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Metro Concast v. Allied Banking - Case Digest

Metro Concast obtained several loans from Allied Banking that were documented by promissory notes and letters of credit. Metro Concast failed to repay the loans. Allied Banking sued for collection. Metro Concast claimed force majeure due to economic difficulties and the sale of its scrap metal not materializing. However, the Supreme Court ruled that Metro Concast's loan obligations were not extinguished by force majeure as Peakstar's failure to purchase the scrap metal as agreed was foreseeable and did not render repayment to Allied Banking impossible. The loan obligations therefore remained due.

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322 views2 pages

Metro Concast v. Allied Banking - Case Digest

Metro Concast obtained several loans from Allied Banking that were documented by promissory notes and letters of credit. Metro Concast failed to repay the loans. Allied Banking sued for collection. Metro Concast claimed force majeure due to economic difficulties and the sale of its scrap metal not materializing. However, the Supreme Court ruled that Metro Concast's loan obligations were not extinguished by force majeure as Peakstar's failure to purchase the scrap metal as agreed was foreseeable and did not render repayment to Allied Banking impossible. The loan obligations therefore remained due.

Uploaded by

Lulu Rodriguez
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Metro Concast v.

Allied Banking
711 SCRA 479

CASE DIGEST

FACTS:

On various dates and for different amounts, Metro Concast, a corporation


duly organized and existing under and by virtue of Philippine laws and
engaged in the business of manufacturing steel, through its officers
obtained several loans from Allied Bank. These loan transactions were
covered by a promissory note and separate letters of credit/trust receipts.
Petitioners failed to settle their obligations under the aforementioned
promissory note and trust receipts, hence, Allied Bank, through counsel,
sent them demand letters,20 all dated December 10, 1998, seeking
payment but to no avail. Thus, Allied Bank was prompted to file a
complaint for collection of sums of money against petitioners before the
RTC.
The petitioners purported that the economic reverses suffered by the
economy and the devaluation of the peso against the US dollar
contributed to the downfall of the steel industry, directly affecting the
business of Metro Concast and eventually leading to its cessation.
Petitioners offered the sale of Metro Concast’s remaining assets,
consisting of machineries and equipment, to Allied Bank, which the latter
refused. Instead, Allied Bank advised them to sell the equipment and
apply the proceeds of the sale to their outstanding obligations. Petitioners
offered the equipment for sale, but there were no takers, and it was
reduced into scrap metal.
Peakstar Oil Corporation (Peakstar), represented by one Crisanta Camiling
(Camiling), expressed interest in buying the scrap metal. A Memorandum
of Agreement dated November 8, 2002 (MoA) was drawn between Metro
Concast, represented by petitioner Jose Dychiao, and Peakstar, through
Camiling, under which Peakstar obligated itself to purchase the scrap
metal.
Unfortunately, Peakstar defaulted on all its obligations under the MoA. In
this regard, petitioners averred that their failure to pay their outstanding
loan obligations to Allied Bank must be considered as force majeure, and
therefore extinguished.

ISSUE:

Whether or not the loan obligations incurred by the petitioners under the
subject promissory note and various trust receipts have already been
extinguished due to force majeure or fortuitous event.
RULING:

No. The loan obligation was not extinguished.  


Article 1231 of the Civil Code states that obligations are extinguished
either by payment or performance, the loss of the thing due, the
condonation or remission of the debt, the confusion or merger of the
rights of creditor and debtor, compensation or novation.
In the present case, petitioners argued that their loan obligations to Allied
Bank had already been extinguished due to Peakstar’s failure to perform
its own obligations to Metro Concast pursuant to the MoA.
Petitioners classify Peakstar’s default as a form of force majeure in the
sense that they have, beyond their control, lost the funds they expected
to have received from the Peakstar which they would, in turn, use to pay
their own loan obligations to Allied Bank.
While it may be argued that Peakstar’s breach of the MoA was unforseen
by petitioners, the same us clearly not “impossible”to foresee or even an
event which is independent of human will.” Neither has it been shown that
said occurrence rendered it impossible for petitioners to pay their loan
obligations to Allied Bank and thus, negates the former’s force majeure
theory altogether.

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