Letters of Credit

MWSS vs. DAWAY AND MAYNILAD

G.R. No. 160732.

June 21, 2004

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

To secure the concessionaires performance of its obligations, Maynilad was required under Section 6.9 of said contract to put up a bond, bank guarantee or other security acceptable to MWSS.

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

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

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

The award of the Appeals Panel became final. MWSS, thereafter, submitted a written notice to Citicorp Int’l Ltd, as agent for the participating banks, that by virtue of Maynilads failure to perform its

obligations under the Concession Agreement, it was drawing on the Irrevocable Standby Letter of Credit and thereby demanded payment.

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

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

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

YES

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

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

Letters of credit were developed for the purpose of insuring to a seller payment of a definite amount upon the presentation of documentsand is thus a commitment by the issuer that the party in whose favor it is issued and who can collect upon it will have his credit against the applicant of the letter, duly paid in the amount specified in the letter They are in effect absolute undertakings to pay the money advanced or the amount for which credit is given on the faith of the instrument. They are primary obligations and not accessory contracts and while they are security arrangements, they are not converted thereby into contracts of guaranty. What distinguishes letters of credit from other accessory contracts, is the engagement of the issuing bank to pay the seller once the draft and other required shipping documents are presented to it. They are definite undertakings to pay at sight once the documents stipulated therein are presented.

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

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

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

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

NOTES:

We held in Feati Bank & Trust Company v. Court of Appeals that the concept of guarantee vis–vis the concept of an irrevocable letter of credit are inconsistent with each other.The guarantee theory destroys the independence of the banks responsibility from the contract upon which it was opened and the nature of both contracts is mutually in conflict with each other. In contracts of guarantee, the guarantors obligation is merely collateral and it arises only upon the default of the person primarily liable. On the other hand, in an irrevocable letter of credit, the bank undertakes a primary obligation. We have also defined a letter of credit as an engagement by a bank or other person made at the request

of a customer that the issuer shall honor drafts or other demands of payment upon compliance with the conditions specified in the credit.

[G.R. NO. 117913.  February 1, 2002]

CHARLES LEE, CHUA SIOK SUY, MARIANO SIO, ALFONSO YAP, RICHARD VELASCO and ALFONSO CO, petitioners, vs. COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS, respondents.

Facts:On March 2, 1979, Charles Lee, as President of MICO wrote private respondent Philippine Bank of Communications (PBCom) requesting for a grant of a discounting loan/credit line in the sum of Three Million Pesos (P3,000,000.00) for the purpose of carrying out MICO’s line of business as well as to maintain its volume of business.On the same day, Charles Lee requested for another discounting loan/credit line of Three Million Pesos (P3,000,000.00) from PBCom for the purpose of opening letters of credit and trust receipts.As per agreement, the proceeds of all the loan availments were credited to MICO’s current checking account with PBCom. To induce the PBCom to increase the credit line of MICO, petitioners executed another surety agreement in favor of PBCom on July 28, 1980, whereby they jointly and severally guaranteed the prompt payment on due dates or at maturity of overdrafts, promissory notes, discounts, drafts, letters of credit, bills of exchange, trust receipts and all other obligations of any kind and nature for which MICO may be held accountable by PBComUpon maturity of all credit availments obtained by MICO from PBCom, the latter made a demand for payment. Private respondent PBCom extrajudicially foreclosed MICO’s real estate mortgage upon repeated demands & emerged as the highest bidder. For the unpaid balance, PBCom then demanded the settlement of the aforesaid obligations from herein petitioners-sureties who, however, refused to acknowledge their obligations to PBCom under the surety agreements. Hence, PBCom filed a complaint with prayer for writ of preliminary attachment before the Regional Trial Court of Manila.Petitioners (MICO and herein petitioners-sureties) denied all the allegations of the complaint filed by respondent PBCom, and alleged that: a) MICO was not granted the alleged loans and neither did it receive the proceeds of the aforesaid loans; b) Chua Siok Suy was never granted any valid Board Resolution to sign for and in behalf of MICO; c) PBCom acted in bad faith in granting the alleged loans and in releasing the proceeds thereof; d) petitioners were never advised of the alleged grant of loans and the subsequent releases therefor, if any; e) since no loan was ever released to or received by MICO, the corresponding real estate mortgage and the surety agreements signed concededly by the petitioners-sureties are null and void.

Issue: WON the proceeds of the loans or the goods under the trust receipts were ever delivered to and received by MICO.

Held: It is clear that letters of credit, being usually bank to bank transactions, involve more than just one bank. Consequently, there is nothing unusual in the fact that the drafts presented in evidence by respondent bank were not made payable to PBCom.

A trust receipt is considered as a security transaction intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of

merchandise, and who may not be able to acquire credit except through utilization, as collateral of the merchandise imported or purchased.

A trust receipt, therefor, is a document of security pursuant to which a bank acquires a “security interest” in the goods under trust receipt. Under a letter of credit-trust receipt arrangement, a bank extends a loan covered by a letter of credit, with the trust receipt as a security for the loan. The transaction involves a loan feature represented by a letter of credit, and a security feature which is in the covering trust receipt which secures an indebtedness

ransfield Philippines vs Luzon Hydro Electric Corp.

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

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

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

Under the independence principle, a LC accommodation is entirely distinct and separate, independent agreement. It is not supposed to be affected by the main contract upon which it rests.

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

Trust Receipt Law

DBP vs Prudential

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

Facts: Lirag Textile Mills, Inc. (Litex) opened an irrevocable commercial letter of credit with respondent Prudential Bank for US$498,000. This was in connection with its importation of 5,000 spindles for spinning machinery with drawing frame, simplex fly frame, ring spinning frame and various accessories, spare parts and tool gauge. These were released to Litex under covering “trust receipts” it executed in favor of Prudential Bank. Litex installed and used the items in its textile mill located in Montalban, Rizal. 9 years later, DBP granted a foreign currency loan in the amount of US$4,807,551 to Litex. To secure the loan, Litex executed real estate and chattel mortgages on its plant site in Montalban, Rizal, including the buildings and other improvements, machineries and equipments there. Among the machineries and equipments mortgaged in favor of DBP were the articles covered by the “trust receipts.” Sometime in June 1982, Prudential Bank learned about DBP’s plan for the overall rehabilitation of Litex. In a July 14, 1982 letter, Prudential Bank notified DBP of its claim over the various items covered by the “trust receipts” which had been installed and used by Litex in the textile mill. Prudential Bank informed DBP that it was the absolute and juridical owner of the said items and they were thus not part of the mortgaged assets that could be legally ceded to DBP. For the failure of Litex to pay its obligation, DBP extra-judicially foreclosed on the real estate and chattel mortgages, including the articles claimed by Prudential Bank. During the foreclosure sale held on April 19, 1983, DBP acquired the foreclosed properties as the highest bidder. Learning of the intended public auction, Prudential Bank wrote a letter dated September 6, 1984 to DBP reasserting its claim over the items covered by “trust receipts” in its name and advising DBP not to include them in the auction. It also demanded the turn-over of the articles or alternatively, the payment of their value.

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

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

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

Landl & Co. vs Metrobank

The possession by the bank of the goods under the trust receipts does

not bar collection of the loan. Mere possession does not amount to

foreclosure for foreclosure denotes the procedure adopted by the

mortgagee to terminate the rights of the mortgagor on the property

and includes the sale itself. Neither can said repossession amount to

dacion en pago. Dation in payment takes place when property is

alienated to the creditor in satisfaction of a debt in money and the

same is governed by sales. Dation in payment is the delivery and

transmission of ownership of a thing by the debtor to the creditor as

an accepted equivalent of the performance of the obligation.

Facts: Landl Co opened Commercial Letter of Credit No. 4998 with respondent bank, in the

amount of US$19,606.77, which was equivalent to P218,733.92 in Philippine currency at

the time the transaction was consummated. The letter of credit was opened to purchase

various welding rods and electrodes from Perma Alloys, Inc., New York, U.S.A.,  As an

additional security, and as a condition for the approval of petitioner corporation’s application

for the opening of the commercial letter of credit, respondent bank required petitioners

Percival G. Llaban and Manuel P. Lucente to execute a Continuing Suretyship Agreement

to the extent of P400,000.00.

 Upon arrival of the goods in the Philippines, petitioner corporation took possession and

custody thereof. On the maturity date of the trust receipt, petitioner corporation defaulted in

the payment of its obligation to respondent bank and failed to turn over the goods to the

latter. The goods were sold for P30,000.00 to respondent bank as the highest bidder. The

proceeds of the auction sale were insufficient to completely satisfy petitioners’ outstanding

obligation to respondent bank, notwithstanding the application of the time deposit account of

petitioner Lucente. Accordingly, respondent bank demanded that petitioners pay the

remaining balance of their obligation. After petitioners failed to do so, respondent bank

instituted the instant case to collect the said deficiency.

Issue: Whether or not possession by the bank of the goods under the trust receipts does not

bar collection of the loan. 

Held: The initial repossession by the bank of the goods subject of the trust receipt did not

result in the full satisfaction of the petitioners’ loan obligation. Petitioners are apparently

laboring under the mistaken impression that the full turn-over of the goods suffices to divest

them of their obligation to repay the principal amount of their loan obligation. The

entrustee’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.

A trust receipt is inextricably linked with the primary agreement between the parties. Time

and again, we have emphasized that a trust receipt agreement is merely a collateral

agreement, the purpose of which is to serve as security for a loan. Thus, in Abad v. Court of

Appeals, we ruled: A letter of credit-trust receipt arrangement is endowed with its own

distinctive features and characteristics. Under that set-up, a bank extends a loan covered by

the letter of credit, with the trust receipt as security for the loan. In other words, the

transaction involves a loan feature represented by the letter of credit, and a security feature

which is in the covering trust receipt. x x x. A trust receipt, therefore, is a security

agreement, pursuant to which a bank acquires a “security interest” in the goods. It secures

an indebtedness and there can be no such thing as security interest that secures no

obligation. The Trust Receipts Law was enacted to safeguard commercial transactions and

to offer an additional layer of security to the lending bank. Trust receipts are indispensable

contracts in international and domestic business transactions. The prevalent use of trust

receipts, the danger of their misuse and/or misappropriation of the goods or proceeds

realized from the sale of goods, documents or instruments held in trust for entruster banks,

and the need for regulation of trust receipt transactions to safeguard the rights and enforce

the obligations of the parties involved are the main thrusts of the Trust Receipts Law

Ng vs People

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

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

[A] trust receipt is considered a security transaction intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of

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

Following the precept of the law, such transactions affect situations wherein the entruster, who owns or holds absolute title or security interests over specified goods, documents or instruments, releases the subject goods to the possession of the entrustee. The release of such goods to the entrustee is conditioned upon his execution and delivery to the entruster of a trust receipt wherein the former binds himself to hold the specific goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the entruster the proceeds to the extent of the amount owing to the entruster or the goods, documents or instruments themselves if they are unsold. x x x [T]he entruster is entitled “only to the proceeds derived from the sale of goods released under a trust receipt to the entrustee.”

Considering that the goods in this case were never intended for sale but for use in the fabrication of steel communication towers, the trial court erred in ruling that the agreement is a trust receipt transaction.

Chattel Mortgage Law

Union Bank vs Juniat

JUNIAT EXECUTED A CHATTEL MORTGAGE IN FAVOR OF UNION BANK COVERING SEWING MACHINES AND OTHER EQUIPMENT FOR AND ON BEHALF OF WINWOOD AND WINGYAN. JUNIAT ET AL DID NOT PAY SUBJECT LOAN. UNION BANK SUED THEM FOR SUM OF MONEY AND MOVED TO ATTACH THE SEWING MACHINES AND EQUIPMENT. THE MACHINES AND EQUIPMENT WERE IN THE POSSESSION OF NONWOVEN. COURT ISSUED SUMMONS TO NONWOVEN. NONWOVEN ARGUED THAT IT HAS A BETTER RIGHT TO THE MACHINES AND EQUIPMENT BECAUSE JUNIAT EXECUTED DACION EN PAGO IN THEIR FAVOR. THEY THEFORE HOLD THE MACHINES AS OWNER WHILE PETITIONER HOLDS THE MACHINES ONLY AS MORTGAGEE. NONWOVEN PRESENTED A DOCUMENT WHERE JUNIAT PLEGED THE MACHINES TO NONWOVEN TO SECURE AN OBLIGATION. WHO HAS A BETTER RIGHT TO THE MACHINES AND EQUPMENT?

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

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

Neither can we sustain the finding of the CA that: “The machineries were ceded to THIRD PARTY NONWOVEN by way of dacion en pago, a contract later entered into by WINWOOD/WINGYAN and THIRD PARTY NONWOVEN.”[1][53] As aptly pointed out by petitioner, no evidence was presented by Nonwoven to show that the attached properties were subsequently sold to it by way of a dacion en pago. Also, there is nothing in the Agreement dated May 9, 1992 to indicate that the motorized sewing machines, snap machines and boilers were ceded to Nonwoven as payment for the Wingyan’s and Winwood’s obligation. It bears stressing that there can be no transfer of ownership if the delivery of the property to the creditor is by way of security.[2][54] In fact, in case of doubt as to whether a transaction is one of pledge or dacion en pago, the presumption is that it is a pledge as this involves a lesser transmission of rights and interests.[3][55]

Acme Shoe Rubber vs CA

FACTS:

Petitioner Chua Pac, the president and general manager of co-petitioner Acme executed a chattel mortgage in favor of private respondent Producers Bank as a security for a loan of P3,000,000. A provision in the chattel mortgage agreement was to this effect:

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

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

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

ISSUE:

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

HELD:

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

Servicewide vs CA

SERVICEWIDE SPECIALISTS VS. CA

318 SCRA 493 (1999)

Facts: D purchased on credit a vehicle from P evidenced by a promissory note to be paid on

installments, secured by a chattel mortgage over the vehicle. D failed to pay so P demanded

possession of vehicle. A, who bought the vehicle from another 3rd party, filed 3rd a party claim

contending absolute ownership over the property.

                                                                                 

Issue: Whether the case for replevin may be pursued against A, a third party, without

impleading the absconding-mortgagor, D.

Held: Not in this case. Rules 60 requires that an applicant shows that he “is the owner of the

property claimed, particularly describing it, or is entitled to the possession. Where the right of

the plaintiff to the possession of the specified property is so evident, the action need only be

maintained against him who has possession.

            Thus, in default of the mortgagor, the mortgages is thereby constituted as attorney-in-

fact of the mortgagor, enabling such mortgagee to act for and in behalf of the owner. That the

3rd party is not privy to the chattel mortagage should be inconsequential. By the fact the object of

replevin is traced to his possession, one properly can be a defendant in an action for replevin. It

is here assumed that plaintiff’s right to possession is not and cannot be disputed. But if the right

to possession of plaintiff is put to great doubt, it could be essential to have other persons

involved and impleaded for a complete determination and resolution of the controversy. In a suit

for replevin, a clear right of possession must be established. Since the mortgagee’s right of

possession is conditioned upon the actual fact of default which itself may be controverted, the

inclusion of other parties, like the debtor or the mortgagor himself, may be required to allow full

and conclusive determination of the case.

            The debtor in this case, being an indispensable party should have been impleaded. An

indispensable party is one whose interest will be affected by the court’s action and without

whom no final determination of the case can be had.

REAL ESTATE MORTGAGE

FORTUNE MOTORS vs. METRO BANK

Fortune Motors obtained loans in different dates from the Metropolitan Bank and Trust company Metrobank consolidated the loans of P8 Million and P3 Million into one promissory note, which amounted toP12,650,000.00. This included the interest that had accrued thereon. To secure the obligation in the total amount of P34,150,000.00, petitioner mortgaged certain real estate in favor of respondent bank. Due to financial constraints, petitioner failed to pay the loan upon maturity. Consequently on May 25, 1984, respondent bank initiated extrajudicial foreclosure proceedings and in effect, foreclosed the real estate mortgage. The extrajudicial foreclosure was actually conducted by Senior Deputy Sheriff Pablo Y. Sy who had sent copies of the Notice of Extrajudicial Sale to the opposing parties by registered mail. In accordance with law, he posted copies of the Notice of Sheriff’s Sale at three conspicuous public places in Makati – 1. the office of the Sheriff, 2. the Assessor’s office 3. and the Register of Deeds in Makati. He thereafter executed the Certificates of Posting on May 20, 1984. The said notice was in fact published on June 2, 9 and 16, 1984 in three issues of “The New Record.” An affidavit of publication, dated June 19, 1984,[2] was executed by Teddy F. Borres, publisher of the said newspaper. Subsequently, the mortgaged property was sold at public auction for P47,899,264.91 to the mortgagee bank, the highest bidder. Petitioner failed to redeem the mortgaged property within the one-year redemption period and so, the titles thereto were consolidated in the name of respondent bank by which token the latter was entitled to the possession of the property mortgaged and, in fact possessed the same. Petitioner then filed a complaint for the annulment of the extrajudicial foreclosure.

RTC DECISION: the trial court rendered judgment annulling the extrajudicial foreclosure of the mortgage. CA DECISION: reversed the decision rendered by the lower court. Subsequently, the motion for Reconsideration filed by petitioner was denied on April 26, 1994. RULING 1. YES. Publication in a newspaper of general circulation was satisfied. a. Whether it is a NEWSPAPER OF GENERAL

CIRCULATION. To be a newspaper of general circulation, it is enough that ‘it is published for the dissemination of local news and general information; that it has a bona fide subscription list of paying subscribers; that it is published at regular intervals.’ (Basa v. Mercado, 61 Phil. 632). The newspaper need not have the largest circulation so long as it is of general circulation. (Banta v. Pacheco, 74 Phil. 67).” In the case at bench, there was sufficient compliance with the requirements of the law regarding publication of the notice in a newspaper of general circulation. This is evidenced by the affidavit of publication executed by the New Record’s publisher, Teddy F. Borres, which stated that it is a newspaper edited in Manila and Quezon City and of general circulation in the cities of Manila, Quezon City et al., and in the Provinces of Rizal xxx, published every Saturday by the Daily Record, Inc. This was affirmed by Pedro Deyto, who was the executive editor of the said newspaper and who was a witness for petitioner. b. whether or not it is valid to plublish the notice in QC and not in Makati. YES! In 1984, when the publisher’s affidavit relied upon by petitioner was executed, Makati, Mandaluyong, San Juan, Parañaque et. al., were still part of the province of Rizal. Apparently, this is the reason why in the New Record’s affidavit of publication executed by its publisher, the enumeration of the places where it was being circulated, only the cities of Manila, Quezon, Caloocan, Pasay, Tagaytay, et. al., were named. Furthermore, as aptly ratiocinated by the Court of Appeals: For what is important is that a paper should be in general circulation in the place where the properties to be foreclosed are located in order that publication may serve the purpose for which it was intended.[10]

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

requires only the posting of the notice of sale in three public places and the publication of that notice in a newspaper of general circulation. It is pristine clear from the above provision that the lack of personal notice to the mortgagor, herein petitioner, is not a ground to set aside the foreclosure sale.[12] 4.

LOCATION Petitioner also claims that it had transferred to a different location but the notice was sent to its old address. Petitioner failed to notify respondent of its supposed change of address. Needless to say, it can be surmised that respondent had sent the notice to petitioner’s official address. 5. NOT LESS THAN THREE PUBLIC PLACES: Whether or not the posting of the notices of sale by the Sheriff in the Office of the Sheriff, Office of the Assessor and the Register of Deeds are not the conspicuous public places required by law. Furthermore, it also questions the non-posting of the notice of sale on the property itself which was to be sold. NO! Act 3135 does not require posting of the notice of sale on the mortgaged property. Section 3 of the said law merely requires that the notice of the sale be posted for not less than twenty days in at least three public places of the municipality or city where the property is situated. The aforementioned places, to wit: the Sheriff’s Office, the Assessor’s Office and the Register of Deeds are certainly the public places contemplated by law, as these are places where people interested in purchasing real estate congregate.

GC Dalton vs Equitable PCI bank

GC DALTON INDUSTRIES, INC., vs. EQUITABLE PCI BANK

FACTS: Equitable PCI Bank extended a P30-million credit line to Camden Industries, Inc. (CII) allowing the latter to avail of several loans (covered by promissory notes) and to purchase trust receipts.

To facilitate collection, CII executed a “hold-out” agreement in favor of respondent authorizing it to deduct from its savings account any amounts due.

To guarantee payment, petitioner GC Dalton Industries, Inc. executed a third-party mortgage of its real properties in Quezon City and Malolos, Bulacan] as security for CII’s loans.

CII did not pay its obligations despite respondent’s demands. Consequently, respondent filed a petition for extrajudicial foreclosure of petitioner’s Bulacan properties in RTC of Bulacan.

On August 3, 2004, the mortgaged properties were sold at a public auction where respondent was declared the highest bidder. Consequently, a certificate of sale[6] was issued in respondent’s favor on August 3, 2004.

Thereafter respondent filed the certificate of sale and an affidavit of consolidation of ownership in the Register of Deeds of Bulacan pursuant to Section 47 of the General Banking Law.[Hence, petitioner’s TCTs covering the Bulacan properties were cancelled and new ones were issued in the name of respondent.

Respondent filed an ex parte motion for the issuance of a writ of possession] in the RTC Bulacan.

Previously, however, CII had filed an action for specific performance and damages in the RTC of Pasig, asserting that it had allegedly paid its obligation in full to respondent.

CII sought to compel respondent to render an accounting in order to prove that the bank fraudulently foreclosed on petitioner’s mortgaged properties.

Because respondent allegedly failed to appear during the trial, the Pasig RTC rendered a decision based on the evidence presented by CII. It found that, while CII’s past due obligation amounted only to

P14,426,485.66 as of November 30, 2002, respondent had deducted a total of P108,563,388.06 from CII’s savings account.

Respondent filed a notice of appeal. CII, on the other hand, moved for the immediate entry and execution of the abovementioned decision.

Pasig RTC DECISION: dismissed respondent’s notice of appeal due to its failure to pay the appellate docket fees. It likewise found respondent guilty of forum-shopping for filing the petition for the issuance of a writ of possession in the Bulacan RTC. Thus, the Pasig RTC ordered the immediate entry of its March 30, 2005 decision.

Meanwhile, in view of the pending case in the Pasig RTC, petitioner opposed respondent’s ex parte motion for the issuance of a writ of possession in the Bulacan RTC. It claimed that respondent was guilty of fraud and forum-shopping, and that it was not informed of the foreclosure.

Furthermore, respondent fraudulently foreclosed on the properties since the Pasig RTC had not yet determined whether CII indeed failed to pay its obligations.

Thereafter Bulacan RTC granted the motion and a writ of possession was issued in respondent’s favor on December 19, 2005.

Petitioner immediately assailed the order of the Bulacan RT. It claimed that the order violated Section 14, Article VIII of the Constitution[17] which requires that every decision must clearly and distinctly state its factual and legal bases.

CA dismissed the petition for lack of merit on the ground that an order involving the issuance of a writ of possession is not a judgment on the merits, hence, not covered by the requirement of Section 14, Article VIII of the Constitution.

ISSUES: 1. Petitioner likewise cites the conflict between the order of the Bulacan RTC and order the Pasig RTC. Petitioner claims that, since the Pasig RTC already ordered the entry of its March 30, 2005 decision (in turn ordering respondent to return TCT No. 351231 and all such other owner’s documents of title as may have been placed in its possession by virtue of the subject trust receipt and loan transactions), the same was already final and executory. Thus, inasmuch as CII had supposedly paid respondent in full, it was erroneous for the

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

Respondent, on the other hand, asserts that petitioner is raising a question of fact as it essentially assails the propriety of the issuance of the writ of possession. It likewise points out that petitioner did not truthfully disclose the status of the March 30, 2005 decision of the Pasig RTC because, in an order dated April 4, 2006, the Pasig RTC partially reconsidered its December 7, 2005 order and gave due course to respondent’s notice of appeal. (The propriety of the said April 4, 2006 order is still pending review in the CA.)

RULINGS: Denied Petition

1. The issuance of a writ of possession to a purchaser in an extrajudicial foreclosure is summary and ministerial in nature as such proceeding is merely an incident in the transfer of title.

The trial court does not exercise discretion in the issuance thereof. For this reason, an order for the issuance of a writ of possession is not the judgment on the merits contemplated by Section 14, Article VIII of the Constitution.

2. The mortgagor loses all legal interest over the foreclosed property after the expiration of the redemption period.

Under Section 47 of the General Banking Law, if the mortgagor is a juridical person, it can exercise the right to redeem the foreclosed property until, but not after, the registration of the certificate of foreclosure sale within three months after foreclosure, whichever is earlier. Thereafter, such mortgagor loses its right of redemption.

Respondent filed the certificate of sale and affidavit of consolidation with the Register of Deeds of Bulacan on September 13, 2004. This terminated the redemption period granted by Section 47 of the General Banking Law. Because consolidation of title becomes a right upon the expiration of the redemption period,[23] respondent became the

owner of the foreclosed properties.[24]Therefore, when petitioner opposed the ex parte motion for the issuance of the writ of possession on January 10, 2005 in the Bulacan RTC, it no longer had any legal interest in the Bulacan properties.

Nevertheless, even if the ownership of the Bulacan properties had already been consolidated in the name of respondent, petitioner still had, and could have availed of, the remedy provided in Section 8 of Act 3135.

It could have filed a petition to annul the auction sale and to cancel the writ of possession within 30 days after respondent was given possession. But it did not. Thus, inasmuch as the 30-day period to avail of the said remedy had already lapsed, petitioner could no longer assail the validity of the sale.

Any question regarding the validity of the mortgage or its foreclosure cannot be a legal ground for the refusal to issue a writ of possession. Regardless of whether or not there is a pending suit for the annulment of the mortgage or the foreclosure itself, the purchaser is entitled to a writ of possession, without prejudice, of course, to the eventual outcome of the pending annulment case[

Needless to say, petitioner committed a misstep by completely relying and pinning all its hopes for relief on its complaint for specific performance and damages in the Pasig RTC,[29] instead of resorting to the remedy of annulment (of the auction sale and writ of possession) under Section 8 of Act 3135 in the Bulacan RTC.

DEVELOPMENT BANK OF THE PHILIPPINES vs. ENVIRONMENTAL AQUATICS, INC., LAND SERVICES AND MANAGEMENT ENTERPRISES

FACTS: Respondent Environmental Aquatics and Land Services and Management Enterprises loaned P1,792,600 from petitioner . As security for the loan, LSMEI mortgaged to DBP its parcel of land situated in New Manila, Quezon City,

and covered by Transfer Certificate of Title. The mortgage contract stated that: If at anytime the Mortgagor shall fail or refuse to pay any of the amortization on the indebtedness, or the interest when due, or whatever other obligation herein secured or to comply with any of the conditions and stipulations herein agreed, or shall initiate insolvency proceedings or be declared involuntary insolvent (sic), or uses the proceeds of the loan for purposes other than those specified herein then all the amortizations and other obligations of the Mortgagor of any nature, shall become due, payable and defaulted and the Mortgagee may immediately foreclose this mortgage judicially or extrajudicially under Act No. 3135 as amended, or under Republic Act No. 85, as amended and or under Act No. 1508 as amended. EAI and LSMEI failed to pay the loan. Thus, DBP applied for extrajudicial foreclosure of the real estate mortgage. During the 19 December 1990 public auction, the ex-officio sheriff sold the property to DBP as the highest bidder for P1,507,000.

On 15 May 1991, LSMEI transferred its right to redeem the property to respondent Mario Matute . In his 27 July 1991 letter, Atty. Julian R. Vitug, Jr. (Atty. Vitug, Jr.) informed DBP that his client Matute was interested in redeeming the property by paying the P1,507,000 purchase price, plus other costs.

In its 29 August 1991 letter, DBP informed Atty. Vitug, Jr. that Matute could redeem the property by paying the remaining balance of EAI and LSMEI's loan. Thereafter, EAI, LSMEI and Matute filed with the RTC a complaint praying that DBP be ordered “to accept x x x Matute's bonafide offer to redeem the foreclosed property. ISSUE DBP raises as issues that the lower courts erred in finding that the bank chose Act No. 3135 as the governing law for the extrajudicial foreclosure of the property, including the determination of the redemption price, and in ruling that the redemption price is equivalent to the P1,507,000 purchase price. The Court's Ruling

The petition is meritorious. Section 16 of Executive Order (EO) No. 81 states that the redemption price for properties mortgaged to and foreclosed by DBP is equivalent to the remaining balance of the loan. Section 16 states that, “Any mortgagor of the Bank whose property has been extrajudicially sold at public auction shall x x x have the right to redeem the real property by paying to the Bank all of the latter's claims against him, as determined by the Bank.” In Development Bank of the Philippines v. West Negros College, Inc.,[23] the Court held that the redemption price for properties mortgaged to and foreclosed by DBP is equivalent to the remaining balance of the loan, with interest at the agreed rate. The Court held that: It has long been settled that where the real property is mortgaged to and foreclosed judicially or extrajudicially by the Development Bank of the Philippines, the right of redemption may be exercised only by paying to “the Bank all the amount he owed the latter on the date of the sale, with interest on the total indebtedness at the rate agreed upon in the obligation from said date, unless the bidder has taken material possession of the property or unless this had been delivered to him, in which case the proceeds of the property shall compensate the interest.” x x x The foregoing rule is embodied consistently in the charters of petitioner DBP and its predecessor agencies. Section 31 of CA 459 creating the Agricultural and Industrial Bank explicitly set the redemption price at the total indebtedness plus contractual interest as of the date of the auction sale. Under RA 85 the powers vested in and the duties conferred upon the Agricultural and Industrial Bank by

CA 459 as well as its capital, assets, accounts, contracts, and choses in action were transferred to the Rehabilitation Finance Corporation. It has been held that among the salutary provisions of CA 459 ceded to the Rehabilitation Finance Corporation by RA 85 was Sec. 31 defining the manner of redeeming properties mortgaged with the corporation. Subsequently, by virtue of RA 2081 (1958), the powers, assets, liabilities and personnel of the Rehabilitation Finance Corporation under RA 85 and CA 459, particularly Sec. 31 thereof, were transferred to petitioner DBP. Significantly, Sec. 31 of

CA 459 has been reenacted substantially in Sec. 16 of the present charter of the DBP, i.e., EO 81 (1986) as amended by RA 8523 (1998). x x x x The unavoidable conclusion is that in redeeming the foreclosed property respondent West Negros College as assignee of Bacolod Medical Center should pay the balance of the amount owed by the latter to petitioner DBP with interest thereon at the rate agreed upon as of the date of the public auction on 24 August 1989.[24] (Emphasis supplied) In Development Bank of the Philippines v. Mirang,[25] the Court held that the redemption price for properties morgaged to and foreclosed by DBP is equivalent to the remaining balance of the loan, with interest at the agreed rate. The Court held that, “The unavoidable conclusion is that the appellant, in redeeming the foreclosed property, should pay the entire amount he owed to the Bank on the date of the sale, with interest thereon at the rate agreed upon.”[26] As early as 1960, the Court has already settled the issue. In Nepomuceno, et al. v. Rehabilitation Finance Corporation,[27]the Court held that the redemption price for properties morgaged to and foreclosed by DBP is equivalent to the remaining balance of the loan, with interest at the agreed rate. The Court held that: The issue posed in this appeal is: considering that the loan of P300,000.00 was obtained from the Rehabilitation Finance Corporation [now DBP] by spouses Jose Nepomuceno and Isabela Acuña and Jesus Nepomuceno merely acted as accomodation mortgagor, for what price may the mortgagor redeem his property after the same has been sold at public auction? Would it be for the price at which the property was sold, as contended by the mortgagor, or for the balance of the loan obtained by the borrowers from the banking institution, as contended by appellant? x x x x [T]he inescapable conclusion is that the mortgagor herein or his assignees cannot redeem the property in dispute without paying the balance of the total

indebtedness then outstanding on the date of the sale to the Rehabilitation Finance Corporation.[28] (Emphasis supplied) The lower courts ruled that the redemption price for the property is equivalent to the P1,507,000 purchase price because DBP chose Act No. 3135 as the governing law for the extrajudicial foreclosure. The RTC and Court of Appeals, respectively, stated that: When defendant DBP foreclosed the mortgage at issue, it chose Act 3135. That was an option it freely exercised without the least intervention of plaintiffs. We cannot, therefore, escape the conclusion that what defendant DBP agreed to in respect to (sic) the possible foreclosure of its mortgage was to subject the same to the provisions of Act No. 3135, as amended, should the DBP opt to utilize said law.[29] Thereunder given the choice of resorting to “Act No. 3135 as amended, or Republic Act No. 85 as amended, or Act No. 1508 as amended”, appellant bank undoubtedly opted for the first of the aforesaid laws as may be gleaned from the following prayer it interposed in the application for foreclosure of mortgage it filed with the Ex-Officio Sheriff of Quezon City on October 25, 1990.[30] The Court disagrees. Republic Act (RA) No. 85 and Act No. 1508 do not provide a procedure for extrajudicial foreclosure of real estate mortgage. When DBP stated in its letter to the ex- officio sheriff that the property be sold “at public auction in accordance with the provisions of Act 3135,” it did so merely to find a proceeding for the sale.

In Development Bank of the Philippines v. Zaragoza,[31] Development Bank of the Philippines v. Mirang,[32] andDevelopment Bank of the Philippines v. Jimenez, et al.,[33] the Court held that when the bank resorted to Act No. 3135 in order to sell the mortgaged property extrajudicially, it did so merely to find a proceeding for the sale. In its 10 October 2006 petition, DBP claims that when it resorted to Act No. 3135 in order to sell the mortgaged property extrajudicially, it did so merely to find a proceeding for the sale. DBP stated that:

[W]hen herein petitioner resorted to Act 3135 in its application for extrajudicial foreclosure of the subject mortgaged real estate, it did so only to find a proceeding for the extrajudicial sale. The Court of Appeals should have noted that neither Republic Act No. 85 (the Charter of the Rehabilitation Finance Corporation) nor Act 1508 (Chattel Mortgage Law) prescribe a procedure for extrajudicial foreclosure of real estate mortgage as provided under Act 3135. Such action, therefore, cannot be construed to mean a waiver of petitioner's right to demand the payment of respondents' entire obligation as the proper redemption price. There is no such waiver on the part of the petitioner.

[I]t is hereby stressed that DBP did not elect Act 3135 to the exclusion of other laws in the extrajudicial foreclosure of the subject mortgaged real property. Such a conclusion is definitely contrary to law and jurisprudence, which settled the rule that Act 3135 is the general law that governs the procedure and requirements in extra-judicial foreclosure of real estate mortgage, but in determining the redemption price of the property mortgaged to the Development Bank of the Philippines, the DBP Charter shall prevail. It is of judicial notice that Act 3135 is the only law governing the proceedings in extrajudicial foreclosure of real estate mortgage. Act No. 1508, on the other hand, governs the extrajudicial foreclosure of chattel mortgage, and should not be in issue in the instant case which involves a real estate mortgage. It should likewise be of judicial notice that Republic Act No. 85 is the charter of the Rehabilitation Finance Corporation, predecessor of appellant DBP. RA 85 prescribes the redemption price, not the proceedings and requirements in an extrajudicial foreclosure of real estate mortgage such as those found in Act 3135. x x x When appellant DBP cited Act 3135 in its Deed of Real Estate Mortgage or even in the application for foreclosure of mortgage, it was not a matter of making an exclusive option or choice because Act 3135 governs the procedure and requirements for an extrajudicial foreclosure or real estate mortgage. In citing said law, Appellant DBP was merely finding a proceeding for extra-judicial

foreclosure sale x x x. And while the said Act 3135 provides for redemption, such provision will not apply in the determination of the redemption price on [sic] mortgages to DBP. In the latter case, the DBP Charter will prevail.[34] Even assuming that DBP chose Act No. 3135 as the governing law for the extrajudicial foreclosure, the redemption price would still be equvalent to the remaining balance of the loan. EO No. 81, being a special and subsequent law, amended Act No. 3135 insofar as the as redemption price is concerned. In Sy v. Court of Appeals,[35] the Court held that RA No. 337 amended Act No. 3135 insofar as the redemption price is concerned. The Court held that: [T]he General Banking Act partakes of the nature of an amendment to Act No. 3135 insofar as the redemption price is concerned, when the mortgagee is a bank or banking or credit institution, Section 6 of Act No. 3135 being, in this respect, inconsistent with Section 78 of the General Banking Act. Although foreclosure and sale of the subject property was done by SIHI pursuant to Act. No. 3135, x x xSection 78 of the General Banking Act, as amended provides the amount at which the subject property is

redeemable from SIHI, which is, in this case, the amount due under the mortgage deed, or the outstanding obligation of Carlos Coquinco, plus interest and expenses.) In Ponce de Leon v. Rehabilitation Finance Corporation,[37] the Court held that RA No. 337, being a special and subsequent law, amended Act No. 3135 insofar as the redemption price is concerned. The Court held that: Rep. Act No. 337, otherwise known as “The General Banking Act,” is entitled “An Act Regulating Banks and Banking Institutions and for other purposes.” Section 78 thereof limits the amount of the loans that may be given by banks and banking or credit institutions on the basis of the appraised value of the property given as security, as well as provides that, in the event of foreclosure of a real estate mortgage to said banks or institutions, the property sold may be redeemed “by paying the amount fixed by the court in the order of execution,” or the amount judicially adjudicated to the creditor bank. This provision had the effect of amending Section 6 of Act

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

SPS VICTOR and GRACE ONG vs. CA

FACTS:

Kenlene Laboratories, Inc. obtained a loan from Premier Development Bank (PDB) in the amount of 10million. Spouses Ong executed a promissory note obligating themselves to pay PDB the amount of the loan with interest at 31% per annum with monthly installment ofP292,658.08. The petitioners’ loan application with the PDB was secured by a real estate mortgage over Spouses Ong’s residential property in West Greenhills, San Juan. For failure of the Spouses Ong to pay their monthly amortizations, PDB initiated extrajudicial foreclosure proceedings on the real estate mortgage with the Provincial Sheriff . .” The Notice of Sheriff’s Sale dated May 19, 1993 was prepared and issued by the Clerk of Court the deputy sheriff issued a certificate of posting which was followed by the issuance of an affidavit of publication by the editor of Alppa Times The deputy sheriff set the public auction sale of the mortgaged property. The mortgaged property was sold to PDB for P18,914,349.37. A certificate of sale over the mortgaged property was prepared and annotation on the title was made. Within the one-year redemption period, PDB filed a petition for a writ of possession, which was granted by the RTC. A writ of possession was issued. Spouses Ong filed a motion for reconsideration to recall the writ of possession, but it was denied by the RTC. Thereafter, Spouses Ong filed a petition for prohibition and preliminary injunction before the CA

to enjoin the public respondents from taking further action in connection with the extra-judicial foreclosure sale made including the implementation of the writ of possession. CA rendered a decision dismissing their petition. Their motion for reconsideration was likewise denied.

Decision of the RTC: dismissing the complaint filed by Spouses Ong, the dispositive portion of which reads, as followsThe RTC ruled, among others, that Spouses Ong voluntarily and intelligently entered into a valid loan contract with the PDB. The latter was able to prove that Spouses Ong defaulted in the payment of their loan obligations, so it was proper for it to foreclose their collateral for the subject loan.

The RTC further held that there were no irregularities in the conduct of the foreclosure proceedings, which resulted in the grant of the writ of possession. First, Spouses Ong’s claim of irregularities was never previously raised and contrary to their contentions during the proceedings for the issuance of the writ of possession. In fact, they intervened only at the time PDB requested for the issuance of a writ of possession. They did not question the conduct of the foreclosure particularly the alleged defect in the publication of the notice of sheriff’s sale by Alppa Times. Second, the affidavit of publication executed by the editor of Alppa Times entitled said document to be given full faith and credit in the absence of competent evidence showing that its due execution was tainted with defects and irregularities that would warrant a declaration of its nullity.

Third, the Notice of Sale was posted in a conspicuous place within the Municipal Hall of San Juan. Thus, the presumption of regularity in the performance of duty by the sheriff prevailed. Fourth, it was established in the certification issued by the Office of the Clerk of Court that Alppa Times was duly accredited as a publisher of the notice of sheriff’s sale at the time of the foreclosure of the subject property. Spouses Ong’s self-serving statement that Alppa Times was not a newspaper of general circulation could not prevail over the issued certification by the Clerk of Court and Ex-Officio Sheriff.

Finally, the RTC found that the newspaper dealer and newspaper vendor presented by Spouses Ong were not expert witnesses or even competent enough to declare that Alppa Times was a non-existent publication and not a newspaper of general circulation.

ISSUE WHETHER OR NOT THE COURT OF APPEALS ERRED IN SUSTAINING THE VALIDITY OF THE EXTRA-JUDICIAL FORECLOSURE PROCEEDINGS.

Petitioners’ Position The following arguments were raised by Spouses Ong in support of their position that the subject foreclosure sale was null and void for non- compliance with the requirements of Act No. 3135. 1] There was no posting of the notice of sheriff’s sale for at least twenty (20) days. 2] There was no showing that the notice of sale was posted in three (3) public places within the municipality. 3] There was no adequate showing of newspaper publication for three (3) consecutive weeks. 4] There was no proof that the Alppa Times was a newspaper of general circulation within the Municipality of San Juan, Metro Manila, as required by Act No. 3135, as amended. 5] The proper party did not execute the certificate of sale. 6] Respondent bank’s petition for foreclosure did not specify the amount sought to be liquidated thereby. 7] Respondent bank’s computation of the obligation was not in accordance with the promissory notes. 8] The RTC erred in admitting in evidence the bank ledgers. Respondent Bank’s Position PDB counters that the findings of fact of the CA and the RTC were in accordance with the evidence presented and the law applicable in the said case. It further argues that both courts

committed no reversible error in ruling that the foreclosure proceedings were conducted in the regular performance of duties by the sheriff and strictly in accordance with the law.PDB likewise asserts that Spouses Ong’s default on their loan obligations warranted the legitimate exercise by PDB of its rights under the loan and mortgage contracts. It likewise contends that to entertain the challenge of Spouses Ong will allow them to re-open the merits of a final

and already executed decision of this Court on the writ of possession given to PDB.

RULING : The petition lacks merit. First of all, the issue raised by Spouses Ong of whether the legal requirements for a valid foreclosure sale under Act No. 3135 has been actually followed is a question of fact that does not deserve a review by this Court. The recent case of Century Savings Bank v. Spouses Danilo T. Samonte and Rosalinda M. Samonte[9] is instructive: The main issue in the case at bar is whether the extrajudicial foreclosure sale of respondents’ mortgaged properties was valid. The resolution of said issue, however, is dependent on the answer to the question of whether the legal requirements on the notice of sale were complied with.

Necessarily, the Court must review the evidence on record, most especially, Notary Public Magpantay’s Certificate of Posting, to determine the weight and probative value to accord the same. Non-compliance with the requirements of notice and publication in an extrajudicial foreclosure sale is a factual issue.

The resolution thereof by the lower courts is binding and conclusive upon this Court. However, this rule is subject to exceptions, as when the findings of the trial court and the Court of Appeals are in conflict. Also, it must be noted that non-compliance with the statutory requisites could constitute a jurisdictional defect that would invalidate the sale.

In the case at bench, the RTC and the CA ruled that the foreclosure proceedings conducted on the mortgaged property of Spouses Ong enjoyed the presumption of regularity in the absence of evidence to the contrary. The Court respects the ruling of the courts below.

It is an elementary rule that the burden of proof is the duty of a party to present evidence on the facts in issue necessary to establish his claim or defense as required by law. The Court has likewise ruled in previous cases that foreclosure proceedings enjoy the presumption of regularity and that the mortgagor who alleges absence of a requisite has the burden of proving such fact.

In this case, Spouses Ong failed to overcome this presumption with no sufficient evidence to prove the

contrary. Except for their bare allegations, no convincing proof of non-compliance with the posting requirement was presented. On the other hand, the foreclosure procedure undertaken by PDB was supported by an authenticated and duly executed Affidavit of Publication,[11] Certification of the Office of the Clerk of Court that Alppa Times is an accredited publisher of Notice of Sheriff’s Sale,[12] Notice of Sheriff’s Sale[13] and Certificate of Posting.[14] Spouses Ong likewise failed to present solid evidence of collusion between the Clerk of Court and Deputy Sheriff, on one hand, and PDB, on the other.

Without doubt, the documents shown by PDB prove that the subject foreclosure proceedings were conducted in a regular manner and in accordance with law.

With respect to the computation of Spouses Ong’s loan obligation, the Court agrees with the ruling of the CA that there was no error committed by PDB in computing their total loan obligation. The loan documents presented by PDB which included the promissory notes, real estate mortgage, and the continuing guaranty/comprehensive security all prove that Spouses Ong owed PDB a sum of money and failed to settle that obligation. Naturally, the petitioners’ default on their loan obligations warranted the legitimate exercise by the respondent bank of its rights under the loan and mortgage contracts.

Spouses Basilio and Norma Hilaga vs. Rural Bank of Isulan, etc., G.R. No. 179781. April 7, 2010

FACTS:

Petitioners obtained a loan from respondent Rural Bank of Isulan Inc., in the amount of P2,500.00. To secure the loan, they executed a Real Estate Mortgage4over their land property.

When petitioners failed to pay their obligation when it became due, the respondent bank initiated foreclosure proceedings.

The subject property was sold at a public auction by the Provincial Sheriff on April 20, 1977 and a Certificate of Extrajudicial Sale a was issued in favor

of the Rural Bank of Isulan (Cotabato) Inc. as the highest bidder. The respondent bank then took possession of the foreclosed property.

Meanwhile, unknown to respondent bank, a Free Patent title7(Original Certificate of Title No. P- 19766) had been issued in favor of petitioners on August 4, 1976 or before the foreclosure sale.

On September 21, 1994, or more than seventeen (17) years after the foreclosure sale, petitioner Basilio Hilaga sent a letter to the respondent bank's lawyer, the late Atty. Ismail Arceno, conveying his desire to redeem the subject property.

When the letter remained unanswered, petitioners, through their counsel, again sent a letter, seeking to redeem the foreclosed property. The second letter, however, also remained unheeded.

Thus, on June 3, 1999, petitioners filed a complaint a for Redemption of Foreclosed Mortgaged Property Under [Act No. 3135], seeking to redeem the subject property from the respondent bank under the provisions of Act No. 3135.

In their complaint, petitioners alleged that the mortgage and subsequent foreclosure of the subject property had not been annotated on the title nor registered with the Register of Deeds. Also, no annotation and consolidation of ownership was made in favor of the respondent bank.

Thus, the one (1)-year redemption period under Act No. 3135, which commences from the date of registration of the sale, has not yet started. They insisted that, indeed, their right of redemption has not yet expired because under Section 119 of Commonwealth Act No. 141 or the Public Land Act, a homesteader whose homestead has been sold at a public auction by virtue of an extrajudicial foreclosure, may repurchase said land within five (5) years from the date of registration of the sale. Thus, they can still exercise their right of redemption. They signified their willingness to redeem or repurchase the foreclosed property by depositing the amount of P10,000.00 with the court.

In its Answer with Counterclaim, the respondent bank averred that when the real estate mortgage in its favor was executed, the parcel of land was merely covered by a tax declaration. That unknown to the respondent bank, petitioners proceeded to apply for and cause the issuance in 1976 of a free patent and torrens title to the land; hence, they are estopped to claim that the parcel of land mortgaged is covered by a free patent and torrens title. They likewise cannot avail of the benefits afforded to a grantee of a public land under the Homestead and Free Patent Laws because they violated the terms and conditions of their application to avail of a grant by homestead or free patent when they mortgaged the land.

As aforesaid, the trial court rendered judgment in favor of petitioners. The trial court ruled that because the certificate of sale was not registered, petitioners can still redeem the subject property.

On appeal, the CA reversed the trial court. According to the CA, the right of petitioners to redeem their foreclosed property can only be exercised within two (2) years from the date of foreclosure, as provided under Republic Act No. 72013cЃa or the Rural Banks' Act, as amended by Republic Act No. 2670. The CA also ruled that petitioners are guilty of laches.

CA Denied the MR of the petitioners.

ISSUE: Whether or not the petitioners have only 2 years to redeem their property from the issuance certificate of sale after the same was foreclosed.

RULING: Section 5 of Republic Act No. 720, as amended by Republic Act Nos. 2670 and 5939, specifically provides for the redemption period for lands foreclosed by rural banks. It provides in part as follows: “Loans may be granted by rural banks on the security of lands without Torrens titles where the owner of private property can show five years or more of peaceful, continuous and uninterrupted possession in the concept of an owner; x x x or of homesteads or free patent lands pending the issuance of titles but already approved, the provisions of any law or regulations to the contrary notwithstanding:

Provided, That when the corresponding titles are issued the same shall be delivered to the register of deeds of the province where such lands are situated for the annotation of the encumbrance: x x x Provided, That when a homestead or free patent land is foreclosed, the homesteader or free patent holder, as well as their heirs shall have the right to redeem the same within two years from the date of foreclosure in case of a land not covered by a Torrens title or two years from the date of the registration of the foreclosure in case of a land covered by a Torrens title x x x.”

In Sta. Ignacia Rural Bank, Inc. v. Court of Appeals, we summarized the rules on redemption in the case of an extrajudicial foreclosure of land acquired under our free patent or homestead statutes as follows. If the land is mortgaged to a rural bank under Republic Act No. 720, as amended, the mortgagor may redeem the property within two (2) years from the date of foreclosure or from the registration of the sheriff’s certificate of sale at such foreclosure if the property is not covered or is covered, respectively, by a Torrens title. If the mortgagor fails to exercise such right, he or his heirs may still repurchase the property within five (5) years from the expiration of the two (2)-year redemption period pursuant to Section 119 of the Public Land Act (C.A. No. 141). If the land is mortgaged to parties other than rural banks, the mortgagor may redeem the property within one (1) year from the registration of the certificate of sale pursuant to Act No. 3135. If he fails to do so, he or his heirs may repurchase the property within five (5) years from the expiration of the redemption period also pursuant to Section 119 of the Public Land Act.

In the present case, petitioners admit that when the property was mortgaged, only the tax declaration was presented. Although a free patent title was subsequently issued in their favor on August 4, 1976, petitioners failed to inform the creditor rural bank of such issuance. As a result, the certificate of sale was not registered or annotated on the free patent title.

Petitioners are estopped from redeeming the property based on the free patent title which was not presented during the foreclosure sale nor delivered to the Register of Deeds for annotation of the certificate of sale as required under Section 5 of Republic Act No. 720, as amended. Estoppelin pais arises when one, by his acts, representations or admissions, or by his own silence when he ought to speak out, intentionally or through culpable negligence, induces another to believe certain facts to exist and such other rightfully relies and acts on such belief, so that he will be prejudiced if the former is permitted to deny the existence of such facts.

Petitioners cannot fault respondent for the non- registration of the certificate of sale because petitioners did not inform the respondent bank that a Torrens title had already been acquired by them on August 4, 1976. By their silence and inaction, petitioners misled the respondent bank to believe that their only proof of ownership was the tax declaration. Thus, the two (2)-year redemption period shall be reckoned from the date of the foreclosure. For the same reason, petitioners’ assertion that they will have five (5) years from the date of registration of the sale to redeem the foreclosed property under Section 119 of the Public Land Act has no merit, the reckoning period for the redemption period being properly from the date of sale. But even assuming arguendo that petitioners can avail of the five (5)-year redemption period provided under Section 119 of the Public Land Act, they still failed to exercise their right of redemption within the reglementary period provided by law.

As mentioned earlier, Section 119 of said Act expressly provides that where the land involved is acquired as a homestead or under a free patent, if the mortgagor fails to exercise the right of redemption, he or his heirs may still repurchase the property within five (5) years from the expiration of the two (2)-year redemption period. The auction sale having been conducted on April 20, 1977, petitioners had until April 20, 1984 within which to redeem the mortgaged property. Since petitioner only filed the

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

DBP v. Arcilla Jr.

Facts:

Atty. Felipe Arcilla Jr. was employed by the DBP. After he was assigned to the legal department, he decided to avail of a loan under the Individual Housing Project (IHP) of the bank for the payment of the parcel of land purchased by him and for its construction. When Arcilla resigned grom DBP, the bank notified him that his loan has been converted to a regular housing loan. Arcilla agreed to the reservation by the DBP of its right to increase the rate of interest on the loan, as well as all other fees and charges on loans and advances pursuant to such policy as it may adopt from time to time during the period of the loan.

Issue:

Whether or not DBP violated RA 3765 otherwise known as “The Truth in Lending Act”.

Ruling:

Section 1 of R.A. No. 3765 provides that prior to the consummation of a loan transaction, the bank, as creditor, is obliged to furnish a client with a clear statement, in writing, setting forth, to the extent applicable and in accordance with the rules and regulations prescribed by the Monetary Board of the Central Bank of the Philippines, the following information:

1. 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; and7. the percentage that the finance charge bears to the total amount to be financed expressed as a

simple annual rate on the outstanding unpaid balance of the obligation.

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

UCPB v. Spouses Beluso

Facts:

The UCPB granted the spouses Beluso a Promissory Note Line under a Credit Agreement. The spouses Beluso constituted other than their promissory notes, a real estate mortgage over parcels of land as additional security for the obligation. In any case, UCPB applied interest rates on the differenct promissory notes ranging from 18% to 34%. The spouses, however, failed to make any payment of their obligations with the bank. Spouses Beluso filed a petition for the annulment , accounting and damages against UCPB.

Issue:

Whether or not UCPB is authorized to unilaterally fix the interest rates.

Ruling:

A promissory note which grants the creditor the power to unilaterally fix the interest rate means that the promissory note does not contain a clear statement in writing of the finance charge. Such provision is illegal not only because it violates the provisions of the Civil Code on mutuality of contracts but also because it violates the Truth in Lending Law. The penalty for the violation of the law is P100.00 or an amount equal to twice of the finance charge required by such creditor in connection with such transaction, whichever is greater, except that such liability shall not exceed P2,000 on any credit transaction. The action to recover the penalty should be brought within one year from the date of the occurrence of the violation. As the penalty depends on the finance charge required of the borrower, the borrower’s cause of action would only accrue when such finance charge is required.

The action to recover the penalty may be instituted by the aggrieved private person separately and independently from the criminal case for the same offense.

Republic vs. Eugenio, GR 176429, Feb 14, 2008

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

ISSUE: Can the AMLA bank inquiry order be applied into records of transactions entered into prior to the passage of the AMLA?

HELD: No ex post facto law may be enacted, and no law may be construed in such fashion as to permit a criminal prosecution offensive to the ex post facto clause. As applied to the AMLA, it is plain that no person may be prosecuted under the penal provisions of the AMLA for acts committed prior to the enactment of the law on 17 October 2001. As much was understood by the lawmakers since they deliberated upon the AMLA, and indeed there is no serious dispute on that point.

Republic of the Philippines v GLASGOW

Credit and Collection Services Inc

Facts: On July 18, 2003, the Republic filed a complaint in the RTC for civil forfeiture of assets against the bank deposits maintained by Glasgow in CSBI. The case filed pursuant to RA 9160 (AMLA 2001). Acting on the Republic’s urgent plea for the issuance of TRO, the executive judge of RTC issued a 72-hour of a writ of preliminary injunction. The trial court issued an order granting the issuance of a writ of preliminary injuction. In order, the trial court directed the issuance of alias summons. However, no mention was made of the motion for leave of court to serve summons by publication. In an order, the trial court archived the case allegedly for failure of the Republic to serve the motion for leave of court to serve summons by publication. In an order, the trial court ordered the reinstatement of the case and directed the Republic to serve the alias summons on Glasgow and CSBI within 15 days. However, it did not resolve the Republic’s motion for leave of court to serve summons by publication. Because the Republic’s motion for leave of court to serve summons by publication remain unresolved, the Republic filed a manifestation and ex parte motion to resolve its motion for leave of court to serve summons by publication. Glasgow filed for motion to dismiss. It alleged that the court had no jurisdiction over its person as summons had not yet been served on it; and that the complaint was premature and stated no cause of action; and there was failure to prosecute on the part of the Republic. The RP opposed Glasgow’s motion to dismiss. It contended that its suit was an action quasi in rem where jurisdiction over the person of the defendant was not a prerequisite to confer jurisdiction on the court. It asserted that prior conviction for unlawful activity was not a precondition to the filing of a civil forfeiture case and that its complaint alleged ultimate facts sufficient to establish a cause of action. It denied that it failed to prosecute the case. The trial court issued the assailed order. It dismissed the case on the grounds of improper venue; insufficiency of the complaint in form and substance; and failure to prosecute. It lifted the writ of preliminary injunction and directed CSBI to release to Glasgow the funds.

Issue: Whether or not the complaint for civil forfeiture was correctly dismissed on grounds of (a) improper venue, (b) insufficiency in form and substance; and (c) failure to prosecute

Held: the case is remanded to the RTC, which shall proceed with the case. (a) The trial court was a proper venue. Sec. 3. Venue of cases cognizable by the regional trial court. – A petition for civil forfeiture shall be filed in any regional trial court of the judicial region where the monetary instrument, property or proceeds representing, involving, or relating to an unlawful activity or to a money laundering offense are located; provided, however, that where all or any portion of the monetary instrument, property or proceeds is located outside the Philippines, the petition may be filed in the regional trial court in Manila or of the judicial region where any portion of the monetary instrument, property, or proceeds is located, at the option of the petitioner. (emphasis supplied) Under Section 3, Title II of the Rule of Procedure in Cases of Civil Forfeiture, therefore, the venue of civil forfeiture cases is any RTC of the judicial region where the monetary instrument, property or proceeds representing, involving, or relating to an unlawful activity or to a money laundering offense are located. Pasig City, where the account sought to be forfeited in this case is situated, is within the National Capital Judicial Region (NCJR). Clearly,

the complaint for civil forfeiture of the account may be filed in any RTC of the NCJR. Since the RTC Manila is one of the RTCs of the NCJR,10 it was a proper venue of the Republic’s complaint for civil forfeiture of Glasgow’s account. (b) The test of the sufficiency of the facts alleged in the complaint is whether or not, admitting the facts alleged, the court could render a valid judgment upon the same in accordance with the prayer of the complaint. Regardless of the absence, pendency or outcome of a criminal prosecution for the unlawful activity or for money laundering, an action for civil forfeiture may be separately and independently prosecuted and resolved. (c) Given the circumstances, how could the Republic be faulted for failure to prosecute the complaint for civil forfeiture? While there was admittedly a delay in the proceeding, it could not be entirely or primarily ascribed to the Republic. That Glasgow’s whereabouts could not be ascertained was not only beyond the Republic’s control, it was also attributable to Glasgow which left its principal office address without informing the Securities and Exchange Commission or any official regulatory body (like the Bureau of Internal Revenue or the Department of Trade and Industry) of its new address. Moreover, as early as October 8, 2003, the Republic was already seeking leave of court to serve summons by publication. In Marahay v. Melicor,18 this Court ruled: While a court can dismiss a case on the ground of non prosequitur, the real test for the exercise of such power is whether, under the circumstances, plaintiff is chargeable with want of due diligence in failing to proceed with reasonable promptitude. In the absence of a pattern or scheme to delay the disposition of the case or a wanton failure to observe the mandatory requirement of the rules on the part of the plaintiff, as in the case at bar, courts should decide to dispense with rather than wield their authority to dismiss. (emphasis supplied) We see no pattern or scheme on the part of the Republic to delay the disposition of the case or a wanton failure to observe the mandatory requirement of the rules. The trial court should not have so eagerly wielded its power to dismiss the Republic’s complaint.

FOREIGN INVESTMENT ACT

Hahn vs CA

HAHN v. CA

G.R. No. 113074; January 22, 1997

FACTS:

Petitioner Alfred Hahn is a Filipino citizen doing business under the name and style "Hahn-Manila". On the other hand, private respondent (BMW) is a nonresident foreign corporation existing under the laws of the former Federal Republic of Germany, with principal office at Munich, Germany.

On March 7, 1967, petitioner executed in favor of private respondent a "Deed of Assignment with Special Power of Attorney. Per the agreement, the parties "continue[d] business relations as has been usual in the past without a formal contract."

But on February 16, 1993, in a meeting with a BMW representative and the president of Columbia Motors Corporation (CMC), Jose Alvarez, petitioner was informed that BMW was arranging to grant the exclusive dealership of BMW cars and products to CMC, which had expressed interest in acquiring the same.

On February 24, 1993, petitioner received confirmation of the information from BMW which, in a letter, expressed dissatisfaction with various aspects of petitioner's business, mentioning among other things, decline in sales, deteriorating services, and inadequate showroom and warehouse facilities, and petitioner's alleged failure to comply with the standards for an exclusive BMW dealer.

Nonetheless, BMW expressed willingness to continue business relations with the petitioner on the basis of a "standard BMW importer" contract, otherwise, it said, if this was not acceptable to petitioner, BMW would have no alternative but to terminate petitioner's exclusive dealership effective June 30, 1993.

Because of Hahn's insistence on the former business relations, BMW withdrew on March 26, 1993 its offer of a "standard importer contract" and terminated the exclusive dealer relationship effective June 30, 1993.

On April 29, 1993, BMW proposed that Hahn and CMC jointly import and distribute BMW cars and parts.

Hahn found the proposal unacceptable. On May 14, 1993, he filed a complaint for specific performance and damages against BMW to compel it to continue the exclusive dealership.

ISSUE:

Whether petitioner Alfred Hahn is the agent or distributor in the Philippines of private respondent BMW

HELD:

Alfred Hahn is an agent of BMW.

The Supreme Court held that agency is shown when Hahn claimed he took orders for BMW cars and transmits them to BMW. Then BMW fixes the down payment and pricing charges and will notify Hahn of the scheduled production month for the orders, and reconfirm the orders by signing and returning to Hahn the acceptance sheets.

The payment is made by the buyer directly to BMW. Title to cars purchased passed directly to the buyer and Hahn never paid for the purchase price of BMW cars sold in the Philippines. Hahn was credited with a commission equal to 14% of the purchase price upon the invoicing of a vehicle order by BMW. Upon confirmation in writing that the vehicles had been registered in the Philippines and serviced by him, Hahn received an additional 3% of the full purchase price. Hahn performed after-sale services, including, warranty services. for which he received reimbursement from BMW. All orders were on invoices and forms of BMW.

Moreover, the Court distinguished an agent from a broker. The court ruled that an agent receives a commission upon the successful conclusion of a sale. On the other hand, a broker earns his pay merely by bringing the buyer and the seller together, even if no sale is eventually made.

Cargill Inc. vs Intra Strata Assurance Corporation

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

Issue: Whether or not petitioner is doing or transacting business in the Philippines in contemplation of the law and established jurisprudence/ Whether or not CARGILL, an unlicensed foreign corporation, has legal capacity to sue before Philippine courts.

Held: YES • According to Article 123 of the Corporation Code, a foreign corporation must first obtain a license and a certificate from the appropriate government agency before it can transact business in the Philippines. Where a foreign corporation does business in the Philippines without the proper license, it cannot maintain any action or proceeding before Philippine courts, according to Article 133 of

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