Development Bank of the Philippines v. Prudential Bank

Summary

This case involved conflicting claims between Prudential Bank (trust receipt holder) and DBP (chattel mortgagee) over textile machinery imported by Litex. Prudential Bank financed Litex's importation of US$498,000 worth of spinning machinery through trust receipts in 1973. In 1980, DBP granted Litex a loan secured by chattel mortgage including the same machinery. When Litex defaulted, DBP foreclosed and later sold the assets to Lyon Textile Mills despite Prudential Bank's demands. The Supreme Court affirmed lower courts' rulings that trust receipt agreements were valid, Litex had no authority to mortgage items it held in trust, making the mortgage void. Applying the nemo dat quod non habet principle, DBP could not acquire greater rights than Litex possessed and became a trustee ex maleficio liable for damages to Prudential Bank.