Case Digest: National Bank vs Philippine Vegetable Oil Co., 49 Phil 857

National Bank vs Philippine Vegetable Oil Co., 49 Phil 857

Subject: Obligations and Contracts

FACTS

In 1920, the Philippine Vegetable Oil Co., Inc. found itself in financial straits. It was in debt to the extent of approximately P30M. The Philippine National Bank was the largest creditor. The company owed the bank P17M and P13M to other creditors. PNB was secured principally by a real and chattel mortgage. In January 1921, the Vegetable Oil Company executed another chattel mortgage in favor of the bank on its vessels Tankerville and H. S. Everett to guarantee the payment of sums not to exceed P4M.

Bankruptcy was imminent. In January 1921, Mr. Whitaker, General Manger of Vegetable Oil, made his first offer to pledge certain private properties to secure the creditors of the Oil Company. In February 1921, a creditors' meeting was held. In March 1921, a receiver for the Vegetable Oil Company was appointed by the CFI of Manila.

During the period of receivership, several events occurred: (1) the creditors transferred to Mr. Whitaker a part of their claims against the Vegetable Oil Company though PNB was not a direct party to the agreement, the officials of the bank had full knowledge of its accomplishment; and (2) the bank was to a new mortgage from the Vegetable Oil Company. The receivership for the Vegetable Oil Company was terminated shortly thereafter. The bank suspended the company’s operation and closed the Oil Company's plant in August 1922.

In May 1924, PNB sought to foreclose its mortgage on the property of the Vegetable Oil Company. The Vegetable Oil Company on its part countered with certain special defenses which need not be described and with the interposition of a counterclaim for P6M. Phil. C. Whitaker presented a complaint in intervention. The judgment rendered was in favor of the plaintiff and against the defendant.

ISSUE

Whether or not the new mortgage on February 20, 1922, valid.

RULING

No. The mortgage was executed while a receiver oversaw the Vegetable Oil Company. A mortgage accomplished at such a time by the corporation under receivership and a creditor would be a nullity. The mortgage was perfected after the lifting of the receivership pursuant to implied promises that the bank would continue to operate the Vegetable Oil Company. It was then accomplished when the Philippine National Bank was a dominating influence in the affairs of the Vegetable Oil Company. On the one hand was the Philippine National Bank in person. On the other hand, was the Philippine National Bank by proxy. Under such circumstances, it would be unconscionable to allow the bank, after the hands of the other creditors were tied, virtually to appropriate to itself all the property of the Vegetable Oil Company. Whether we consider the action taken as not expressing the free will of the Vegetable Oil Company, or as disclosing undue influence on the part of the Philippine National Bank in procuring the mortgage, or as constituting deceit under the civil law, or whether we go still further and classify the facts as constructive fraud, the result is the same. The mortgage is clearly voidable.