Development Bank Of The Philippines v. Intermediate Appellate Court

MELENCIO-HERRERA, J.:

This case is a controversy between petitioner (DBP), a creditor Bank, and the private respondent (LA CAMPANA), a corporation engaged in the food processing business. The controversy involves the determination of facts in the light of their perspectives, as well as the determination of a reasonable and equitable conclusion based on those facts. As of December 31, 1967, LA CAMPANA was indebted to local banks (other than DBP) in the sum of ₱1,996,026.13, and had payables to other creditors of ₱4,500,189.10, or a total of ₱6,496,215.23 (Exhibits "8", "S-A", "8-B").

As of 1968, LA CAMPANA had three (3) accounts with DBP in the sums of ₱1,000,000.00, ₱881,500.00 and ₱630,000.00 or a total of ₱2,511,500.00 (Exhibits "35", "35-A" and "35-B"). The three DBP accounts were secured by mortgages.

The picture showed that LA CAMPANA had financial problems, with debts of no less than ₱9,007,715.23. Sometime in 1968, LA CAMPANA obtained a US$1,400,000.00 loan from the Intercontinental Monetary Corporation of New York (IMC) which had to be guaranteed by DBP. The loan was to be paid through sixteen (16) negotiable promisory notes.

[PN Nos. 1-14 aggregating $1,400,000.00 (at $100,000.00 each) and PN Nos. 15-16 aggregating $140,000.00 (1st Year interest)], totalling $l,540,000.00. The following procedural mechanics, in so far as pertinent to this case, were laid down in servicing the loan and in the manner of its payment: a. Plaintiff (La Campana) will issue 113 Promissory Notes in favor of IMC, with DBP's guarantee, to be numbered as Promissory Notes (PN) Nos. 1-113.

b. At the beginning of the First Year, PN Nos. 1-14 aggregating $1,400,000.00 (at $100,000.00 each) and PN Nos. 15-16 aggregating $140,000.00 (lst Year interest), all DUE DATED Dec. 20, 1969, shall be delivered to IMC.

c. At the end of the First Year, plaintiff shall pay to IMC the interest of $140,000.00, covered by PN Nos. 15-16 which shall be stamped PAID, and which shall surrender PN Nos. 1-14 which shall be stamped RENEWED, in lieu of which PN Nos. 17-30 aggregating $1,400,000.00) and PN Nos. 31-32 aggregating $140,000.00 (2nd year interest), all DUE DATED Dec. 20, 1970, shall be released to IMC.

x x x x x x x x x f. At the end of the fourth year, plaintiff shall pay to IMC $340,000.00 (1st amortization of $200,000.00 plus interest for 4th year of $140,000.00), and IMC shall surrender PN Nos. 49-62 which shall be stamped AMORTIZED & RENEWED, and PN Nos. 63-64 which shall be stamped PAID in lieu of which PN Nos. 65-76 aggregating $1,200,000.00 and PN Nos. 77-78 aggregating $120,000.00 (5th year interest), all DUE DATED Dec. 20, 1973, shall be released to IMC.

x x x x x x x x x1 To protect the guarantor, LA CAMPANA executed an additional mortgage in favor of DBP over its properties. What has to be noted in its additional mortgage indenture were the following conditions: The proceeds of the loan shall be released at the discretion of the mortgagee after the registration of the deed of mortgage. (Exhibit "Q-2") MORTGAGOR shall deposit with the MORTGAGEE the proceeds of the cash dollar loan of $1,400,000.00 with which shall be made available for payment of MORTGAGOR's obligations to local financial institutions and for working capital; (Exhibit "Q-28") The above two clauses have special relevance to this case.

The first shall hereinafter be referred to as the "DISCRETIONARY CLAUSE", while the second shall hereinafter be referred to as the "PERMISSIVE CLAUSE ". A peculiarity of the dollar loan was that it was basically payable, within one year, through 16 promissory notes, all with due dates at the end of the one year period on December 20, 1969.

However, IMC could extend payment of the notes yearly up to a 10-year period (Exhibits "18" & 18-A"). There is also the peculiar fact that in the negotiable promissory notes executed by LA CAMPANA, and guaranteed by DBP, there was no provision for renewal.

A sample (Exhibit "21-A") of the notes follows. September 20, 196 Date of Issue December 20, 1968 PROMISSORY NOTE By means of this Promissory Note for value received, we unconditionally take the obligation of paying to the order of INTERCONTINENTAL MONETARY CORPORATION, NEW YORK Bank at the office of NATIONAL BANK OF NORTH AMERICA, 160 BROADWAY, NEW YORK, New York, New York, the sum of USA DOLLARS ONE HUNDRED THOUSAND (U$100,000.00) ONLY without any deduction of any Philippine taxes. In case it is not fully paid on maturity, such amount shall bear interest at the rate of Twelve (12) percent per annum on unpaid balances.

Due: December 20, 1969 Manila, Philippines. (SGD.) RICARDO S. TANTONGCO RICARDO S. TANTONGCO President & General Manager LA CAMPANA Food Products,Inc. SIGNED IN THE PRESENCE OF: (SGD.) RODOLFO FAB (SGD.) (Illegible) GUARANTEE We irrevocably and unconditionally guarantee payment of this Promissory Note issued by LA CAMPANA Food Products, Inc. to the order of INTERCONTINENTAL MONETARY CORPORATION, NEW YORK. If LA CAMPANA Food Products, Inc. does not pay, (the Development Bank of the Philippines) will pay at first demand at the office of NATIONAL BANK OF NORTH AMERICA, 160 BROADWAY, NEW YORK.

(DEVELOPMENT BANK OF THE PHILIPPINES) (SGD.) G. S. LICAROS G. S. LICAROS Chairman It will be noted, that the notes being negotiable, and unconditionally payable on due dates (not extendible), LA CAMPANA, as drawer, and DBP, as guarantor, would be unconditionally liable to endorsees. Primary responsibility for the notes lies with LA CAMPANA, which negotiated the loan with IMC through the borrower's intervening agents "Mr. Javier and Mrs. Menese" (Exhibit "33-A").

DBP cannot be blamed for the outcome of the situation brought about by the negotiable notes. Payout under the loan would be in the amount of P1,344,000.00. After the 16 negotiable promissory notes were delivered to IMC, the payout amount was remitted to DBP for the account of LA CAMPANA in accordance with arrangements made.

The payout amounted to its peso equivalent of P5,265,120.00 which, incidentally, was less than that LA CAMPANA owed to local banks other than DBP. Up to September 11, 1969, or before the end of the 1-year period, DBP had made the following payments (Exhibit "15-A"): Date Release Amount Particulars 1-20-69 ₱5,241.60 Charges of CONBANIT (1/10 of 1% 1-29-69 400,000.00 In favor of La Campana 1-29-69 314,912.88 Applied to arrearages of La Campana's industrial loan accounts. 2-17-69 300,000.00 In favor of La Campana 3-03-69 300,000.00 -do- 3-11-69 100,000.00 China Banking Corporation 4-15-69 100,000.00 -do- 4-25-69 200,000.00 -do- 5-16-69 140,000.00 Phil. Commercial & Industrial Bank 5-19-69 21,012.32 Applied to guarantee fee 9-11-69 41,800.82 Applied to interest and guarantee TOTAL