Philippine National Bank v Pineda

FACTS: Arroyo spouse obtained a loan from PNB for the purchase of 60% of the subscribed capital
stock and thereby acquire the controlling interest of TCC secured by a Real Estate Mortgage over the
La Vista Property. TCC applied for 8 year deferred LC to cover the importation of a cement plant
machinery and equipment. Beneficiary is Toyo Menka Kaisha. The imported cement plant
machinery and equipment arrived from Japan and were released to TCC under a TR agreement.
Toyo Menka made the corresponding drawings against the LC, however TCC failed to remit the
corresponding amount covered by the drawings. Thus, pursuant to the TR agreement, PNB notified
TCC of its intention to repossess the machines for failure of TCC to settle its obligations. PNB filed 2
petitions for extra judicial foreclosure of the REM over the properties in Negros Occidental and the
La Vista property.

ISSUE: Whether or not TCC’s liability has been extinguished by the repossession of PNB of the
imported cement plant machinery and equipment.

HELD: Possession by itself cannot be considered payment of the loan secured thereby. Payment
would legally result only after PNB had foreclosed on said securities and sold the same and applied
the proceeds thereof to TCC’s loan obligation. Unless the loan is paid, the entruster is not precluded
from foreclosing the real estate mortgage executed by surety to secure the same loan.