G.R. No. 183947 - Rizal Commercial Banking Corp. vs. Bernardino

In 1995, Marcopper Mining Corporation (MMC) obtained an unsecured bridge loan of US$13.7 million from Rizal Commercial Banking Corporation (RCBC) to finance acquisition of mining equipment.
The loan repayment was to come from a pending long-term loan from Export-Import Bank (EXIM Bank), which was ultimately denied due to environmental issues causing stoppage of MMC's operations.
Concerned about the loan being unsecured, RCBC negotiated collateral from MMC, resulting in:

A Deed of Chattel Mortgage dated April 23, 1996 over twelve mining trucks and one excavator.
Deeds of Pledge dated August 29, 1996 and September 9, 1997 covering shares of stock.

RCBC later sought to substitute the collaterals with MMC's mortgaged residential property in Forbes Park, which was under mortgage to Asian Development Bank (ADB).

Foreclosure on mortgaged assets realizing about $11.6 million, with remaining balance unsecured.
A repayment plan involving MMC’s major shareholders, including:

ii. Payment over one year of P71 million plus interest. iii. Payment of P55.4 million over two years, payable quarterly.

MMC encouraged RCBC to accept the second option, promising major shareholders’ support.
On July 3, 1997, representatives of MMC and RCBC discussed the proposal. RCBC raised concerns on accrued interest. MMC also noted that Placer Dome, a major MMC stockholder and guarantor, would release the Forbes Park property only if RCBC released mortgaged mining equipment.
It was discussed that a stockholder of MMC would act as surety for promissory notes to be executed.

On July 8, 1997, MMC revised the proposal, adjusting principal for capitalized interest and specifying payment amounts and terms. RCBC representatives signed conformity to this letter.
On August 1, 1997, MMC forwarded four documents to RCBC for signature, including a Deed of Assignment of the Forbes Park property and a Deed of Release from Mortgage relating to the mining equipment. RCBC signed the Deed of Assignment but did not sign the Deed of Release of mortgaged equipment.
On August 22, 1997, MMC sent RCBC surety agreements executed by Teodoro G. Bernardino (Bernardino), along with two promissory notes covering the remaining loan balance after partial payment through assignment of Forbes Park property.
The parties signed the promissory notes on August 26, 1997.

MMC failed to make scheduled amortization payments due November 24, 1997, February 23, 1998, and May 25, 1998.
On July 1, 1998, RCBC sent final demand letters to MMC and Bernardino, declaring entire obligations due and payable and demanding payment plus penalties.
On July 31, 1998, Bernardino filed a Complaint for specific performance and for declaration of nullity or unenforceability of surety agreements against RCBC (Civil Case No. 98-1851), alleging the surety agreements were unenforceable because a condition precedent, the execution of a subrogation agreement, was not complied with.
RCBC counterclaimed for joint and several liability of Bernardino under the promissory notes.

The Regional Trial Court (RTC), Branch 59, Makati City, ruled in favor of Bernardino, holding the subrogation agreement was a condition precedent which was not executed, hence the surety agreements unenforceable. It awarded Bernardino damages and attorney’s fees.
The Court of Appeals (CA) affirmed the RTC Decision and denied RCBC’s motion for reconsideration.

RCBC filed a Petition for Review on Certiorari assailing the CA Decision, mainly disputing the existence of a condition precedent of a subrogation agreement to the surety agreements and arguing:

The Supreme Court assessed the case focusing on whether a subrogation agreement was a condition precedent to the surety agreements.

Whether the execution of a subrogation agreement was a condition precedent before Bernardino could be held liable under the surety agreements with RCBC.

Whether the surety agreements executed by Bernardino are enforceable despite the alleged non-execution of a subrogation agreement.

Whether parol evidence could be introduced to prove an alleged oral agreement that modifies the written surety agreements.