G.R. No. 193068 & 193099, February 1, 2017
DEVELOPMENT BANK OF THE PHILIPPINES and NATIONAL DEVELOPMENT CORPORATION, Petitioners, vs. STA. INES MELALE FOREST PRODUCTS CORPORATION, et al., Respondents.

FACTS

Galleon Shipping Corporation, financially distressed, obtained loans guaranteed by petitioner Development Bank of the Philippines (DBP). Respondents, as Galleon’s stockholders, executed a Deed of Undertaking to guarantee DBP’s potential liabilities. To rehabilitate Galleon, President Marcos issued Letter of Instructions (LOI) No. 1155, directing petitioner National Development Corporation (NDC) to acquire 100% of Galleon’s shares from the respondents for P46.7 million, payable after five years. It also directed DBP to advance Galleon’s loan obligations for three years and convert these advances into preferred shares.
Pursuant to the LOI, the parties executed a Memorandum of Agreement (MOA). NDC took control of Galleon’s board and management. However, NDC and DBP failed to finalize and execute the formal Share Purchase Agreement (SPA) stipulated in the MOA. Consequently, the purchase price was never paid, and respondents were not released from their counter-guarantees under the Deed of Undertaking. DBP eventually paid Galleon’s foreign obligations and demanded payment from respondents under the Deed of Undertaking.

ISSUE

Whether petitioners NDC and DBP are liable for damages for their failure to execute the formal Share Purchase Agreement and implement the terms of LOI No. 1155 and the MOA.

RULING

Yes. The Supreme Court affirmed the liability of NDC and DBP. The MOA created a conditional obligation for NDC to buy the shares, with the condition being the execution of the formal SPA. Under Article 1186 of the Civil Code, a condition is deemed fulfilled when the obligor voluntarily prevents its fulfillment. By failing to prepare and sign the SPA—an act entirely within their control—NDC and DBP prevented the condition from occurring. This made the obligation to purchase the shares and release the respondents from their guarantees immediately demandable.
Their inaction constituted a breach of the MOA and the governmental directive in LOI No. 1155. The respondents, having fully performed by ceding control of Galleon, suffered damages as they remained bound by their guarantees. The Court upheld the award of actual damages equivalent to the unpaid purchase price of P46.7 million, with legal interest. The petitioners, as government financial institutions, were not exempt from the application of the Civil Code on obligations and contracts. Their failure to act on an agreement they initiated and from which they benefited rendered them liable for the resulting damages to the respondents.