INSULAR LIFE ASSURANCE COMPANY LTC v.

ROBERT YOUNG
FACTS:
 Young and his associates acquired by purchase Home Bankers Saving and Trust
Co., (now Insular Saving Bank, the petitioner, “the Bank”) from the Licaros family.
 Araneta, a stockholder, signified his intension to purchase 99.82% of its
outstanding stock and he paid young P14M as downpayment.
 In order to carry out the intended sale to Araneta, Young bought from Jorge Go
and his group their 45% equity in the Bank for P153M. In order to pay this
amount, Young obtained a short-term loan of P170M from International
Corporate Bank ("Interbank") to finance the purchase.
 Araneta backed out from the intended sale and demand the return of his DP.
 Through the intervention of Asian Oceanic, Young and Insular entered into a
Credit Agreement. Under its provisions, Insular Life extended a loan to Young in
the amount of P200,000,000.00. To secure the loan, Young, acting in his behalf
and as attorney-in-fact of the other stockholders, executed on the same day a
Deed of Pledge over 1,324,864 shares which represented 99.82% of the
outstanding capital stock of the Bank. The next day, he also executed a
promissory note in favor of Insular Life in the same amount with an interest rate
of 26% per annum to mature 120 days from execution. The Credit Agreement
further provides that Insular Life shall have the prior right to purchase the
Schedule I Shares (owned by Young) and the Schedule II Shares (owned by the
other stockholders of the Bank), as well as the 250,000 shares which will be
issued after the additional capital of P25M (payable from the proceeds of the
loan) shall have been infused.
 Insular Life conducted a due diligence audit on the Bank pursuant to the MOA.
The audit revealed several check-kiting operations which amounted to P340M.
As a result, the Bank's Board of Directors was convened to discuss this matter.
 A special meeting of the Bank's directors was held. Chief Executive Officer
Antonino L. Alindogan, Jr. reported to the Board the initial findings of the audit
team about the irregularities in the Bank's "kiting operations." When asked to
explain these anomalies, Young, who was then the Bank's President, assumed
responsibility since it happened during his incumbency. Thereupon, he offered,
among others, to the Bank the 45% of his holdings as security. He admitted that
he has compromised the interest of the Bank and thus tendered his resignation.
The Board deferred its acceptance.
 Young signed a letter prepared by Atty. Jacinto Jimenez, counsel of Insular Life,
addressed to Mr. Vicente R. Ayllon, Chairman of the Bank's Board of Directors,
stating that due to business reverses, he shall not be able to pay his obligations
under the Credit Agreement between him and Insular Life. Consequently, Young
"unconditionally and irrevocably waive(s) the benefit of the period" of the loan (up
to December 26, 1991) and Insular "may consider (his) obligations thereunder as
defaulted." He likewise interposes no objection to Insular Life's exercise of its
rights under the said agreement.
  Forthwith, Insular Life instructed its counsel to foreclose the pledge
constituted upon the shares. The latter then sent Young a notice informing
him of the sale of the shares in a public auction scheduled on October 28,
1991, and in the event that the shares are not sold, a second auction sale
shall be held the next day, October 29.
 On October 28, 1991, only Insular Life submitted a bid, hence, the shares were
not sold on that day. The next day, a second auction was held. Again, Insular Life
was the sole bidder. Since the shares were not sold at the two public auctions,
Insular Life appropriated to itself, not only the original 1,324,864 shares, but also
the 250,000 shares subsequently issued by the Bank and delivered to Insular
Life by way of pledge. Thus, Insular Life gave Young an acquittance of his entire
claim.
 Thereafter, title to the said shares was consolidated in the name of Insular Life.
On November 12, 1991, the Bangko Sentral ng Pilipinas' Supervision and
Examination Sector approved Insular Life's request to maintain its present
ownership of 99.82% of the Bank.
 The complaint before the RTC alleges, inter alia, that the notarial sale conducted
by petitioner Atty. Jacinto Jimenez is void as it does not comply with the
requirement of notice of the second auction sale; that Young was forced by the
officers of Insular Life to sign letters to enable them to have control of the Bank;
that under the MOA, Insular Life should apply the purchase price of
P198,000,000.00 (corresponding to the 55% of the outstanding capital stock of
the Bank) to Young's loan of P200,000,000.00 and pay the latter
P162,000,000.00, representing the remaining 45% of its outstanding capital
stock, which must be set-off against the loans of the other respondents.
 The Court of Appeals, in reversing the Decision of the RTC, ruled that the MOA
is binding between the parties as it was not validly rescinded. In exercising its
option to rescind the MOA, Insular Life failed to notify Young pursuant to
Article 1599 of the Civil Code. Hence, the MOA is enforceable against the parties
thereto. The Appellate Court then concluded that Young's loan with Insular Life is
deemed fully paid based on the representation and warranty in the MOA that "the
entire proceeds of the sale shall be used to pay off the outstanding debt of
Robert T. Young to Insular Life."
 In other words, the Court of Appeals construed the MOA as a contract of
sale since it applied Article 1599 of the Civil Code which pertains to cases where
there is a breach of warranty.

ISSUE: Whether the auction sale is void – NO

RULING:
 Contrary to the findings of the Court of Appeals, the foregoing provisions of the
MOA negate the existence of a perfected contract of sale. The MOA is merely
a contract to sell since the parties therein specifically undertook to enter into a
contract of sale if the stipulated conditions are met and the representation and
warranties given by Young prove to be true.
 The obligation of petitioner Insular Life to purchase, as well as the concomitant
obligation of Young to convey to it the shares, are subject to the fulfillment of the
conditions contained in the MOA. 
 Here, the MOA provides that Young shall infuse additional capital of
P50,000,000.00 into the Bank. It likewise specifies the warranty given by Young
that the doubtful accounts of petitioner Bank amounted to P60,000,000.00 only.
However, records show that Young failed to infuse the required additional capital.
Moreover, the due diligence audit shows that Young was involved in fraudulent
schemes like check-kiting which amounted to a staggering P344,000,000.00.
This belies his representation that the doubtful accounts of petitioner Bank
amounted only to P60,000,000.00. As a result of these anomalous transactions,
the reserves of the Bank were depleted and it had to undergo a ten-year
rehabilitation plan under the supervision of the Central Bank.
 Since no sale transpired between the parties, the Court of Appeals erred in
concluding that Insular Life purchased 55% of the total shares of the Bank under
the MOA. Consequently, its findings that the debt of Young has been fully paid
and that Insular Life is liable to pay for the remaining 45% equity have no basis. It
must be emphasized that the MOA did not convey title of the shares to Insular
Life. If ever there was delivery of the said shares to Insular Life, it was because
they were pledged by Young to Insular Life under the Credit Agreement.I
 Notably, the Deed of Pledge which secured the Credit Agreement between the
parties, covered not only 1,324,864 shares which then constituted 99.82% of the
total outstanding shares of petitioner Bank, but also the 250,000 shares
subsequently issued. Consequently, when Young waived in his letter the period
granted him under the said agreement and manifested his inability to pay his
obligation (which waiver has been declared by the RTC and the CA to be valid),
the loan extended by petitioner Insular Life became due and
demandable. Definitely, petitioners merely exercised the right granted to them
under the law, which is to foreclose the pledge constituted on the shares, in
satisfaction of respondent Young's loan.
 The Court of Appeals also erred in declaring that the auction sale is void
since petitioners failed to send a separate notice for the second auction
(see Art. 2112).
 Clearly, there is no prohibition contained in the law against the sending of
one notice for the first and second public auction as was done here by
petitioner Insular Life. The purpose of the law in requiring notice is to
sufficiently apprise the debtor and the pledgor that the thing pledged to
secure payment of the loan will be sold in a public auction and the
proceeds thereof shall be applied to satisfy the debt. When petitioner Insular
Life sent a notice to Young informing him of the public auction scheduled on
October 28, 1991, and a second auction on the next day, October 29, in the
event that the shares are not sold on the first auction, the purpose of the law was
achieved. We thus reject respondents' argument that the term "second one"
refers to a separate notice which requires the same formalities as the first notice.