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BANKO SENTRAL NG PILIPINAS Vs.

AGUSTIN LIBO-ON
GR. No. 173864

November 23, 2015

FACTS: On August 29, 1997 and September 17,1997 respondent Spouses Libo-on secured
loans from the Rural Bank of Hinirigan, Inc. In the amount of P100,000 and P300,000,
respectively. They executed PN payable to the order of Rural Bank for a period of 360 days and
executed a deed of Real estate Mortgage.
On September 19, 1997 and October 17, 1997, Rural bank in turn secured a loan from
petitioner BSP in the amount of P800,000 and 640,000, respectively. As security for the loan the
bank pledged and deposited to BSP PN's with supporting TCT's including the PN and TCT of
spouses Libo-on mortgage to the former.
On May 3, 2000 BSP demanded from the Spouses Libo-on the payment of their outstanding
loan with Rural Bank of Hinirigan but they failed to settle their obligation. BSP filed an
application for extrajudicial foreclosure of the property. Spouses Libo-on contested extrajudicial
foreclosure and filed application for preliminary injunction which was granted by the trial court.
BSP Appealed with CA but it was denied.
ISSUES: 1. Whether or not Rural Bank has the right to pledge the property.
2. Whether or not BSP has the authority to foreclosed the subject mortgage
RULING: 1.No, Rural Bank has no authority to pledge the security documents to BSP during the
term of the real estate mortgage contract between Rural bank and the spouses Libo-on because
if it is within the term of the contract, the mortgage property remains to be property of the latter.
For a contract of pledge to be valid, it is necessary that: 1. the pledge is constituted to secure
the fulfillment of the principal obligation; 2. the pledgor be the absolute owner of the thing
pledged; 3. the person constituting the pledge has the free disposal of his property, and in the
absence thereof, that he be legally authorized for the purpose.
Here, the Rural Bank of Hinirigan was neither the absolute owner of the subject property nor the
security documents it had pledge to BSP. The possession of the security documents was given
to the Rural Bank merely as security collateral in case of non-payment of the loans. It's only
purpose is to guarantee the fulfillment of the spouses libo-ons obligation and in case of default
on the part of the latter bank as credit-mortgagee by way of judicial or extrajudicial foreclosure.
2.No, BSP has no authority to foreclosed the subject mortgage. The mere pledge and deposit of
the mortgage contract, transfer certificate of title and PN executed by the Rural Bank of
Hinirigan in favor of BSP does not produce the effect of giving BSP the authority to intervene
with the transaction between the spouses Libo-on and the Rural Bank much more to foreclosed
the mortgage property.