Development Bank of the Philippines v. CA

DBP v. CA

(G.R. No. 126200)

FACTS OF THE CASE

For failure of Marinduque Mining to settle its loan obligations, PNB and DBP instituted sometime on July and August 1984 extrajudicial foreclosure proceedings over the mortgaged properties.

 At the public auction sale conducted on September 18, 1984 on the foreclosed personal properties of MMIC, the same were sold to PNB and DBP as the highest bidder in the sum of P678,772,000.00. 

PNB and DBP thereafter thru a Deed of Transfer dated August 31, 1984, purposely, in order to ensure the continued operation of the Nickel refinery plant and to prevent the deterioration of the assets foreclosed, assigned and transferred to Nonoc Mining and Industrial Corporation all their rights, interest and participation over the foreclosed properties of MMIC located at Nonoc Island, Surigao del Norte for an initial consideration of P14, 361,000,000.00. 

In the meantime, between July 16, 1982 to October 4, 1983, Marinduque Mining purchased and caused to be delivered construction materials and other merchandise from Remington Industrial Sales Corporation (Remington) worth P921, 755.95.  The purchases remained unpaid as of August 1, 1984 when Remington filed a complaint for a sum of money and damages against Marinduque Mining for the value of the unpaid construction materials and other merchandise purchased by Marinduque Mining, as well as interest, attorney’s fees and the costs of suit. Remington in this case alleged that, co-defendants PNB, DBP NMIC, Maricalum and Island Cement being all corporations created by DBP in the pursuit of business ventures should not be allowed to ignore the financial obligations of  MMIC whose operations co-defendants PNB and DBP had highly financed before the alleged extrajudicial foreclosure of defendant MMIC’s assets, machineries and equipment to the extent that major policies of co-defendant MMIC were being decided upon by co-defendants PNB and DBP as major financiers who were represented in its board of directors forming part of the majority thereof which through the alleged extrajudicial foreclosure culminated in a complete take-over by co-defendants PNB and DBP bringing about the organization of their co-defendants NMIC, Maricalum and Island Cement to which were transferred all the assets, machineries and pieces of equipment of co-defendant MMIC to the prejudice of creditors of co-defendant MMIC such as plaintiff Remington Industrial Sales Corporation.

ISSUE

Whether the existence of interlocking directors between the creditor, DBP, and the debtor, MMIC, prejudiced the interest of another creditor, Remington.

RULING

No. Two principles in corporation law were mentioned in this case.  The first pertains to transactions between corporations with interlocking directors resulting in the prejudice to one of the corporations. This rule does not apply in this case, however, since the corporation allegedly prejudiced (Remington) is a third party, not one of the corporations with interlocking directors (Marinduque Mining and DBP). The second principle invoked by respondent court involves “directors… who are creditors” which is also inapplicable herein.  Here, the creditor of Marinduque Mining is DBP, not the directors of Marinduque Mining. Neither do we discern any bad faith on the part of DBP by its creation of Nonoc Mining, Maricalum and Island Cement.  As Remington itself concedes, DBP is not authorized by its charter to engage in the mining business. The creation of the three corporations was necessary to manage and operate the assets acquired in the foreclosure sale lest they deteriorate from non-use and lose their value.  In the absence of any entity willing to purchase these assets from the bank, what else would it do with these properties in the meantime?  Sound business practice required that they be utilized for the purposes for which they were intended.