G.R. No. L-13065 - Sales vs. Santos

Security Bank Corporation (SBC), originally Security Bank and Trust Company, is involved in multiple credit arrangements with the Mar Fishing Company, Inc. (MFCI).
On February 3, 1983, MFCI secured a US$2-million loan from PISO Development Bank (PISO Bank) to finance its importation of a fishing vessel under a re-lending credit line from the Asian Development Bank.
On July 19, 1983, SBC and MFCI executed a Standby Credit Line Agreement whereby SBC extended an irrevocable standby credit line in favor of PISO Bank for MFCI. This agreement covered up to 50% of the PISO Bank loan (or its peso equivalent of US$1 million), with specific conditions regarding_drawdowns, subrogation rights, and the timely presentation of promissory notes.

To secure payments under the Standby Credit Facility, on August 8, 1983, MFCI executed a “First Preferred Mortgage on Vessel” in favor of SBC over its vessel “Southward Ho” (formerly “Sand Piper”).
Under the mortgage deed, SBC was granted the right to have a receiver appointed and to collect any revenues, earnings, or rents from the vessel in the event of enforcement proceedings.

MFCI eventually defaulted on its payment obligations to PISO Bank.
On August 11, 1987, PISO Bank initiated legal action by filing a complaint against SBC with the RTC of Makati City (Civil Case No. 17563).
The complaint centered on SBC’s failure to pay under the Standby Credit Line upon PISO Bank’s demand, which asserted an immediate obligation to pay half of the indebtedness accrued under the Loan Agreement.
SBC, in its answer, denied liability and raised special defenses including a claim that PISO Bank had not complied with certain conditions of the Standby Credit Line Agreement, which involved document submission and the timely notice of financial distress on MFCI’s part.

On July 29, 1988, MFCI and SBC entered into a Sinking Fund Agreement wherein MFCI agreed to have a percentage (initially 5%, increased to 10% during peak season) of its export receipts deposited into a fund held by SBC, designed to accumulate to a specified minimum balance.
An Addendum to this Agreement was executed on October 31, 1991, extending the security interest of the Sinking Fund to cover all loans granted to MFCI, including a separate Export Packing Loan from the Trade and Investment Development Corporation of the Philippines (TIDCORP).
On August 20, 1998, in connection with MFCI’s failure to settle its obligations with PHILGUARANTEE (the predecessor of TIDCORP), MFCI executed a Deed of Assignment assigning the entire Sinking Fund (not less than P5,000,000.00, including all accrued interests) to TIDCORP.
Subsequent to a Certification issued by SBC on October 8, 1998, confirming that MFCI no longer owed SBC on its loan, TIDCORP formally requested the remittance of the Sinking Fund.

On September 1, 1999, TIDCORP filed a separate complaint (Civil Case No. 99-1581, raffled to Branch 141 of the RTC) against SBC, seeking the release of the P5 million Sinking Fund plus interest and attorney’s fees, grounded on the Deed of Assignment.
In its answer to the complaint, SBC raised defenses asserting that the Sinking Fund also secured its potential liability to PISO Bank under the outstanding Standby Letter of Credit, thereby questioning its own lien over the fund.
SBC further incorporated a third-party complaint against MFCI, seeking subrogation, indemnification, and/or reimbursement in the event that judgment rendered against it in the PISO Bank case could not be enforced without recourse against MFCI.

On February 1, 2001, SBC (as defendant and third-party plaintiff in Civil Case No. 99-1581) filed a motion to suspend the proceedings in light of a “prejudicial question” pending in Civil Case No. 17563 (hereafter, the FIRST CASE) regarding its potential liability to PISO Bank.
SBC argued that if the decision in the FIRST CASE rendered it liable to pay PISO Bank, its rights (or lien) over the Sinking Fund could be affected, and vice versa.
The RTC, however, denied the motion for suspension on March 15, 2001, and this decision was later upheld by the Court of Appeals (CA) on April 29, 2002, with further confirmation in a motion for reconsideration on September 4, 2002.

Whether the trial court had the authority to deny the motion to suspend proceedings in the SECOND CASE (Civil Case No. 99-1581) on the ground of a prejudicial question pending in the FIRST CASE (Civil Case No. 17563).
Whether the doctrine of prejudicial question, typically applicable in criminal cases or cases with identical issues, can be invoked in this instance involving interrelated but distinct civil transactions.
Whether SBC, as subrogee to PISO Bank and as secured under multiple agreements, holds a valid and superior lien over the Sinking Fund against TIDCORP’s claim based on the Deed of Assignment.
Whether the interrelated but separately pleaded issues—namely, SBC’s potential liability under the Standby Credit Line (and associated subrogation rights) and its claim to the Sinking Fund—merit a stay of proceedings pending resolution of the FIRST CASE.