G.R. No. 190286 - Reyes vs. Bancom Development Corp.

Case Summary (G.R. No. 190286)

Core Facts — Loans, Notes and Guaranty

Bancom underwrote loans to Marbella arising from Marbella’s condominium development financing. Marbella issued an initial set of promissory notes (24 May 1979 for P2,828,140.32), then successive replacement/renewal notes on 22 August 1979, 27 November 1979, and 28 February 1980 (final set reflecting P3,002,333.84). The Reyes Group executed a Continuing Guaranty in March 1979 guaranteeing Marbella’s obligations under the underwriting agreement and the notes, including instruments issued upon renewal, extension, amendment or novation.

Core Facts — Default and Complaint

Marbella failed to pay the notes at maturity. Because of continued nonpayment despite demands, Bancom filed a Complaint for Sum of Money with prayer for damages in the RTC of Makati on 7 July 1981, seeking total recovery in the amount of P4,300,247.35 against Marbella (principal) and the Reyes Group (guarantors).

Defense and Contractual Background

Marbella and the Reyes Group contended they were coerced into executing the notes and guaranty and argued the promissory notes represented “additional financing” tied to earlier agreements relating to Marbella II (Memorandum of Agreement dated 16 August 1977 and its Amendment). Their position was that Bancom, having benefitted from or controlled Fereit (the developer who failed to release receivables), should bear the consequences, and that Marbella merely assumed Fereit’s obligations and should be reimbursed by Fereit; hence guarantors should not be liable to Bancom for such amounts.

RTC Decision

The RTC (Decision dated 8 April 1991) rendered judgment holding Marbella and the Reyes Group solidarily liable to Bancom. The RTC ordered payment of P4,300,247.35 (amount indicated on promissory notes and demand computation) plus interest from 19 May 1981, penalties, and attorney’s fees.

Proceedings and Rulings Before the Court of Appeals

Marbella and the Reyes Group appealed. During CA proceedings, Bancom’s counsel moved to withdraw, citing loss of contact with Bancom and doubt about its corporate status; the CA granted withdrawal (Resolution 1 June 2004) after noting service attempts were returned. On the merits, the CA (Decision 25 June 2009) affirmed the RTC, emphasizing that the promissory notes and the guaranty were genuine and due execution undisputed, and that appellants failed to satisfy or pay their obligations. The CA rejected appellants’ defense that Fereit’s noncompliance excused payment, noting appellants did not pursue remedies against Fereit (e.g., third-party complaint) and that Fereit remained a separate corporate entity even if Bancom had some degree of control. The CA found the guaranty and notes clear and enforceable.

Issues Presented to the Supreme Court

(1) Whether the action should be deemed abated by reason of SEC revocation of Bancom’s Certificate of Registration. (2) Whether petitioners are liable to Bancom for (a) payment of loan amounts indicated on the promissory notes and (b) attorney’s fees.

Supreme Court Ruling — Abatement and Continuation of Suit

The Court denied the petition. On abatement, the Court held that revocation of a corporation’s certificate does not automatically abate pending suits. Under Corporation Code §122 a dissolved or charter-annulled corporation continues as a body corporate for three years for winding-up purposes including prosecuting and defending suits; further, jurisprudence permits appointed receivers, assignees, or trustees (including directors by legal implication or specifically designated trustees) to institute or continue suits beyond the three-year winding-up period. The Court observed that Bancom’s directors are trustees by legal implication and that there was no requirement that Bancom had to convey assets to trustees for the suit to proceed. Section 145 of the Corporation Code prevents dissolution from impairing rights or remedies in favor of the corporation; accordingly, the creditor-corporation’s right to recover survives dissolution and corresponding debtor liability endures. The return of the Supreme Court’s order served on Bancom as “non-existent address” led the Court to treat Bancom’s comment as waived but did not justify abatement.

Supreme Court Ruling — Liability of Guarantors and Contract Interpretation

On the merits, the Court affirmed the CA and RTC conclusions that the promissory notes and the Continuing Guaranty were clear, unambiguous and binding. Petitioners did not challenge genuineness or execution of the instruments, nor did they deny nonpayment. Their sole defense — that the funds were additional financing intended to remedy Fereit’s default and thus not binding on them — was rejected. The Court noted: (a) the promissory notes unconditionally obligated Marbella to pay Bancom on maturity; (b) the Continuing Guaranty unambiguously made guarantors immediately liable upon Marbella’s default; (c) the Memorandum of Agreement and its Amendment, even if considered, established that Marbella assumed obligation to pay additional financing and that Fereit’s obligation to reimburse Marbella was a separate remedial right for Marbella against Fereit; and (d) petitioners failed to present sufficient evidence of Bancom’s control over Fereit or to invoke available remedies against Fereit. The Court also

Case Syllabus (G.R. No. 190286)

Facts

The dispute arose from a Continuing Guaranty executed in favor of Bancom Development Corporation (Bancom) by members of the Reyes Group: Angel E. Reyes, Sr., Florencio Reyes, Jr., Rosario R. Du, Olivia Arevalo, and petitioners Ramon E. Reyes and Clara R. Pastor.
The Continuing Guaranty guaranteed the full and due payment of obligations incurred by Marbella Realty, Inc. (Marbella) under an Underwriting Agreement with Bancom.
Promissory Notes were issued by Marbella in favor of Bancom on several occasions: 24 May 1979 for P2,828,140.32; replacement notes on 22 August 1979 for P2,901,466.48; a third set on 27 November 1979 for P3,002,333.84; and a fourth set on 28 February 1980 for the same amount P3,002,333.84.
Marbella failed to pay the notes at maturity despite repeated demands by Bancom.
Bancom filed a Complaint for Sum of Money with a prayer for damages before the RTC of Makati on 7 July 1981 seeking payment of P4,300,247.35 against (a) Marbella as principal debtor and (b) the Reyes Group as guarantors.
Marbella and the Reyes Group claimed they were forced to execute the Promissory Notes and the Continuing Guaranty against their will.
Marbella and the Reyes Group contended that the Promissory Notes and guaranty should be read in relation to earlier Marbella II project contracts: a Memorandum of Agreement dated 16 August 1977 and an Amendment to that Memorandum.
The Marbella II contracts involved Bancom, the Reyes Group (owners of the land for the project), and Fereit Realty Development Corporation (Fereit), a sister company of Bancom, as construction developer and project manager.
The Marbella II venture encountered financial difficulties; Fereit allegedly failed to cause the release of receivables, which led Marbella to assume Fereit’s obligations and to seek additional financing from Bancom.
Marbella and the Reyes Group alleged Bancom took advantage of their financial distress and demanded execution of promissory notes and the Continuing Guaranty, although the additional financing was allegedly needed because of Fereit’s failure.
An Amendment of Memorandum of Agreement was presented where Fereit purportedly undertook to reimburse Marbella for the P2.8 million Marbella paid and for penalties, fees, and charges incurred in obtaining additional financing.

Instruments and Material Contractual Provisions

Continuing Guaranty (dated March 1979): guaranteed “Guaranteed Obligations” defined to include the Notes and Agreement and any instruments issued upon renewal, extension, amendment or novation; Section 2 provided that the Guarantor becomes immediately liable on demand if any Guaranteed Obligations are not paid on due date; Section 5 defined Guarantor default and tied it to issuer default.
Promissory Notes (24 May 1979; 22 August 1979; 27 November 1979; 28 February 1980): promissory form stating Marbella promised to pay Bancom specified sums at maturity; included demand and dishonor waived; provided 12% per annum interest on default, 20% penalty if not paid within 48 hours of maturity, penalty to earn interest at highest rate permitted by law; attorney’s fees provision of 10% of principal and interest if placed in hands of attorney for collection.
Memorandum of Agreement (16 August 1977) and its Amendment: provided that Bancom agreed to grant additional financing to Marbella in principal amount of P2,828,140.32 payable within three years and that Marbella’s obligation to pay was irrespective of Marbella realizing net profit on the Marbella II project; Fereit agreed to reimburse Marbella for principal plus interest, fees and charges, but Marbella would bear penalties, fees and other charges resulting from Marbella II default.

Chronology of Key Loan Transactions and Events

16 August 1977: Memorandum of Agreement concerning Marbella II project executed (and later amended).
March 1979: Continuing Guaranty executed by Reyes Group in favor of Bancom.
24 May 1979: First set of Promissory Notes issued by Marbella (P2,828,140.32).
22 August 1979: Replacement Promissory Notes issued (P2,901,466.48).
27 November 1979: Third set of Promissory Notes issued (P3,002,333.84).
28 February 1980: Fourth set of Promissory Notes issued (P3,002,333.84).
7 July 1981: Bancom filed Complaint for Sum of Money with RTC of Makati seeking P4,300,247.35.
8 April 1991: RTC Decision holding Marbella and Reyes Group solidarily liable and ordering payment with interest from 19 May 1981 and penalties and attorney’s fees.
1 June 2004: Court of Appeals granted motion of Bancom’s counsel, Abella Concepcion Regala & Cruz, to withdraw appearance due to loss of contact with client.
26 May 2003 / 31 May 2004: SEC revocation dates appear in the record — petitioners relied on revocation asserted in pleadings and later submitted Certificate of Corporate Filing/Information showing revocation on 26 May 2003; petitioners had earlier asserted revocation on 31 May 2004.
25 June 2009: Court of Appeals Decision denying appeal and affirming RTC.
17 February 2010: Supreme Court ordered Bancom to comment; service returned with postal notation “RTS - non-existent address.”
27 November 2009: Petition for Review on Certiorari filed before the Supreme Court.

RTC Ruling

The Regional Trial Court, in a Decision dated 8 April 1991, held Marbella and the Reyes Group solidarily liable to Bancom.
The RTC ordered payment of the amounts indicated on the Promissory Notes dated 28 February 1980 (total P4,300,247.35) plus interest from 19 May 1981 (date of demand), and awarded penalties and attorney’s fees.

Proceedings and Issues Raised Before the Court of Appeals

Marbella and the Reyes Group appealed the RTC Decision, asserting error in the trial court’s disregard of earlier agreements with Bancom and Fereit.
Appellants argued the Promissory Notes represented additional financing for Fereit’s obligations and thus they could not be held liable for those amounts.
In the CA proceedings, Bancom’s counsel moved to withdraw, asserting loss of contact with Bancom and that the corporation may have undergone a merger affecting counsel’s authority; the CA granted the motion on 1 June 2004 after noting returned mail to Bancom.
Petitioners argued nonliability based on the Memorandum of Agreement and its Amendment and contended Bancom should suffer consequences of Fereit’s non-performance rather than Marbella or guarantors.

Court of Appeals Decision and Reasoning

The CA, in a Decision dated 25 June 2009, denied the appeal and affirmed the RTC ruling.
The CA observed that the failure to pay under the Promissory Notes and the Continuing Guaranty, and the genuineness and due execution of these instruments, were undisputed.
The CA accepted that the appellants’ only defense rested on assertions concerning the Memorandum of Agreement, but found appellants did nothing to formally assert rights against Fereit (e.g., by filing a third-party complaint), indicating they did not treat Fereit’s noncompliance as affecting their liability to Bancom.
The CA emphasized that the promissory notes and the Continuing Guaranty were clear and unequivocal; obligati