Metropolitan

Bank vs. Centro

Corporation
G.R. No. 180974, June 13, 2012
 2
DOCTRINE/S:

The act of appointing a new

. trustee of the Mortgage Trust
Indenture was a regular
business transaction. The
appointment necessitated only a
decision of at least a majority of
the directors present at the
meeting in which there was a
quorom, pursuant to Section 25
of the Corporation Code.
 3

PARTIES
➜ PETITIONER:
➜ Metropolitan Bank and Trust Company

➜ RESPONDENTS:
➜ Centro Development Corporation
➜ Chongking Kehyeng
➜ Manuel Co Kehyeng
 FACTS:
On 20 March 1990, in a special meeting of the
board of directors of respondent Centro
Development Corporation (Centro), its president
Go Eng Uy was authorized to mortgage its
properties and assets to secure the medium-term
loan of P84 million of Lucky Two Corporation
and Lucky Two Repacking.
 5

The “
properties and assets
consisted of a parcel of land with a
building and improvements
located at Salcedo St., Legaspi
Village, Makati City. This
authorization was subsequently
approved on the same day by the
stockholders .
Maria Jacinta V. Go, the corporate secretary, issued a Secretary's Certificate 6
stating:

Thus, on 21 March 1990, respondent Centro, represented by Go Eng Uy,

executed a Mortgage Trust Indenture (MTI) with the Bank of the Philippines
Islands (BPI).
Under the MTI, respondent Centro, together with its affiliates Lucky Two
Corporation and Lucky Two Repacking or Go Eng Uy, expressed its desire to
obtain from time to time loans and other credit accommodations from certain
creditors for corporate and other business purposes. To secure these
obligations from different creditors, respondent Centro... constituted a
continuing mortgage on all or substantially all of its properties and assets
enumerated above unto and in favor of BPI, the trustee.  Should respondent
Centro or any of its affiliates fail to pay their obligations when due, the
trustee shall cause the... foreclosure of the mortgaged property.
 7
Mortgage Trust Indenture

➜ How does it work?

(MTI) is a contractual
➜ The lender gives the borrower
agreement used to secure the
the money to buy the home in
obligations of the borrower exchange for one or more
with several lenders. promissory notes, while the
A Mortgage Participation trustee holds the legal title to
Certificate (MPC) is issued by the property until the loan is
the Trustee in favor of each paid off. Some states use this
method instead of a
lender as an evidence of the
traditional mortgage.
lender's participation in the
MTI pool of assets.
 8

Centro and BPI amended the MTI

to allow an additional loan of P36
million and to include San Carlos
Milling Company, Inc. (San
Carlos) as a borrower in addition
to Centro, Lucky Two Corp. and
Lucky Two Repacking. Then, on
28 July1994, Centro and BPI
again amended the MTI for
another loan of P24 million,
bringing the total obligation to
P144 million.
 9
Meanwhile, respondent Centro, represented by Go Eng Uy, approached petitioner
Metropolitan Bank and Trust Company (Metrobank) and proposed that the latter assume the
role of successor-trustee of the existing MTI. After petitioner Metrobank agreed to the
proposal, the board of directors of respondent Centro allegedly resolved on 12 August 1994 to
constitute petitioner as successor-trustee of BPI.

It was only sometime in 1998 that respondents herein, Chongking Kehyeng, Manuel Co
Kehyeng and Quirino Kehyeng, allegedly discovered that the properties of respondent Centro
had been mortgaged, and that the MTI that had been executed appointing petitioner as trustee.
Notably, respondent Chongking Kehyeng had been a member of the board of directors of
Centro since 1989, while the two other respondents, Manuel Co Kehyeng and Quirino
Keyheng, had been stockholders since 1987. Respondents Kehyeng were minority
stockholders who owned thirty percent (30%) of the outstanding capital stock of respondent
Centro.
 10
The Kehyengs allegedly questioned the mortgage of the properties through letters
addressed to Go Eng Uy and Jacinta Go. They alleged that they were not aware of
any board or stockholders' meeting held on 12 August 1994, when petitioner was
appointed as successor-trustee of BPI in the MTI.

Respondents demanded a copy of the minutes of the meeting held on that date, but
received no response.

San Carlos failed to pay these outstanding obligations despite demand. Thus,
petitioner, as trustee of the MTI, enforced the conditions thereof and initiated
foreclosure proceedings. Petitioner Metrobank filed a Petition for Extrajudicial
Foreclosure of Mortgage with the executive judge of the Regional Trial Court (RTC)
of Makati City. Petitioner alleged that the total amount of the Promissory Notes that
San Carlos executed in favor of the former amounted to P812,793,513.23.  As of 30
April 2000, the total outstanding obligation, inclusive of interests and penalties, was
P1,178,961,181.45.

The bone of contention was that since the mortgaged properties constituted all
or substantially all of the corporate assets, the amendment of the MTI failed to
meet the requirements of the Corporation Code on notice and voting
requirements.

“..when approved by a majority of the board
of directors or trustees and ratified by the
stockholders representing at least two-thirds
(2/3) of the outstanding capital stock, or by
at least two-thirds (2/3) of the outstanding
capital stock, or by at least two-thirds (2/3)
of the members in the case of nonstock
corporations at a meeting duly called for the
purpose. Notice of the proposed investment
and the time place of residence as shown in
the books of the corporation and deposited to
the addressee in the post office with the
postage prepaid…”
11
Under the Corporation Code,
in order for a corporation to
mortgage all or substantially
all of its properties and
assets, it should be
authorized by the vote of its
stockholders representing at
least 2/3 of the outstanding
capital stock in a meeting
held for that purpose.
Furthermore, there must be a
written notice of the
proposed action and of the
time and place of the
meeting. Thus, respondents
alleged, the representation of
Go Eng Uy that the board of
directors and/or stockholders
of Centro authorized him was
false.

➜ Furthermore, the appellate court
held that petitioner was duty-bound
to ensure that respondent Centro
submitted proof that the proposed
corporate action had been duly
approved by a vote of the
stockholders representing 2/3 of the
outstanding capital stock.
➜
Regarding the issue of whether
laches had already attached, the CA
ruled that the MTI could not be
ratified, considering that the
requirements of the Corporation
Code were not complied with
12
The RTC dismissed the Complaint. It
held that the evidence presented by
respondents was insufficient to
support their claim that there were
no meetings held authorizing the
mortgage of Centro’s properties. It
noted that the stocks of respondents
Kehyeng constituted only 30% of the
outstanding capital stock, while the
Go family owned the majority 70%,
which represented more than the 2/3
vote required by the Corporation
Code. The RTC also held that
laches had attached, considering
that eight (8) years had lapsed...
before respondents questioned the
mortgage executed in 1990.
 13

It cannot therefore be
Issue:
said that laches had
attached and that Whether the requirements of
respondents were Section 40 of the Corporation
already barred from Code was complied with in the
assailing the MTI in execution of the MTI.
1998
 14

RULING:
Reading carefully the Secretary's Certificate, it is clear that the main purpose of the directors'
Resolution was to appoint petitioner as the new trustee of the previously executed and amended
MTI. Going through the original and the revised MTI, we find no substantial... amendments to the
provisions of the contract. We agree with petitioner that the act of appointing a new trustee of the
MTI was a regular business transaction. The appointment necessitated only a decision of at least a
majority of the directors present at the meeting in which... there was a quorum, pursuant to Section
25 of the Corporation Code.

Moreover, it is worthy to note that respondents do not assail the previous MTI executed with BPI.
They do not question the validity of the mortgage constituted over all or substantially all of
respondent Centro's assets pursuant to the 21 March 1994 MTI in the amount of P84... million. Nor
do they question the additional loans increasing the value of the mortgage to P144 million; or the use
of Centro's properties as collateral for the loans of San Carlos, Lucky Two Corporation, and Lucky
Two Repacking.
 15
Thus, Section 40[29] of the Corporation Code finds no application in the
present case, as there was no new mortgage to speak of under the assailed
directors' Resolution.

Nevertheless, while we uphold the validity of the stockholders' Resolution

appointing Metrobank as successor-trustee, this is not to say that we uphold
the validity of the extrajudicial foreclosure of the mortgage.

ALL OBLIGATIONS covered by this INDENTURE shall be evidenced by a

Mortgage Participation Certificate in the form of Schedule II hereof, the
issuance of which by the TRUSTEE to the participating CREDITOR/S shall
be in accordance with Section 7 of this INDENTURE, provided... the
aggregate LOAN VALUES of the COLLATERAL, based on the latest
appraisal thereof, are not exceeded. (Emphasis supplied.)
Even if we assume that petitioner was indeed a creditor protected by the MTI,
we find that, as trustee and as creditor, it failed to comply with the MTI's
conditions for granting additional loans to San Carlos additions that brought
the total loan amount to P1,178,961,181.45... when it did not amend the MTI
to accommodate the additional loans in excess of P144 million.
The Mortgage Trust Indenture is declared
VALID. Nonetheless, for reasons stated
herein, the Decision, declaring the
foreclosure of no force and effect. 
 -End-

Thank You !