### Facts:
In 1963, Ignacio Arroyo and Lourdes Tuason Arroyo secured a P580,000.00 loan from Philippine National Bank (PNB) to purchase control of Tayabas Cement Company, Inc. (TCC), pledging the La Vista property as collateral. TCC, to import cement plant machinery, entered into a deferred letter of credit agreement with PNB for $7,000,000.00, which was financed by PNB on the account of TCC. Following TCC’s failure to repay the drawn amounts, PNB intended to repossess the imported machinery and equipment and decided to foreclose on the real estate mortgages, including the La Vista property and Hacienda Bacon in Negros Occidental.
PNB initiated extrajudicial foreclosure processes, but the auction sale was contested, leading PNB to request the foreclosure cover additional liabilities of the Arroyo spouses as sureties of TCC. Legal challenges ensued when the Acting Clerk of Court highlighted the need for a court ruling on the raised issues. In May 1976, PNB petitioned for mandamus to proceed with the foreclosure, which was granted, but before resolution became final, TCC filed a complaint seeking injunction against the foreclosure, arguing their debt was settled by PNB’s repossession of machinery.
### Issues:
1. Whether TCC’s liability was extinguished by PNB’s repossession of imported machinery and equipment.
2. Whether PNB’s foreclosure actions were permissible under Presidential Decree No. 385.
3. Whether the issuance of a writ of preliminary injunction by respondent Judge was in contradiction to the doctrine of non-interference among coordinate courts.
### Court’s Decision:
The Supreme Court ruled in favor of PNB, holding that:
1. Repossession of machinery under a trust receipt agreement does not constitute payment of the debt. PNB’s repossession was a form of security and not a transfer of ownership in satisfaction of the debt, therefore, TCC’s obligation was not extinguished.
2. PNB was mandated under Presidential Decree No. 385 to foreclose on the collateral for loans with arrearages reaching 20% of the total obligation. The issuance of restraining orders against government financial institutions under such compliance was prohibited.
3. The writ of preliminary injunction interfered with a concurrent court’s jurisdiction, violating the principle of non-interference.
### Doctrine:
1. The repossession of goods under a trust receipt agreement constitutes security and does not extinguish the debtor’s obligation unless said goods are foreclosed and sold to satisfy the debt.
2. Under Presidential Decree No. 385, no court may issue injunctions against government financial institutions executing mandatory foreclosure actions.
3. Courts should not interfere with the judgments or orders of coordinate courts to maintain judicial consistency and respect court jurisdictional boundaries.
### Class Notes:
– Trust Receipt Transactions: These involve a security feature for loan engagements between a bank and its borrower wherein repossession of secured goods does not constitute loan repayment unless the goods are foreclosed and proceeds applied to the debt.
– Presidential Decree No. 385: Mandates automatic foreclosure of collateral for loans with 20% arrearage by government financial institutions and bars injunctions against such actions.
– Doctrine of Non-Interference: Courts have exclusive jurisdiction over their rulings and should not interfere with or be interfered by coordinate courts.
### Historical Background:
This case reflects the legal intricacies involved in security transactions and the enforcement of financial obligations under Philippine law, notably against the backdrop of regulatory measures like Presidential Decree No. 385, aimed at safeguarding government financial institutions against defaulting loan obligations. It underscores the judiciary’s role in interpreting contractual and statutory obligations and ensuring the fair enforcement of such obligations while adhering to principles of judicial jurisprudence and inter-court respect.
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