G.R. No. 171428 - Tankeh vs. Development Bank of the Philippines

Case Summary (G.R. No. 171428)

Petitioner

Dr. Alejandro V. Tankeh signed an assignment of shares and a promissory note to secure DBP’s $3.5 million loan. He contends he was fraudulently induced by his brother and excluded from company management, yet remains jointly liable for the loan.

Respondents

– Ruperto V. Tankeh: SSLI president and principal obligor.
– Development Bank of the Philippines: Lender and assignee of vessel earnings and voting shares.
– Sterling Shipping Lines, Inc.: Corporate borrower.
– Vicente L. Arenas: SSLI treasurer and later vice president.
– Asset Privatization Trust (APT)/Privatization Management Office: DBP’s successor in managing the loan.

Key Dates

– April 23, 1979: SSLI incorporation.
– May 12, 1981: Petitioner’s assignment of shares and promissory note.
– December 3, 1981: Deed of assignment of vessel earnings to DBP.
– June 16, 1983: Petitioner’s letter severing ties.
– January 4, 1996: Manila RTC Decision annulling petitioner’s obligations.
– October 25, 2005: Court of Appeals Decision reversing RTC.
– November 11, 2013: Supreme Court Decision.

Applicable Law

1987 Philippine Constitution; Civil Code of the Philippines on obligations and contracts (Articles 1338–1344 on fraud; Articles 19, 21 on good faith and abuse of rights; Articles 2219, 2229 et seq. on damages); Rules of Court, Rules 45 and 65 on certiorari and appeals.

Background of Loan and Security Requirements

To finance SSLI’s purchase of M/V Sterling Ace, DBP required a first mortgage, joint and several liability of key individuals (including petitioner), assignment of vessel earnings, and assignment of at least 67 percent of SSLI’s voting shares.

Participation of Petitioner in SSLI

Petitioner accepted 1,000 shares valued at ₱1 million and a director’s title based on Ruperto’s assurances of active administrative involvement. He signed the assignment of shares and, later, the promissory note.

Commercial Transaction and Formal Agreements

SSLI executed a mortgage contract and deed of assignment in favor of DBP. The vessel was acquired for $5.3 million, partially financed by the DBP loan; SSLI’s cash equity and pre-operating expenses covered the balance.

Dispute Arising from Exclusion and Vessel Sale

Petitioner claimed he never participated in board meetings beyond an introductory session and received no director’s compensation. He protested SSLI’s failure to remit vessel earnings, its negotiated sale of M/V Sterling Ace at a grossly undervalued price, and sought release from liability.

Procedural History: Trial Court Findings

The Manila RTC found that Ruperto induced petitioner’s consent through fraudulent promises, that SSLI and DBP failed to comply with contract terms, and that petitioner consistently disavowed ratification. It annulled the promissory note and mortgage as to petitioner and denied all counterclaims.

Procedural History: Court of Appeals Decision

The Court of Appeals held that petitioner signed voluntarily with full understanding, that the promised shares and directorship were conferred, and that no fraud by Ruperto or other respondents was proven by clear and convincing evidence. It dismissed petitioner’s complaint.

Issues on Fraud Allegations

The Supreme Court identified whether Ruperto’s conduct amounted to causal fraud (dolo causante) rendering the contract voidable, or incidental fraud (dolo incidente) giving rise to damages. It also addressed the proper remedy—Rule 45 review rather than Rule 65 certiorari.

Legal Principles on Fraud

Under Civil Code Article 1338, fraud is insidious machination inducing consent. Causal fraud vitiates consent and requires clear and convincing proof; incidental fraud obliges the wrongdoer to pay damages. Incidental or exaggerated trade talk, when the other party can verify facts, is not fraud.

Application to Present Case

No causal fraud (dolo causante) was established: petitioner knowingly accepted shares without investing capital, signed documents voluntarily, and had the means to inquire into SSLI’s affairs. Thus, his obligations were not voidable.

Findings on Dolo Causante

Petitioner’s consent was not the product of serious deception. He was an experienced businessman, fully aware of the terms he signed. The record lacks evidence that Ruperto employed machinatio