THE INTERNATIONAL CORPORATE BANK, INC., PETITIONER, VS. THE HONORABLE COURT OF APPEALS AND EMERITO B. RAMOS, JR., RESPONDENTS.

The petition before Us docketed
as G.R. No. 94676 was filed by a consortium of banks. It was ordered consolida­ted with the petition submitted by the
International Corpo­rate Bank, Inc. in G.R. No. 94461 (p. 69, Rollo in G.R. No.
94676) inasmuch as both petitions
assail the identical decision of respondent Court of Appeals in CA-G.R. No.
20480 (Lombos-de la Fuente, Lapeña, Jr., and Victor [P], JJ.), rendered
on July 20, 1990, affirming the judgment of the court of origin in its entirety
(pp. 54-64, Rollo in G.R. No.
94461; pp. 40-52, Rollo in G.R.
No. 94676).

Herein petitioners advance the legal proposition that they cannot
be held accountable for the pecuniary sums sought to be recovered by herein
private respondent since responsibility therefor cannot be inferred from the
Memorandum of Agreement signed on April 28, 1970 (p. 5, Brief for Interbank; p.
90, Rollo in G.R. No. 94461) and the compromise agreement executed between
Emerito B. Ramos, Jr. and the consortium on June 10, 1970 (p. 40, Rollo in G.R.
No. 94461).

How the legal squabble over the proper interpretation of the
abovementioned covenants materialized is tersely described by respondent court,
and in view of herein petitioners’ frank representation that no factual issue
is involved (p. 1, Petition; p. 107,
Rollo in G.R. No. 94676), We hereby adopt the findings thereon of the appellate
court:

“This is an appeal from the decision dated October 28, 1988 of the
Regional Trial Court, Branch 85, Quezon City in Civil Case No. Q-50933,
entitled ‘Emerito B. Ramos, Jr., plaintiff versus Visayan Integrated Steel
Corporation, Far East Bank & Trust Company, Philippine Commercial
International Bank, Prudential Bank & Trust Company, City Trust Banking
Corporation, United Coconut Planters Bank, Associated Bank, Insular Bank of
Asia & America, International Corporate Bank, Commercial Bank of Manila,
Bank of the Philippine Islands, Equitable Banking Corporation, defendants’, for
sum of money.

As gleaned from the records, the factual antecedents of this case
are as follows:

Sometime in 1959, a steel process­ing plant was established by the
Concon family in the town of Cortes, Bohol under the corporate name Southern
Industrial Projects, Inc. (SIP for brevity). Initially, SIP was successful in its venture and to expand and integrate
further its steel operations, SIP organized another company, Southern Rolling
Mills, Inc., renamed Visayan Integrated Steel Corporation or VISCO.

Financial support by way of loans, financing of imports and other
receiva­bles were extended by the eleven (11) creditor banking institutions,
named as defendants herein. As security
for the repayment of the obligations, VISCO and SIP mortgaged their
machineries, plant and equipment in Cortes, Bohol to the defendant banks.

Somehow VISCO and SIP defaulted in the payment of their loans to
the banks and credit was eventually cut-off. VISCO and SIP floundered and eventually had to close up.

Emerito B. Ramos, Jr., the plain­tiff herein, came in. He was allowed by the former stockholders to
manage the business of VISCO. Still, he
was not able to lift VISCO off the ground.

It was at this point in
time that the creditor banks, the defendants herein, banded themselves
into a creditor’s consortium to ensure that bank credits are preserved and the
collaterals remained intact. The consortium of banks took over
management of VISCO through a board of trustees.

On May 27, 1970, VISCO and the board of trustees of the consortium
banks executed a Voting Trust Agreement, Exhibit ‘A’ for the purpose of:

‘Whereas, the undersigned stockholder believes that it is essential
for the success of VISCO and for the best interest of all the stockholders
thereof that VISCO shall be managed and directed during the next five (5) years
under a definite policy in order to properly develop further the rights,
property, business and earning capacity of VISCO and that a safe and prudent
management and control of VISCO in the mutual interest of VISCO (SIP) and all
other stockholders may be held and maintained.’

Consortium’s board of trustees was then prepared to take over the
management of the business and affairs of VISCO. But plaintiff Emerito B. Ramos, Jr., who was then managing VISCO
and in possession of its assets refused to relinquish the control and
management of VISCO to the Consortium unless he recovers the cash advances he
made for VISCO during the time he was managing its affairs.

Arrangements were made for
the satisfaction of the plaintiff’s advances and a Memorandum of
Agreement, Exhibit ‘1’ was executed between the plaintiff and Consortium, the
pertinent portions of which read:

‘1. The BOARD shall cause the reorganized VISCO
to recognize the total advances made by RAMOS as they shall be determined and
verified by Sycip, Gorres, Velayo & Co. VISCO shall be deemed to
be reorgan­ized once the BOARD has effect­ive
control of VISCO and has obtained physical possession of the company’s
assets.

‘2. RAMOS agrees to receive non-interest
bearing notes to cover the total of the verified advances made, and RAMOS shall
have no further claims against VISCO not covered by these notes.

‘3. The BOARD shall cause the reorganized VISCO
to issue the non-interest bearing notes to RAMOS with maturities, or due dates,
on the same payment basis as the claims of the banks against VISCO.

‘4. The BOARD will cause the reorganized VISCO
to issue the notes to RAMOS upon the signing by the BOARD and the Japanese
group of the memo-agreement covering the latter’s participation in the
rehabilitation of VISCO.

‘5. It is expressly under­stood that if the
agreements called for in paragraph 4 above is not reached at all, RAMOS and the
BOARD will be restored to their original rights and standing without
unnecessary delay.

‘6. The BOARD shall cause its members banks to
discount the notes issued by the reor­ganized VISCO to RAMOS up to the extent of one-third (1/3) of the total
verified claim under terms and conditions acceptable to the parties concerned.’

However, in the implementation of the Memorandum of Agreement,
controversy arose between plaintiff and consortium on the discounting of the promissory notes mentioned in
paragraph 6 of the said agreement. This
controversy was solved with the execution of the Compromise Agreement, Exhibit
‘B’, whereby the parties agreed that –

‘a.
Upon signing of this agreement, the BOARD will cause the reorganized VISCO to
issue to RAMOS non-interest bearing promissory notes with the sum of FIVE
HUNDRED THOUSAND PESOS (P500,000.00), and will cause its member banks to
discount two-thirds (2/3) of the said notes thirty (30) days after signing of
this agreement, and the remaining one-third (1/3) to be discounted upon signing
of the agreement between the reorganized VISCO and a Japanese group covering
the rehabilitation of the company. The
notes will be issued as follows:

‘(1) P150,000, due December 31, 1971 to be
discounted 30 days after.

‘(2) P150,000, due December 31, 1972, to be
discounted 30 days after.

‘(3) P50,000, due December 31, 1973, to be
discounted 30 days after.

‘(4) P100,000, due Decem­ber 31, 1973, to be
discounted upon signing with Japanese.

‘(5) P50,000, due December 31, 1974, to be
discounted upon signing with Japanese.

‘It is understood that notes to cover the balance of the RAMOS
account will be issued only after the final report of SGV is received by
VISCO.’

Plaintiff complied with his obligations under the Compromise
Agreement. Consortium enabled plaintiff
to negotiage (sic) these promissory notes (Exhibits “C”, “C-1” and “C-2”) in
the total sum of P350,000.00. However,
the two other promissory notes, Exhibits “C-3” and “C-4” were not discounted
because instead of rehabilitating VISCO in joint venture with a Japanese group,
as provided in the Compromise Agreement, Consortium foreclosed the mortgage on
September 23, 1980 and acquired VISCO’s assets as the highest bidder. Eventually, Consortium sold the assets to
National Steel Corporation on June 27, 1985.

Hence, on June 5, 1987, plaintiff filed a complaint, which was
later amended, against the Consortium banks for recovery of the amount of
P1,495,292.70 as the remaining balance of plaintiff’s advances made to VISCO,
plus compensatory, moral, nominal and exemplary damages, including attorney’s
fees.

Defendants VISCO and
Insular Bank of Asia and America (IBAA) were declared in default for
failure to file their answer. However,
defendant Philippine Commercial and International Bank (PCIB) manifested that
it has absorbed IBAA.

The other defendant-banks set up almost identical or similar affirmative defenses in
their answer, to wit:

‘1)  that plaintiff has no cause of action;

‘2)  that the cause of action, if any, is barred
by prescription or laches;

‘3)  that plaintiff’s claims are enforceable
against VISCO;

‘4)  that plaintiff’s advances are, ordinarily
unsecured claims inferior to the secured claims of defendant banks;

‘5) that under the
compromise agreement, if no agreement for the rehabilitation of VISCO is
reached with the Japanese investors, plaintiff and defen­dant banks are to be
restored to their original rights.

After trial, decision was rendered on October 28, 1988 by the court
a quo, the dispositive portion of which
reads, thus:

‘WHEREFORE, premises considered, judgment is hereby rendered in
favor of the plain­tiff and against the consortium defendant banks, ordering
the latter to pay the former, jointly
and severally, as follows:

‘1. The sum of P1,151,071.97, with interest
thereon per annum at the legal rate computed from June 27, 1985 until fully
paid; and

‘2. The
sum of P100,000.00, as and by way
of attorney’s fees, plus costs.

‘SO ORDERED.’

In assailing the lower court’s
de­cision in this appeal, defendants Philippine Commercial International Bank
(PCIB), Far East Bank & Trust Company (FEBTC), Prudential Bank, Bank of the
Philippine Islands (BPI), City Trust Banking Corporation, Equitable Banking
Corporation & Commercial Bank of Manila (now Boston Bank of the
Philippines) raised the following assignment of errors:

I

THE LOWER COURT ERRED IN FINDING THAT THE OBLIGATION TO PAY
ADVANCES OF PLAINTIFF WHILE ORIGINALLY BELONGING TO VISCO WAS ASSUMED BY THE
CONSORTIUM OF CREDITOR BANKS.

II

THE LOWER COURT ERRED IN FINDING THAT THERE WAS CONSTRUCTIVE
FULFILLMENT OF CONDITION.

III

THE LOWER COURT ERRED IN HOLDING THAT THE OBLIGATION OF THE
CONSORTIUM OF BANKS IS SOLIDARY.

Defendant International Corporate Bank, Inc. also appealed,
ascribing to the lower court the following errors:

I

THE LOWER COURT ERRED IN HOLDING THAT THE OBLIGATION EVIDENCED BY
THE PROMISSORY NOTES WAS ASSUMED BY DEFENDANT BANKS.

II

THE LOWER COURT ERRED IN HOLDING THAT THE OBLIGATION EVIDENCED BY
THE PROMISSORY NOTES IS THE JOINT AND SOLIDARY LIABILITY OF VISCO AND DEFENDANT
BANK.

III

THE LOWER COURT ERRED IN CONCLUDING THAT PAYMENT OF THE TWO (2)
PROMISSORY NOTES (EXHIBITS “C-3” AND “C-4”) AND THE BALANCE OF P1,007,071.97
WAS MADE DEPENDENT UPON THE SIGNING OF AN AGREEMENT WITH A JAPANESE GROUP.

IV

THE LOWER COURT ERRED IN NOT FINDING THAT PLAINTIFF’S ACTION WAS
ALREADY BARRED BY PRESCRIPTION.

V

THE LOWER COURT ERRED IN NOT HOLDING THAT PLAINTIFF IS GUILTY OF
LACHES.

Plaintiff likewise challenged the lower court’s decision in denying
plain­tiff’s claim for actual damages in the amount of P3,475,346.61.

The assigned errors raised by the defendants may be summed up in
the sole and threshold issue as to whether or not the defendant banks are
liable to plain­tiff, as aptly stated by the court a quo.” (p. 6 Decision in CA-G.R. CV No. 20480; p. 57, Rollo in G.R. No. 94461.)

In affirming the judgment of the court of origin, it was
respondent court’s perception that herein petitioners should not be permitted
to shift the burden of paying the amounts demanded by private respondent from
its shoulders to the Visayan Integrated Steel Corporation (VISCO), consi­dering
that Emerito B. Ramos, Jr. relinquished possession
and control of VISCO in exchange
for the assurance of the consortium, through its Board of Trustees which signed
the compromise agreement, that it will take care of VISCO’s obligation to
private respondent Ramos. Moreover,
respondent court brushed aside herein petitioners’ attempt to negate the rest
of the conditions imposed under the covenant, reasoning that petitioners have
no adequate basis to discontinue paying the sum of P150,000.00 covering the remaining two promissory
notes, including the balance of P1,157,071.97 as ascertained by Sycip, Gorres, Velayo and Co. because
the consortium paid private respondent the three promissory notes in the
aggregate amount of P350,000.00. Estoppel was thus applied by respondent court to seal petitioners’ lips
of protest along this line. Furthermore, the fact that the Japanese Group did not participate in the
joint venture towards rehabilitation
of VISCO was not considered by respondent court as a legal justification for
petitioners’ refusal to pay the balance because the consortium itself rendered
impossible the fulfillment of such condition when it foreclosed on VISCO’s
property on September 23, 1980, acquired its assets, and sold them on June 27,
1985, in favor of National Steel Corporation without notice to private
respondent and more importantly, in lieu of the consortium’s plan of
rehabilitating VISCO together with the Japanese Group.

Anent the aspect of prescription and the question of whether
petitioners’ liability is joint or solidary, we have the following disquisition
from Justice Victor:

“Has prescription or laches barred plaintiff from pursuing his
claim?

We do not think so. Plaintiff
was not duly informed that there was failure of the Japanese Group to
participate in the rehabilitation of the VISCO. Also, appellants foreclosed their mortgages without notice to plaintiff. Neither was plaintiff informed of the sale
of VISCO’s assets to the National Steel Corporation for P18,000,000.00 (TSN, p.
13, February 23, 1988). The sale was
made on June 27, 1985. Thus, the right
to recover from appellants on the balance unpaid under the compromise agreement
accrued on June 27, 1985 when the payment of P1,157,071.97 became due and
demandable from appellants who by their unilateral act repudiated the agreement. Prescription therefore must be reckoned from
the time of repudiation to terminate the agreement which, in this case, became
absolute when appellants sold VISCO’s assets to National Steel Corporation on
June 27, 1985. And since the complaint
in this case was filed on June 5, 1987 neither prescription nor laches bar the
prosecution of plaintiff’s claim.

We are not impressed by appellants’ asseveration that their
obligation is not solidary. By the
nature of the compromise agreement, appellants, through a board of trustee,
assumed jointly and severally the obligation of VISCO in favor of plaintiff. The appellants’ board of trustees represents
the interest of the consortium banks as a whole and not distinct and separate
from each other, but an extension of the personality of all the banks in the
consortium. We agree with the lower
court’s ruling in this wise:

‘The obligation is solid­ary or in the concept of ‘one for all, all
for one’, because of its nature and the wording of the Compromise Agreement
(Article 1207, New Civil Code of the Phil.). Defendant banks formed a group, known as the Consortium of VISCO, and
acting as one, entered into the agree­ment and assumed the obligation to pay,
for VISCO, as a Consor­tium. The ‘Board
of Trustees’, which executed the Compromise Agreement, bound its member banks
as a group, not indivi­dually or separately.’

Besides, the payment of P350,000.00 to plaintiff, as adverted to
herein, was made by appellants not as individual banks but in solidum, as a
consortium.” (pp. 62-63, Rollo in G.R. No. 94461)

Hence, this petition which ascribes five errors supposedly
committed below, in that:

I

RESPONDENT COURT OF APPEALS ERRONEOUSLY
HELD THAT PETITIONERS THROUGH THEIR BOARD OF TRUSTEES, AGREED TO ISSUE TO
PRIVATE RESPONDENTS PROMISSORY NOTES VALUED AT P500,000.00 TO BE DISCOUNTED ON
DUE DATES;

II

THE THREE (3) BASIC DOCUMENTS RELIED UPON BY
THE PRIVATE RESPONDENT TO SUPPORT HIS CLAIM AGAINST THE PETITIONERS — VOTING
TRUST AGREEMENT (EXHIBIT “A”) MEMORANDUM OF AGREEMENT (EXHIBIT “1”, INTERBANK)
AND COMPROMISE AGREEMENT (EXHIBIT “B”) NEVER PROVIDED FOR THE ASSUMPTION BY
PETITIONERS OF THE OBLIGATION OF VISCO TO THE PRIVATE RESPONDENT TO PAY THE
LATTER P1,157,071.97.

III

RESPONDENT COURT OF APPEALS ERRONEOUSLY
INTERPRETED A “COMMITMENT TO DISCOUNT PROMISSORY NOTE” AS ASSUMPTION OF
LIABILITY.

IV

THE FINDINGS OF THE TRIAL COURT -?
SANCTIONED BY THE RESPONDENT COURT OF APPEALS — THAT THERE WAS CONSTRUCTIVE
FULFILLMENT OF THE RESOLUTORY CONDITION DOES NOT CURE THE FATAL INFIRMITY OF
THE DECISION SOUGHT TO BE REVIEWED HEREIN.

V

THE TRIAL COURT AND RESPONDENT COURT OF
APPEALS DEPARTED FROM THE ORDINARY COURSE OF JUDICIAL PROCEEDING WHEN THEY
FAILED TO UPHOLD THE DEFENSE OF PETI­TIONERS THAT THE CAUSE OF ACTION OF PRI­VATE
RESPONDENT, IF ANY HAS PRESCRIBED.

With respect to the first, second, and third assigned errors,
petitioners point to the promissory notes to buttress their contention that it
was VISCO, not the consortium, which issued the undertaking to pay the face
value thereof, thereby suggesting that petitioners should not be ordered to pay
the remaining balance demanded by private respondent. At first blush, it would appear that VISCO is directly
responsible to private respondent for the amounts specified in the promissory
notes, judging from a mere reading thereof (p. 119, Rollo in G.R. No. 94676). However, a close scrutiny of the other documents
from which these “notes” were derived would indicate that the Board of Trustees
of the consortium, referred to in the
compromise agreement as the board of the reorganized VISCO, is supposed to absorb all the obligations of VISCO to private respondent. Certainly, paragraphs 3 and 4 of the
Compromise Agreement attest to
petitioners’ liability:

“3. Together with the delivery of the corporate
records and the assets of the corporation the reorganized VISCO shall be
deemed to have taken over supervision and control of the present staff of
VISCO.

4. It is hereby further understood and agreed
that the total liability of the reorganized VISCO to RAMOS, which shall
be deemed included to be as veri­fied and determined by the Sycip, Gorres,
Velayo and Co., shall include all cash payments made by RAMOS for VISCO up to
the filing of this agree­ment, free of any interest charge.”

(pp. 41-42, Rollo in G.R. No. 94461.)

because it would be absurd to suppose
that the reorganized VISCO is
controlled by some corporate entity other than the banks represented by the
Board of Trustees of the consor­tium. Withal, it is clear from the “WHEREAS” clause which reads:

“. . . while
according to the BOARD the
discounting of said P500,000 of said promissory notes would only be allowed by
them after the creditors consortium had reorganized the VISCO by electing a
new board and taken physical delivery of the records and assets of the corporation and finally after signing of the
agreement with a Japanese firm covering the rehabilitation of VISCO;”

(p. 40,
Rollo in G.R. No. 94461; under­scoring supplied.)

that indeed, the Board of Trustees took
the cudgels for VISCO vis-a-vis the moribund company’s liability to
private respondent albeit it was made to appear that it was VISCO which was
indebted under the promissory notes. Surely, private respondent cannot be expected to get his cash advances
from VISCO considering its insolvent condition. Moreover, if We are to pursue the theory of petitioners, they
will be unjustly enriching themselves at the expense of private respondent (Article
2142, Civil Code) who was anticipating restitution of his cash advances in
exchange for relinquishing control over the assets of the company in favor of
the Board of Trustees, especially so when private respondent could no longer
backtrack and obliterate his signature on the covenant due to the caveat
under paragraph 2(b) thereof:

“that the notes will be discounted at 14%, on an annual basis, and
without recourse to RAMOS, considering that the turnover of the physical
control of the assets and records of VISCO from RAMOS to the BOARD will be
final and irrevocable once made upon
signing of this agreement.”

(p. 41,
Rollo in G.R. No. 94461; Under­scoring supplied.)

In addition, petitioners acknowledged that the three promissory
notes were discounted as agreed upon (p. 9, Brief for Interbank; p. 90, Rollo in G.R. No. 94461). This admission in judicio is enough
to enjoin petitioners from reneging on the payment of the remaining
accountabilities in favor of private respondent (Article 1431, New Civil
Code; Section 4, Rule 129; Section 2(a), Rule 131, Revised Rules on Evidence;
Laurel v. Civil Service Commission, 203 SCRA 195; 203; 204; Magellan
Manufacturing Marketing Corporation v. Court of Appeals,
201 SCRA 102; 110) because it is a self-negating representation against
petitioners’ assertion that it should not continue to pay on the pretext that
VISCO must answer therefor or that its tie-up with the Japanese Group did not
push through. The scenario herein is
akin to the factual milieu in Ramos vs. Central Bank (41 SCRA 565;
587-588; cited in Central Bank vs. Court of Appeals, 106 SCRA 143; 155)
where the Central Bank committed itself to the continued operation and
rehabilition of the Overseas Bank of Manila, and later on reneged on that
promise. This Court therein ruled:

“Even in the absence of contract, the record plainly shows that the
CB made express representations to peti­tioners herein that it would support
the OBM, and avoid its liquidation if the petitioners would execute (a) the
Voting Trust Agreement turning over the management of OBM to the CB or its
nominees, and (b) mortgage or assign their properties to the Central Bank to
cover the overdraft balance of OBM. The
petitioners having complied with these conditions and parted with value to the
profit of the CB (which thus acquired additional security for its own advan­ces),
the CB may not now renege on its representations and liquidate the OBM, to the
detriment of its stockholders, depositors and other creditors, under the rule
of promissory estoppel (19 Am. Jur., pages 657-658; 28 Am. Jur. 2d,
656-657; Ed. Note, 115 ALR, 157).”

On the question of whether there was constructive fulfillment of
the condition under paragraph 2(a) of the compromise agreement, petitioners
demur to the findings of the appellate court and the trial court on this score,
contending that the signing of the joint venture for rehabilitation of VISCO
between the Board and the Japanese Group was to be done in 1970 or anterior to
the date of foreclosure in 1980. Hence,
petitioners entertain the notion that a paradigm in anachronism was seriously
committed below, and that the posterior foreclosure has no legal bearing to the
expected execution in 1970 of an agreement for a tie-up between the Board and
the Japanese Group. Yet, we are not
prepared to absorb a last ditch effort in this regard since, according to
respondent court, petitioners nonchalantly did not bother to establish on
record the alleged refusal of the Japanese Group to Participate in VISCO’s
rehabilitation, as no testimonial evidence was adduced in this connection by
all of the petitioners herein (p. 10, Decision; p. 61, Rollo in G.R. No.
94461). Thus, petitioners should not
now be allowed to rectify a crucial lapse by building blocks for defense
against private respondent’s assertive stance, which should have been
conceptualized earlier prior to rendition of the adverse judgment in the court
of origin. Withal, petitioners’
belated, nay, cold assertion for exculpation, is not the requisite quantum of
evidence that will merit serious consideration of this Court. Furthermore, it may be recalled that what
the Board of Trustees had in mind then was to rehabilitate VISCO from its
financial quagmire, but instead of discharging its noble task, it foreclosed on
the assets of VISCO which were then sold in 1985 to the National Steel
Corporation. These incidents, over
which petitioners are mute, are well within the ambit of Article 1186 of the New
Civil Code that:

“The condition shall be deemed ful­filled when the obligor
voluntarily prevents its fulfillment.”

The
lesson derived from the foregoing provision of law is that petitioners
should not be allowed to profit from their own fault to the prejudice of herein
private respondent.

Petitioners continue to advance the proposition that private
respondent’s cause of action has prescribed. But petitioners must concede that private respondent’s cause of action
arose only when that which should not have been done was performed or that which
should have been done was not accomplished (Bruner vs. Martin, 76 Kan.
862, 93 Pac. 165). This principle draws
a striking parallelism to the situation that obtained in the case at bar where
petitioners, instead of pursuing the envisioned rehabilitation of VISCO,
foreclosed on the corporate assets of VISCO and then sold these valuable assets
to National Steel Corporation. Under
these circumstances, We fully subscribe to the idea expressed below that
prescription, as a mode of extinguishing an obligation, must be reckoned only
from the moment petitioners repudiated the bilateral agreement when it sold the
assets in 1985. Obviously, the action
initiated by private respondent in 1987, or two years after the sale, is not
time-barred.

WHEREFORE, the consolidated petitions (G.R. No. 94461 and
94676) are hereby DISMISSED, with costs against petitioners.

SO ORDERED.

Bidin, Davide, Jr., and
Romero, JJ., concur.

Gutierrez, Jr., J., (Chairman), on
leave.