SECOND DIVISION
February 1, 2017
G.R. No. 193068
DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner
vs.
STA. INES MELALE FOREST PRODUCTS CORPORATION, RODOLFO CUENCA, MANUEL TINIO, CUENCA INVESTMENT CORPORATION and UNIVERSAL HOLDINGS CORPORATION, Respondents
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G.R. No. 193099
NATIONAL DEVELOPMENT CORPORATION, Petitioner,
vs.
STA. INES MELALE FOREST PRODUCTS CORPORATION, RODOLFO M. CUENCA, MANUEL I. TINIO, CUENCA INVESTMENT CORPORATION and UNIVERSAL HOLDINGS CORPORATION, Respondents.
D E C I S I O N
LEONEN, J.:
A condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfilment and a debtor loses the right to make use of the period when a condition is violated, making the obligation immediately demandable.1
This resolves the consolidated Petitions for Review filed by the Development Bank of the Philippines (DBP)2 and the National Development Corporation (NDC)3 assailing the Court of Appeals Decision4 dated March 24, 2010 and Court of Appeals Resolution5 dated July 21, 2010, which affirmed with modifications the Decision6 dated September 16, 2003 of Branch 137, Regional Trial Court of Makati City.7
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."8 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).9
Galleon experienced financial difficulties and had to take out several loans from different sources such as foreign financial institutions, its shareholders (Sta. Ines, Cuenca Investment, Universal Holdings, Cuenca, and Tinio), and other entities "with whom it had ongoing commercial relationships."10
DBP guaranteed Galleon's foreign loans.11 In return, Galleon and its stockholders Sta. Ines, Cuenca Investment, Universal Holdings, Cuenca, and Tinio, executed a Deed of Undertaking12 on October 10, 1979 and obligated themselves to guarantee DBP's potential liabilities.13
To secure DBP's guarantee, Galleon undertook to secure a first mortgage on its five new vessels and two second-hand vessels.14 However, despite the loans extended to it, "[Galleon's] financial condition did not improve."15
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."16 Cuenca also wrote then President Ferdinand Marcos and asked for assistance.17
On July 21, 1981, President Marcos issued Letter of Instructions No. 115518 addressed to the NDC, DBP, and the Maritime Industry Authority. Letter of Instructions No. 1155 reads:
TO : Development Bank of the Philippines
National Development Company
Maritime Industry AuthorityDIRECTING A REHABILITATION PLAN FOR
GALLEON SHIPPING CORPORATIONWHEREAS, Galleon Shipping Corporation is presently in a distressed state in view of the unfavorable developments in the liner shipping business;
WHEREAS, the exposure of the Philippine government financial institutions is substantial;
WHEREAS, it is a policy of government to provide a reliable liner service between the Philippines and its major trading partners;
WHEREAS, it is a policy to have a Philippine national flag liner service to compete with other heavily subsidized national shipping companies of other countries;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, do hereby direct the following:
1. NDC shall acquire 100% of the shareholdings of Galleon Shipping Corporation from its present owners for the amount of P46. 7 million which is the amount originally contributed by the present shareholders, payable after five years with no interest cost.
2. NDC to immediately infuse P30 million into Galleon Shipping Corporation in lieu of its previously approved subscription to Philippine National Lines. In addition, NDC is to provide additional equity to Galleon as may be required.
3. DBP to advance for a period of three years from date hereof both the principal and the interest on Galleon's obligations falling due and to convert such advances into 12% preferred shares in Galleon Shipping Corporation.
4. DBP and NDC to negotiate a restructuring of loans extended by foreign creditors of Galleon.1avvphi1
5. MARINA to provide assistance to Galleon by mandating a rational liner shipping schedule considering existing freight volume and to immediately negotiate a bilateral agreement with the United States in accordance with UNCTAD resolutions.
These instructions are to take effect immediately.19
On August 10, 1981,20 pursuant to Letter of Instructions No. 1155, Galleon's stockholders, represented by Cuenca, and NDC, through its then Chairman of the Board of Directors, Roberto V. Ongpin (Ongpin) entered into a Memorandum of Agreement,21 where NDC and Galleon undertook to prepare and sign a share purchase agreement covering 100% of Galleon's equity for ₱46,740,755.00.22 The purchase price was to be paid after five years from the execution of the share purchase agreement.23 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.24
The Memorandum of Agreement reads:
KNOW ALL MEN BY THESE PRESENTS:
This Memorandum of Agreement made and entered into this __ day of August, 1981, at Makati, Metro Manila, Philippines, by and between the stockholders of Galleon Shipping Corporation listed in Annex A hereof, represented herein by their duly authorized attorney-in-fact, Mr. Rodolfo M. Cuenca (hereinafter called "Sellers") and National Development Company, represented herein by its Chairman of the Board, Hon. Minister Roberto V. Ongpin (hereinafter called "Buyer").
WITNESSETH: That-
WHEREAS, Sellers and Buyer desire to implement immediately Letter of Instructions No. 1155, dated July 21, 1981, which directs that Buyer acquire 100% of the shareholdings of Galleon Shipping Corporation ("GSC") from Sellers who are the present owners.
WHEREAS, Sellers have consented to allow Buyer to assume actual control over the management and operations of GSC prior to the execution of a formal share purchase agreement and the transfer of all the shareholdings of Sellers to Buyer.
NOW, THEREFORE, the parties agree as follows:
1. Within seven (7) days after the signing hereof, Sellers shall take all steps necessary to cause five (5) persons designated by Buyer to be elected directors of GSC, it being understood that Sellers shall retain the remaining two (2) seats in the GSC board subject to the condition hereafter stated in clause 7(b ).
2. The new board to be created pursuant to clause 1 above shall elect Antonio L. Carpio as Chairman and Chief Executive Officer and Rodolfo M. Cuenca as President. All other officers will be nominated and appointed by Buyer.
3. As soon as possible, but not more than 60 days after the signing hereof, the parties shall endeavor to prepare and sign a share purchase agreement covering 100% of the shareholdings of Sellers in GSC to be transferred to Buyer, i.e. 10,000,000 fully paid common shares of the par value of ₱l.00 per share and subscription of an additional 100,000,000 common shares of the par value of ₱l.00 per share of which ₱36,740,755.00 has been paid, but not yet issued.
4. Sellers hereby warrant that ₱46,740,755[.00] had been actually paid to Galleon Shipping Corporation, which amount represents payment of Sellers for 46,740,755 common shares of said Corporation. This warranty shall be verified by Buyer, the results of which will determine the final purchase price to be paid to Sellers.
The purchase price directed by LOI 1155 to be paid to Sellers shall be paid after five (5) years from date of the share purchase agreement with no interest cost to buyer.
5. As security for the payment of the aforementioned purchase price, Buyer shall issue to each of the GSC stockholders listed in Annex A a negotiable promissory note in the amount corresponding to the respective paid-up capital in GSC of each of such stockholders and with maturity on the date of the fifth annual anniversary of the share purchase agreement.
6. Notwithstanding the provisions of clauses 4 and 5 above, upon the signing of the share purchase agreement, it is understood that Sellers shall deliver to Buyer all the stock certificates covering 10,000,000 common shares of GSC, and duly and validly endorsed for transfer, free from any and all liens and encumbrances whatsoever. It is likewise understood that Buyer shall at that time acquire all the subscription rights to 100,000,000 common shares of which ₱36,740,755.00 has been paid by Sellers, and shall assume the obligation to pay the unpaid portion of such subscription.
7. The stock purchase agreement to be prepared and signed by the parties within sixty (60) days from date hereof shall contain, among other things:
(a) standard warranties of seller including, but not limited to, warranties pertaining to the accuracy of financial and other statements of GSC; disclosure of liabilities; payment of all taxes, duties, licenses and fees; non-encumbrance of corporate assets; valid contracts with third parties, etc. including an indemnity clause covering any breach thereof.
(b) provisions that Buyer shall retain 2 representatives of Sellers in the board of GSC only for as long as Sellers have not been paid, or have not negotiated or discounted any of the promissory notes referred to in clause 5 above.
(c) provisions whereby Construction Development Corporation of the Philippines, Sta. Ines Melale Forest Products Corporation, Mr. Rodolfo M. Cuenca and Mr. Manuel I. Tinio shall be released from counter-guarantees they have issued in favor of DBP and other financial institutions in connection with GSC's various credit accommodations.
(d) provisions for arbitration as a means of settling disputes and differences of opinion regarding the stock purchase agreement.
8. Sellers hereby make a special warranty that:
(a) any and all liabilities and obligations as disclosed in the financial statements of Galleon Shipping Corporation are valid, regular, normal and incurred in the ordinary course of business of Galleon Shipping Corporation, and Buyer will verify this warranty and conduct an audit of Galleon Shipping Corporation as of March 31 and July 31, 1981; liabilities that do not fall under the above definition are to be for the account of the Seller; and
(b) from July 31, 1981 to the date of the election of Buyers' representatives to the Board of GSC, GSC has not and shall not enter into any contract and has not and shall not incur any liability except what is normal and usual in the ordinary course of shipping business.
9. Valid and duly authorized liabilities of GSC which are the subject of a meritorious lawsuit, or which have been arranged and guaranteed by Mr. Rodolfo M. Cuenca, may be considered by Buyer for priority in the repayment of accounts, provided that, upon review, the Buyer shall determine these to be legitimate and were validly incurred in the ordinary course of GSC's principal business.
IN WITNESS HEREOF, the parties have signed this Memorandum of Agreement this _ day of August 1981, in Makati, Metro Manila.
STOCKHOLDERS OF
GALLEON SHIPPING CORPORATIONBy:
(signed)
RODOLFO M. CUENCA
NATIONAL DEVELOPMENT COMPANYBy:
(signed)
ROBERTO V. ONGPIN25
Acting as Galleon's guarantor, DBP paid off Galleon's debts to its foreign bank creditor and, on January 25, 1982, pursuant to the Deed of Undertaking, Galleon executed a mortgage contract26 over seven of its vessels in favor of DBP.
NDC took over Galleon's operations "even prior to the signing of a share purchase agreement."27 However, despite NDC's takeover, the share purchase agreement was never formally executed.28
On February 10, 1982, or barely seven months from the issuance of Letter of Instructions No. 1155, President Marcos issued Letter of Instructions No. 1195,29 which reads:
TO : Development Bank of the Philippines
National Development CompanyRE : Galleon Shipping Corporation
WHEREAS, NDC has assumed management of Galleon's operations pursuant to LOI No. 1155;
WHEREAS, the original terms under which Galleon acquired or leased the vessels were such that Galleon would be unable to pay from its cash flows the resulting debt service burden;
WHEREAS, in such a situation the financial exposure of the Government will continue to increase and therefore the appropriate steps must be taken to limit and protect the Government's exposure;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, do hereby direct the following:
1) The DBP and the NDC shall take immediate steps, including foreclosure of Galleon vessels and other assets, as may be deemed necessary to limit and protect the Government's exposure;
2) NDC shall discharge such maritime liens as it may deem necessary to allow the foreclosed vessels to engage in the international shipping business;
3) Any provision of LOI No. 1155 inconsistent with this Letter of Instructions is hereby rescinded.
These instructions are to take effect immediately.30
On April 22, 1985, respondents Sta. Ines, Cuenca, Tinio, Cuenca Investment and Universal Holdings filed a Complaint with Application for the Issuance of a Temporary Restraining Order or Writ of Preliminary Injunction.31 The Complaint was amended several times to imp lead new parties and to include new claims/counterclaims.32
In their Complaint, Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal Holdings alleged that NDC, "without paying a single centavo, took over the complete, total, and absolute ownership, management, control, and operation of defendant [Galleon] and all its assets, even prior to the formality of signing a share purchase agreement, which was held in abeyance because the defendant NDC was verifying and confirming the amounts paid by plaintiffs to Galleon, and certain liabilities of Galleon to plaintiffs[.]"33
Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal Holdings 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 ₱46,740,755[.00] and the execution of the negotiable promissory notes to secure payment[.]"34
As for DBP, Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal Holdings claimed that "DBP can no longer go after [them] for any deficiency judgment [since] NDC had been subrogated [in their place] as borrower[s], hence the Deed of Undertaking between [Sta. Ines, Cuenca Investment, Universal Holdings, Cuenca, and Tinio and DBP] had been extinguished and novated[.]"35
Meanwhile, on December 8, 1986, Proclamation No. 50 created the Asset Privatization Trust.36 The Asset Privatization Trust was tasked to "take title to and possession of, conserve, provisionally manage and dispose of, assets which have been identified for privatization or disposition and transferred to the TI-List for [that] purpose."37
Under Administrative Order No. 14 issued by then President Corazon C. Aquino, certain assets of DBP, which included Galleon's loan accounts, "were identified for transfer to the National Government."38
On February 27, 1987, a Deed of Transfer was executed providing for the transfer of the Galleon loan account from DBP to the National Government.39 The Asset Privatization Trust was "constituted as [the National Government's] trustee over the transferred accounts and assets[.]"40
On September 16, 2003, the Regional Trial Court upheld the validity of Letter of Instructions No. 1155 and the Memorandum of Agreement executed by NDC and Galleon's stockholders, pursuant to Letter of Instructions No. 1155.41
The Regional Trial Court also held that Letter of Instructions No. 1195 did not supersede or impliedly repeal Letter of Instructions No. 1155, and assuming that it did impliedly repeal Letter of Instructions No. 1155, it would be void and unconstitutional for violating the non-impairment clause.42
As regards NDC's argument that Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal Holdings had no basis to compel it to pay Galleon's shares of stocks because no share purchase agreement was executed, the Regional Trial Court held that the NDC was in estoppel since it prevented the execution of the share purchase agreement and had admitted to being Galleon's owner.43
The Regional Trial Court also ruled that Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal Holdings' liability to DBPunder the Deed of Undertaking had been extinguished due to novation, with NDC replacing them and PNCC as debtors.44 The dispositive of the Regional Trial Court's Decision reads:
WHEREFORE, judgment is hereby rendered (1) ordering defendants National Development Corporation and National Galleon Shipping Corporation, jointly and severally, to pay plaintiffs Sta. Ines Melale Forest Products Corporation, Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca Investment Corporation and Universal Holdings Corporation, the amounts of ₱15,150,000.00 and US$2.3 million, representing the amount of advances made by plaintiffs in behalf of defendant Galleon, plus legal interest at the rate of 6% per annum from the date of filing of this case on 22 April 1985 up to full payment;
(2) ordering defendants National Development Corporation and National Galleon Shipping Corporation, jointly and severally, to pay plaintiffs Sta. Ines Melale Forest Products Corporation, Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca Investment Corporation and Universal Holdings Corporation, the amount of ₱46,740,755.00, representing the price of the shares of stock of plaintiffs and defendant PNCC in defendant Galleon, plus legal interest at the rate of 6% per annum from the date of filing of this case on 22 April 1985 up to full payment;
(3) ordering defendants National Development Corporation and National Galleon Shipping Corporation, jointly and severally, to pay plaintiffs Sta. Ines Melale Forest Products Corporation, Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca Investment Corporation and Universal Holdings Corporation, attorney's fees equivalent to 10% of the amount due; and costs of suit; and
(4) ordering defendants National Development Corporation, Development Bank of the Philippines and National Galleon Shipping Corporation, jointly and severally, to pay each plaintiff and defendant Philippine National Construction Corporation, ₱10,000.00 as moral damages; and ₱10,000.00 as exemplary damages.
SO ORDERED.45
On February 23, 2003, the Regional Trial Court issued an Order46 partially reconsidering and modifying the September 16, 2003 Decision by categorically declaring Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal Holdings free from liability under the mortgage contract with DBP and the deficiency claim of DBP.47 The Regional Trial Court also deleted the award of US$2.3 million to Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal Holdings since they failed to include the same in their fourth amended complaint.48 The dispositive portion of the Regional Trial Court Order, as amended, reads:
WHEREFORE, judgment is hereby rendered (1) ordering defendants National Development Corporation and National Galleon Shipping Corporation, jointly and severally, to pay plaintiffs Sta. Ines Melale Forest Products Corporation, Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca Investment Corporation and Universal Holdings Corporation, the amount of ₱l5,150,000.00 representing the amount of advances made by plaintiffs in behalf of defendant NGSC, plus legal interest at the rate of 6% per annum from the date of filing of this case on 22 April 1985 up to full payment;
(2) ordering defendants National Development Corporation and National Galleon Shipping Corporation, jointly and severally, to pay plaintiffs Sta. Ines Melale Forest Products Corporation, Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca Investment Corporation and Universal Holdings Corporation, the amount of ₱46,740,755.00, representing the price of the shares of stock of plaintiffs and defendant PNCC in defendant NGSC, plus legal interest at the rate of 6% per annum from the date of filing of this case on 22 April 1985 up to full payment;
(3) ordering defendants National Development Corporation and National Galleon Shipping Corporation, jointly and severally, to pay plaintiffs Sta. Ines Melale Forest Products Corporation, Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca Investment Corporation and Universal Holdings Corporation, attorney's fees equivalent to 10% of the amount due; and costs of suit;
(4) ordering defendants National Development Corporation and National Galleon Shipping Corporation, jointly and severally, to pay to each plaintiff and defendant Philippine National Construction Corporation, ₱10,000.00 as moral damages; and ₱10,000.00 as exemplary damages; and
(5) declaring plaintiffs Sta. Ines Melale Forest Products Corporation, Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca Investment Corporation and Universal Holdings Corporation and defendant Philippine National Construction Corporation to be no longer liable to defendants National Development Corporation, Development Bank of the Philippines and Asset Privatization Trust under the deed of undertaking, pledge, mortgages, and other accessory contracts between the parties; and consequently, permanently enjoining defendant DBP or APT from filing a deficiency claim against plaintiffs and defendant PNCC.
SO ORDERED.49
On March 9, 2004 and March 16, 2004, DBP and NDC filed their respective notices of appeal to the Court of Appeals.50
In its assailed Decision dated March 24, 2010, the Court of Appeals upheld the Regional Trial Court's findings that the Memorandum of Agreement between NDC and Cuenca (representing Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal Holdings) was a perfected contract, which bound the parties,51 thus:
Although the Supreme Court ruled in the Poliand case that LOI No. 1155 is a mere administrative issuance and, as such, cannot be a valid source of obligation, the defendant-appellant NDC cannot escape its liabilities to the plaintiffs-appellees considering that the Memorandum of Agreement that it executed with the plaintiffs-appellees created certain rights and obligations between the parties which may be enforced by the parties against each other. The situation in the Poliand case is different because Poliand was not a party to the Memorandum of Agreement.52
The Court of Appeals ruled that NDC is estopped from claiming that there was no agreement between it and Cuenca since the agreement had already been partially executed after NDC took over the control and management of Galleon.53
The Court of Appeals also rejected NDC's argument that it should not be held liable for the payment of Galleon's shares.54 The Court of Appeals held that NDC "voluntarily prevented the execution of a share purchase agreement when it reneged on its various obligations under the Memorandum of Agreement."55
The Court of Appeals likewise affirmed the Regional Trial Court's ruling that novation took place when NDC agreed to be substituted in place of Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal Holdings in the counter-guarantees they issued in favor of DBP.56
The Court of Appeals ruled that DBP was privy to the Memorandum of Agreement between NDC and Sta. Ines, Cuenca, Tinio, 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.57
The Court of Appeals further held that DBPwas no longer the real party-in-interest as the loan accounts of Galleon were transferred to the Asset Privatization Trust.58
The fallo of the Court of Appeals Decision reads:
in view of the foregoing premises, the assailed Decision, as well as, assailed Order, appealed from is hereby AFFIRMED with MODIFICATIONS such that, as modified, the dispositive portion thereof shall now read as follows:WHEREFORE,
judgment is hereby rendered (1) ordering defendants National Development Corporation and National Galleon Shipping Corporation jointly and severally, to pay plaintiffs Sta. Ines Melale Forest Products Corporation, Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca Investment Corporation and Universal Holdings Corporation, the amount of ₱15,150,000.00 representing the amount of advances made by plaintiffs in behalf of defendant NGSC, plus interest at the rate of twelve percent (12%) per annum from the date of filing of this case on 22 April 1985 until instant Decision becomes final and executory, thereafter the said amount shall earn an interest at the rate of twelve (12%) percent per annum from such finality until its satisfaction;"WHEREFORE,
(2) ordering the defendants National Development Corporation and National Galleon Shipping [C]orporation, jointly and severally, to pay plaintiffs Sta. Ines Melale Forest Products Corporation, Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca Investment Corporation and Universal Holdings Corporation, the amount of ₱46,740,755.00, representing the price of the shares of stock of plaintiffs and defendant PNCC in defendant NGSC, plus interest at the rate of twelve percent (12%) per annum from the date of filing of this case on 22 April 1985 until instant Decision becomes final and executory, thereafter the said amount shall earn an interest at the rate of twelve percent (12%) per annum from such finality until its satisfaction;
(3) ordering the defendants National Development Corporation and National Galleon Shipping Corporation, jointly and severally, to pay plaintiffs Sta. Ines Melale Forest Products Corporation, Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca Investment Corporation and Universal Holdings Corporation, attorney's fees equivalent to 10% of the amount due; and costs of suit;
(4) ordering the defendants National Development Corporation and National Galleon Shipping Corporation, jointly and severally, to pay to each plaintiffs and defendant Philippine National Construction Corporation, ₱10,000.00 as moral damages; and ₱10,000.00 as exemplary damages; and
(5) declaring plaintiffs Sta. Ines Melale Forest Products Corporation, Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca Investment Corporation and Universal Holdings Corporation and defendant Philippine National Construction Corporation to be no longer liable to defendants National Development Corporation, Development Bank of the Philippines and Asset Privatization Trust under the deed of undertaking, pledge, mortgages, and other accessory contracts between the parties; and consequently, permanently enjoining defendant DBP or APT from filing a deficiency claim against plaintiffs and defendant PNCC.