DEVELOPMENT BANK OF THE PHILIPPINES vs. STA. INES MELALE FOREST PRODUCTS CORPORATION

FACTS: On July 21, 1981, President Marcos issued Letter of Instructions addressed to the NDC, DBP, and the Maritime Industry Authority. To acquire 100% of the shareholdings of Galleon Shipping Corporation from its present owners. For the furtherance of the government’s policy to provide a reliable liner service between the Philippines and its major trading partners.

The Shareholders filed a complaint stating that NDC, “without paying a single centavo, took over the complete, total, and absolute ownership, management, control, and operation of defendant [Galleon] and all its assets, even prior to the formality of signing a share purchase agreement, which was held in abeyance because the defendant NDC was verifying and confirming the amounts paid by

plaintiffs to Galleon, and certain liabilities of Galleon to plaintiffs[.]”

The Regional Trial Court upheld the validity of Letter of Instructions No. 1155 and the Memorandum of Agreement executed by NDC and Galleon’s stockholders, pursuant to Letter of Instructions No. 1155.

NDC argues that Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal Holdings had no basis to compel it to pay Galleon’s shares of stocks because no share purchase agreement was executed.

ISSUES: 1) Whether or not the Memorandum of Agreement between NDC and Galleon was perfected;

2) Whether the execution of a share purchase agreement is needed to effect the transfer of Galleon’s shareholdings to NDC;

HELD: 1) Yes. The Supreme Court held that there exists a perfected contract as it reflects the intention of the parties.

When the “terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control.”

It is not disputed that NDC and respondents Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal Holdings executed a Memorandum of Agreement pursuant to the directives of Letter of Instructions No. 1155.

In Fernandez v. Court of Appeals further emphasizes that ” the important task in contract interpretation is always the ascertainment of the intention of the contracting parties and that task is of course to be discharged by looking to the words they used to project that intention in their contract, all the words not just a particular word or two, and words in context not words standing alone.” The Court of Appeals found that the Memorandum of Agreement between NDC and Galleon was a perfected contract for NDC to purchase 100% of Galleon’s shareholdings.

2) Yes. The Supreme Court ruled in affirmative but quickly pointed on the fact that NDC voluntarily caused delay of the execution of the share purchase agreement.

The Court of Appeals found that the Memorandum of Agreement between NDC and Galleon was a perfected contract for NDC to purchase 100% of Galleon’s shareholdings. However, a careful reading of the Memorandum of Agreement shows that what the parties agreed to was the execution of a share purchase agreement to effect the transfer of 100% of Galleon’s shareholdings to NDC, as seen in clauses of the Letter of Instructions.

The execution of a share purchase agreement was a condition precedent to the transfer of Galleon’s shares to NDC.

We uphold the Court of Appeals’ finding that the failure to execute the share purchase agreement was brought about by NDC’s delay in reviewing the financial accounts submitted by Galleon’s stockholders. The Memorandum of Agreement was executed on August 10, 1981, giving the parties no more than sixty days or up to October 9, 1981, to prepare and sign the share purchase agreement. However, it was only on April 26, 1982, or more than eight months after the Memorandum of Agreement was signed, did NDC’s General Director submit his recommendation on Galleon’s outstanding account. Even then, there was no clear intention to execute a share purchase agreement as compliance with the Memorandum of Agreement. Article 1186 of the Civil Code is categorical that a “condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfilment.” Considering NDC’s delay, the execution of the share purchase agreement should be considered fulfilled with NDC as the new owner of 100% of Galleon’s shares of stocks.