In the Philippines, a contract of sale is perfected when there is a meeting of minds on the object and the price, even if not yet fully documented. The Supreme Court in Far East Bank and Trust Company v. Philippine Deposit Insurance Corporation held that a Memorandum of Agreement (MOA) can constitute a perfected contract of sale if it contains all the essential elements, compelling the parties to fulfill their obligations, irrespective of whether a subsequent Purchase Agreement (PA) was executed. This means that preliminary agreements, if comprehensive, can be legally binding, affecting how banks and other entities conduct asset acquisitions.

From Initial Bid to Binding Agreement: Decoding the Far East Bank Case

This case revolves around a dispute between Far East Bank and Trust Company (FEBTC) and the Philippine Deposit Insurance Corporation (PDIC), as the liquidator of Pacific Banking Corporation (PBC). In 1985, PBC was placed under receivership by the Central Bank of the Philippines, which then invited banks to bid for PBC’s assets and liabilities. FEBTC submitted a bid that included the purchase of PBC’s fixed and non-fixed assets, with the fixed assets valued according to an Asian Appraisal Report. FEBTC’s bid included purchasing PBC’s assets, less certain exclusions, and matching the value of the assets with PBC’s liabilities. The bid also addressed fixed assets, specifying they “shall be valued based on the sound values per Asian Appraisal Report of August, 1984, subject to the discounts stated in our Bid Prices.”

The Monetary Board accepted FEBTC’s bid, leading to a Memorandum of Agreement (MOA) between FEBTC, PBC, and the Central Bank in 1986. The MOA outlined that FEBTC would purchase all of PBC’s assets. It incorporated FEBTC’s bid to purchase all the PBC assets, including the authority to operate PBC’s banking offices. The MOA explicitly stated that FEBTC would purchase all PBC assets, except those submitted to the Central Bank as collaterals. However, the subsequent Purchase Agreement (PA) only covered PBC’s non-fixed assets, omitting the fixed assets detailed in the Asian Appraisal Report, which were supposed to be part of the deal according to the MOA. Despite this, FEBTC claimed it had complied with the MOA, paid an additional P260,000,000.00, and took possession of the fixed assets. The dispute arose when PDIC took over as PBC’s liquidator and sought to sell the fixed assets to third parties, prompting FEBTC to file a motion to compel the execution of deeds of sale for these assets.

The central legal issue is whether the PDIC, as the Liquidator of PBC, can be compelled to execute the deeds of sale over the disputed PBC fixed assets. The Supreme Court found that the MOA constituted a perfected contract of sale, binding the parties to their agreed terms. A contract goes through stages of negotiation, perfection, and consummation. Perfection of a contract happens when its essential elements align. For sales contracts, this means the seller commits to deliver and transfer ownership of something to the buyer for a price.

The Supreme Court emphasized the importance of mutual consent in contracts of sale, stating that this consent is inferred from an offer and an acceptance concerning the object and consideration. Acceptance must mirror the offer’s material and motivating points, making it clear that all parties are in agreement. The Court concluded that the MOA contained all the necessary elements of a perfected contract of sale: consent, a definite object, and consideration. FEBTC bid to purchase certain assets of the PBC consisting of the fixed and non-fixed assets. Also, FEBTC included an intent to purchase the fixed assets enumerated in the Asian Appraisal’s Report of August 1984, and that these fixed assets are to be valued based on their sound values pursuant to the Asian Appraisal Report of August 1984, subject to discount. The parties chose one of FEBTC’s bids which covered the purchase of the non-fixed assets and the disputed fixed assets, their valuation and the manner of payment, including discounts.

In the MOA, the object of the contract included the purchase of PBC’s non-fixed assets, fixed assets as contained in the Asian Appraisal’s Report, and the authority to re-open or relocate any of PBC’s branches. The consideration for the non-fixed assets was to be matched by FEBTC’s assumption of PBC’s liabilities, while the consideration for the fixed assets was their sound value less any depreciation as described in the Asian Appraisal’s Report. The parties also agreed on an additional consideration of P260,000,000.00 for the sale of assets and the assumption of liabilities. That the contract was already perfected could be confirmed by supervening events. First, the FEBTC’s down payment of P5,000,000.00 upon the execution of the MOA was intended to be part of the purchase price. Second, the FEBTC took possession of the subject fixed assets immediately after the execution of the MOA and the PA. Third, the parties executed the PA over the non-fixed assets as contemplated under Section 1(a) of the MOA. Fourth, upon the request of FEBTC, Liquidator Santos (who signed both the MOA and the PA) delivered to FEBTC the corresponding transfer certificates of titles over the disputed assets.

The Court highlighted that the subsequent Purchase Agreement (PA) did not negate the perfected contract of sale established by the MOA. The execution of the PA was seen as part of the consummation stage, not the perfection stage, further solidifying FEBTC’s right to acquire the fixed assets. A contract is perfected regardless of whether it is written. The Supreme Court emphasized that a contract, once perfected, is the law between the parties.

The Supreme Court also dismissed claims that the disputed fixed assets were excluded from the sale because they had been submitted as collaterals to the Central Bank. After a trial on the merits, the RTC ruled that the disputed fixed assets had not been submitted as collaterals to the Central Bank. The findings of the RTC were based on: (1) the testimonies and admissions of Ms. Teresa Salcor, who was then an Account Officer of the Central Bank Board of Liquidators; and (2) the RTC’s examination of the purported deeds of real estate mortgage over the disputed fixed assets. The Court found that the disputed fixed assets were not submitted as collaterals to the Central Bank and are thus not excluded from the assets purchased by the FEBTC.

As a result of this ruling, the Supreme Court ordered the Liquidator and the CB-BOL, as intervenor, to execute the corresponding deeds of sale in favor of FEBTC. FEBTC was ordered to pay the purchase price of the disputed fixed assets, to be computed by the RTC based on Sections 3(c) and 10(b) of the MOA. To ensure the implementation of the agreement, the RTC was directed to conduct the proceedings with dispatch. In its decision, the Supreme Court cited Article 1356 of the New Civil Code, which underscores the obligatory nature of contracts:

Art. 1356. Contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential requisites for their validity are present.

This provision highlights that a contract is binding and must be complied with in good faith, as long as the essential requisites for its validity are present. This ruling impacts how banks and other entities approach asset acquisitions. It underscores the importance of clear, comprehensive agreements and the potential legal ramifications of even preliminary documents. Here’s a table summarizing the key elements of a contract of sale as applied in this case:

Element	Description	Application in FEBTC vs. PDIC
Consent	Meeting of the minds between parties	MOA showed FEBTC’s offer and PBC/Central Bank’s acceptance
Object	Definite subject matter of the contract	PBC’s fixed and non-fixed assets as defined in the MOA
Consideration	Price or value exchanged for the object	FEBTC’s assumption of PBC’s liabilities and payment of P260,000,000.00

FAQs

What was the key issue in this case?	The central issue was whether the PDIC, as the liquidator of PBC, could be compelled to execute deeds of sale for certain fixed assets that FEBTC claimed to have purchased. The dispute hinged on whether the MOA constituted a perfected contract of sale.
What is a perfected contract of sale?	A perfected contract of sale occurs when there is a meeting of minds between the parties on the object of the sale and the price. It requires consent, a definite object, and consideration.
What was the role of the MOA in this case?	The MOA was found by the Supreme Court to be a perfected contract of sale because it contained all the essential elements. It obligated the parties to fulfill their agreed terms.
Why didn’t the Purchase Agreement (PA) include the fixed assets?	The PA only covered the non-fixed assets due to time constraints. However, the MOA indicated that the fixed assets were part of the agreement.
Did the PA negate the MOA?	No, the Supreme Court ruled that the PA did not negate the MOA but rather confirmed the contract of sale perfected under the MOA. The PA’s execution was considered part of the consummation stage.
Were the fixed assets submitted as collaterals to the Central Bank?	The Supreme Court, based on the RTC’s findings, determined that the disputed fixed assets had not been submitted as collaterals to the Central Bank. Therefore, they were not excluded from the assets purchased by FEBTC.
What is the significance of Article 1356 of the New Civil Code?	Article 1356 underscores the obligatory nature of contracts, stating that contracts are binding as long as the essential requisites for their validity are present. This principle was central to the Court’s decision.
What was the final order of the Supreme Court?	The Supreme Court ordered the Liquidator and CB-BOL to execute the deeds of sale in favor of FEBTC, and FEBTC was ordered to pay the computed purchase price of the disputed fixed assets. The RTC was directed to compute the purchase price based on the MOA’s provisions.

This case emphasizes the importance of thoroughly reviewing and understanding all documents related to asset acquisitions. Agreements that appear preliminary can have significant legal consequences if they contain all the essential elements of a contract. This ruling serves as a reminder to parties to ensure clarity and completeness in their contractual arrangements.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.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: Far East Bank and Trust Company vs. Philippine Deposit Insurance Corporation, G.R. No. 172983, July 22, 2015