G.R. No. 118357 (1997)
Topics:
Contract of sale, assignment, rescission
Summary:
Petition for review on certiorari of CA Decision affirming in toto RTC decision in favor of Industrial Enterprises. The RTC found PNB and Marinduque Mining jointly and severally liable to Industrial Enterprises.
Doctrines:
Contract of sale, assignment, rescission of assignment, chattel mortgage, mortgage pari passu
Facts:
Jesus Cabarrus founded Marinduque Mining and Industrial Corporation (MMIC) in 1991. Subsequently, he established J. Cabarrus, Inc. which was renamed Industrial Enterprises, Inc. (IEI). Cabarrus and his family owned about 12% to 14% of the shares of stock in the MMIC where he was the President. He was also the President of IEI.
In 1979, IEI entered into a coal operating contract with the Bureau of Energy Development (BED), pursuant to the Coal Development Act of 1976. Said contract covered 2,000 hectares of two (2) coal blocks in Barrio Carbon, Magsaysay, Eastern Samar.
While exploring this area, IEI found the adjacent areas as coal potentials. Hence, IEI filed an application for another coal operating contract and simultaneously applied for the conversion of its July 27, 1979 coal operating contract from exploration to development/production. All of these coal blocks were collectively known as the Giporlos Coal Project.
However, in 1983, Minister Velasco informed Cabarrus that IEI’s application had been disapproved and that the contract would be awarded to MMIC. Meanwhile, IEI’s application for the conversion of its coal operating contract for the Giporlos area had been put “under advisement” in the light of the ongoing discussion for the transfer of IEI’s rights and obligations to MMIC.
Later on, MMIC and IEI, through Chairman Zalamea and President Cabarrus, entered into a Memorandum of Agreement (MOA) where IEI assigned to MMIC all its rights and interests under the July 27, 1979 coal operating contract.
Eventually, MMIC took over possession and control of the two (2) coal blocks even before the MOA was finalized. MMIC stopped all works and dismissed the work force, leaving only a caretaker crew. Consequently, IEI made written demands to MMIC, pursuant to the MOA, for the reimbursement of all costs and expenses incurred on the project. IEI then filed a complained against MMIC for its failure to comply with its obligations under the MOA. IEI also filed for rescission of the MOA and damages, alleging that MMIC acted in gross and evident bad faith in entering into the MOA when it had no intention at all to operate the two (2) coal blocks and of complying with any of its obligations under the said agreement.
Meanwhile, in 1981, for various credit accommodations secured from the Philippine National Bank (PNB), MMIC entered into a Mortgage Trust Agreement (MTA) whereby it constituted a mortgage pari passu of its assets in favor of PNB and DBP. Under the MTA, PNB was constituted and appointed as the trustee tasked with holding in trust the mortgaged properties. Consequently, MMIC defaulted in the payment of its obligation with PNB and DBP.
Later, IEI advised PNB and DBP that the purchase price of the Giporlos Coal Project assigned to MMIC per the MOA was still unpaid. IEI also requested that the movable properties in the Giporlos Coal Project detailed in a list be excluded from the foreclosed assets of MMIC as they remained unpaid. IEI further informed PNB and DBP that a suit for rescission of the assignment of the Giporlos Coal Project to MMIC (and damages) had been filed before the Regional Trial Court of Makati.
Issue:
- Whether the chattels mortgaged to PNB were covered by the MOA to legally subject the same chattels to MMIC’s ownership
Ruling:
- Yes. The Court discussed that an assignment is a contract between the assignor and the assignee, which generally operates by way of such contract or agreement. It is subject to the same requisites as to validity of contracts. A transfer of a particular right or interest depends on the legal effect of its provisions. This rule applies in determining whether a particular transaction is an assignment or a sale.
The Court found that the MOA was an assignment of private respondent’s “rights and interests on the Coal Operating Contract described in the first whereas clause” thereof. In its most general and comprehensive sense, an assignment is “a transfer or making over to another of the whole of any property, real or personal, in possession or in action, or of any estate or right therein. It includes transfers of all kinds of property, and is peculiarly applicable to intangible personal property and, accordingly, it is ordinarily employed to describe the transfer of non-negotiable choses in action and of rights in or connected with property as distinguished from the particular item or property.”
Moreover, while the MOA was expressly a contract for the assignment of rights and interests, it is in fact a contract of sale. Under Art. 1458 of the Civil Code, by the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.
In this case, IEI obligated itself to transfer ownership of the coal operating contract and the properties—the coal operating contract as a determinate thing designated in the MOA. Furthermore, the MOA conveyed to MMIC more than the title to or rights over the coal operating contract but also the “things” covered thereby. This was manifested by how the parties IEI and MMIC implemented the MOA. It disclosed the intention to include in the MOA the equipment and machineries used in coal exploration.