Cases

on Chattel Mortgage:
Section 2

Davao Saw Mill v. Castillo
No. 40411, August 7, 1935
Malcolm J.:

Facts:
Davao Saw Mill Co. is the holder of a lumber concession in Davao. It constructed
a building, where the operation of the mill is conducted, in land it leased. The
lease contract contains a stipulation that at the end of the contract the building
and all the improvements introduced by the Davao Saw shall be passed on to the
owner of the land however machineries and accessories are not included in the
improvements which will pass to the owner of the land upon the expiration of
the lease.
However, during the effectivity of the lease agreement, a judgment was rendered
in favor of Davao Light and Power Co. against Davao Saw wherein the court
ordered the properties(machineries introduced by Davao saw mill) in question
to be levied. The sale was consummated and Davao light being the highest
bidder. It must be noted that no third party complaint was filed nor was there an
opposition in the sale.



Issue:
Whether or not the properties levied are considered Real or Personal
properties.


Held :
They are personal properties. The supreme court said that machinery not
intended by the owner of any building or land for use in connection therewith,
but intended by a lessee for use in a building erected on the land by the lessee
are considered personal property. Machineries which is movable in its nature
only becomes immovable when placed in a plant by the owner of the property or
plant, but not when so placed by the tenant unless such person acted as the agent
of the owner

Strochecker vs. Ramirez

G.R. No. 18700 , September 26, 1922
Romualdez J.:

Facts:
The appealed case raises the question, which of the two mortgagors, Fidelity &
Surety co or Ildefonso Ramirez should be given preference.Ramirez contends
that he must be given preference because the first mortgage to Fidelity & Surety
co was not valid because the subject matter (one half interest in the bussiness)
thereof is not capable of being mortgage, and the description of the property is
not sufficient.


Issue:
whether or not one half interest in the business is a personal property capable
of being subjected to chattel mortgage.


Held:
Yes. The SC said With regard to the nature of the property thus mortgaged,
which is one-half interest in the business above described, such interest is a
personal property capable of appropriation and not included in the enumeration
of real properties in article 335 of the Civil Code, and may be the subject of
mortgage. All personal property may be mortgaged.

MAKATI LEASING AND FINANCE CORP. vs. WEAREVER TEXTILE MILLS INC.
G.R. No. L-58469, May 16, 1983

Facts:
Wearever textile Mills obtained financial accomodations from Makati Leasing
and Finance Corporation. To secure it, it executed a chattel mortgage over a
machinery. Since Wearever defaulted, Makati Leasing filed for foreclosure of the
machineries. The lower court ruled in favor of Makati Leasing. The sheriff then
went to the Wearever, however, since the machinery was bolted on the floor, he
was only able to remove the main drive of the motor of machinery. On appeal,
Court of Appeals reversed the ruling of the trial court and ordered the return of
the main drive of the motor machinery on the ground that such property, being
attached to the ground is a real property and not subject a chattel mortgage.
Hence, this appeal.

Issue:
Whether the machinery is a real or personal property.

Held:
It is a personal property.

Examining the records of the instant case, We find no logical justification to
exclude the rule out, as the appellate court did, the present case from the
application of the abovequoted pronouncement. If a house of strong materials,
like what was involved in the above Tumalad case, may be considered as
personal property for purposes of executing a chattel mortgage thereon as long
as the parties to the contract so agree and no innocent third party will be
prejudiced thereby, there is absolutely no reason why a machinery, which is
movable in its nature and becomes immobilized only by destination or purpose,
may not be likewise treated as such. This is really because one who has so agreed
is estopped from denying the existence of the chattel mortgage.

TSAI vs. COURT OF APPEALS

G.R. No. 120098, October 2, 2001

Facts:
Ever Textile Mills (Evertexotained a loan on the year 1979 from Philippine Bank
of Communication (PBCom). To secure the loan, Evertex executed real and
chattel mortgages in favor of PBCom. A second loan was also obtained by
Evertrex which was also covered by a chattel mortgage executed in the first loan.
Thereafter, Evertex purchased machineries. Evertex was declared insolvent and
defaulted in payment, PBCom then foreclosed its properties including the
machineries that were purchased by PBCom after the execution of the said
mortgages. The properties were sold to Tsai. However, Evertex filed a complaint
for annulment of sale and reconveyance for the reason that the machineries sold
to Tsai were not those enumerated in the mortgages. Both the trial court and
Court of Appeals ruled in favor of Evertex. Hence, this appeal.

Issue:
Whether the inclusion of the machineries in the foreclosed properties proper.


Held:
No. Petitioners contend that the nature of the disputed machineries, i.e., that they
were heavy, bolted or cemented on the real property mortgaged by EVERTEX to
PBCom, make them ipso facto immovable under Article 415 (3) and (5) of the
New Civil Code. This assertion, however, does not settle the issue. Mere nuts and
bolts do not foreclose the controversy. We have to look at the parties' intent.
While it is true that the controverted properties appear to be immobile, a perusal
of the contract of Real and Chattel Mortgage executed by the parties herein gives
us a contrary indication. In the case at bar, both the trial and the appellate courts
reached the same finding that the true intention of PBCOM and the owner,
EVERTEX, is to treat machinery and equipment as chattels.

Evangelista vs. Alto Surety & Ins. Co., Inc.

GR L-11139 April 23, 1958

FACTS:
Santos Evangelista instituted a civil case against Ricardo Rivera for a sum of
money. Evangelista was able to obtain a writ of attachment, which was levied
upon a house, built by Rivera on a land leased to him.

Evangelista bought the house at public auction and a deed of sale was issued to
him on Oct. 22, 1952. When he sought the possession of the house, Rivera
refused to surrender it, on the ground that he had leased the property from Alto
Insurance and the latter is now the true owner of said property.

Evangelista instituted an action against Rivera and Alto Insurance for the
purpose of establishing his title over said house.

Alto allege that it has a better right to the house, because the sale made and the
definite deed of sale executed in its favor on Sept. 29, 1950 and May 10, 1952,
precede the sale to Evangelista on Oct. 8, 1951 and the definite deed of sale in his
favor on Oct. 22, 1952.

CFI rendered judgment in favor of Evangelista. On appeal, decision was reversed
by the CA on the ground that the said property is ostensibly a personal
property and copies of the writ of attachment and notice of attachment are not
served upon Rivera in a proper manner.

ISSUE:
Whether a house, constructed by the lessee of the land on which it is built,
should be dealt with, for purposes of attachment, as immovable property or as
personal property?

HELD:
It is a real property.

A true building (not merely superimposed on the soil) is immovable or real
property, whether it is erected by the owner of the land or by a usufructuary or
lessee. Parties may agree in a deed of chattel mortgage to consider a house as a
personal property for purposes of said contract. However, this view is good only
insofar as the contracting parties are concerned.

Sales on execution affect the public and third persons. The regulation governing
sales on execution are for public officials to follow. The mere fact that a house
was subject of a chattel mortgage and was considered as personal property by
the parties does not make said house personal property for purposes of the
notice to be given for its sale at public auction.


Manarang and Manarang vs. Ofilada and Esteban
GR L-8133, May 18, 1956

FACTS:
Lucia Manarang obtained a loan of P200 from Ernesto Esteban, and to secure its
payment she executed a chattel mortgage over a house of mixed materials. When
Manarang failed to pay the loan, Esteban brought an action for recovery.
Judgment was rendered in favor of Esteban and execution was issued against the
property mortgaged.

Before the property could be sold, Manarang offered to pay P277 to the sheriff
but the latter refused unless additional amount of P260 representing the
publication of the notice of sale be paid also.

Manarang brought this suit to compel the sheriff to accept the amount of P277.
She contended that the house should be considered as a personal property and
the publication of the notice of its sale at public auction in execution considered
unnecessary. The CFI dismissed her petition.

ISSUE:
Does the fact that the parties entering into a contract regarding a house which
gave said property the consideration of a personal property, bind the sheriff in
advertising the propertys sale at public auction as personal property?

HELD:
NO.
Sales on execution affect the public and third persons. The regulation governing
sales on execution are for public officials to follow. The form of proceedings
prescribed for each kind of property is suited to its character, not to the
character which the parties have given to it or desire to give it.

Personal properties are those which is ordinarily so considered is meant.
Real property means property which is generally known as real property.

The mere fact that a house was subject of a chattel mortgage and was considered
as personal property by the parties does not make said house personal property
for purposes of the notice to be given for its sale at public auction.

Development Bank of the Philippines vs. Prudential Bank

G.R. No. 143772, November 22, 2005

Facts:
Litex opened a letter credit from Prudential Bank for some machineries. Later,
Litex obtained a loan form DBP, securing it with machineries including those
covered by the trust receipt. Litex defaulted but for the mean time, Prudential
told DBP that it was the owner of some machineries. However, DBP foreclosed
the properties and sold it to Lyon Textile Mills. Prudential filed a case against
DBP. Both the trial court and Court of Appeals ruled in favor of Prudential.
Hence, this appeal.

Issue:
Whether the foreclosure and sale of the properties valid.

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 thing 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.

Section 2: Unregistered Chattel Mortgage is Valid

Filipinas Marble Corporation vs IAC,
G.R. No. L-68010, May 30, 1986
Facts:
Filipinas Marble Corporation alleged that it applied for a loan (chattel mortgage)
with Development Bank of the Philippines (DBP) in its desire to develop the fun
potentials of its mining claims and deposits. It was granted but subject to several
onerous conditions and that petitioner should enter into a management contract
with Bancom for a period of three years; that under the management agreement,
the affairs of the petitioner were placed under the complete control of DBP and
Bancom including the disposition and disbursement of the loan. Respondents
and their directors/officers mismanaged and misspent the loan leaving
petitioner desolate and devastated.
Petitioner contested the foreclosure of the property because there is no
loan to speak of because of failure of consideration.
RTC & CA in favor of Filipinas; P.D. 385 applies only where it is clear
that there was a loan or where the loan is not denied.

ISSUE:
Whether or not the chattel mortgage that is not registered is null and void under
Art. 2125 of CC
HELD:
We agree with the petitioner that a mortgage is a mere accessory contract
and, thus, its validity would depend on the validity of the loan secured by it. We,
however, reject the petitioner's argument that since the chattel mortgage
involved was not registered, the same is null and void. Article 2125 of the Civil
Code clearly provides that the non-registration of the mortgage does not affect
the immediate parties. It states:
Art. 2125. In addition to the requisites stated in article 2085, it is
indispensable, in order that a mortgage may be validly constituted that the
document in which it appears be recorded in the Registry of Property. If the
instrument is not recorded, the mortgage is nevertheless binding between the
parties.

The petitioner cannot invoke the above provision to nullify the chattel
mortgage it executed in favor of respondent DBP.

Section 5: Chattel Mortgage is not presumed to be a Public Instrument.

Lilius, et al. vs The Manila Railroad Company
G.R. No. 42551, September 4, 1935

FACTS:
In this case Laura Lindley Shuman, the Manila Wine Merchants, Ltd., the
BPI and the Manila Motor Co., Inc., have appealed from an order of the CFI of
Manila fixing the degree of preference of the claimants and distributing the
proceeds of the judgment of this court in the case of Lilius vs. Manila Railroad Co.
There was a total of twenty-eight claimants to these funds, whose claims were
presented and decided without objection in the original case in the lower court.
Aleko Lilius has a loan (chattel mortgage) with Manila Motor, when the
proceeds was distribute Manila Motor is not one of the preferred creditors of
Lilius.
Manila Motor appealed to Supreme Court because the lower court erred
in not holding the claim of Manila Motor Co., Inc., preferred over all other claims
against Aleko E. Lilius evidenced by public instruments and final judgments.

ISSUE:
Whether or not the Chattel Mortgage is considered to be a Public Intrument

HELD:
Granting that a mortgage existed between the Manila Motor Co., Inc., and
Aleko E. Lilius, this does not warrant the conclusion that the instrument
evidencing that mortgage is a public document entitled to preference under
article 1924 of the Civil Code. Under section 5 of Act No. 1507 as amended by Act
No. 2496, a chattel does not have to be acknowledge before a notary public. As
against creditors and subsequent encumbrances, the law does require an
affidavit of good faith appended to the mortgage and recorded with it. A chattel
mortgage may, however, be valid as between the parties without such an
affidavit of good faith. It will thus be seen that under the law, a valid mortgage
may exist between the parties without its being evidenced by a public document.


PHILIPPINE REFINING CO. INC. v. JARQUE
G.R. No. L-41506 , March 25, 1935
MALCOLM, J.:

FACTS:
There were a total of four (4) chattel mortgages executed by Jarque. The first
three were in favor of the Phils. Refining Co. Inc. while the fourth was in favor of
Ramon Aboitiz, which was the only chattel mortgage appended with affidavit of
good faith and registered the same in the RD. Thereafter, Jarque was declared as
an insolvent debtor by the RTC of Cebu, with the result that an assignment of all
the properties of the insolvent was executed in favor of Jose Corominas.
On these facts, the judge declined to order the foreclosure of the mortgages, but
on the contrary sustained the special defenses of fatal defectiveness of the
mortgages. Hence, this petition.

ISSUE:
Whether the chattel mortgages executed without an affidavit of good faith is
enforceable to a third person.

HELD:
NO. The chattel mortgages executed without an affidavit of good faith is
unenforceable to a third person.
Since the term "personal property" includes vessels, they are subject to mortgage
agreeably to the provisions of the Chattel Mortgage Law. Indeed, it has
heretofore been accepted without discussion that a mortgage on a vessel is in
nature a chattel mortgage.
The only difference between a chattel mortgage of a vessel and a chattel
mortgage of other personalty is that it is not now necessary for a chattel
mortgage of a vessel to be noted n the registry of the register of deeds, but it is
essential that a record of documents affecting the title to a vessel be entered in
the record of the Collector of Customs at the port of entry. Otherwise a mortgage
on a vessel is generally like other chattel mortgages as to its requisites and
validity.
The Chattel Mortgage Law in its section 5, in describing what shall be deemed
sufficient to constitute a good chattel mortgage, includes the requirement of an
affidavit of good faith appended to the mortgage and recorded therewith. The
absence of the affidavit vitiates a mortgage as against creditors and subsequent
encumbrancers. As a consequence a chattel mortgage of a vessel wherein the
affidavit of good faith required by the Chattel Mortgage Law is lacking, is
unenforceable against third persons.

ACME v. CA
G.R. No. 103576. August 22, 1996
VITUG, J.:

FACTS:
President of Acme executed in behalf of the company a chattel mortgage in favor
Producers Bank of the Philippines as a security for the two corporate loans he
obtained from the latter, both obligations were eventually satisfied by the
former. However, when the bank extended another corporate loan to Acme
covered by four promissory notes. Unfortunately, the latter failed to pay such
obligation due to financial constraints that cause the bank to extra-judicially
foreclose the mortgage property.
Acme then filed an injunction, which was denied by the court. The Foreclosure,
then, proceeded. Feeling aggrieved, Acme appealed with the CA but was later
denied. On its first petition with this court was denied. Hence, this second
petition.

ISSUE:
Whether the clause in a chattel mortgage that purports to extend its coverage to
obligations yet to be contracted is valid and effective.

HELD:
NO. The clause in a chattel mortgage that purports to extend its coverage to
obligations yet to be contracted is not valid and effective.
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.
A chattel mortgage, as hereinbefore so intimated, must comply substantially with
the form prescribed by the Chattel Mortgage Law itself. One of the requisites,
under Section 5 thereof, is an affidavit of good faith. While it is not doubted that
if such an affidavit is not appended to the agreement, the chattel mortgage would
still be valid between the parties (not against third persons acting in good faith),
the fact, however, that the statute has provided that the parties to the contract
must execute an oath makes it obvious that the debt referred to in the law is a
current, not an obligation that is yet merely contemplated.
The significance of the ruling to the instant problem would be that since the
1978 chattel mortgage had ceased to exist coincidentally with the full payment of
the P3,000,000.00 loan, there no longer was any chattel mortgage that could
cover the new loans that were concluded thereafter.

Section 7
Strochecker vs. Ramirez

Facts:
Appellant Ramirez questions the preference of the mortgage in favor of Fidelity
and Surety Co. over his own mortgage interest, arguing that the mortgage is not
valid because the description of said property is insufficient.

Issue:
Whether the mortgage to F&S Co. was valid?

Held:
Yes, the description was sufficient and should be only in such nature that: the
description of the mortgaged property shall be such as to enable parties to the
mortgage, or any other person after reasonable inquiry and investigation, to
identify the same.
half interest in the drug business known as Antigua Botica Ramirez was
deemed sufficient.

Giberson vs. A.N. Jureidini

Facts:
Jureidini, Motoomuls creditor, became aware of the debtors financial problem,
caused the delivery of a store, its receivables, and stocks owned by Motoomul to
it. Upon Involuntary Insolvency Proceedings the other creditors of Motoomul
questions the validity of the Mortgage exacuted between Jureidini and
Motoomul.

Issue:
Whether the mortgage was valid?

Held:
The trial judge properly held that there was impossible identification in this case
where it was only described as:

1. A store No. 79 on Magakkanes St., Cebu, formerly belongin to T.
Thakurdas with all the merchandise, effects, wares ad other bazaar goods
contained therein.

2. A store No. 19 on Real St., Iloilo Panay, P.I. formerly belonging to
Guillermo Asayas, with all the merchandise, effects, wares and other bazaar
goods contained therein.
(Note that in a Bazaar goods are constantly disposed of and replaced with new
supplies in connection with the business, thereby impossible for identification
with respect to last paragraph of sec. 7 of the law.)

SALDANA vs. PHILIPPINE GUARANTY COMPANY, INC.

Facts:
Josefina de Aleazar, to secure an indebtedness worth P15,000, executed a
chattel mortgage in favor of Buenaventura Saldana covering some of her
properties including a building and all other furniture, fixtures or equipment
found in the said premises used in her restaurant business. After the execution
of said mortgage, San Juan de Dios Hospital obtained, in another civil case, a
judgment against Alazar. A writ of attachment was served upon her, where some
of the properties covered by the earlier mortgage were levied upon . Saldana
filed a third-party claim asserting that the above-described properties levied are
subject to his chattel mortgage. The sheriff then released some of the properties
from the levy. In order to proceed with the execution sale, San Juan de Dios
hospital executed an indemnity bond to answer for any damages that plaintiff
might suffer. Said properties were sold to San Juan De Dios as the highest bidder.
Saldana filed a complaint for damages against Philippine Guaranty Company
with the trial court, which dismissed the complaint for lack of sufficient cause of
action.

Issue:
Whether or not the phrase "and all other furniture, fixtures and equipment found
in the said premises", validly and sufficiently covered within its terms the
personal properties disposed of in the auction sale, as to warrant an action for
damages by the plaintiff mortgagee, Saldana.

Held:
Yes. Section 7 of the Chattel Mortgage Law does not demand a minute and
specific description of every chattel mortgaged in the deal of mortgage but only
requires that the description of the properties be such as to enable the parties in
the mortgage, or any other person, after reasonable inquiry and investigation to
identify the same. A general description will suffice. The specifications in the
chattel mortgage contract complied with the reasonable description rule that the
said law requires.
The phrase in question is found after an enumeration of other specific articles. It
can thus be reasonably inferred therefrom that the "furniture, fixture and
equipment" referred to are properties of like nature, similarly situated or
similarly used in the restaurant of the mortgagor.

Section 14:
PNB vs. MANILA INVESTMENT AND CONSTRUCTION, INC.

Facts:
Judgment in a civil case between herein petitioner and respondent was rendered
against respondent, Manila Investment and other defendants, requiring them to
pay a certain amount of money. In case of non-payment, the decision provided
for the sale at public auction of the personal properties covered by the chattel
mortgage executed by the defendants in favor of PNB. When the decision had
become executory, the parties agreed to having the mortgaged personal
properties sold at public auction at a private sale. The proceeds obtained
amounted to P259,941.70, and were applied to the partial satisfaction of said
judgment (P382,388.47 was still unsatisfied). 5 years later, PNB filed an action
to revive the judgment. Manila invested insisted on the fact that a private sale
had already been held and that the proceeds must be accounted by PNB to them
in order that the same may be applied to the judgment, but PNB has not
rendered proper accounting to them. The trial court rendered a judgment
ordering Manila Investment to pay the deficiency. Manila investment claims that
PNB is not entitled to a deficiency and that the private sale of the mortgaged
personal properties was null and void.

Issue:
1. Whether or not the private sale of the mortgaged properties were null
and void
2. Whether or not PNB is entitled to the deficiency of P382,388.47
Held:
1. No. The disposition of the mortgaged properties in a private sale was by
agreement between the parties. Manila Investment is estopped from
questioning it except on the ground of fraud or duress.
2. Yes. In case of a sale under a foreclosure of chattel mortgage, there is no
question that the mortgagee or creditor may maintain an action for
deficiency. The Chattel Mortgage Law allows a private sale, and the
amount received at the time of the sale is only a payment pro tanto and an
action may be maintained for a deficiency in the debt.

Salvacion Riosa vs. Stilianpilos

Facts:
1. The respondent sold to petitioner for 2000, which was not then paid, a used
Chevrolet sedan car. The petitioner turned over the sed car to the respondent in
partial payment of the installment.
2. To secure the payments of said note, petitioner executed a deed of mortgage
under the provisions of the chattel mortgage law.
3. Petitioner failed to make good his obligation. Accordingly, the sheriff, at the
respondents instance, took possession of the mortgaged Chevrolet car for the
purpose of selling it at public auction as provided by law notifying the petitioner
by registered mail of what he intended to do so>
$. The sale was effected in the municipality of legaspi city, Albay, not that of
Tabaco where the petitioner resided at the time where the car had been taken.
5. petitioner contended the legality of such sale since it is in contravention with
section 14 of the Chattel mortgage law .

Issue:
WON the sale of Chevrolet car in question was in accordance with the clause and
with the law, in view of the waiver made by the petitioner.

HELD:
1. It seems clear that the purpose of the law in providing for the requisites and
procedure to be followed before proceeding to the sale of the mortgaged chattel
under sec 14 is plainly to protect the rights of the mortgagor.
2. Nothing that took place in the case can be said to have affected the public
interest of that of third person.
3. All that is affected was the interest of the mortgagor. In view thereof, the
remedy petition for certiorari does not lie and will not prosper since it is clearly
provided by the that a person may waive any right conferred upon him by law,
unless prohibited by law because it is against public interest or prejudicial to
third person.
4. The court failed to find in the waiver contained therein anything which might
be against public interest or prejudicial to third person.
5. If the sale was effected in Legaspi where the respondent had his main office,
not in tobacco where the petitioner resided, it was because the latter so
expressly agreed and consented thereto.

DANIEL L. BORDON II AND FRANCISCO L. BORBON, petitioners, vs.

SERVICEWIDE SPECIALISTS, INC. & HON. COURT OF APPEALS

Facts:
1. Daniel L. Borbon and Francisco Borbon signed a promissory note which states
that For value received (installment price of the chattel/s purchased), I/We
jointly and severally promised to pay Pangasinan Auto Mart, Inc. or order, at its
office at NMI Bldg. Buendia Avenue, Makati, MM the sum of One Hundred Twenty
Two Thousand Eight Hundred Fifty Six only (P122,856.00), Philippine Currency,
to be payable without need of notice or demand, in installments of the amounts
following and at the dates hereinafter set forth, to wit: P10,238.00 monthly for
Twelve (12) months due and payable on the 7 day of each month starting
January, 1985, provided that a late payment charge of 3% per month shall be
added on each unpaid installment from due date thereof until fully paid
2. To secure the Promissory Note, the defendants executed a Chattel Mortgage
on (1) Brand new 1984 Isuzu.
3. The rights of Pangasinan Auto Mart, Inc. was later assigned to Filinvest Credit
Corporation on, with notice to the defendants. On March 21, 1985, Filinvest
Credit Corporation assigned all its rights, interest and title over the Promissory
Note and the chattel mortgage to the plaintiff.
4. Because the defendants did not pay their monthly installments, Filinvest
demanded from the defendants the payment of their installments due on January
29, 1985 by telegram.
5. The defendants claim that what they intended to buy from Pangasinan Auto
Mart was a jeepney type Isuzu K. C. Cab. The vehicle that they bought was not
delivered. Instead, through misrepresentation and machination, the Pangasinan
Motor, Inc. delivered an Isuzu crew cab, as this is the unit available at their
warehouse. Later the representative of Pangasinan Auto Mart, Inc. (assignor)
told the defendants that their available stock is an Isuzu Cab but minus the rear
body, which the defendants agreed to deliver with the understanding that the
Pangasinan Auto Mart, Inc. will refund the defendants the amount of P10,000.00
to have the rear body completed. The defendants claim that they are not in
default of their obligation because the Pangasinan Auto Mart was first guilty of
not fulfilling its obligation in the contract. The defendants claim that neither
party incurs delay if the other does not comply with his obligation.

HELD:
1. When the seller assigns his credit to another person, the latter is likewise
bound by the same law. Accordingly, when the assignee forecloses on the
mortgage, there can be no further recovery of the deficiency, and the seller-
mortgagee is deemed to have renounced any right thereto.
2. In the event the seller-mortgagee first seeks, instead, the enforcement of the
additional mortgages, guarantees or other security arrangements, he must then
be held to have lost by waiver or non-choice his lien on the chattel mortgage of
the personal property sold by any mortgaged back to him, although, similar to an
action for specific performance, he may still levy on it.
3. It is only when there has been a foreclosure of the chattel mortgage that the
vendee-mortgagor would be permitted to escape from a deficiency liability.
Thus, if the case is one for specific performance, even when this action is selected

after the vendee has refused to surrender the mortgaged property to permit an
extrajudicial foreclosure, that property may still be levied on execution and an
alias writ may be issued if the proceeds thereof are insufficient to satisfy the
judgment credit. So, also, a mere demand to surrender the object which is not
heeded by the mortgagor will not amount to a foreclosure, but the repossession
thereof by the vendor-mortgagee would have the effect of foreclosure.

Filipinas Investment vs. Ridad

Plaintiffs purchased from Supreme Sales and Development Corporation
(Supreme) 2 brand new Ford Consul Sedans, for P26,887 payable in 24
monthly installments.
To secure payment thereof, plaintiffs executed a promissory note
covering the purchase price and a deed of chattel mortgage on the two
vehicles purchased and also on another car (Chevrolet) and plaintiffs
franchise or certificate of public convenience granted by the defunct
Public Service Commission for the operation of a taxi fleet.
With the conformity of plaintiffs, the vendor Supreme assigned its rights,
title and interest to the promissory note and chattel mortgage to the
defendant Filipinas Investment and Finance Corporation.
Plaintiffs failed to pay their monthly installments. Filipinas foreclosed the
chattel mortgage extra-judicially.
During the public auction, of which the plaintiffs were not notified, the 2
Ford Consul cars were bought by defendant Filipinas, who was as the
highest bidder. During another public auction, the rest of the properties
(including the taxi franchise) subject of the chattel mortgage were sold,
and bought by defendant Filipinas also.
Filipinas subsequently sold the taxi franchise to defendant Jose D.
Sebastian, who filed with the Public Service Commission an application
for approval of said sale.
Plaintiffs then filed an action for annulment of contract before the CFI,
against Filipinas, Sebastian, and Sheriff San Agustin.
CFI ruling: The chattel mortgage was null and void in so far as the taxi
franchise and the used Chevrolet car were concerned, and the sale at
public auction of the taxicab franchise was to be of no legal effect. The
Certificate of Sale issued by the Sheriff of Manila in favor of Filipinas
concerning the taxi franchise was cancelled and set aside. The assignment
made by Filipinas in favor of Jose Sebastian was also declared void and of
no legal effect.
The CA certified the defendants appeal to the SC.

Issue:
Is the chattel mortgage and its subsequent sale valid? NO

Ratio:
1) Article 1484 of the Civil Code is applicable. Under this article, the vendor
of personal property the purchase price of which is payable in
installments, has the right, should the vendee default in the payment of
two or more of the agreed installments, to exact fulfillment by the
purchaser of the obligation, or to cancel the sale, or to foreclose the
mortgage on the purchased personal property, if one was constituted. The
vendor can only choose one option.
2) If the vendor avails himself of the right to foreclose the mortgage, the law
prohibits him from further bringing an action against the vendee for the
purpose of recovering whatever balance of the debt secured is not
satisfied by the foreclosure sale.

3) Purpose of the law is to prevent mortgagees from seizing the mortgaged

property, buying it at foreclosure sale for a low price and the bringing suit
against the mortgagor for a deficiency judgment.
a. Without the law, the mortgagor-buyer would find himself without
the property and still owing practically the full amount of his
original debt.
4) In this case, defendant Filipinas chose to foreclose the mortgage upon
default of plaintiffs, and bought the vehicles at the public auction as the
highest bidder.
a. Filipinas is deemed to have renounced any and all rights which it
might otherwise have under the promissory note and the chattel
mortgage as well as the payment of the unpaid balance.
5) The lower court rightly declared the nullity of the chattel mortgage in so
far as the taxi franchise and the Chevrolet were concerned, under the
authority of the ruling in the case of Levy Hermanos, Inc. v Pacific
Commercial Co., et al.
6) The vendors right to foreclose is limited only on the thing sold.
7) The vendor of personal property sold on installment is precluded, after
foreclosing the chattel mortgage on the thing sold, from having a recourse
against the additional security put up by a third party to guarantee the
purchasers performance of his obligation. (Cruz v Filipinos Investment &
Finance Corporation)
a. Otherwise, if the vendee could still be compelled to pay the balance
of the purchase price, the vendee will be made to bear the payment
of the balance despite the earlier foreclosure.

Judgment appealed from is affirmed.

Cases on the Law on Secrecy Bank Deposits:

JOSEPH VICTOR G. EJERCITO v. SANDIGANBAYAN G.R. Nos. 157294-95, 30
November 2006,

Facts:
Plunder being thus analogous to bribery, the exception to RA 1405, otherwise
known as the Bank Secrecy Law, applicable in cases of bribery must also apply to
cases of plunder. The fruit of the poisonous tree principle, which states that
once the primary source (the tree) is shown to have been unlawfully obtained,
any secondary or derivative evidence (the fruit) derived from it is also
inadmissible, does not apply in cases of unlawful examination of bank accounts.
RA 1405 does not provide for the application of this rule. At all events, the
Ombudsman is not barred from requiring the production of documents based
solely on information obtained by it from sources independent of its previous
inquiry.

Joseph Victor G. Ejercito is the owner of Trust Account No. 858 which was
originally opened at Urban Bank but which is now maintained at Export and
Industry Bank, which is the purchaser and owner now of the former Urban Bank
and Urbancorp Investment, Inc. He is also the owner of Savings Account No.
0116-17345-9 which was originally opened at Urban Bank but which is now
maintained at Export and Industry Bank, the purchaser and owner of the former
Urban Bank and Urbancorp Investment, Inc.

In Criminal Case No. 26558, People v. Estrada, et al., for plunder, the Special
Prosecution Panel filed before the Sandiganbayan a Request for Issuance of
Subpoena Duces Tecum for the issuance of a subpoena directing the President of
Export and Industry Bank (EIB, formerly Urban Bank) or his/her authorized
representative to produce during the hearings scheduled, documents relating to
these accounts including statement of accounts under the name of Jose Velarde.
The request was granted by the Sandiganbayan.

Ejercito filed various motions to quash the various Subpoenas Duces Tecum/Ad
Testificandum previously issued. In his Motion to Quash, he claimed that his
bank accounts are covered by R.A. No. 1405 (The Secrecy of Bank Deposits Law)
and do not fall under any of the exceptions stated therein. He further claimed
that the specific identification of documents in the questioned subpoenas,
including details on dates and amounts, could only have been made possible by
an earlier illegal disclosure thereof by the EIB and the Philippine Deposit
Insurance Corporation (PDIC) in its capacity as receiver of the then Urban Bank.
The disclosure being illegal, he concluded, the prosecution in the case may not be
allowed to make use of the information.

The Sandiganbayan denied the motions of Ejercito.

Ejercito filed the present petition for certiorari under Rule 65 assailing the
Sandiganbayan Resolutions denying his Motions to Quash Subpoenas Duces
Tecum/Ad Testificandum, and Resolution denying his Motion for
Reconsideration of the first two resolutions.


People posits that Trust Account No. 858 may be inquired into, not merely
because it falls under the exceptions to the coverage of R.A. 1405, but because it
is not even contemplated therein. To People, the law applies only to deposits
which strictly means the money delivered to the bank by which a creditor-debtor
relationship is created between the depositor and the bank.

ISSUES:
1.)Whether Trust Account No. 858 and Savings Account No. 0116-17345-9 are
excepted from the protection of R.A. 1405;

2.) Whether The extremely-detailed information contained in the Special
Prosecution Panel's requests for subpoena was obtained through a prior illegal
disclosure of Ejercito's bank accounts


HELD:
1.) Yes the accounts are excepted from the protection of 1405 and thus can be
sunpoed.

Plunder is excepted from the protection of RA 1405 otherwise known as The
Secrecy of Bank Deposits Law.

R.A. 1405 is broad enough to cover Trust Account No. 858. However, the
protection afforded by the law is not absolute. There being recognized
exceptions thereto, as above-quoted Section 2 provides. In the present case, two
exceptions apply, to wit: (1) the examination of bank accounts is upon order of a
competent court in cases of bribery or dereliction of duty of public officials, and
(2) the money deposited or invested is the subject matter of the litigation.

Ejercito contends that since plunder is neither bribery nor dereliction of duty, his
accounts are not excepted from the protection of R.A. 1405. Philippine National
Bank v. Gancayco holds otherwise:

Cases of unexplained wealth are similar to cases of bribery or dereliction of duty
and no reason is seen why these two classes of cases cannot be excepted from
the rule making bank deposits confidential. The policy as to one cannot be
different from the policy as to the other. This policy expresses the notion that a
public office is a public trust and any person who enters upon its discharge does
so with the full knowledge that his life, so far as relevant to his duty, is open to
public scrutiny.

Undoubtedly, cases for plunder involve unexplained wealth. The crime of
bribery and the overt acts constitutive of plunder are crimes committed by
public officers, and in either case the noble idea that a public office is a public
trust and any person who enters upon its discharge does so with the full
knowledge that his life, so far as relevant to his duty, is open to public scrutiny
applies with equal force.

Hence, these accounts are no longer protected by the Secrecy of Bank Deposits
Law, there being two exceptions to the said law applicable in this case, namely:
(1)the examination of bank accounts is upon order of a competent court in cases
of bribery or dereliction of duty of public officials, and (2)the money deposited
or invested is the subject matter of the litigation. Exception (1) applies since the
plunder case pending against former President Estrada is analogous to bribery
or dereliction of duty, while exception (2) applies because the money deposited
in Ejercito's bank accounts is said to form part of the subject matter of the same
plunder case.

2.) No. The extremely-detailed information was obtained by the Ombudsman
from sources independent of its previous inquiry.

In a further attempt to show that the subpoenas issued by the Sandiganbayan are
invalid and may not be enforced, Ejercito contends that the information found
therein, given their extremely detailed character, could only have been
obtained by the Special Prosecution Panel through an illegal disclosure by the
bank officials concerned. He thus claims that, following the fruit of the
poisonous tree doctrine, the subpoenas must be quashed.

He further contends that even if, as claimed by People, the extremely-detailed
information was obtained by the Ombudsman from the bank officials concerned
during a previous investigation of the charges against President Estrada, such
inquiry into his bank accounts would itself be illegal. How the Ombudsman
conducted his inquiry into the bank accounts of Ejercito is recounted by the
People of the Philippines. At all events, even if the challenged subpoenas are
quashed, the Ombudsman is not barred from requiring the production of the
same documents based solely on information obtained by it from sources
independent of its previous inquiry. The Ombudsman may conduct on its own
the same inquiry into the subject bank accounts that it earlier conducted last
February-March 2001, there being a plunder case already pending against
former President Estrada. To quash the challenged subpoenas would, therefore,
be pointless since the Ombudsman may obtain the same documents by another
route. Upholding the subpoenas avoids an unnecessary delay in the
administration of justice.

Mellon vs Magsino

Facts:
Dolores Ventosa requested the transfer of $1000 from the First National Bank of
West Virginia, USA to Victoria Javier in Manila through the Prudential Bank.
Accordingly, the First National Bank requested the petitioner, Mellon Bank, to
effect the transfer. Unfortunately, the wire sent by Mellon Bank to Manufacturers
Hanover Bank, a correspondent of Prudential Bank, indicated the amount
transferred as US $1,000,000.00 instead of US $1,000.00. Hence, Manufacturers
Hanover Bank transferred one million dollars less bank charges of $6.30 to the
Prudential Bank for the account of Victoria Javier. Javier opened a new dollar
account in Prudential Bank and deposited $999,943. Immediately, thereafter,
Javier and her husband made withdrawals from the account, deposited them in
several banks only to withdraw them later in an apparent plan to conceal,
launder and dissipate the erroneously sent amount. One of the things they
bought was real property in California, USA which was the subject of an action
for recovery by Mellon Bank. Later, it filed a case in the Philippines for the
recovery of the whole amount, including the purchase price of the real property
located in the US. With regard to the subject matter, Erlinda Baylosis of the
Philippine Veterans Bank and Pilologo Red, Jr. of Hongkong and Shanghai
Banking Corporation were required to give testimonies with regard to the
deposits and checks issued by the private respondents Javier, et. al.. These
testimonies were questioned for being immaterial and irrelevant as well as
covered by RA 1405 on confidentiality.

Issue: Whether or not the testimonies of the banks violated RA 1405?

Held:
Private respondents protestations that to allow the questioned testimonies to
remain on record would be in violation of the provisions of RA 1405 on the
secrecy of bank deposits is unfounded. Section 2 of said law allows the disclosure
of bank deposits in cases where the money deposited is the subject matter of the
litigation. Inasmuch as the civil case is aimed at recovering the amount converted
by the Javiers for their own benefit, necessarily, an inquiry into the whereabouts
of the illegally acquired amount extends to whatever is concealed by being held
or recorded in the name of persons other than the one responsible for the illegal
acquisition.


Onate vs. Abrogar

FACTS:
On December 23, 1991, respondent Sun Life Assurance Company of Canada (Sun
Life) filed a complaint for a sum of money with a prayer for the immediate
issuance of a writ of attachment against petitioners and Noel L. Dio at Branch
150 of the RTC Makati, presided over by respondent Judge. The following day,
December 24, 1991, respondent Judge issued an order granting the issuance of a
writ of attachment, which was actually issued on December 27, 1991. On January
3, 1992, upon Sun Lifes ex-parte motion, the trial court amended the writ of
attachment to reflect the alleged amount of the indebtedness. That same day,
Deputy Sheriff Flores, accompanied by a representative of Sun Life, attempted to
serve summons and a copy of the amended writ of attachment upon petitioners
at their known office address in Makati but was not able to do so since there was
no responsible officer to receive the same. Nonetheless, Sheriff Flores proceeded
over a period of several days to serve notices of garnishment upon several
commercial banks and financial institutions, and levied on attachment a
condominium unit and a real property belonging to petitioner Oate. Summons
was eventually served upon petitioners on January 9, 1992, while defendant
Dio was served with summons on January 16, 1992.

On January 21, 1992, petitioners filed an Urgent Motion to Discharge/Dissolve
Writ of Attachment. That same day, Sun Life filed an ex-parte motion to examine
the books of accounts and ledgers of petitioner Brunner Development
Corporation (Brunner) at the Urban Bank, Legaspi Village Branch, and to obtain
copies thereof, which motion was granted by respondent Judge. The examination
of said account took place on January 23, 1992. Petitioners filed a motion to
nullify the proceedings taken thereat since they were not present. On January 30,
1992, petitioners and their co-defendants filed a memorandum in support of the
motion to discharge attachment. Also on that same day, Sun Life filed another
motion for examination of bank accounts, this time seeking the examination of
Account No. 0041-0277-03 with the Bank of Philippine Islands (BPI) which,
incidentally, petitioners claim not to be owned by them and the records of
Philippine National Bank (PNB) with regard to checks payable to Brunner. Sun
Life asked the court to order both banks to comply with the notice of
garnishment. On February 6, 1992, respondent Judge issued an order (1)
denying petitioners and the co-defendants motion to discharge the amended
writ of attachment, (2) approving Sun Lifes additional attachment, (3) granting
Sun Lifes motion to examine the BPI account, and (4) denying petitioners
motion to nullify the proceedings of January 23, 1992.

ISSUE:
whether or not respondent Judge had acted with grave abuse of discretion
amounting to lack or in excess of jurisdiction in allowing the examination of the
bank records though no notice was given to them.

HELD:

Petitioners assail the acts of respondent Judge in allowing the examination of

Urban Banks records and in ordering that the examination of the bank records
of BPI and PNB as invalid since no notice of said examinations were ever given
them. It is clear from the provision of Section 10, Rule 57 (ROC) that notice need
only be given to the garnishee, but the person who is holding property or credits
belonging to the defendant. The provision does not require that notice be
furnished the defendant himself, except when there is a need to examine said
defendant for the purpose of giving information respecting his
property. Furthermore, Section 10 Rule 57 is not incompatible with Republic Act
No. 1405, as amended, (Bank Deposits Secrecy Law) for Section 2 therefor
provides an exception in cases where the money deposited or invested is the
subject matter of the litigation. The examination of the bank records is not a
fishing expedition, but rather a method by which Sun Life could trace the
proceeds of the check it paid to petitioners

UNION BANK OF THE PHILIPPINES vs.COURT OF APPEALS and ALLIED

BANK CORPORATION
G.R. No. 134699, December 23, 1999

FACTS:
A check in the amount of One Million Pesos was drawn against Account No.
0111-01854-8 with Allied Bank payable to the order of one Jose Ch. Alvarez. The
payee deposited the check with petitioner Union Bank who credited the
P1,000,000.00 to the account of Mr. Alvarez. When the check was presented for
payment, a clearing discrepancy was committed by Union Bank's clearing staff
when the amount of One Million Pesos was erroneously "under-encoded" to One
Thousand Pesos only. Thus Union Bank notified Allied Bank of the discrepancy
by way of a charge slip for Nine Hundred Ninety-Nine Thousand Pesos. The
latter, however, refused to accept the charge slip.
Thereafter, Union Bank filed in the Regional Trial Court a petition for the
examination of Account No. 111-01854-8 but dismissed Union Banks petition
saying that the case of the petitioner does not fall under any of the foregoing
exceptions to warrant a disclosure or inquiry into the ledgers/books of account
of Allied Checking Account No. 111-01854-8.
The Court of Appeals affirmed the dismissal of the petition, ruling that the case
was not one where the money deposited is the subject matter of the litigation
because according to Sec. 2 of Republic Act No. 1405, the law only allows the
disclosure of bank deposits in cases where the money deposited is the subject
matter of the litigation and such is not the case at bar.

ISSUE:
Whether or not the money deposited is the subject matter of the litigation
thereby warranting the disclosure of the bank deposit.

HELD:
No. It does not appear that petitioner is seeking reimbursement from the account
of the drawer which should be the subject matter of the litigation to warrant the
disclosure of the bank deposit.
Although petitioner points to its prayer in its complaint to show that it sought
reimbursement from the drawer's account. The prayer, however, does not
specifically state that it was seeking recovery of the amount from the depositor's
account. Petitioner merely asked that judgment be rendered in favor of plaintiff
against defendant sentencing it to pay plaintiff the sum of P990, 000.00.
In short, petitioner is fishing for information so it can determine the culpability
of private respondent and the amount of damages it can recover from the latter.
It does not seek recovery of the very money contained in the deposit. The subject
matter of the dispute may be the amount of P999,000.00 that petitioner seeks
from private respondent as a result of the latter's alleged failure to inform the
former of the discrepancy; but it is not the P999,000.00 deposited in the
drawer's account. By the terms of R.A. No. 1405, the "money deposited" itself
should be the subject matter of the litigation.

MARQUEZ VS. DESIERTO

G.R. No. 135882, June 27, 2001

FACTS:
Petitioner Marquez received an Order from the Ombudsman Aniano A. Desierto
to produce several bank documents for purposes of inspection in camera relative
to various accounts maintained at Union Bank of thePhilippines, Julia Vargas
Branch, where she is the branch manager. The accounts to be inspected were
involvedin a case pending with the Ombudsman entitled, Fact-Finding and
Intelligence Bureau (FFIB) v. AmadoLagdameo, et al.
The basis of the Ombudsman ordering an in camera inspection of the accounts is
a trail managers checkspurchased by one George Trivinio, a respondent in OMB-
097-0411, pending with the office of the Ombudsmanby virtue of its power to
investigate and to require the production and inspection of records and
documentsgranted to it by RA No.6770.
The Ombudsman issued an order directing petitioner to produce the bank
documents relative to accounts inissue in line of her persistent refusal to comply
with Ombudsman's order which they sais as an unjustified, andis merely
intended to delay the investigation of the case; constitutes disobedience of or
resistance to a lawfulorder issued by this office punishable as Indirect under R.A.
6770.
Petitioner together with Union Bank of the Philippines filed a petition for
declaratory relief, prohibition and injunctions with the Regional Trial Court,
Makati City, against the Ombudsman.
The lower court denied petitioner's petition.
On August 21, 1998, petitioner received a copy of the motion to cite her for
contempt, filed with the Office of the Ombudsman by Agapito B. Rosales,
Director, Fact Finding and Intelligence Bureau (FFIB).
Petitioner filed with the Ombudsman an opposition to the motion to cite her in
contempt on the ground thatcompliance with the Ombudsmans orders would be
in violation of RA. No. 1405.But petitioners motion for reconsideration was
dismissed. Hence, the present petition.

ISSUE:
Whether or not an in camera inspection of the questioned account is allowed as
an exception to the law onsecrecy of bank deposits (R.A. No.1405)

HELD:
The order of the Ombudsman to produce for in camera inspection the subject
accounts with the Union Bank of the Philippines, Julia Vargas Branch, is based on
a pending investigation at the Office of the Ombudsman against Amado
Lagdameo, et. al. for violation of R.A. No. 3019, Sec. 3 (e) and (g) relative to the
Joint Venture Agreement between the Public Estates Authority and AMARI.
We rule that before an in camera inspection may be allowed, there must be a
pending case before a court of competent jurisdiction. Further, the account must
be clearly identified, the inspection limited to the subject matter of the pending
case before the court of competent jurisdiction. The bank personnel and the
accountholder must be notified to be present during the inspection, and such
inspection may cover only the account identified in the pending case.

In the case at bar, there is yet no pending litigation before any court of
competent authority. Whats existing is an investigation by the Office of the
Ombudsman. In short, what the office of the ombudsman would wish to do is to
fish for additional evidence to formally charge Amado Lagdameo, et. al., with the
Sandiganbayan. Clearly, there was no pending case in court which would
warrant the opening of the bank account for inspection. Zone of privacy are
recognized and protected in our laws. Invasion of privacy is an offense in special
laws like the Anti-Wiretapping Law, the Secrecy of Bank Deposits Act, and the
Intellectual Property Code `

CHINA BANKING CORPORATION vs. Ortega

G.R. No. L-34964 January 31, 1973

FACTS:
Vicente Acaban filed a complaint against Bautista Logging Co., Inc., B & B Forest
Development Corporation and Marino Bautista for the collection of a sum of
money. Upon motion of the plaintiff the trial court declared the defendants in
default for failure to answer within the reglementary period, and authorized the
Branch Clerk of Court and/or Deputy Clerk to receive the plaintiff's evidence.
Judgment by default was rendered against the defendants.
To satisfy the judgment, the plaintiff sought the garnishment of the bank deposit
of the defendant B & B Forest Development Corporation with the China Banking
Corporation. Accordingly, a notice of garnishment was issued by the Deputy
Sheriff of the trial court and served on said bank through its cashier, Tan Kim
Liong. In reply, the bank's cashier invited the attention of the Deputy Sheriff to
the provisions of Republic Act No. 1405 which, it was alleged, prohibit the
disclosure of any information relative to bank deposits. Thereupon the plaintiff
filed a motion to cite Tan Kim Liong for contempt of court.
Trial court denied the plaintiff's motion. However, Tan Kim Liong was ordered
"to inform the Court within five days from receipt of this order whether or not
there is a deposit in the China Banking Corporation of defendant B & B Forest
Development Corporation, and if there is any deposit, to hold the same intact and
not allow any withdrawal until further order from this Court." Tan Kim Liong
moved to reconsider but was turned down. Resisting the two orders, the China
Banking Corporation and Tan Kim Liong instituted the instant petition.

ISSUE:
Whether or not a banking institution may validly refuse to comply with a court
process garnishing the bank deposit of a judgment debtor, by invoking the
provisions of Republic Act No. 1405.

HELD:
The lower court did not order an examination of or inquiry into the deposit of B
& B Forest Development Corporation, as contemplated in the law. It merely
required Tan Kim Liong to inform the court whether or not the defendant B & B
Forest Development Corporation had a deposit in the China Banking Corporation
only for purposes of the garnishment issued by it, so that the bank would hold
the same intact and not allow any withdrawal until further order.
It is sufficiently clear from the foregoing discussion of the conference committee
report of the two houses of Congress that the prohibition against examination of
or inquiry into a bank deposit under Republic Act 1405 does not preclude its
being garnished to insure satisfaction of a judgment. Indeed there is no real
inquiry in such a case, and if the existence of the deposit is disclosed the
disclosure is purely incidental to the execution process. It is hard to conceive
that it was ever within the intention of Congress to enable debtors to evade
payment of their just debts, even if ordered by the Court, through the expedient
of converting their assets into cash and depositing the same in a bank.

Cases on the Foreign Currency Deposit Law

Cancio vs. Court of Tax Appeals

FACTS:
- Rosa Cancio, bound for Hong Kong, was apprehended by the AVSECOM
with USD120,900.00 in cash, USD600.00 in two travelers checks, and
Php1,500.00 while clearing through the Pre-boarding area of MIA. Such
apprehension was effected because Mrs. Cancio did not declare her
currency when she passed the Customs inspection area.
Said currencies were placed and concealed inside two carton
boxes for local chocolates, securely wrapped and taped with tin
foil-back paper.
Since Mrs. Cancio failed to present the required Central Bank
Authority, such currencies were accordingly confiscated. Hence
seizure proceedings were held.
- At the hearing of the case, Mrs. Cancio presented (1) a certified xerox
copy of her bank book for foreign currency deposit with PCI Bank, (2)
dollar remittances in telegraphic transfers from abroad for deposits in her
account, and (3) withdrawal cards which tended to show that she was a
foreign currency depositor pursuant to the provisions of RA 6426, as
implemented by CB Circular 343.
She claimed that because her foreign currency deposit could not be
withdrawn at one time, she made her withdrawals on several
occasions.
She further claimed that from HK, she and her family intended to
proceed to the US for medical treatment of her heart ailment
And that the US currency they were carrying and confiscated from
them were intended principally for such medical purpose and for
other expenses, and that such were concealed and hidden for
security reasons.
- By reason of the forfeiture decreed by respondent Commissioner of
Customs of both the foreign and local currencies due to petitioner's
failure to present a Central Bank authority to bring said currencies out of
the country, petitioner appealed to respondent CTA.
The CTA affirmed the forfeiture of the US currency for having
violated CB Circular Nos. 264 and 534in relation to Section 2530(f)
of the Tariff and Customs Code.
The forfeiture of the Php1,500.00 was reversed on the ground that
since petitioner was travelling with her husband and 3 children,
said amount did not exceed the Php500.00 that each traveller is
allowed to bring out of the country without a CB permit pursuant
to paragraph 4 of CB Circular No. 383.

ISSUE:
WON respondent court had committed reversible error in upholding the
forfeiture of the foreign currencies in question.

HELD: Yes.

RATIO:
- It is true that in so far as the exportation or taking out of foreign currency
from the country is concerned, Central Bank Circular No. 265, issued on
November 20, 1968, particularly paragraph 3 thereof. Similarly, Central
bank Circular No. 534, issued on July 19, 1976, reiterates and provides in
Sec. 3 thereof as follows:
Sec. 3. Unless specifically authorized by the Central Bank or allowed under
existing international agreements or Central Bank regulations, no person shall
take or transmit or attempt to take or transmit foreign exchange, in any form out
of the Philippines only, through other persons, through the mails, or through
international carriers.
- Peculiar to the present controversy is the fact that, as stated previously,
petitioner is a foreign currency depositor. Relevant and applicable to her
is the following provision of the "Foreign Currency Deposit Act of the
Philippines" (Republic Act No. 6426, as amended), which took effect upon
its approval on April 4,1972:
SEC. 5. Withdrawability and transferability of deposits. There shall be no
restriction on the withdrawal by the depositor of his deposit or on the
transferability of the same abroad except those arising from the contract
between the depositor and the bank.
Under the foregoing provision, the transferability abroad of
foreign currency deposits is unrestricted. Only one exception is
provided for therein, which is, any restriction " from the contract
between the depositor and the bank." Neither is a Central Bank
authority required for the transferability abroad of foreign
currency deposits.
- The IRR of said Act, however, provides in Sec. 11 that Subject only to the
terms of the contract between the bank and the depositor, the latter shall
have ageneral license to withdraw his deposit, notwithstanding any
change in policy or regulations.
Respondent Court has taken the position that the foregoing
provision its the right of the depositor to that of withdrawal and
withholds from him the right of transferability abroad.
SC: The contention of respondent court is untenable. In a Circular-
Letter issued by the Central Bank, it is provided that ...the banks
authorized to accept foreign currency deposits under the
provisions of RA 6426, as amended, and PD 1035 and as
implemented by Central Bank Circular 343 and 547, are hereby
instructed to advise their foreign currency depositors who are
withdrawing funds for travel purposes to carry with them the
certificate of withdrawal that the banks shall issue. The travellers
shall present the certifications to the Customs and Central Bank
personnel at the MIA, if requested.
- It is a fact that petitioner couldnot present a certificate of withdrawal at
the MIA when she was about to depart. That being so, as cited by the
Circular-Letter abovequoted, it is the authorized depository bank which
should advise its depositors to carry with them the certificate of
withdrawal.

At any rate, the presentation by petitioner of her foreign currency

bank book and withdrawal slips is considered substantial
compliance for purposes of this case.
As a foreign currency depositor, therefore, petitioner cannot be adjudged
to have violated the aforestated Central Bank Circulars. It follows that
neither is there room for the application of Section 2530(f) of the Tariff
and Customs Code, as amended, which provides for the forfeiture of any
article and other objects, the exportation of which is effected or
attempted contrary to law.
This is not to condone petitioner's failure to declare the foreign currency
she was carrying out of the country but just to stress that the Foreign
Currency Deposit Act grants petitioner the right of transferability of her
funds abroad except that she was not advised by her bank to secure, and
consequently was unable to present, the necessary certificate of
withdrawal from said bank.
Indeed, given the underlying objective of the Foreign Currency Deposit
Act, as amended, which is to attract and invite the deposit of foreign
currencies which are acceptable as part of the international reserve in
duly authorized banks in order that they may be put into the stream of
the banking system, it would be to defeat the very purpose of the law to
place undue restrictions on the transferability of such funds. The
countervailing effect would be to discourage prospective foreign currency
depositors to the detriment of the banking system.

RESPONDENT CTA DECISION SET ASIDE in so far as it upheld the forfeiture by
Customs Commissioner of US currencies, and AFFIRMED in so far as it reversed
the forfeiture of Phil. purrency.



Intengan vs. Court of Appeals

Facts:
On September 21, 1993, Citibank filed a complaint for violation of section 31 in
relation to section 144 of the Corporation Code against two (2) of its officers,
Dante L. Santos and Marilou Genuino. Attached to the complaint was an affidavit
executed by private respondent Vic Lim, a vice-president of CitibankAs evidence,
Lim annexed bank records purporting to establish the deception practiced by
Santos and Genuino. Some of the documents pertained to the dollar deposits of
petitioners Carmen Ll. Intengan, Rosario Ll. Neri, and Rita P. Brawner.In turn,
private respondent Joven Reyes, vice-president/business manager of the Global
Consumer Banking Group of Citibank, admits to having authorized Lim to state
the names of the clients involved and to attach the pertinent bank records,
including those of petitionersPetitioners aver that respondents violated RA
1405.

Issue:
Whether or not Respondents are liable for violation of Secrecy of Bank Deposits
Act, RA 1405.

Held:
No. The accounts in question are U.S. dollar deposits; consequently, the
applicable law is not Republic Act No. 1405 but Republic Act (RA) No. 6426,
known as the Foreign Currency Deposit Act of the Philippines, However,
applying Act No. 3326, the offense prescribes in eight years, therefore, per
available records, private respondents may no longer be haled before the courts
for violation of Republic Act No. 6426.

China Banking Corporation v. CA, G.R. No. 140687, December 18, 2006


I. THE FACTS

A complaint for recovery of sums of money and annulment of sales of real
properties and shares of stock was filed by Jose Gotianuy against his son-in-law,
George Dee, and his daughter, Mary Margaret Dee. Jose Gotianuy accused his
daughter Mary Margaret Dee of stealing, among his other properties, US dollar
deposits with Citibank N.A. amounting to not less than P35,000,000.00 and
US$864,000.00. Mary Margaret Dee received these amounts from Citibank N.A.
through checks which she allegedly deposited at China Banking Corporation
(China Bank).

Jose Gotianuy died during the pendency of the case before the trial court. He was
substituted by his other daughter, Elizabeth Gotianuy Lo. The latter presented
six US Dollar checks withdrawn by Mary Margaret Dee from Jose Gotianuys US
dollar placement with Citibank. In the course of the trial, the lower court ordered
two employees of petitioner China Bank to testify and disclose in whose name
the dollar fund was deposited. The CA affirmed the trial courts order; thus,
China Bank appealed to the Supreme Court.

II. THE ISSUE

May the Citibank dollar checks with Jose Gotianuy and/or Mary Margaret Dee as
payees, which were deposited with petitioner China Bank, be looked into
notwithstanding the law on secrecy of foreign currency deposits? Corollarily,
may Jose Gotianuy be considered a depositor who is entitled to seek an inquiry
over the said foreign currency deposits?

III. THE RULING

[The Supreme Court DENIED the petition, AFFIRMED the decision of the CA pro
hac vice, and REMANDED the case to the trial court for continuation of hearing
with utmost dispatch consistent with this ruling.]

YES, the Citibank dollar checks with Jose Gotianuy and/or Mary Margaret Dee as
payees, which were deposited with petitioner China Bank, may be looked into
notwithstanding the law on secrecy of foreign currency deposits.

Sec. 8 of R.A. 6426, the Foreign Currency Deposit Act, provides that all
authorized foreign currency deposits are considered absolutely confidential in
nature and may not be inquired into. Under the same provision, there is only one
exception to this rule, that is, when disclosure is allowed upon the written
permission of the depositor.

In this case, Jose Gotianuy was considered by the Court as a co-depositor of Mary
Margaret Dee. The Court reasoned that since Jose Gotianuy is the named co-
payee of Mary Margaret Dee in the subject checks, which were deposited in

China Bank, then Jose Gotianuy is likewise a depositor thereof. On that basis, no
written consent from Mary Margaret Dee is necessary for the examination of the
foreign currency deposits. As the owner of the funds unlawfully taken and which
are undisputably now deposited with China Bank, Jose Gotianuy has the right to
inquire into the said deposits.

A depositor, in cases of bank deposits, is one who pays money into the bank in
the usual course of business, to be placed to his credit and subject to his check or
the beneficiary of the funds held by the bank as trustee. On this score, the
observations of the Court of Appeals are worth reiterating:

Furthermore, it is indubitable that the Citibank checks were drawn against the
foreign currency account with Citibank, NA. The monies subject of said checks
originally came from the late Jose Gotianuy, the owner of the account. Thus, he
also has legal rights and interests in the CBC account where said monies were
deposited. More importantly, the Citibank checks (Exhibits "AAA" to "AAA-5")
readily demonstrate (sic) that the late Jose Gotianuy is one of the payees of said
checks. Being a co-payee thereof, then he or his estate can be considered as a co-
depositor of said checks. Ergo, since the late Jose Gotianuy is a co-depositor of
the CBC account, then his request for the assailed subpoena is tantamount to an
express permission of a depositor for the disclosure of the name of the account
holder. The April 16, 1999 Order perforce must be sustained. (Emphasis
supplied.)

In the complaint of Jose Gotianuy, he alleged that his US dollar deposits with
Citibank were illegally taken from him. On the other hand, China Bank employee
Cristuta Labios testified that Mary Margaret Dee came to China Bank and
deposited the money of Jose Gotianuy in Citibank US dollar checks to the dollar
account of her sister Adrienne Chu. This fortifies the Courts conclusion that an
inquiry into the said deposit at China Bank is justified. At the very least, Jose
Gotianuy as the owner of these funds is entitled to a hearing on the whereabouts
of these funds.

All things considered and in view of the distinctive circumstances attendant to
the present case, the Court was constrained to render a limited pro hac vice
ruling. Clearly it was not the intent of the legislature when it enacted the law on
secrecy on foreign currency deposits to perpetuate injustice. This Court is of the
view that the allowance of the inquiry would be in accord with the rudiments of
fair play, the upholding of fairness in our judicial system and would be an
avoidance of delay and time-wasteful and circuitous way of administering
justice.

Salvacion v. Central Bank, 278 SCRA 27 (1997)

FACTS:
-Greg Bartelli, an American tourist coaxed and lured Karen Salvacion, 12 years
old to go with him to his apartment and raped her there for several times.-
However, Bartelli was able to escape from jail and avoid punishment.-The
criminal cases were archived pending the arrest of Bartelli.-On the other hand,
Karen received a favorable judgment in the civil case for damage-After the
decision of the trial court become final, Karen tried to execute on Bartellis dollar
account with China Banking Corporation.-Accordingly, the sheriff served a Notice
of Garnishment on China Banking.-China Banking invoked Section 113 of
CB Circular 960 to the effect that the dollar deposits of Bartelli are exempt from
attachment, garnishment, or any other order or process of any court, legislative
body, government agency or any administrative body whatsoever.-Upon inquiry
with CB on whether Sec 113 of CB Circular 960 has any exception, CB responded
that the provisions ABSOLUTE, the purpose being to encourage dollar accounts
within the countrys banking system which would help in the development of the
economy and that there is no intention to render futile the basic rights of a
person, but it is the law though the law maybe harsh as some perceive it.
Compliance is still enjoined.-Hence, this petition for declaratory relief.

ISSUE:
-Whether or not the peculiar circumstances of the case warrants the execution
on the foreign currency account despite the exemption from court processes
under RA 6426.

HELD:
-The provisions of Sec 113 of CB circular 960 and PD 1246, in so far as it amends
Section 8 of RA 6426 are inapplicable to this case because of its peculiar
circumstances. CBC is required to comply with the writ of execution and release
to Karen the dollar deposit of Bartelli in such amount would satisfy the
judgment.
-Provisions of The application of the law depend on the extent of
its justice. Eventually, if we rule that the questioned Section 113 of Central Bank
Circular No. 960 which exempts from attachment, garnishment, or any other
order or process of any court. Legislative body, government agency or any
administrative body whatsoever, is applicable to a foreign transient, injustice
would result especially to a citizen aggrieved by a foreign guest like accused Greg
Bartelli. This would negate Article 10 of the New Civil Code which provides that
in case of doubt in the interpretation or application of laws, it is presumed that
the lawmaking body intended right and justice to prevail .Ninguno non deue
enriquecerse tortizerzmente con damo de otro. Simply stated, when the statute
is silent or ambiguous, this is one of those fundamental solutions that would
respond to the vehement urge of conscience.
-It is worth mentioning that R.A. No. 6426 was enacted in 1983 or at a time when
the countrys economy was in a shambles; when foreign investments were
minimal and presumably, this was the reason why said statute was enacted. But
the realities of the present times show that the country has recovered
economically; and even if not, the questioned law still denies those entitled to

due process of law for being unreasonable and oppressive. The intention of the
questioned law may be good when enacted. The law failed to anticipate the
iniquitous effects producing outright injustice and inequality such as as the case
before us.-It would be unthinkable, that the questioned Section 113 of Central
Bank No. 960 would be used as a device by accused Greg Bartelli for wrongdoing,
and in so doing, acquitting the guilty at the expense of the innocent.-Call it what
it may but is there no conflict of legal policy here? Dollar against
Peso? Upholding the final and executory judgment of the lower court against the
Central Bank Circular protecting the foreign depositor? Shielding or protecting
the dollar deposit of a transient alien depositor against injustice to a national and
victim of a crime? This situation calls for fairness against legal tyranny.