency deposit.
ISSUE:
-Whether or not Jose Gotianuy as co payee of a foreign currency depositor in checks deposited in the
account of Mary Margaret Dee is a depositor.
HELD:
-The law provides that all foreign currency deposits authorized under Republic Act No. 6426, as
amended by Sec. 8, Presidential Decree No. 1246, Presidential Decree No. 1035, as well as foreign
currency deposits authorized under Presidential Decree No. 1034 are considered absolutely confidential
in nature and may not be inquired into. There is only one exception to the secrecy of foreign currency
deposits, that is, disclosure is allowed upon the written permission of the depositor.
-As the owner of the funds unlawfully taken and which are undisputably now deposited with China
Bank, Jose Gotianuy has the right to inquire into the said deposits.
-A depositor, in cases of bank deposits, is one who pays money into the bank in the usual course of
business, to be placed to his credit and subject to his check or the beneficiary of the funds held by the
bank as trustee.
-As CA ruled:
Furthermore, it is indubitable that the Citibank checks were drawn against the foreign currency account
with Citibank, NA. The monies subject of said checks originally came from the late Jose Gotianuy, the
owner of the account. Thus, he also has legal rights and interests in the CBC account where said monies
were deposited. More importantly, the Citibank checks readily demonstrate that the late Jose Gotianuy
is one of the payees of said checks. Being a co-payee thereof, then he or his estate can be considered as
a co-depositor of said checks. Ergo, since the late Jose Gotianuy is a co-depositor of the CBC account,
then his request for the assailed subpoena is tantamount to an express permission of a depositor for the
disclosure of the name of the account holder.

VITUG vs CA Case Digest

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VITUG vs CA
188 SCRA 755
FACTS: This case is a chapter in an earlier suit decided by this Court involving the probate of the two
wills of the late Dolores Luchangco Vitug, who died in New York, U. S.A. naming private respondent
Rowena Faustino-Corona executrix. In said decision, the court upheld the appointment of Nenita Alonte
as co-special administrator of Mrs. Vitugs estate with her (Mrs. Vitugs) widower, petitioner Romarico
G. Vitug, pending probate.
Romarico G. Vitug filed a motion asking for authority from the probate court to sell certain shares of
stock and real properties belonging to the estate to cover allegedly his advances to the estate, plus
interests, which he claimed were personal funds. As found by the CA the alleged advances were spent
for the payment of estate tax, deficiency estate tax, and increment thereto.
Rowena Corona opposed the motion to sell on the ground that the same funds withdrawn were
conjugal partnership properties and part of the estate, and hence, there was allegedly no ground for
reimbursement. She also sought his ouster for failure to include the sums in question for inventory and
for concealment of funds belonging to the estate.
Vitug insists that the said funds are his exclusive property having acquired the same through a
survivorship agreement executed with his late wife and the bank.
The trial courts upheld the validity of such agreement.
On the other hand, the CA held that the survivorship agreement constitutes a conveyance mortis causa
which did not comply with the formalities of a valid will as prescribed by Article 805 of the Civil Code,
and secondly, assuming that it is a mere donation inter vivos, it is a prohibited donation under the
provisions of Article 133 of the Civil Code.
ISSUE: W/N the survivorship agreement between the spouses Vitug constitutes a donation?
HELD: NO. The conveyance in question is not, first of all, one of mortis causa, which should be embodied
in a will. A will has been defined as a personal, solemn, revocable and free act by which a capacitated
person disposes of his property and rights and declares or complies with duties to take effect after his
death. In other words, the bequest or device must pertain to the testator. In this case, the monies
subject of savings account No. 35342-038 were in the nature of conjugal funds In the case relied on,
Rivera v. Peoples Bank and Trust Co., we rejected claims that a survivorship agreement purports to
deliver one partys separate properties in favor of the other, but simply, their joint holdings.
There is no showing that the funds exclusively belonged to one party, and hence it must be presumed to
be conjugal, having been acquired during the existence of the marital relations.

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Neither is the survivorship agreement a donation inter vivos, for obvious reasons, because it was to take
effect after the death of one party. Secondly, it is not a donation between the spouses because it
involved no conveyance of a spouses own properties to the other.
It is also our opinion that the agreement involves no modification petition of the conjugal partnership,
as held by the Court of Appeals, by mere stipulation and that it is no cloak to circumvent the law on
conjugal property relations. Certainly, the spouses are not prohibited by law to invest conjugal property,
say, by way of a joint and several bank account, more commonly denominated in banking parlance as an
and/or account. In the case at bar, when the spouses Vitug opened savings account No. 35342-038,
they merely put what rightfully belonged to them in a money-making venture. They did not dispose of it
in favor of the other, which would have arguably been sanctionable as a prohibited donation.
The conclusion is accordingly unavoidable that Mrs. Vitug having predeceased her husband, the latter
has acquired upon her death a vested right over the amounts under savings account No. 35342-038 of
the Bank of America. Insofar as the respondent court ordered their inclusion in the inventory of assets
left by Mrs. Vitug, we hold that the court was in error. Being the separate property of petitioner, it
forms no more part of the estate of the deceased.
Feati Bank and Trust Company v Court of Appeals G.R. No. 94209 April 30, 1991
In case of a notifying bank, the correspondent bank assumes no liability except to notify and/or
transmit to the beneficiary the existence of the letter of credit.
A negotiating bank, on the other hand, is a correspondent bank which buys or discounts a draft under
the letter of credit. Its liability is dependent upon the stage of the negotiation. If before negotiation, it
has no liability with respect to the seller but after negotiation, a contractual relationship will then
prevail between the negotiating bank and the seller.
In the case of a confirming bank, the correspondent bank assumes a direct obligation to the seller and
its liability is a primary one as if the correspondent bank itself had issued the letter of credit.
Facts: Bernardo Villaluz entered into a contract of sale with Axel Christiansen in which Villaluz agreed to
deliver to Christiansen 2,000 cubic meters of lauan logs at $27.00 per cubic meter FOB. On the
arrangements made and upon the instructions of consignee, Hanmi Trade Development, Ltd., the
Security Pacific National Bank of Los Angeles, California issued an irrevocable letter of credit available at
sight in favor of Villaluz for the sum of $54,000.00, the total purchase price of the lauan logs.
The letter of credit was mailed to the Feati Bank and Trust Company with the instruction to the latter
that it forward the enclosed letter of credit to the beneficiary. The letter of credit also provided that
the draft to be drawn is on Security Pacific National Bank and that it be accompanied by certain
documents. The logs were thereafter loaded on a vessel but Christiansen refused to issue the
certification required in paragraph 4 of the letter of credit, despite repeated requests by the private
respondent. The logs however were still shipped and received by consignee, to whom Christiansen sold
the logs. Because of the absence of the certification by Christiansen, the Feati Bank and Trust company

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refused to advance the payment on the letter of credit until such credit lapsed. Since the demands by
Villaluz for Christiansen to execute the certification proved futile, he filed an action for mandamus and
specific performance against Christiansen and Feati Bank and Trust Company before the Court of First
Instance of Rizal. Christiansen however left the Philippines and Villaluz filed an amended complaint
making Feati Bank and Trust Company.
Issue: Whether or not Feati Bank is liable for Releasing the funds to Christiansen
Held: In commercial transactions involving letters of credit, the functions assumed by a correspondent
bank are classified according to the obligations taken up by it. The correspondent bank may be called a
notifying bank, a negotiating bank, or a confirming bank.
In case of a notifying bank, the correspondent bank assumes no liability except to notify and/or transmit
to the beneficiary the existence of the letter of credit.
A negotiating bank, on the other hand, is a correspondent bank which buys or discounts a draft under
the letter of credit. Its liability is dependent upon the stage of the negotiation. If before negotiation, it
has no liability with respect to the seller but after negotiation, a contractual relationship will then prevail
between the negotiating bank and the seller.
In the case of a confirming bank, the correspondent bank assumes a direct obligation to the seller and
its liability is a primary one as if the correspondent bank itself had issued the letter of credit.
In this case, the letter merely provided that the petitioner forward the enclosed original credit to the
beneficiary. (Records, Vol. I, p. 11) Considering the aforesaid instruction to the petitioner by the issuing
bank, the Security Pacific National Bank, it is indubitable that the petitioner is only a notifying bank and
not a confirming bank as ruled by the courts below.
A notifying bank is not a privy to the contract of sale between the buyer and the seller, its relationship is
only with that of the issuing bank and not with the beneficiary to whom he assumes no liability. It
follows therefore that when the petitioner refused to negotiate with the private respondent, the latter
has no cause of action against the petitioner for the enforcement of his rights under the letter.
Since the Feati was only a notifying bank, its responsibility was solely to notify and/or transmit the
documentary of credit to the private respondent and its obligation ends there.
At the most, when the petitioner extended the loan to the private respondent, it assumed the character
of a negotiating bank. Even then, the petitioner will still not be liable, for a negotiating bank before
negotiation has no contractual relationship with the seller. Whether therefore the petitioner is a
notifying bank or a negotiating bank, it cannot be held liable. Absent any definitive proof that it has
confirmed the letter of credit or has actually negotiated with Feati, the refusal by the petitioner to
accept the tender of the private respondent is justified


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Transfield Philippines vs Luzon Hydro Electric Corp. GR No 146717, Nov 22, 2004
MARCH 15, 2014LEAVE A COMMENT
The independent nature of the letter of credit may be: (a) independence in toto where the credit is
independent from the justification aspect and is a separate obligation from the underlying agreement
like for instance a typical standby; or (b) independence may be only as to the justification aspect like in
a commercial letter of credit or repayment standby, which is identical with the same obligations under
the underlying agreement. In both cases the payment may be enjoined if in the light of the purpose of
the credit the payment of the credit would constitute fraudulent abuse of the credit.
Facts: Transfield Philippines (Transfield) entered into a turn-key contract with Luzon Hydro Corp.
(LHC).Under the contract, Transfield were to construct a hydro-electric plants in Benguet and Ilocos.
Transfield was given the sole responsibility for the design, construction, commissioning, testing and
completion of the Project. The contract provides for a period for which the project is to be completed
and also allows for the extension of the period provided that the extension is based on justifiable
grounds such as fortuitous event. In order to guarantee performance by Transfield, two stand-by letters
of credit were required to be opened. During the construction of the plant, Transfield requested for
extension of time citing typhoon and various disputes delaying the construction. LHC did not give due
course to the extension of the period prayed for but referred the matter to arbitration committee.
Because of the delay in the construction of the plant, LHC called on the stand-by letters of credit
because of default. However, the demand was objected by Transfield on the ground that there is still
pending arbitration on their request for extension of time.
Issue: Whether or not LHC can collect from the letters of credit despite the pending arbitration case
Held: Transfields argument that any dispute must first be resolved by the parties, whether through
negotiations or arbitration, before the beneficiary is entitled to call on the letter of credit in essence
would convert the letter of credit into a mere guarantee.
The independent nature of the letter of credit may be: (a) independence in toto where the credit is
independent from the justification aspect and is a separate obligation from the underlying agreement
like for instance a typical standby; or (b) independence may be only as to the justification aspect like in a
commercial letter of credit or repayment standby, which is identical with the same obligations under the
underlying agreement. In both cases the payment may be enjoined if in the light of the purpose of the
credit the payment of the credit would constitute fraudulent abuse of the credit.
Jurisprudence has laid down a clear distinction between a letter of credit and a guarantee in that the
settlement of a dispute between the parties is not a pre-requisite for the release of funds under a letter
of credit. In other words, the argument is incompatible with the very nature of the letter of credit. If a
letter of credit is drawable only after settlement of the dispute on the contract entered into by the
applicant and the beneficiary, there would be no practical and beneficial use for letters of credit in
commercial transactions.

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The engagement of the issuing bank is to pay the seller or beneficiary of the credit once the draft and
the required documents are presented to it. The so-called independence principle assures the seller or
the beneficiary of prompt payment independent of any breach of the main contract and precludes the
issuing bank from determining whether the main contract is actually accomplished or not. Under this
principle, banks assume no liability or responsibility for the form, sufficiency, accuracy, genuineness,
falsification or legal effect of any documents, or for the general and/or particular conditions stipulated
in the documents or superimposed thereon, nor do they assume any liability or responsibility for the
description, quantity, weight, quality, condition, packing, delivery, value or existence of the goods
represented by any documents, or for the good faith or acts and/or omissions, solvency, performance or
standing of the consignor, the carriers, or the insurers of the goods, or any other person whomsoever.
PHILIPPINE NATIONAL BANK, petitioner,
vs.HON. GREGORIO G. PINEDA, in his capacity as Presiding Judge of the Court of First Instance of Rizal,
Branch XXI and TAYABAS CEMENT COMPANY, INC., respondents.

Facts:
In this petition for certiorari, petitioner Philippine National Bank (PNB) seeks to annul and set aside the
orders dated March 4, 1977 and May 31, 1977 rendered in Civil Case No. 24422
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of the Court of First
Instance of Rizal, Branch XXI, respectively granting private respondent Tayabas Cement Company, Inc.'s
application for a writ of preliminary injunction to enjoin the foreclosure sale of certain properties in
Quezon City and Negros Occidental and denying petitioner's motion for reconsideration thereof.
In 1963, Ignacio Arroyo and Tuason Arroyo (the Arroyo Spouses), obtained a loan of P580,000.00 from
PNB secured by La Vista, a parcel of land in order too purchase 60% of the subscribed capital stock, and
thereby acquire the controlling interest of private respondent Tayabas Cement Company, Inc. (TCC).
Thereafter, TCC filed with petitioner bank an application and agreement for the establishment of an
eight (8) year deferred letter of credit (L/C) for $7,000,000.00 in favor of Toyo Menka Kaisha, Ltd. of
Tokyo, Japan, to cover the importation of a cement plant machinery and equipment.
Upon approval of said application and opening of an L/C by PNB in favor of Toyo Menka Kaisha, Ltd. for
the account of TCC, the Arroyo spouses executed the following documents to secure this loan
accommodation: Surety Agreement dated August 5, 1964 and Covenant dated August 6, 1964.
The imported cement plant machinery and equipment arrived from Japan and were released to TCC
under a trust receipt agreement. Subsequently, Toyo Menka Kaisha, Ltd. made the corresponding
drawings against the L/C as scheduled. TCC, however, failed to remit and/or pay the corresponding
amount covered by the drawings. Thus, on May 19, 1968, pursuant to the trust receipt agreement, PNB
notified TCC of its intention to repossess, as it later did, the imported machinery and equipment for
failure of TCC to settle its obligations under the L/C.

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The Arroyos failed to settle their obligations the La Vista property was foreclosed with PNB winning the
bid.
However, when said property was about to be awarded to PNB, the representative of the mortgagor-
spouses objected and demanded from the PNB the difference between the bid price of P1,000,001.00
and the indebtedness of P499,060.25 of the Arroyo spouses on their personal account. It was the
contention of the spouses Arroyo's representative that the foreclosure proceedings referred only to the
personal account of the mortgagor spouses without reference to the account of TCC.
To remedy the situation, PNB filed a supplemental petition on August 13, 1975 requesting the Sheriff's
Office to proceed with the sale of the subject real properties to satisfy not only the amount of
P499,060.25 owed by the spouses Arroyos on their personal account but also the amount of
P35,019,901.49 exclusive of interest, commission charges and other expenses owed by said spouses as
sureties of TCC. Said petition was opposed by the spouses Arroyo and the other bidder, Jose L. Araneta.
On October 5, 1976, the CFI, thru respondent Judge Gregorio Pineda, issued a restraining order and on
March 4, 1977, granted a writ of preliminary injunction. PNB's motion for reconsideration was denied,
hence this petition.
Issue: Whether or not TCC's liability has been extinguished by the repossession of PNB of the imported
cement plant machinery and equipment.
Ruling:
We rule for the petitioner PNB. It must be remembered that PNB took possession of the imported
cement plant machinery and equipment pursuant to the trust receipt agreement executed by and
between PNB and TCC giving the former the unqualified right to the possession and disposal of all
property shipped under the Letter of Credit until such time as all the liabilities and obligations under said
letter had been discharged.
PNB's possession of the subject machinery and equipment being precisely as a form of security for the
advances given to TCC under the Letter of Credit, said possession by itself cannot be considered
payment of the loan secured thereby. Payment would legally result only after PNB had foreclosed on
said securities, sold the same and applied the proceeds thereof to TCC's loan obligation. Mere
possession does not amount to foreclosure for foreclosure denotes the procedure adopted by the
mortgagee to terminate the rights of the mortgagor on the property and includes the sale itself.

Neither can said repossession amount to dacion en pago. Dation in payment takes place when property
is alienated to the creditor in satisfaction of a debt in money and the same is governed by sales. Dation
in payment is the delivery and transmission of ownership of a thing by the debtor to the creditor as an
accepted equivalent of the performance of the obligation. As aforesaid, the repossession of the
machinery and equipment in question was merely to secure the payment of TCC's loan obligation and

13

not for the purpose of transferring ownership thereof to PNB in satisfaction of said loan. Thus, no dacion
en pago was ever accomplished.
Proceeding from this finding, PNB has the right to foreclose the mortgages executed by the spouses
Arroyo as sureties of TCC. A surety is considered in law as being the same party as the debtor in relation
to whatever is adjudged touching the obligation of the latter, and their liabilities are interwoven as to be
inseparable.
21
As sureties, the Arroyo spouses are primarily liable as original promissors and are bound
immediately to pay the creditor the amount outstanding.
Under Presidential Decree No. 385 which took effect on January 31, 1974, government financial
institutions like herein petitioner PNB are required to foreclose on the collaterals and/or securities for
any loan, credit or accommodation whenever the arrearages on such account amount to at least twenty
percent (20%) of the total outstanding obligations, including interests and charges, as appearing in the
books of account of the financial institution concerned.
23
It is further provided therein that "no
restraining order, temporary or permanent injunction shall be issued by the court against any
government financial institution in any action taken by such institution in compliance with the
mandatory foreclosure provided in Section 1 hereof, whether such restraining order, temporary or
permanent injunction is sought by the borrower(s) or any third party or parties . . ."
WHEREFORE, the instant petition is hereby granted