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

Case Summary (G.R. No. 183947)

Background and Loan Transaction

In 1995, MMC obtained an unsecured bridge loan of US$13.7 million from RCBC to finance mining equipment acquisition. MMC’s payment source was supposed to be a long-term loan from the Export-Import Bank (EXIM Bank), which ultimately was not granted due to an environmental incident (tailing spill) affecting MMC’s operations. Consequently, MMC provided collateral via chattel mortgages over mining equipment and pledged shares of stock. Later, RCBC sought to substitute these collaterals with MMC’s residential property in Forbes Park, which was itself mortgaged to Asian Development Bank (ADB).

Negotiations on Loan Payment Options

In July 1997, MMC proposed two payment options to RCBC:

Foreclosure on mortgaged assets, realizing about $11.6 million, with remaining obligations unsecured.
Involvement of MMC’s major shareholders to ensure definite repayment, including the assignment of Forbes Park property, staggered peso payments over up to two years, and certain interest payments.

RCBC expressed preference for the second option but raised concerns on accrued interest. MMC representatives indicated that a shareholder guarantor (Placer Dome) would require the release of mining equipment from RCBC upon RCBC’s acceptance of the Forbes Park property assignment. Discussions also included a condition that a shareholder (Bernardino) act as surety for two promissory notes executed between the parties.

Documentation and Execution of Agreements

MMC transmitted various documents for RCBC’s signature including:

Deed of Assignment over Forbes Park property.
Deed of Partial Release from Mortgage granted by MR Holdings Limited (successor to ADB).
Secretary’s Certificate appointing Attorney-in-Fact for relevant transactions.
Deed of Release from Mortgage over mining equipment, to be signed by RCBC.

RCBC signed only the Deed of Assignment but did not sign the Deed of Release from Mortgage. Bernardino subsequently executed surety agreements and promissory notes covering the balance of MMC’s obligation after Forbes Park property assignment.

Non-Performance and Demand for Payment

MMC failed to meet installment payments under the promissory notes falling due on November 24, 1997, February 23, 1998, and May 25, 1998. RCBC sent demand letters declaring the entire obligation due and requiring payment from MMC and Bernardino, as surety, including penalties.

Bernardino’s Complaint

Bernardino filed a complaint for specific performance and to declare the surety agreements null and unenforceable, alleging that a subrogation agreement was a condition precedent to his liability under the surety agreements and that RCBC refused to execute the subrogation agreement.

RTC Decision

The Regional Trial Court ruled in favor of Bernardino, holding that the alleged subrogation agreement was indeed a condition precedent to the enforceability of the surety agreements. Since RCBC refused to execute this subrogation agreement, the surety agreements were declared unenforceable. Bernardino was awarded moral and exemplary damages and attorney’s fees.

The RTC limited the issues before it, noting a separate pending case on whether RCBC was bound to release the mortgage on the mining equipment.

Court of Appeals Ruling

The Court of Appeals (CA) affirmed the RTC’s decision, agreeing that MMC had been led to believe that RCBC consented to the execution of a subrogation agreement and release of mortgage and pledge. The CA denied RCBC’s motion for reconsideration.

Issues on Review Before the Supreme Court

The key legal issue was whether a subrogation agreement was a condition precedent to Bernardino’s liability under the surety agreements.

Supreme Court’s Jurisdiction and Scope of Review

The Supreme Court emphasized its role is limited to reviewing questions of law, generally deferring to factual findings of lower courts unless such findings are based on speculation, manifestly mistaken, or misapprehension of facts. Given the circumstances, the Court found reason to re-examine factual evidence.

Burden of Proof and Preponderance of Evidence

As plaintiff, Bernardino bore the burden of proving the existence of a subrogation agreement as a condition precedent. The Court reiterated that the party asserting a fact must prove it by preponderance of evidence—the degree of proof sufficient to make the claim more likely true than not.

Bernardino failed to discharge this burden, as the purported subrogation agreement was neither explicitly contained in the signed surety agreements nor supported by credible and conclusive evidence.

Evaluation of Testimonies and Evidence

The Court analyzed testimonies from key witnesses:

Atty. DueAas’s testimony on a subrogation agreement was ambiguous and inconclusive.
RCBC’s witness Rojas’s minor lapses in memory did not undermine his credibility; he did not confirm any agreement on subrogation as a condition precedent.
Testimony about proposals and discussions lacked indication of a final binding agreement on subrogation.

The Court observed that mere discussions or proposals without acceptance do not constitute binding contracts—no meeting of the minds occurred regarding subrogation.

Contractual Interpretation and Parol Evidence Rule

The surety agreements were clear, unambiguous, and did not include provisions making the subrogation agreement a condition precedent. The Court invoked the parol evidence rule, which excludes prior or contemporaneous oral agreements that contradict or vary the terms of a written contract.

Bernardino did not plead exceptions to the parol evidence rule or allege ambiguity or mistake in the written contracts. Despite the admission of some parol evidence without objection, the Court evaluated its weight and found it insufficient to establish the alleged subrogation agreement.

Relation to Previous Supreme Court Rulings

The Court referenced its prior ruling in Rizal Commercial Banking Corporation v. Marcopper Mining Corporation, which rejected MMC’s claims that RCBC agreed to partially release mortgages and pledges upon assignment of the Forbes Park property — further undermining Bernardino’s claims.

Legal Principles on Suretyship and Subrogation

The Court explained the nature of suretyship under Article 2047 of the Civil Code: the surety is bound jointly and severally with the principal debtor but the obligation is accessory, not original.

Case Syllabus (G.R. No. 183947)

Nature of the Case and Procedural History

This case is a Petition for Review on Certiorari assailing the Decision dated June 10, 2008, and the Resolution dated July 22, 2008, of the Court of Appeals (CA) in CA-G.R. CV No. 88745.
The assailed decisions affirmed the Regional Trial Court (RTC), Branch 59, Makati City’s June 30, 2006 ruling in Civil Case No. 98-1851.
The RTC declared the comprehensive surety agreements between Rizal Commercial Banking Corporation (RCBC) and Teodoro G. Bernardino unenforceable because the subrogation agreement, a condition precedent, was not executed.
The CA denied RCBC’s appeal and motion for reconsideration, maintaining the RTC's ruling.
This Supreme Court petition primarily questions whether a subrogation agreement was indeed a condition precedent to Bernardino’s liability under the surety agreements.

Factual Background

In 1995, Marcopper Mining Corporation (MMC) obtained an unsecured bridge loan of US$13.7 million from RCBC to finance the acquisition of mining equipment.
The payment for this bridge loan was to come from a long-term loan from Export-Import Bank (EXIM Bank), which was not approved due to environmental incidents causing halting of MMC operations.
Concerned about the unsecured nature of the loan, RCBC requested collateral from MMC.
MMC provided a Deed of Chattel Mortgage over twelve (12) Rig Haul Trucks and one (1) Demag Excavator Shovel, and pledged shares of stocks through Deeds of Pledge.
RCBC sought to substitute these collaterals with MMC’s residential property in Forbes Park, which was mortgaged to the Asian Development Bank (ADB).
MMC proposed two options for loan payment, including realization of proceeds through foreclosure or a repayment scheme involving major shareholders and assignments of the Forbes Park property.
RCBC elected the second option but with concerns over accrued interest.
MMC and RCBC held meetings, discussing collateral substitution, surety arrangements involving Bernardino, and other terms, but no conclusive agreement was reached on subrogation.
MMC forwarded surety agreements, executed by Bernardino, and promissory notes to RCBC in August 1997.
RCBC returned some documents unsigned, notably the Deed of Release from Mortgage on mining equipment.
MMC requested the release of mortgaged mining equipment, contingent upon the assignment of Forbes Park property.
MMC failed to meet installment obligations on the promissory notes.
RCBC declared the whole loan amount due and demanded payment from MMC and Bernardino as surety.
Bernardino filed suit for specific performance and to declare the surety agreements unenforceable due to the absence of a subrogation agreement, a condition precedent he alleged.

Issues for Resolution

Whether the parties agreed upon the execution of a subrogation agreement as a condition precedent to Bernardino’s liability under the surety agreements.
Whether the comprehensive surety agreements are enforceable without a subrogation agreement.
Whether the trial court and the appellate court erred in their factual findings and legal conclusions regarding the burden of proof and the admissibility of parol evidence.
Whether Bernardino’s claim for moral and exemplary damages has basis.

Trial Court’s Ruling

The RTC recognized that a separate case involving MMC and RCBC resolved the issue concerning the release of mortgage and pledge.
The RTC limited its examination to the validity of the surety agreements executed by Bernardino.
It ruled in favor of Bernardino, holding that the subrogation agreement was a condition precedent.
The absence of such a subrogation agreement rendered the surety agreements unenf