Case Summary (G.R. No. 140964)
Undisputed Facts
Respondents acquired Home Bankers for P65 million in 1987. The Bank granted P153 million in loans secured by promissory notes. Young attempted to sell consolidated shares to Benito Araneta; Araneta defaulted and demanded return of downpayment, plunging Young into financial distress. Young then borrowed P200 million from Insular Life, pledging his and co-stockholders’ shares, and executed a promissory note at 26% interest due in 120 days.
Nature of the MOA
On October 9, 1991, a MOA bound Insular Life (and its Pension Fund) to purchase 830,860 and 311,572 shares respectively, for P198 million, “subject to”:
- Young’s infusion of an additional P50 million capital into the Bank;
- Due diligence audit confirming only P60 million in doubtful loans;
- Young’s warranties as to paid-in capital, net worth, and doubtful loans;
- Execution of a formal Deed of Sale.
Conditions Precedent and Non-fulfillment
Audit revealed P340 million in check-kiting irregularities; Young failed to infuse the required P50 million; his warranties proved false. Under Civil Code Art. 1181, no obligation arises until suspensive conditions are satisfied. Because conditions precedent were unmet and no Deed of Sale was executed, the MOA remained a contract to sell, not a perfected sale.
Pledge Foreclosure and Auction Sale
Young acknowledged default by letter dated October 21, 1991, waiving the credit period. Insular Life notified him of public auctions on October 28 and 29 pursuant to Civil Code Art. 2112. Only Insular Life bid; shares were appropriated in satisfaction of the loan, and title consolidated in Insular Life’s name. BSP approved maintenance of the 99.82% shareholding.
Court of Appeals’ Rulings
The CA held the MOA valid despite non-compliance, applied Art. 1599 to deem Young’s debt fully paid by the P198 million sale proceeds, ordered Insular Life to pay Young P162 million (45% equity’s value), P5 million moral damages, and P1.5 million attorney’s fees, and declared other respondents’ loans fully paid. It later granted execution pending appeal.
Supreme Court’s Analysis
- MOA was conditional; failure of conditions negated any sale.
- No Deed of Sale or satisfaction of suspensive conditions prevented transfer of ownership.
- Insular Life validly foreclosed the pledge; single notice covering both auctions satisfied Art. 2112’s purpose.
- CA decision lacked clear statement of factual and legal bases in violation of Constitution Art. VII(14).
- Award of moral damages and attorney’s fees was unjustified: no fraud o
Case Syllabus (G.R. No. 140964)
Parties
- Petitioners
• Insular Life Assurance Company, Ltd. (“Insular Life”)
• Insular Savings Bank (“the Bank”)
• Atty. Jacinto D. Jimenez (counsel and notary) - Private respondents (borrowers and minority stockholders)
• Robert Young and his associates: Gabriel La’o II, Arthur Tan, Lope Juban, Jr., Maria Lourdes Ongpin, Antonio Ongpin, Elsie Dizon, Yolanda Bayer, Cecilia Viray, Manuel Viray, Jose Vito Borromeo
Facts of the Case
- December 1987: Young and co-respondents purchase Home Bankers Savings and Trust Co. from the Licaros family for ₱65 million, acquiring 55% equity; Jorge Go’s group holds the remaining 45%.
- The Bank extends individual loans totalling ₱153 million to Young’s group, secured by promissory notes.
- December 1990–February 1991: Benito Araneta offers to buy 99.82% of the Bank for ₱340 million, pays ₱14 million down, then backs out and demands refund.
- Young borrows ₱170 million from Interbank to finance purchase of the 45% equity from Jorge Go’s group; loan matures and triggers financial distress.
- August 27, 1991: Insular Life, through its affiliate Asian Oceanic Investment House, Inc., extends a ₱200 million secured loan to Young under a Credit Agreement.
• Pledge of 1,324,864 shares (99.82% of Bank stock) as collateral
• Promissory note at 26% per annum, due 120 days from execution
• Right of first refusal over pledged and future‐issued shares - October 1, 1991: Insular Life and its Pension Fund express intent to acquire 30% and 12% of Bank shares, subject to due diligence.
- October 9, 1991: Memorandum of Agreement (“MOA”) executed—Insular Life agrees to purchase 830,860 shares and the Pension Fund 311,572 shares for ₱198 million, subject to:
• Representation that, as of September 30, 1991, the Bank’s paid-in capital is ₱157,714,900, net worth ₱114,801,539, and doubtful loans provisioned at ₱60 million
• Condition precedents: Young must infuse ₱50 million additional capital and Insular Life must complete due diligence within 60 days - October 11–17, 1991: Due diligence uncovers P340 million in check-kiting irregularities; Bank board meets; Young admits responsibility, tenders resignation and offers additional shares as security (resignation deferred).
- October 21–29, 1991: Young waives loan term, declares default; Insular Life forecloses the pledge by public auction notices combining both auction dates; as sole bidder, Insular Life appropriates all pledged shares plus 250,000 new shares.
- November 1991–December 1991: Bangko Sentral ng Pilipinas approves Insular Life’s 99.82% ownership; Insular Life infuses ₱325 million into the Bank; Young’s resignation as