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Oblicon Prelim Case Study No.

2
Essem Development Corp. (EDC) has the largest mall, Mall of Southeast Asia
(MSA) located in the newly reclaimed area across Manila Bay. It plans to
expand its area by adding another level to its South Wing, which will be an
outdoor football field, and also another level to its North Wing, which will be
rented out to retailers. To finance the construction, it enters into a Joint
Venture Agreement (JVA) with the International Banking Corp. (IBC) and
Roukini Consunji Construction Corp. (RCCC), whereby the former will provide
the funds to the latter. The construction is expected to be finished in two
years.
After a year, the South Wing is completed. The North Wing is delayed due to
the increasing costs of materials. RCCC does not want to purchase any more
materials in advance for EDC, since the latter is known to be delaying
payments. Furthermore, IBC has limited the loan it extended to RCCC, and
collects in advance its proportionate share from the rentals that retailers pay
to EDC.
Since business does not seem good, many of the retailers have closed shop.
IBC now forecloses on the real estate mortgage offered as security by EDC.
Being unable to redeem the property, EDC is compelled to transfer the title to
the mall in favor of IBC. Since IBC does not have the technical expertise to
run the mall, it sells MSA to Robinhood Holdings, Inc. (RHI), the rival of EDC.
In the meantime, RCCC decides to discontinue its construction, because RHI
terminates the JVA, and contracts FF Crusis Builders, Inc. (FFCBI) to take
over.
The project was completed after three years. By then, the South Wing has
deteriorated, due to the substandard materials used by RCCC. The North
Wing has been completed, but very few tenants occupy it, virtually turning the
new level to a ghost town. Those who are renting now want the return of their
advance payments and security deposits on their leases, and have decided to
move out to the more glamorous Fort in Taguig City. RHI, now on the brink of
losing money on this venture, is contemplating of giving it up or selling it
piecemeal to small businesses. Meanwhile, IBC has a bank run and was
briefly closed down for having too many non-performing assets.
Resolve the issues by applying the concepts learned in Obligations.

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