Case Digest: DBP vs Sta. Ines Malate Forest Products Corp., 816 SCRA 425 (2017)

DBP vs Sta. Ines Malate Forest Products Corp., 816 SCRA 425 (2017)

Subject: Obligations and Contracts

FACTS

Sometime in 1977, National Galleon Shipping Corporation (Galleon), "formerly known as Galleon Shipping Corporation, was organized to operate a liner service between the Philippines and its ... trading partners." Galleon's major stockholders were respondents Sta. Ines Melale Forest Products Corporation (Sta. Ines), Cuenca Investment Corporation (Cuenca Investment), Universal Holdings Corporation (Universal Holdings), Galleon's President Rodolfo M. Cuenca (Cuenca), Manuel I. Tinio (Tinio), and the Philippine National Construction Corporation (PNCC).

Galleon experienced financial difficulties and had to take out several loans from different sources. DBP guaranteed Galleon's foreign loans. In return, Galleon and its stockholders, executed a Deed of Undertaking on October 10, 1979, and obligated themselves to guarantee DBP's potential liabilities. To secure DBP's guarantee, Galleon undertook to secure a first mortgage on its five new vessels and two second-hand vessels. However, despite the loans extended to it, "Galleon's financial condition did not improve."

Cuenca, as Galleon's president, wrote to the members of the Cabinet Standing Committee "for the consideration of a policy decision to support a liner service." Cuenca also wrote then President Ferdinand Marcos and asked for assistance. On July 21, 1981, President Marcos issued Letter of Instructions No. 1155.

On August 10, 1981, pursuant to Letter of Instructions No. 1155, Galleon's stockholders, entered into a Memorandum of Agreement, where NDC and Galleon undertook to prepare and sign a share purchase agreement covering 100% of Galleon's equity for P46,740,755.00. The purchase price was to be paid after five years from the execution of the share purchase agreement. The share purchase agreement also provided for the release of Sta. Ines, Cuenca, Tinio and Construction Development Corporation of the Philippines from the personal counter-guarantees they issued in DBP's favor under the Deed of Undertaking.

NDC took over the Galleon’s operations “even prior to the signing of a share purchase agreement”. However, despite NDC’s takeover, the share purchase agreement was never formally executed.

On February 10, 1982, President Marcos issues Letter of Instruction No. 1195 to DBP and NDC directing that they take steps, including foreclosure of Galleon vessels and other assets to limit and protect the Government’s exposure and that NDC discharge such maritime liens to allow the foreclosed vessels to engage in the international shipping business.

On April 22, 1985, respondents Sta. Ines, Cuenca, Tinio, Cuenca Investment and Universal Holdings files a Complaint of Application for the Issuance of a Temporary Restraining Order or Writ of Preliminary Injunction. They alleged that NDC, without paying a single centavo, took over the complete, total, and absolute ownership, management, control and operation of defendant and all its assets, even prior to the formality of signing a share purchase agreement. They also alleged that NDC tried to delay 'the formal signing of the share purchase agreement in order to interrupt the running of the 5-year period to pay ... the purchase of the shares in the amount of P46,740,755.00 and the execution of the negotiable promissory notes to secure payment’. As for DBP, they claimed that “DBP can no longer go after them for any deficiency judgment since NDC had been subrogated in their place as borrowers, hence the Deed of Undertaking between them and DBP had been extinguished and novated.

RTC ruled that Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal Holdings’ liability to DBP under the Deed of Undertaking had been extinguished due to novation, with NDC replacing them and PNCC as debtors. The Court of Appeals affirmed the RTC’s ruling. It held that DBP was privy to the MOA between NDC and Sta. Ines, Cuenca, Tinio and Cuenca Investment, and Universal Holdings, since Ongpin was concurrently Governor of DBP and chairman of the NDC Board at the time the Memorandum of Agreement was signed.

ISSUE

Whether the Memorandum of Agreement obligates NDC to purchase Galleon's shares of stocks and pay the advances made by respondents in Galleon's favor;

RULING

Yes, the Memorandum of Agreement obliges NDC to purchase Galleon’s shares of stocks and pay the advances made by respondents in Galleon’s favor.

Under the law (Art 1186), the condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.

In this case, it is not disputed that NDC and respondents Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal Holdings executed a Memorandum of Agreement pursuant to the directives of Letter of Instructions No. 1155. The execution of a share purchase agreement was a condition precedent to the transfer of Galleon's shares to NDC. However, the Court of Appeals found that the NDC itself voluntarily prevented the execution of a share purchase agreement when it reneged on its various obligations under the Memorandum of Agreement. The evidence on record show that the share purchase agreement was not formally executed because then Minister Roberto Ongpin claimed that the accounts of defendant Galleon had to be reviewed and cleared up before the share purchase agreement is signed. While defendant Galleon made its financial records available to NDC for their review, the latter never made any serious effort to review the financial accounts of Galleon, hence, effectively preventing the execution of the share purchase agreement. Consequently, the condition for the running of the period for the payment of the purchase price of the shares of stocks in defendant Galleon by the defendant-appellant NDC, i.e., the execution of the Share Purchase Agreement, was deemed fulfilled as it was the defendant-appellant NDC itself which prevented it from happening.