G.R. No. L-46405 - La Campana Food Products, Inc. vs. Philippine Commercial and Industrial Bank

Petitioner, La Campana Food Products, Inc., maintained a credit line with Philippine Commercial and Industrial Bank (PCIB).
The credit line was secured by two real estate mortgages executed on March 23, 1960, and August 25, 1961, respectively.
As of December 24, 1968, the total credit accommodation amounted to P526,632.67.

Petitioner negotiated a foreign loan of $1,400,000.00 with Intercontinental Monetary Corporation of New York, U.S.A.
The guarantee for this loan was provided by the Development Bank of the Philippines (DBP) subject to the condition that petitioner deposit the loan proceeds with DBP.
The deposited proceeds were intended for payment of petitioner’s local obligations and to serve as working capital.
On April 18, 1968, DBP agreed to guarantee the foreign loan based on these conditions.

On September 23, 1968, DBP informed PCIB in a letter that it had guaranteed petitioner’s foreign loan.
DBP requested that PCIB lend Transfer Certificates of Title Nos. 24402 and 24403—covering the parcels of land mortgaged by petitioner—to facilitate DBP’s registration of its mortgage.
PCIB interposed no objection to the registration of DBP’s mortgage, provided that it be immediately favored with a remittance in full of petitioner’s outstanding debt, which would then warrant a Deed of Release of the real estate mortgage.

DBP registered its mortgage on petitioner’s TCT Nos. 24402 and 24403 on November 11, 1968.
On May 16, 1969, DBP remitted P140,000.00 to PCIB, representing partial payment of petitioner’s obligation of P526,632.67.
No further payment was made by either DBP or petitioner thereafter.
On June 28, 1971, PCIB initiated foreclosure proceedings based on the unreleased real estate mortgages.
The Quezon City Sheriff set the auction sale of petitioner’s properties for July 30, 1971.

On July 26, 1971, petitioner filed a Petition for Certiorari, Mandamus, Prohibition with Preliminary Injunction seeking:

PCIB had lost its right of action since it purportedly allowed DBP to assume petitioner’s obligations by registering its mortgage and accepting partial payments.
The Statement of Account showing zero balance indicated satisfaction of the debt.
Under Section 19 of Republic Act No. 85 (the DBP Charter), foreclosure could not proceed while the mortgage with DBP was in effect.

The lower court, in orders dated July 27, 1971, October 26, 1971, April 24, 1972, and July 26, 1972, issued and later reinstated a Writ of Preliminary Injunction to halt the foreclosure pending the outcome of the petition.
On July 25, 1975, the lower court rendered a judgment dismissing petitioner’s claim, thereby lifting the preliminary injunction and allowing foreclosure to proceed.
Petitioner’s Motion for New Trial and/or Reconsideration was denied on October 10, 1975, although an order on October 22, 1975, reinstated the injunction pending appeal.

Finding that while DBP’s guarantee resulted in a purported novation—substituting DBP for petitioner—the court erroneously held that the mortgage over petitioner’s property still subsisted.

There was no novation since DBP merely guaranteed the foreign loan and did not substitute petitioner as debtor.
The remittance of only P140,000.00 (a partial payment) was insufficient to meet PCIB’s condition for releasing the mortgage.

An additional contention involved a Statement of Account which allegedly showed a zero balance; however, the court clarified that such a statement was the result of an internal account transfer and did not indicate the satisfaction of petitioner’s obligations.

Did DBP’s guarantee of petitioner’s foreign loan constitute a novation that released petitioner from its obligations to PCIB?
Was there a valid substitution of debtor, where petitioner was released from liability?

Does the partial payment by DBP (P140,000.00) satisfy the condition agreed upon by PCIB for releasing the mortgage?
Does PCIB’s written consent conditionally establishing mortgage registration support its right to enforce the mortgage?

Can the Statement of Account showing a zero balance be taken as evidence that petitioner’s obligations were extinguished?
What is the evidentiary value of an internal account transfer between bank branches in ascertaining the status of a debt?

Were the orders regarding the issuance, dissolution, and reinstatement of the Writ of Preliminary Injunction justified and consistent with due process?
How should the court balance petitioner’s arguments against PCIB’s contractual conditions and claims in foreclosure proceedings?