Facts:

The case of Bangko Sentral ng Pilipinas vs. Agustin Libo-on arose from events that transpired during the late 1990s when Agustin Libo-on and his wife, Mercedes Libo-on, engaged with the Rural Bank of Hinigaran, Inc. On August 29 and September 17, 1997, the Spouses Libo-on secured two loans from the bank amounting to P100,000 and P300,000 respectively, executing promissory notes for each loan that were due on August 24, 1998, and September 12, 1998. To secure these loans, they provided a Deed of Real Estate Mortgage over their property identified under Transfer Certificate of Title No. T-67129. In turn, on September 19 and October 17, 1997, the Rural Bank secured its own loans from the Bangko Sentral ng Pilipinas (BSP) in the amounts of P800,000 and P640,000 respectively, using the Spouses Libo-on’s promissory notes and mortgage as collateral.

After both loans defaulted, BSP, acting through its right to foreclose on the mortgaged property, sought to enforce the mortgage against t

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Facts:

Parties and Loan Transactions

• On August 29, 1997, and September 17, 1997, respondent Agustin Libo-on, together with his wife Mercedes Libo-on, secured separate loans from the Rural Bank of Hinigaran, Inc.
• The amounts were P100,000.00 and P300,000.00 respectively.
• The Spouses Libo-on executed promissory notes payable for 360 days (due on August 24, 1998, and September 12, 1998 respectively).
• As security, a Deed of Real Estate Mortgage covering a parcel of land (Transfer Certificate of Title No. T-67129) was executed in favor of the Rural Bank of Hinigaran.

Subsequent Financing by the Rural Bank of Hinigaran

• On September 19, 1997, and October 17, 1997, the Rural Bank of Hinigaran secured its own financing from Bangko Sentral ng Pilipinas (BSP).
• The loans obtained were P800,000.00 and P640,000.00 respectively.
• The Rural Bank executed a document referred to as a “Promissory Note with Trust Receipt Agreement.”
• As part of the security for this loan, the Rural Bank pledged and deposited with the BSP the promissory notes (with supporting TCTs) related to the loans of the Spouses Libo-on.

Default and Initiation of Foreclosure Proceedings

• On May 3, 2000, BSP demanded payment of the outstanding loan from the Spouses Libo-on; however, they failed to pay.
• Simultaneously, the Rural Bank of Hinigaran’s obligation with BSP also became due and demandable.
• Consequently, BSP initiated an application for extrajudicial foreclosure against the mortgages (specifically for the property with TCT No. T-67129).

Litigation by Agustin Libo-on

• Before the foreclosure could be completed, Agustin Libo-on filed an action for damages with a prayer for a temporary restraining order and a writ of preliminary injunction.
• The case was docketed as Civil Case No. 724 before the RTC of the 6th Judicial Region in Negros Occidental and was later raffled to Branch 51.
• The Spouses Libo-on contested the extrajudicial foreclosure and the corresponding notice of sale, arguing:
• BSP had no privity of contract with them, as it was not an authorized agent or assignee of the Rural Bank of Hinigaran.
• The amount subject to foreclosure far exceeded what was originally contracted.

Procedural Developments in Lower Courts

• On October 25, 2000, the RTC issued an Order granting the Spouses Libo-on’s application for a writ of preliminary injunction.
• During pre-trial, both parties agreed that the principal issue was whether BSP had the authority to foreclose the mortgage in question.
• On February 25, 2004, the RTC rendered a Decision in favor of the Spouses Libo-on, declaring:
• The extrajudicial foreclosure application (and subsequent notice of public auction) as irregular and unlawful.
• The preliminary injunction as permanent.
• BSP be ordered to pay attorney’s fees and litigation expenses as a consequence of forcing the plaintiff to defend his rights.
• The Court of Appeals subsequently denied BSP’s appeal on March 21, 2006, affirming the RTC’s Decision.

Central Controversy Leading to the Supreme Court Review

• BSP contended that it obtained authority to foreclose via an alleged assignment of credit executed through the promissory note with trust receipt agreement.
• The key issues revolved around:
• Whether a valid assignment of credit had taken place from the Rural Bank of Hinigaran to BSP through the instruments disposed.
• The existence of privity of contract between the BSP and the Spouses Libo-on.
• The propriety of ordering BSP to shoulder the attorney fees and litigation expenses without a legal basis.
• The Supreme Court scrutinized both the documentary evidence and legal formalities required for such an assignment.

Issue:

Authority to Foreclose

• Whether BSP acquired the authority to pursue foreclosure over the real estate mortgage arranged by the Spouses Libo-on.
• Whether an assignment of credit from the Rural Bank of Hinigaran to BSP validly occurred despite the absence of a notarized deed or proper formalities.

Privity of Contract

• Whether there existed privity of contract between the Spouses Libo-on and BSP, which is necessary for BSP to enforce the foreclosure.

Award of Attorney’s Fees and Litigation Expenses

• Whether the lower courts erred in ordering BSP to pay the respondent’s attorney’s fees and litigation expenses without a proper legal basis.

Ruling:

• (Subscriber-Only)

Ratio:

• (Subscriber-Only)

Doctrine:

• (Subscriber-Only)