Adriatico Consortium v. Land Bank
REITERATIONFacts
The Antecedents: Adriatico Consortium, Inc. (ACI), through its president William A. Siy, obtained a credit line from Land Bank of the Philippines (Land Bank) for PhP 200 million, later amended to PhP 600 million, to fund the construction of the Pan Pacific Hotel and Adriatico Square. Primary Realty Corporation (PRC) owned the lands on which these buildings were constructed. A Mortgage Trust Indenture (MTI) was established, with Land Bank as trustee. The MTI was subsequently amended to include J.V. Williams Realty and Development Corporation (JVWRDC), a corporation majority-owned by Siy, as a borrower. ACI and PRC later discovered that Siy had not remitted ACI's payments and that forged secretary's certificates were used to facilitate the second amendment to the MTI. Furthermore, ACI and PRC, with Benito Cu-Uy-Gam as ACI's new president, were compelled by Land Bank to pay the maturing obligations of JVWRDC. Procedural History: On June 6, 2000, ACI, PRC, and Benito Cu-Uy-Gam filed a Petition for Declaration of Nullity, Specific Performance, Injunction, and Damages against Land Bank and Siy with the Regional Trial Court (RTC) of Manila, docketed as Civil Case No. 00-97648. A Partial Compromise Agreement was entered into on November 14, 2000, wherein ACI paid Land Bank PhP 289,656,868.97 as full payment for Mortgage Participation Certificate (MPC) No. 0001. The RTC approved this agreement via a Partial Decision on January 31, 2001. Trial proceeded to determine liability for MPC Nos. 0002 and 0004. On January 15, 2008, Land Bank informed ACI that the JVWRDC loans were included in a sealed-bid public auction of non-performing assets. Petitioners filed a Motion for Execution on January 24, 2008, and a Reiteration of Prayer for TRO and/or Writ of Preliminary Injunction on January 30, 2008. The RTC granted the Motion for Execution on February 29, 2008, issuing a Writ of Execution on March 5, 2008, and denied Land Bank's motion for reconsideration on March 17, 2008. The RTC also issued a Writ of Preliminary Injunction on March 5, 2008, denying Land Bank's motion for reconsideration on April 21, 2008. Land Bank appealed to the Court of Appeals (CA), which nullified and set aside the RTC's orders and writs on October 16, 2008, and denied petitioners' motion for reconsideration on May 13, 2009. The Petition: Petitioners filed a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the CA's Decision and Resolution. They argue that the CA erred in holding that Land Bank's act of selling the receivables during the litigation did not violate the Partial Compromise Agreement, specifically its obligation to cooperate in determining the parties liable under MPC Nos. 0002 and 0004. Petitioners contend that the sale of credit or receivables falls within the scope of the term "action" proscribed by the agreement. They further argue that the CA erred in setting aside the writ of execution issued by the RTC due to Land Bank's violations of the compromise agreement.
Issue(s)
Whether the act of Land Bank in selling the receivables during the litigation violated its obligation under the Partial Compromise Agreement to cooperate with petitioners in determining the parties liable under Mortgage Participation Certificates Nos. 0002 and 0004. Whether the sale of credit or receivables is within the scope of the term "action" as contemplated in the Partial Compromise Agreement. Whether the Court of Appeals erred in setting aside the writ of execution issued by the trial court.
Ruling
The petition is meritorious. The Decision and Resolution of the Court of Appeals are NULLIFIED and SET ASIDE. The Orders of the RTC dated February 29, 2008, March 17, 2008 and April 21, 2008, together with the March 5, 2008 Writ of Execution are REINSTATED.
Ratio Decidendi
On the issue of whether Land Bank's act of selling the receivables violated the Partial Compromise Agreement: The Supreme Court held that Land Bank's act of selling the receivables did violate the Partial Compromise Agreement. The Court emphasized that the intention of the parties governs the interpretation of a compromise agreement. By entering into the agreement, the parties intended to avoid protracted litigation and to cooperate in determining the ultimate liability for MPC Nos. 0002 and 0004. The sale of the receivables by Land Bank undermined this cooperation and the spirit of the agreement. The Court found that Land Bank's actions were contrary to the principle of good faith that should govern contractual relations. The substantial payment made by ACI was the consideration for the suspension of actions and the commitment to cooperate, and Land Bank's sale of the receivables effectively circumvented these obligations. On the issue of whether the sale of credit or receivables is within the scope of the term "action" as contemplated in the Partial Compromise Agreement: The Supreme Court ruled that the term "all actions" in Section 5 of the Partial Compromise Agreement is broad enough to cover all acts in relation to MPC Nos. 0002 and 0004, and is not limited to legal actions. The Court reasoned that the parties purposefully used the specific term "legal action" in other sections of the agreement (Sections 1 and 6) when they intended to refer to litigation. The absence of such specific limitation in Section 5, coupled with the plain and ordinary meaning of the word "action" (the process of doing something; conduct or behavior; a thing done), indicated that the parties intended it to be comprehensive. Furthermore, the Court noted that a compromise agreement compromises not only those objects definitely stated but also those which by necessary implication should be deemed included. The sale of receivables was a necessary implication of the obligation to cooperate and determine liability. On the issue of whether the Court of Appeals erred in setting aside the writ of execution issued by the trial court: The Supreme Court found that the CA erred in setting aside the writ of execution. The RTC's interpretation of Section 5 of the Partial Compromise Agreement was found to be correct. The RTC correctly concluded that the sale at public auction of liabilities represented by MPC No. 0002 and 0004 was prohibited by the Partial Decision, which approved the compromise agreement. The CA's restrictive interpretation of "actions" as solely legal actions was contrary to the plain meaning of the term and the overall intent of the compromise agreement. Therefore, the RTC's orders and writ of execution, which aimed to enforce the terms of the compromise agreement, should have been upheld.
Main Doctrine
The act of selling receivables, which are subject to a compromise agreement suspending "all actions" concerning them, constitutes a violation of the agreement, as the term "actions" in its plain and ordinary meaning encompasses such a sale, and the sale itself impedes the agreed-upon cooperation to determine ultimate liability.