When Loan Restructuring Terms Must Be in Writing: The Marcopper Case

Rizal Commercial Banking Corporation v. Marcopper Mining Corporation (G.R. No. 170738, October 30, 2009) is a reminder that in loan restructuring, what is written matters more than what was allegedly said. The Supreme Court held that a borrower cannot compel a bank to release collateral based on an alleged oral condition that does not appear in any written agreement.

The Dispute: A Restructured Loan and an Alleged Condition

Marcopper obtained a US$13.7 million loan from RCBC to finance heavy equipment. As security, Marcopper executed a chattel mortgage over the equipment and pledged shares of stock in various clubs. When Marcopper could not pay, it proposed two options to RCBC: foreclosure, or assignment of a Forbes Park property as partial payment with the balance restructured.

RCBC accepted the second option. The parties exchanged letters in July 1997 detailing the repayment scheme: the principal was revised to US$14.327 million, the Forbes Park property would be assigned for P235 million, and the balance would be paid through two promissory notes. RCBC officials signed their conformity to this plan.

The dispute arose when Marcopper claimed that RCBC had agreed, as a condition to the assignment, to release the mortgage on six rig trucks and one Demag shovel, plus the pledge on club shares. RCBC signed the Deed of Assignment but refused to release the collateral unless Marcopper paid the first amortization. When Marcopper failed to pay, RCBC declared the entire obligation due. Marcopper sued for specific performance.

The Issue: Was There a Binding Agreement to Release Collateral?

The central question was whether RCBC had committed to release the mortgage and pledge as a condition of the Forbes Park property assignment. Marcopper argued that this condition was agreed upon during a July 3, 1997 meeting.

The Ruling: No Written Agreement, No Binding Condition

The Supreme Court ruled in favor of RCBC. The Court reviewed the written exchanges between the parties and found no written agreement requiring RCBC to release the mortgage and pledge upon the assignment of the Forbes Park property.

The July 1, 1997 letter merely listed options for payment. The July 8, 1997 letter, which confirmed the parties' agreement, did not mention any release of mortgage or pledge—a condition Marcopper claimed was material and would ordinarily have been included. The Court also noted that Marcopper even delivered an additional pledge of a club share in September 1997, which would be inconsistent with its claim that the collateral was supposed to be released.

The Importance of Written Documentation

The Court emphasized that Marcopper's witnesses could not identify who from RCBC made the alleged commitment. One witness admitted he was not present when the commitment was supposedly made and learned of it only from a report. Another witness, Marcopper's chairman, could not recall who made the commitment and admitted the alleged agreement was not in writing.

The Court also rejected Marcopper's new arguments raised for the first time in its motion for reconsideration, including an allegation that a deed of pledge was falsified. The Court noted that Marcopper had previously admitted the deed's execution in its own pleadings, and a party cannot contradict its judicial admissions.

Practical Takeaways

• Get it in writing. Oral conditions in loan restructuring are difficult to prove and generally unenforceable. Any condition to a restructuring—such as the release of collateral—should be stated in the written agreement or exchanged letters.
• Review all correspondence carefully. Letters confirming agreements are binding. If a material condition is omitted from a written confirmation, courts will assume it was not agreed upon.
• Know the rules on judicial admissions. Statements made in pleadings are conclusive against the party making them. A party cannot later change its theory of the case or deny facts it previously admitted.
• Raise all issues at the trial court level. Arguments raised for the first time on appeal or in a motion for reconsideration will generally not be considered by reviewing courts.
• For an offer to be binding, acceptance must be absolute. A qualified acceptance is merely a counter-offer. If the parties never reach a final arrangement, there is no meeting of the minds.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.