Metro Concast Steel v. Allied Bank
REITERATIONFacts
The Antecedents: Metro Concast Steel Corporation, through its officers and individual petitioners, obtained several loans from Allied Bank Corporation, evidenced by a promissory note and multiple trust receipts. The individual petitioners also executed Continuing Guaranty/Comprehensive Surety Agreements to secure these loans. Petitioners failed to settle their obligations, prompting Allied Bank to demand payment for the aggregate amount of P51,064,093.62, plus applicable interests and penalties. Petitioners admitted their indebtedness but disputed the interest and penalty charges, claiming they had already paid substantial amounts in interest and that economic reverses and peso devaluation contributed to their inability to pay. They also alleged that Allied Bank refused their offer to sell Metro Concast's assets and subsequently advised them to sell the equipment themselves. Procedural History: Allied Bank filed a complaint for collection of a sum of money against the petitioners before the Regional Trial Court (RTC) of Makati City, Branch 57. The RTC dismissed the complaint, ruling that the causes of action had been paid or extinguished, finding that Allied Bank, through its agent Atty. Peter Saw, was bound by the Memorandum of Agreement (MoA) between Metro Concast and Peakstar Oil Corporation for the sale of scrap metal. Allied Bank appealed to the Court of Appeals (CA), which reversed the RTC's decision, holding that there was no legal basis to discharge petitioners from their obligations. The CA found no evidence that Atty. Saw was authorized to represent Allied Bank in the MoA and that the MoA did not indicate Allied Bank's intervention. The CA ordered petitioners to pay their outstanding obligations. Petitioners sought reconsideration, which was denied. The Petition: Petitioners seek review on certiorari of the CA's decision and resolution, arguing that their loan obligations were extinguished due to Peakstar's failure to fulfill its obligations under the MoA, which they characterized as force majeure. They further contended that Allied Bank was bound by the MoA due to Atty. Saw's alleged representation. The core issue presented to the Supreme Court is whether the loan obligations incurred by the petitioners under the promissory note and trust receipts have been extinguished. The Court affirmed the CA's ruling, finding the petitioners' arguments untenable and holding that the MoA was a separate transaction from the loan obligations, and that Peakstar's breach did not constitute force majeure nor did it extinguish petitioners' liability to Allied Bank. The Court modified the CA's decision by reckoning the applicable interests and penalty charges from the date of the extrajudicial demand on December 10, 1998.
Issue(s)
Whether the loan obligations incurred by the petitioners under the subject promissory note and various trust receipts have already been extinguished. Whether Peakstar's failure to perform its obligations under the Memorandum of Agreement (MoA) constitutes force majeure that would extinguish the petitioners' loan obligations to Allied Bank. Whether Allied Bank is bound by the MoA between Metro Concast and Peakstar due to the alleged representation of Atty. Peter Saw.
Ruling
The petition is denied. The Decision dated February 12, 2007 and Resolution dated May 10, 2007 of the Court of Appeals in CA-G.R. CV No. 86896 are affirmed with modification, reckoning the applicable interests and penalty charges from the date of the extrajudicial demand or on December 10, 1998. The rest of the appellate court's dispositions stand.
Ratio Decidendi
On whether the loan obligations have been extinguished: The Court held that the petitioners' loan obligations to Allied Bank remain subsisting because they failed to prove that the same had already been paid or extinguished. The MoA for the sale of assets is a separate and distinct contract from the loan transactions. Absent any showing that the terms and conditions of the loan transactions were modified or novated by the MoA, the performance or breach of one does not affect the other. The Court found that the petitioners' arguments regarding force majeure and Allied Bank's alleged representation were untenable. On whether Peakstar's failure constitutes force majeure: The Court ruled that Peakstar's breach of its obligations to Metro Concast under the MoA cannot be classified as a fortuitous event. For an event to be considered a fortuitous event, it must be extraordinary, unforeseeable, unavoidable, independent of human will, and must render the debtor impossible to fulfill obligations in a normal manner, with the obligor being free from participation in the aggravation of the loss. Peakstar's breach, while perhaps unforeseen, was not impossible to foresee or avoid, nor was it independent of human will. Furthermore, it was not shown that this breach rendered it impossible for the petitioners to pay their loan obligations to Allied Bank. On whether Allied Bank is bound by the MoA: The Court found no sufficient evidence on record showing that Atty. Saw was duly and legally authorized to act for and on behalf of Allied Bank in the MoA transaction. The CA correctly pointed out that the MoA did not indicate Allied Bank's intervention or participation, and the post-dated checks were issued in favor of Jose Dychiao. Atty. Saw signed the receipts either as a representative of the petitioners or as a partner of their legal counsel, not as a representative of Allied Bank. Therefore, the MoA did not bind Allied Bank, and its breach did not affect the petitioners' loan obligations.
Main Doctrine
The breach of a Memorandum of Agreement for the sale of assets by a third party does not extinguish loan obligations arising from separate loan transactions, absent any showing that the loan terms were modified or novated, and such breach cannot be considered a fortuitous event that would excuse performance.