REPUBLIC OF THE PHILIPPINES

REGIONAL TRIAL COURT

6TH JUDICIAL REGION
BRANCH 28
ILOILO CITY

DEVELOPMENT BANK OF THE CIVIL CASE NO. 25503

PHILIPPINES
Plaintiffs,
- versus -

SAMAHANG KABUHAYAN NG ILOILO

SA BULAK, INC. AND PHILIPPINE
CROP INSURANCE CORPORATION
Defendants,

MEMORANDUM
(For Plaintiff DBP)

COMES NOW, Defendant Development Bank of the Philippines, (DBP for brevity),
thru the undersigned counsel, to this Honorable Court most respectfully submits it
Memorandum.

Facts of the Case:

1. To promote the cotton industry in the Philippines and enhance cotton production
several farmer associations were formed where they can avail of a financing with the
Plaintiff, Development Bank of the Philippines. Among the Associations that availed is the
Defendant Samahang Kabuhayan ng Iloilo sa Bulak (SKIB for brevity).

The Association SKIB consisted of Four Hundred Seventy Four (474) farmers, who
filed their respective individual loan applications where they will be represented by their
officers to sign the collective documents per SKIB Board Resolution No. 9208-001 to avail
of the Two Million Five Hundred (P2,500,000.00). The loan documents, particularly the
Release Control Sheet of DBP showed that the amount of Two Million Four Hundred Forty
Three Thousand Five Hundred Only (P2,443,500.00) was released to the individual
farmers as reflected in the list of defaulted loans under the PCIC-Calf Loan Guarantee.

The foregoing documents were submitted to the Court pursuant to the request of
Defendant PCIC in their Motion for Production of Documents in Plaintiffs compliance
dated September 8, 2006, together with the Annexed documents “A” to “D”, duly signed
and received by Atty. Juan Dela Cruz and Atty. John Doe, Counsel for Philippine Crop
Insurance Corporation (PCIC) and SKIB respectively on September 08, 2006. (Please
see attach for reference.

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 2. A Continuing Guarantee Agreement was executed on April 06, 1988
between DBP as Lender and PCIC as Guarantor and Administrator of the PCIC-CALF
Guarantee Program which was designed to provide guarantee coverage to production
loans granted by DBP.

On November 27, 1992, Plaintiff granted a loan of Two Million Four Hundred Forty
Three Thousand Five Hundred Only (P2,443,500.00), Philippine Currency in favor of
defendant SKIB, under the terms of which the officers of the association bound
themselves jointly and severally to answer for the loan obligation by executing Promissory
Notes, Suretyship agreement, and other documents to secure the said obligation. This
loan was subject to the guarantee by the co-defendants Philippine Crop Insurance
Corporation (PCIC). The fact of executive of the loan documents are presented as
Exhibits “A” to “F”, inclusive as well as Trust Receipts and documents attached to the
compliance dated September 08, 2006 to the Courts Order to produce documents.

After several communications sent to PCIC officials who replied that the Bank’s
claim is under process and payment would be made as evidenced by Exhibits “P” “Q” “R”
“S” “T” and the letter of Simeon Cando dated March 03, 1995 that payment of the claims
would take place not later than April 15, 1995 that transfer of funds is expected from
ACPC and payment is expected on the third week of July 1995.

The Loan obligation matured with an outstanding principal balance of One Million
Six Hundred Forty Five Thousand and Four Pesos Only (P1,645,004.00) on June 25,
1993. On August 17, 1993, DBP called on the guarantee of which PCIC and this claim
was assigned as Claim No. 93-169 (Evidence by Exhibit “N” inclusive)

Prior to the aforementioned loan, SKIB also obtained on November 07, 1991, a loan
of Two Million Eight Hundred Five Thousand Pesos Only (P,805,000.00), wherein they
executed the corresponding loan documents in favor of DBP. This obligation was likewise
subject to the Guarantee by PCIC. This obligation matured on June 04, 1992 with an
outstanding balance of 1,284,600.00 after several notices, DBP submitted a Call for
Guarantee on September 02, 1992. This claim was assigned as Claim No 92-051.

On July 05, 1995, PCIC’s Bienvenido P. Faustino sent a memo to their Regional
Office requiring the submission of Form No. 07A as additional requirement. This is
marked as Exhibit “Z”. Simeon Cando wrote DBP thru their Regional Head in Cebu City
this time to require all individual borrowers with defaulted loan to accomplish PCIC Form
No. 07-B, Katunayang Pagkakautang ng Salapi at Plano sa Pagpapabaya, after a lapse
of One (1) year, Seven (7) months and Sixteen (16) days. This delay and imposition of
new requirements caused the difficulty in the accomplishment by the bank, thus in a letter
dated June 23, 1995 (Annex “C”, reply to PCIC) DBP Iloilo stated that compliance will be

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done on a best effort basis. No reply to this communication was made by PCIC, besides
a condition subsequent should never be construed as defeating an already vested right.
PCIC sent a team to validate the claim, thereafter no payment was effected in the claim
despite a lapse of time from validation. Plaintiff completely relied on the assurances of
the officers of PCIC that its claim would be paid upon the replenishment of funds by
ACPC. The provision of Sec. 90 and 91 of the insurance law state that notice of any
requirement or defect in the preliminary proof of claim must be given without unnecessary
delay otherwise it is waived. The PCIC’s delay to impose the new forms 07A and 07B
immediately upon the Call of Guarantee after DBP submitted the same on August 17,
1993 had caused the insured or its assigns the imposition of an impossible requirement
accomplishment due to the disbandment and refusal of members of SKIB to accomplish
the forms. Hence, this objection to non-compliance is deemed waived because of the
contributory negligence of the staff of PCIC in their delay to notify DBP of the additional
requirements. The Rules and Regulations Governing the implementation of the PCIC
CALF Guarantee Program which was furnished Plaintiff never imposed the
aforementioned requirements.

2. Under the Rules and Regulations governing the implementation of PCIC-Calf

Program, as submitted to DBP as well as attached to the Pre-Trial Brief of PCIC’s counsel
dated July 07, 1999 as Annex “3” section 15.4 on the provisions on CALLS of
GUARANTEE, CALF FORM NO. 07-A and 07-B was never stated among the conditions
on the payment of claims, but perhaps was imposed later after DBP’s Call on the
guarantee, thus DBP being not privy to the new condition, it is not definitely bound by the
new limiting condition. This is evidences by Exhibits “AA to AA-2” and “BB”

Furthermore, the requirements for accomplishment of PCIC Call-Form No. 07-A and 07-
B were inexistent at the time of the Call of Guarantee and was probably imposed by the
new MOA (between PCIC and ACPC) when PCIC was waiting for fund replenishment
from PCIC. SInce it was perhaps provided under their new Memorandum of Agreement,
the same is inapplicable to DBP’s call whose rights had already vested prior to the new
requirement pursuant to sections 90 and 91 of the Insurance Code.

DBP is justified in filling this collection case because defendants have failed to pay
their account despite sufficient time given to them. PCIC cannot allege that the loans to
SKIB and other cooperatives granted by DBP are beyond the PCIC’s guarantee cover.
These loans were principally granted because they were secured by the Third Party
guaranty of PCIC-CALF.

ISSUES:

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 1. The Officers of SKIB are jointly and severally liable with PCIC for the loan
obligation.

The officers of Samahang Kabuhayan ng Iloilo sa Bulak (SKIB) executed

documents where they wanted and assumed the obligation of collecting the amount
loaned by DBP to the association (SKIB) from the individual farmer members on or before
the maturity date of the obligation as provided in the Promissory Notes and Loan
Documents.

As early as 1989, SKIB has availed of earlier loans to finance their cotton drop
production in the amount of P1,347,500.00 and P2,805,000.00 were paid and settled
accordingly to their terms.

It was only their loan of P2,443,500.00 for the crop year 1992-1993 that suffered
financial reverses and difficulty. The documents the officers executed were the same,
hence, the said officers cannot justify their allegations that they were mistaken in the
delivery of the Loan and Surety Agreements.

“Obligations arising from contracts have legal force between the contracting
parties and must be fulfilled in accordance with the stipulations.” (Ollendorf vs Abraham,
38 Phil. 585)

Under Art. 2047 of the Civil Code, a Surety is a contract whereby a person binds
himself solidarily with the principal debtor to fulfill an obligation. The obligation of a surety
is primary. He is the insurer of the debt and therefore stands liable as if he is the principal
debtor or primary obligor. The officers of the association bound themselves solidarily with
the borrowers as primary obligors and not as mere guarantors. In addition, they expressly
waived their right to the benefits of excussion, their liability being solidary, direcr and
immediate and personally to the loan obligation of SKIB.

Furthermore, under article 1216 of the Civil Code, it is the right of the creditor to
proceed against anyone of the solidary debtors or all of them simultaneously, hence, DBP
opted to file a collection case against the officers only as they have contracted to collect
the obligations of the farmer borrowers per their Board Resolution together with the
Philippine Crop Insurance Corporation.
“Solidary liabilities may be incurred
(1) xxx
(2) When a director, trustee or officer has contractually agreed or
stipulated to hold himself, personally and solidarily liable with the
corporation. x x x “ (MAM Realty Dev. Corp. vs NLRC, G.R. 114787, 244
SCRA 797, June 02, 1995; Deasis and Co. vs CA, 136 SCRA 599)

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2. PCIC cannot renege paying DBP their guarantee after all the documents were
submitted to them on August 17, 1993.

On the issue of whether:

a) PCIC can renege paying DBP after the latter submitted its call on the
guarantee with supporting documents.

b) Or pose additional requirements for completion after DBP’s Call of Guaranty

not originally imposed in the Memorandum of Agreement between DBP and
PCIC dated April 06, 1988

c) PCIC can claim Non-Compliance of CALF Form 07A and 07B when at the
time of the Call of Guaranty on August 17, 1993 such forms were not required
under Section 15.4 of the Rules of Regulations Implementing the PCIC-Calf
Guarantee Program. Such requirement (07A and 07B) came after the lapse
of One (1) year Seven 97) Months and Sixteen (16) days from DBP’s Call of
Guaranty.

a) PCIC cannot renege paying their guaranty after the Bank called on the
Guaranty. In fact, several PCIC officials in their communication to the Bank
and this Counsel have informed on August 02, 1993 “all the unpaid claims
are already approved for payment as soon as PCIC received claims fund
replenishment from ACPC payment will be facilitated” from Ambrosio M.
Rodriguez, Manager, Program Evaluation and technical Services. Likewise,
PCIC general Counsel, on February 09, 1995 in his Memo to PCIC Regional
Manager Simeon Cando, copy furnished the DBP in response to the Final
Demand Letter of DBP Re: Guarantee Claims, stated, and we quote a portion
thereto:
“x x x Based on the information provided, it is recommended that
immediate settlement of the calls be effected to avoid the embarrassing
situation where PCIC will be sued for not being able to honor its
commitment to pay per rules and regulations. If immediate settlement
could not be done, it is recommended that the top management will write
DBP Iloilo to explain the real cause of delay as well as the current
negotiation being worked out with ACPC re: transfer of funds. Xxx”

b) The call of guarantee was made on September 02, 1992 and August 17,
1993. On February 9, 1995, PCIC General Counsel made a Memo to Simeon
Cando, their regional Manager to recommend payment.

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 It was only on March 03, 1995 that the additional requirements (For 07A and 07B
were forwarded to DBP for accomplishment. There was a delay of more that One
(1) Year Seven (7) Months and Sixteen (16) days on the part of PCIC which was
not originally included in the list of requirements in the List under Section 15-4 of
the Rules and regulations implementing in the List under Section 15-4 of the Rules
and regulations implementing the PCIC-Calf Program (See annex 3 PCIC Pre-
trial Brief)

In fact on February 01, 1995, DBP wrote to PCIC where ‘it emphasized that since
the submission of the claim on August 17, 1993 no communication was received
on the documentary deficiency, thus, DBP trusted that all documents submitted
were in order.

The subsequent requirement runs counter to Section 90 of the Insurance Code

where any notice of additional requirement no defect in the preliminary proof of
claim must be given without unnecessary delay, otherwise this defect is deemed
waived.

In fact, this delay by PCIC in taking notice and objection to the letter of the DBP
as to the documentary requirements submitted on the Call of Guaranty on August
17, 1993 will further cause the right of PCIC to waive the right to question any
defect or deficiency in its proof of loss or require additional requirements not
originally listed in the Implementing Rules and Regulations of PCIC-Calf
Guarantee Program.

“Section 90 Insurance Code (PD 612 dated December 18, 1974 states: All defects in a
notice of loss, or in preliminary proof thereof, which the insured might remedy, and which
the insurer omits to specify to him, without unnecessary delay, as grounds of objection,
are waived.”

In the commentary in the Civil Code, Volume IV by Arturo Tolentino, page 588, 1991
Edition, we quote:

“Where the parties have reduced their contract into writing the contents of the writing
constitutes the sole repository of the terms of the agreement between the parties (PNB
vs CFI, 83 SCRA 569) whatever is not found in writing must be understood as waived or
abandoned. (Del Rosario vs _________________108 SCRA 43, Fernandez vs CA, 166
SCRA 577) Generally therefore, there can be no evidence of the Terms of the Contract
than the contents of the written agreement, unless it is alleged and proved that the
intention of the parties is otherwise.”

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 Applying the foregoing provisions, since CA Forms 07A and 07B was not included in
the Rules and Regulations in Section 15.4 or any other sections therewith (Annex “3”,
PCIC Pre-Trial Brief), no evidence on the failure of DBP to submit the foregoing forms as
part of the documentary evidence can be imposed by PCIC in their guarantee to the loan
of their co-defendant SKIB.

They are liable to pay the unpaid obligations of SKIB based on their Guaranty. In fact,
Section 15.2 and its subsection 15.2.1, 15.2.2 and 15.2.3 of the Rules and Regulations
of the PCIC-Calf Program never reflected that Forms 07A and 07B were required before
payment can be made on their Call of Guaranty. The imposition of such forms to apply
retroactively after the earlier call of Guarantee is illegal, immoral and contrary to the
provisions of the Insurance Code.

In the case of Maligo vs United Insurance Co. Inc. (CA) 55 OG No. 31, p. 6041, August
09, 1959, it was held －

“It is the duty of the Insurer to specify to the insured all defects in a Notice of Loss or in
the preliminary proof as grounds for its objection without unnecessary delay. Otherwise,
the insurer shall be deemed to have waived such defects! x x x It is sufficient to give the
best evidence which he has in his power at the time. It is the insurer’s duty to call the
attention of the insured to all the defects of the proof of loss where the insured in good
faith furnished proof of loss which he believes to be sufficient but which in fact contains
some defects. Failure on its part to object will justify the insured in assuming that he has
complied with the requirements of the law.”

Therefore, the requirements imposed later cannot be applied in this case for it will
constitute penalties defeating the right that has already accrued.

“A condition subsequent should never be construed as defeating an already

vested right x x x. In accordance with this principles, we find the majority of the courts
most unwilling to give such construction to those subsequent conditions as well as
defeat the rights of the insured unless the facts of the case shows fraud or clear
injustice to the insurer.” (see p.175 Commercial Law, Insurance Code Vol 2, 1978
Edition, Agbayani, citing Vance, pp. 894-895, on insurance.”

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 PRAYER

WHEREFORE, premises considered, it is respectfully prayed of this Honorable

Court that judgment be rendered, directing defendants SAMAHANG KABUHAYAN NG
ILOILO SA BULAK (SKIB) and PHILIPPINE CROP INSURANCE CORPORATION
(PCIC), jointly and severally, to pay their outstanding obligation with the Plaintiff
Development Bank of the Philippines

Plaintiff is also praying for other reliefs equitable under the premises.

Iloilo City, October ______ 2010

JOHN CARLOS ALOVERA

COUNSEL for Plaintiff DBP
PTR NO. 3682471 03/11/2010
IBP No. 794971 all Issued Iloilo City
Roll No. 25479
MCLE Compliance No. 1-0013406
No. II-0015226

DEVELOPMENT BANK OF THE PHILIPPINES

Dela Rama Street, 5000 Iloilo City

Copy furnished:
ATTY. JUAN DELA CRUZ Registered Mail No.:________________
Counsel for the PCIC Posted on:________________________
Philippine Crop Insurance Corporation Post Ofc:_________________________
7/F Building A, National Irrigation
Authority
NIA Complex, EDSA, Quezon City

ATTY. JOHN DOE Registered Mail No.:________________

Counsel for SKIB Posted on:________________________
Suite Mezzanine Floor, Lolita Building Post Ofc:_________________________
General Lune corner Quezion Street
5000 Iloilo City

EXPLANATION

Due to time, distance, and manpower constraints, copies of this Motion was
served upon Atty. Dela Cruz and Atty. Doe by registered mail.

ATTY. JOHN CARLOS ALOVERA

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