TL;DR

The Supreme Court ruled in favor of United Coconut Planters Bank (UCPB), clarifying that E. Ganzon, Inc. (EGI) was obligated to transfer all 485 listed properties as per their Memorandum of Agreement (MOA) to fully settle their debt, regardless of the properties’ appraised value. The Court found that the MOA established an indivisible obligation for EGI to convey all listed properties, not just enough to match the debt’s value. While EGI was deemed to have made an excess payment after some property transfers, the Court adjusted the refundable amount by deducting foreclosure transaction costs borne by EGI under the MOA, but not dacion en pago costs. Ultimately, the ruling emphasizes the primacy of contract terms in debt settlements involving property transfers, highlighting that obligations must be fulfilled as agreed upon, and transaction costs are generally the debtor’s responsibility unless explicitly stated otherwise in dacion en pago contexts outside the original agreement.

Debt and Deeds: Unpacking Property for Loan Settlements

When E. Ganzon, Inc. (EGI) defaulted on substantial loans from United Coconut Planters Bank (UCPB), the parties entered into a Memorandum of Agreement (MOA) to settle the P915 million debt through the transfer of 485 properties. This case, United Coconut Planters Bank, Inc. v. E. Ganzon, Inc., revolves around the interpretation of this MOA and whether EGI overpaid its obligations when UCPB foreclosed on some properties and accepted others via dacion en pago. The central legal question is whether the MOA constituted a simple valuation of properties for debt settlement, or an indivisible obligation to transfer all listed properties, regardless of individual values. The Regional Trial Court (RTC) and Court of Appeals (CA) initially favored EGI, declaring an overpayment and ordering refunds. However, the Supreme Court took a different view, scrutinizing the intent and terms of the MOA itself.

The Supreme Court emphasized that the MOA was not a contract of adhesion, as EGI actively negotiated its terms. The agreement clearly stated EGI’s obligation was to convey all listed properties in exchange for the extinguishment of the total debt. The Court highlighted key provisions of the MOA, particularly Section 2.2, which stated,

Section 2.2. Consideration – In consideration for the transfer and conveyance of the Property in favor of the BANK, and the satisfactory performance by EGI of the obligations and undertakings set forth hereunder, the BANK hereby declares and confirms that the Obligation shall be deemed paid and extinguished.

This, according to the Supreme Court, indicated a clear intention for a complete debt settlement upon the transfer of all properties, irrespective of their appraised values. The Court interpreted the obligation as indivisible under Article 1225 of the Civil Code, focusing on the parties’ intent to settle the entire debt through the conveyance of specific, identified properties.

The Supreme Court differentiated between the foreclosure and dacion en pago transactions. It held that foreclosure was merely a mode of transferring titles under the MOA, not a valuation event. Thus, UCPB was correct to pursue foreclosure to facilitate the transfer of properties listed in the MOA. However, the Court also acknowledged that after the initial transfers, a remaining obligation of approximately P11.3 million existed because not all 485 properties were conveyed. This justified UCPB’s request for additional properties through dacion en pago to cover this remaining balance. Crucially, though EGI was found to have made an excess payment of P154.7 million based on property valuations, the Supreme Court adjusted this amount by deducting transaction costs related to the foreclosure, which Section 6.3 of the MOA explicitly stipulated were EGI’s responsibility. These costs, amounting to P72 million, significantly reduced the refundable excess payment to P82.7 million.

However, the Supreme Court sided with EGI regarding transaction costs for the dacion en pago of additional properties. The Court reasoned that because UCPB requested these additional properties for a relatively small remaining debt, charging EGI for these transaction costs would be disproportionate and inequitable. Moreover, the Court overturned the CA’s decision to award EGI the depreciated value of furniture and fixtures within the transferred condominium units, stating that the intent, as evidenced by EGI’s own letters, was to include these movables in the property transfer. Similarly, EGI’s claim for the value of 28 common areas (lobbies and parking slots) was denied, as the Court affirmed that these common areas belong to all unit owners under the Condominium Act and cannot be appropriated by EGI for individual benefit. Finally, the Supreme Court reversed the awards for moral damages, finding no basis for besmirched reputation for EGI, a juridical entity. However, it upheld temperate and exemplary damages, albeit reduced, and attorney’s fees, acknowledging EGI’s need to litigate and the need to deter similar bank actions in the future. The Court modified the legal interest rates in line with prevailing jurisprudence.

FAQs

For inquiries regarding the application of this ruling to specific circumstances, please contact Atty. Gabriel Ablola through gaboogle.com or via email at connect@gaboogle.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: United Coconut Planters Bank, Inc. v. E. Ganzon, Inc., G.R No. 244247, November 10, 2021