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No. 135 Rose Packing Co., Inc. v. Court of Appeals (Obsioma)

1) Rose Packing Company took out various loans from Philippine Commercial & Industrial Bank (PCIB) totaling 1.6 million pesos secured by real estate and chattel mortgages. 2) PCIB refused to release the full amount of a 710,000 peso loan and mismanaged Rose Packing's affairs. 3) When Rose Packing took out an additional loan from Development Bank of the Philippines secured by land, PCIB refused to release the land titles and tried to foreclose on the mortgaged properties. 4) The Supreme Court overturned lower court decisions, sustaining the preliminary injunction and ordering a trial to determine the exact amount owed to PCIB before foreclosure,

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33 views2 pages

No. 135 Rose Packing Co., Inc. v. Court of Appeals (Obsioma)

1) Rose Packing Company took out various loans from Philippine Commercial & Industrial Bank (PCIB) totaling 1.6 million pesos secured by real estate and chattel mortgages. 2) PCIB refused to release the full amount of a 710,000 peso loan and mismanaged Rose Packing's affairs. 3) When Rose Packing took out an additional loan from Development Bank of the Philippines secured by land, PCIB refused to release the land titles and tried to foreclose on the mortgaged properties. 4) The Supreme Court overturned lower court decisions, sustaining the preliminary injunction and ordering a trial to determine the exact amount owed to PCIB before foreclosure,

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ROSE PACKING COMPANY, INC., V. THE COURT OF APPEALS, HON. PEDRO C.

NAVARRO, Judge of Court of First Instance of Rizal, PHILIPPINE COMMERCIAL &


INDUSTRIAL BANK & PROVINCIAL SHERIFF OF RIZAL
167 SCRA 309 November 14, 1988

DOCTRINE:
Furthermore, granting that there was consolidation of the entire loan of petitioner corporations
approved by respondent bank, the rule of indivisibility of mortgage cannot apply where there
was failure of consideration on the part of respondent bank for the mismanagement of the affairs
of petitioner corporation and where said bank is in default in complying with its obligation to
release to petitioner corporation the amount of P710,000.00. In fact, the real estate mortgage
itself becomes unenforceable (Central Bank of the Philippines v. Court of Appeals, supra).
Finally, it is noted that as already stated hereinabove, the exact amount of petitioner's total debt
was still unknown.

FACTS:
Respondent bank PCIB approved a letter request by Rose Packing Company for the reactivation
of its overdraft line of P50,000.00, discounting line of P100,000.00, and a letter of credit-trust
receipt line of P550,000.00, and an application for loan of P300,000.00, on fully secured real
estate and chattel mortgage and on the further condition that PCIB appoint its executive vice-
president Benedicto as its representative in petitioner's board of directors. National Investment &
Development Corporation, the wholly owned investment subsidiary of PNB, approved a P2.6
million loan application of petitioner with certain conditions. Pursuant to this, NIDC released an
amount of P100,000.00 to petitioner. Petitioner then purchased five parcels of land in Pasig,
Rizal and made a down payment. NIDC released another P100,000.00 to petitioner. The released
amount of P200,000.00 were applied to the payment of preferred stock which NIDC subscribed
in petitioner to partially implement its P1,000,000.00 investment scheme. After that, NIDC
refused to make further releases to petitioner. Later on, PCIB approved the P710,000.00 loan for
the payment of the balance of the purchase price of the lots in Pasig however, only P300,000.00
was released, P500,000.00 for operating capital and again, only P300,000.00 was released,
P200,000.00 loan to be paid directly to petitioner’s creditors. Upon consolidation, the
accommodations had a total of P1,597,000.00, all of which were secured by chattel and real
estate mortgages. DBP also approved an application for loan by Rose Packing amounting to
P1,840,000.00 for the purchase of can making equipment. Upon approval of said loan, petitioner
advised respondent PCIB of the availability of P800,000.00 to partially pay off its account and
requested the release of the titles to the Pasig lots for delivery to the DBP. PCIB verbally advised
petitioner of its refusal, stating that all obligations should be liquidated before the release of the
titles to the Pasig properties. Subsequently, petitioner purchased a parcel of land at Valenzuela,
Bulacan with the P800,000.00 DBP loan, with the latter's consent. PCIB filed a complaint
against Rose Packing and its president Rene Knecht for the collection of petitioner’s
indebtedness to respondent bank. PCIB gave notice to petitioner that it would cause the
foreclosure of the real estate mortgage at an auction sale. Petitioner filed a complaint in the Court
of First Instance of Rizal to enjoin PCIB and the sheriff from the proceeding with the foreclosure
sale, and to ask the lower court to fix a new period for the payment of the obligations of
petitioner to PCIB, which the lower court denied. Petitioner appealed to CA but was also denied.

ISSUE:
Whether or not private respondent has the right to the extrajudicial foreclosure sale of
petitioner’s mortgaged properties before trial on the merits.

RULING:
The CA’s decision was overturned by the Supreme Court. It sustained the lower court’s denial of
petitioner’s application for preliminary injunction and it approved the validity of the foreclosure
sale, the lower court is ordered to proceed with the trial on the merits of the main case together
with a determination of exactly how much are petitioner's liabilities in favor of respondent bank
PCIB so that proper measures may be taken for their eventual liquidation, the preliminary
injunction issued by this Court remains in force until the merits of the main case are resolved,
and the motion of respondent bank for leave to lease the real properties in custodia legis is
denied. The rule of indivisibility of mortgage cannot apply where there was failure of
consideration on the part of respondent bank for the mismanagement of the affairs of petitioner
corporation and where said bank is in default in complying with its obligation to release to
petitioner corporation the amount of P710,000.00. In fact, the real estate mortgage itself becomes
unenforceable.

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