7/21/2019 46 - DBP v. Prudential Bank

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DBP v. Prudential Bank (2005) J. Corona

Facts:1. In 1973, Lirag Textile Mills, Inc. (Litex) opened an irrevocable commercial letter of

credit it! respondent "r#dential $an% for &'9*,+++ for t!e importation of ,+++

spindles for spinning mac!iner- it! draing frame, simplex - frame, ring spinningframe and vario#s accessories, spare parts and tool ga#ge/. T!e items ere released to Litex #nder covering 0tr#st receipts it exec#ted in favor

of "r#dential $an%. Litex installed and #sed t!e items in its textile mill located inMontalban, 2ial.

3. In 19*+, 4$" granted a foreign c#rrenc- loan to Litex sec#red b- real estate andc!attel mortgages on its plant site in Montalban, 2ial, incl#ding t!e t!e mac!ineriesand e5#ipments mortgaged in favor of 4$" ere t!e articles covered b- t!e 0tr#streceipts.

. In 19*/, !en "r#dential $an% learned abo#t 4$"6s plan for t!e overall re!abilitationof Litex, it notied 4$" of its claim over t!e vario#s items covered b- t!e 0tr#streceipts and informed t!e latter t!at as t!e absol#te and 8#ridical oner of t!e saiditems, t!e- ere not part of t!e mortgaged assets t!at co#ld be legall- ceded to 4$"

. 4$" extra8#diciall- foreclosed on t!e real estate and c!attel mortgages, incl#dingt!e articles claimed b- "r#dential $an%. 4$" ac5#ired t!e foreclosed properties ast!e !ig!est bidder.

:. $efore t!e p#blic a#ction of t!e ac5#ired properties, t!ere as an exc!ange ofcorrespondences beteen 4$" and "r#dential, it! t!e latter again reasserting itsclaim it! t!e items.

7. ;oever, it!o#t t!e %noledge of "r#dential $an%, 4$" sold t!e Litex textile mill, asell as t!e mac!ineries and e5#ipments t!erein, to L-on Textile Mills, Inc in 19*7.

*. "r#dential $an% led a complaint for a s#m of mone- it! damages against 4$".$ot! t!e 2T< and <= r#led in favor of "r#dential $an%.

Issue: W/ t!ere "as a valid #ort$a$e in DBP%s &avor'

atio:1. In a tr#st receipt transaction, as provided b- "4 11, t!e goods are released b- t!e

entr#ster (!o ons or !olds absol#te title or sec#rit- interests over t!e said goods)to t!e entr#stee on t!e latter6s exec#tion and deliver- to t!e entr#ster of a tr#streceipt.a. T!e tr#st receipt evidences t!e absol#te title or sec#rit- interest of t!e entr#ster

over t!e goods.b. =s a conse5#ence of t!e release of t!e goods and t!e exec#tion of t!e tr#st

receipt, a tofold obligation is imposed on t!e entr#stee, namel-> (1) to !old t!edesignated goods, doc#ments or instr#ments in tr#st for t!e p#rpose of selling orot!erise disposing of t!em and (/) to t#rn over to t!e entr#ster eit!er t!eproceeds t!ereof to t!e extent of t!e amo#nt oing to t!e entr#ster or asappears in t!e tr#st receipt, or t!e goods, doc#ments or instr#ments t!emselvesif t!e- are #nsold or not ot!erise disposed of, in accordance it! t!e terms and

conditions specied in t!e tr#st receipt./. T!e '#preme <o#rt re8ected 4$"6s arg#ment>

a. Litex as not engaged in t!e b#siness of selling spinning mac!iner-, itsaccessories and spare parts b#t in man#fact#ring and prod#cing textile andvario#s %inds of fabric. T!e articles ere not released to Litex to be sold. Instead,t!e contemporaneo#s and s#bse5#ent acts of bot! Litex and "r#dential $an%s!oed t!at t!e imported articles ere released to Litex to be installed in itstextile mill and #sed in its b#siness.

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b. ;ence, t!e transactions beteen Litex and "r#dential $an% ere allegedl- nottr#st receipt transactions it!in t!e meaning of "4 11. It follos t!at, contrar-to t!e decisions of t!e trial co#rt and t!e appellate co#rt, t!e transactions erenot governed b- t!e Tr#st 2eceipts La.

3. =ccording to t!e '<, t!e vario#s agreements beteen "r#dential $an% and Litexcommonl- denominated as 0tr#st receipts ere valid. T!e articles ere oned b-

"r#dential $an% and t!e- ere onl- !eld b- Litex in tr#st. ?!ile it as alloed to sellt!e items, Litex !ad no a#t!orit- to dispose of t!em or an- part t!ereof or t!eirproceeds t!ro#g! conditional sale, pledge or an- ot!er means.

 . =rticle /+* (/) of t!e <ivil <ode re5#ires t!at, in a contract of pledge or mortgage, it

is essential t!at t!e pledgor or mortgagor s!o#ld be t!e absol#te oner of t!e t!ingpledged or mortgaged. =rticle /+* (3) f#rt!er mandates t!at t!e person constit#tingt!e pledge or mortgage m#st !ave t!e free disposal of !is propert-, and in t!eabsence t!ereof, t!at !e be legall- a#t!oried for t!e p#rpose.a. I@ T;I' <='A, Litex !ad neit!er absol#te oners!ip, free disposal nor t!e

a#t!orit- to freel- dispose of t!e articles. Litex co#ld not !ave s#b8ected t!em toa c!attel mortgage. T!eir incl#sion in t!e mortgage as void and !ad no legaleBect. T!#s, 4$" co#ld not be considered eit!er as a mortgagee or as ap#rc!aser in good fait!

b. Litex co#ld not transfer a rig!t t!at it did not !ave over t!e disp#ted items.<orollaril-, 4$" co#ld not ac5#ire a rig!t greater t!an !at its predecessorininterest !ad. T!e spring cannot rise !ig!er t!an its so#rce. 4$" merel- steppedinto t!e s!oes of Litex as tr#stee of t!e imported articles it! an obligation to pa-t!eir val#e or to ret#rn t!em on "r#dential $an%6s demand. $- its fail#re to pa- orret#rn t!em despite "r#dential $an%6s repeated demands and b- selling t!em toL-on it!o#t "r#dential $an%6s %noledge and conformit-, 4$" became atr#stee ex malefcio.

. Cn t!e matter of act#al damages, t!e '< aDrmed t!e ndings of t!e loer co#rts:. ?it! regard to t!e imposition of exemplar- damages, t!e re5#irements for t!e aard

t!ereof !ad been s#Dcientl- establis!ed.7. Cn prescription, 4$"6s assertion t!at bot! t!e trial and appellate co#rts failed to

address t!e iss#e of prescription is of no moment. Its claim t!at, #nder =rticle 11:(1) of t!e <ivil <ode, "r#dential $an%6s ca#se of action !ad prescribed as it s!o#ld berec%oned from Cctober 1+, 19*+, t!e da- t!e mortgage as registered, is not correct.

 T!e ritten extra8#dicial demand b- t!e creditor interr#pted t!e prescription ofaction. ;ence, t!e fo#r-ear prescriptive period !ic! 4$" insists s!o#ld be co#ntedfrom t!e registration of t!e mortgage as interr#pted !en "r#dential $an% rotet!e extra8#dicial demands for t!e t#rn over of t!e articles or t!eir val#e. Inpartic#lar, t!e last demand letter sent b- "r#dential $an% as dated E#l- 3+, 19**and t!is as received b- 4$" t!e folloing da-. T!#s, contrar- to 4$"6s claim,"r#dential $an%6s rig!t to enforce its action !ad not -et prescribed !en it led t!ecomplaint on Ma- /, 19**.

4igested b-> <ielo FoGo