DOJ Opinion No. 145, s. 1985

DOJ OPINION NO. 145 , s. 1985 November 6, 1985 Hon. Cesar C. Zalamea Chairman, Development Bank of the Philippines Makati, Metro Manila Sir : This is with reference to your letter requesting for legal opinion on certain issues arising from a Memorandum of Agreement (MOA) entered into on October 21, 1982 between the Development Bank of the Philippines (DBP),on the one hand, and Bacolod Real Estate Development Corporation (BREDCO) and the Martel Corporations, on the other. Under the facts stated therein, your queries are: "1. Is the MOA dated 21 October 1982 enforceable and effective against DBP? In other words, under the aforesaid agreement, can the Martel Corporations require DBP to enter into a 'dacion en pago' with them? 2. If the answer to the foregoing questions are in the affirmative, what are the other obligations of DBP under the MOA? 3. Can the DBP be held liable under the agreement for disregarding the appraisal made by Asian Appraisal, Inc. on the ground that the appraisal was high? 4. Is TTTC bound under the agreement to cede its assets to DBP? Please note that while TTTC is a signatory to the MOA, it is not mentioned in the second "whereas" clause, in par. 1 and in par. 4. 5. Is the application of payment (by 'dacion') approved in Board Resolution No. 2859 (Annex 'E') valid and legal? 6. Can DBP validly refuse to implement the MOA on the ground that the value of the assets of the five Martel Corporations is insufficient to cover their total obligations to DBP? (Please see letter of Acting Chairman Tengco to Mr. Martel dated 21 May 1985, Annex "F") 7. If DBP cannot validly refuse to implement the agreement on the ground mentioned in par. 6 above, what ground or grounds can the Bank invoke towards this end? With regard to this question, we would like to inform that up to this date, the Martel Corporations have not submitted to DBP despite demand therefor, the necessary approvals and consent of their respective directors, stockholders and creditors, and of other persons or governmental agencies, nor have they paid the taxes and assessments due on the properties to be ceded, as required by the agreement. The Martel Corporations have not likewise submitted the required quitclaims from adverse claimants on the BREDCO lots, as well as the necessary documentation to establish the fact that the consent of the City of Bacolod is not necessary to give validity and effect to the transfer of the BREDCO lots to DBP. Likewise, still on this point, we are in receipt of information that some stockholders of BREDCO are against the subject MOA. prcd 8. If your opinion is that the MOA is not effective and cannot be enforced against DBP, can DBP new proceed to take legal action against the accounts of the Martel Corporations, such as foreclosure of the mortgages executed by them?" You state that prior to the date of the execution of the subject Memorandum of Agreement on October 21, 1982, five (5) Martel Consolidated, namely: Marsteel Corporation (MC),Marsteel Consolidated, Inc. (MCI),Dayton Metals Corporation (DMC),American Philippine Fiber Industries, Inc. (APFI),and Tourist Trade and Travel Corporation (TTTC),obtained various financing accommodations from DBP. As of June 30, 1982, the combined total outstanding obligations with DBP of the said Martel Corporations amounted to about P591.7 million. Due to financial difficulties and in compliance with a condition imposed by DBP on its guarantee accommodation in favor of Filipinas Micro-Circuit, Inc.,another Martel-affiliated corporation, the Martel Corporations, through their President, proposed to enter into a "dacion en pago" arrangement with DBP whereby the assets (of MC, MCI, DMC, APFI and TTTC) would be ceded to DBP in full settlement of their obligations. In the event the assets to be ceded by MC, MCI, DMC and TTTC would not be sufficient to liquidate in full their obligations, BREDCO would cede to DBP the real estate properties from its reclamation project in Bacolod City. In the other hand, if the assets APFI would be insufficient to pay for its obligations, APFI would cede to DBP additional real properties. DBP in a resolution dated September 22, 1982 approved the proposal of Martel Corporations, subject to certain terms and conditions, and on October 21, 1982, a Memorandum of Agreement was executed by MC, MCI, DMC, APFI, TTTC and BREDCO, on the one hand, and DBP, on the other, subject to the terms and conditions embodied in the same agreement. On November 9, 1983, MCI requested DBP for implementation of the Memorandum of Agreement and the latter in a resolution, dated November 16, 1983 specified the manner of application of payments. To this manner, however, Martel Corporations disagreed and requested for a restudy of the entire scheme of the 'dacion" agreement, the total cession of the Bacolod properties for final liquidation of all the accounts at a more reasonable valuation, and the immediate implementation of the Memorandum of Agreement. DBP, however, believes that the subject agreement cannot be implemented in view of the insufficiency of assets to extinguish the total obligations which totalled to P1,355.085 million as of March 31, 1985. Hence, the instant query. prcd As borne out by the records, the memorandum of agreement in question which proposed a "dacion en pago" arrangement between DBP and the five (5) Martel Corporations was conceived and executed to fully settle the obligations of the latter to the former. These Martel Corporation were as of June 30, 1982 indebted to DBP in the amount P591.7 million or less. Embodied in said agreement were conditions imposed by DBP on the Martel Corporations, made emphatic by paragraph 12 thereof which reads as follows: "This Memorandum of Agreement has been entered into a signed by the parties solely to establish their contractual intent to formulate an acceptable settlement of the obligations, current or in arrears, of the Martel Corporations. There shall be no final, effective and executory agreement on the dacion en pago or other settlement arrangements mentioned in this Agreement until and unless audits are made, assets are properly identified, titles are established, values are appraised, and all transactions relative thereto properly documented and authorized by the respective boards of the parties to this Agreement. Creditors, stockholders. and government approval or consent shall also be secured where necessary. Where any of the foregoing is not complied with, this Agreement shall become null and void and of no effect whatsoever." You state that to date the Martel Corporations have not complied with some of the conditions stipulated in the agreement, namely: a) Paragraph 7, which provides that, prior to the execution of the "dacion en pago" instrument, the Martel Corporations and BREDCO shall secure the necessary approvals of their respective directors, stockholders and creditors and of government agencies; b) Paragraph 8, which provides that prior to the execution of the "dacion" documents, all unpaid taxes, levies or assessments due on the properties to be ceded shall be paid by the ceding Martel Corporations concerned; and c) Paragraph 11, requiring the Martel Corporations and BREDCO to submit the necessary documentation to establish that the consent of the City of Bacolod is not necessary to give validity to the transfer of the BREDCO lots to DBP. Under these circumstances, the Memorandum of Agreement is not deemed enforceable as against DBP in the light of Paragraph 12 thereof which provides specific the non-compliance with any of the conditions imposed therein shall make the Agreement "null and void and of no effect whatsoever". The Memorandum of Agreement is the law between the contracting parties, hence, all the terms and conditions contained therein must be complied with by both parties in good faith (Art. 1315, Civil Code). Since as you state there is non-compliance on the part of the Martel Corporations of their obligations thereunder, DBP cannot for its part be bound by the intended "dacion en pago" arrangement under said Agreement. Your queries nos. 1 7, are therefore answered accordingly. With respect to question no. 8, we believe that DBP can now proceed against the Martel Corporations for collection of their outstanding obligations. Inasmuch as the proposed "dacion en pago" arrangement did not materialize, the original obligation was not extinguished (Art. 1231, Civil Code), and the Martel Corporations remain to be liable thereunder. prcd Very truly yours, (SGD.) ESTELITO P. MENDOZA Minister of Justice