Osmeña v. Social Security System
REITERATIONFacts
The Antecedents: Petitioners, including Senators and SSS members, sought to nullify Resolution Nos. 428 and 485 of the Social Security Commission (SSC), which approved the sale of SSS's entire equity stake in Equitable PCI Bank, Inc. (EPCIB) through a Swiss Challenge bidding procedure. The SSS intended to divest its EPCIB shares due to their declining value and to diversify investments. A Letter-Agreement was signed with Banco de Oro Universal Bank (BDO) and its subsidiary BDO Capital & Investment Corporation (BDO Capital) for the sale of approximately 187.8 million EPCIB common shares at P43.50 per share. The Commission on Audit (COA) and Department of Justice (DOJ) opined that while the sale was subject to public auction guidelines, a negotiated sale of stock exchange-listed shares could substantially comply with the policy of public auction. Procedural History: The Supreme Court issued a status quo ante order enjoining the implementation of the assailed resolutions. Subsequently, supervening events occurred: BDO announced its intent to merge with EPCIB; GSIS received an offer to buy its EPCIB stake at P92.00 per share; and SM Investments Corporation, an affiliate of BDO, launched a mandatory tender offer to acquire all outstanding EPCIB shares at P92.00 per share. The Court required parties to confirm the P92.00 price and manifest if the case had become moot. The Petition: Petitioners argued that the Swiss Challenge method was contrary to COA Circular No. 89-296 and public policy, as it discouraged bidding due to the preferential right to match. They contended the shares were long-term assets requiring public auction. Conversely, respondents argued the sale was exempt from public bidding or that the negotiated sale with BDO Capital substantially complied with public auction policy. They also asserted that the Swiss Challenge was a measure to validate BDO Capital's offer and potentially secure a higher price. Later, in response to the Court's query, respondents SSS and BDO Capital argued the case was moot due to the tender offer. Petitioners conceded the price difference but maintained the case was not moot unless SSS withdrew the sale. Ultimately, BDO and EPCIB merged, with BDO as the surviving corporation, and SSS received BDO shares in exchange for its former EPCIB holdings. BDO Capital filed a Motion to Dismiss based on mootness.
Issue(s)
Whether the proposed sale of SSS's EPCIB shares through a Swiss Challenge method is contrary to COA Circular No. 89-296 and public policy. Whether the case has become moot and academic due to supervening events, specifically the merger of BDO and EPCIB and the subsequent tender offer and exchange of shares; and whether the doctrine of rebus sic stantibus applies.
Ruling
The petition is DISMISSED on the ground that the case has become moot and academic.
Ratio Decidendi
On the issue of the proposed sale of shares: The Court noted that should SSS opt to exit from BDO or BDO Capital pursue SSS's converted shareholdings, any sale-purchase would have to be via an Issuer Tender Offer, which is wholly inconsistent with public bidding or a Swiss Challenge. An issuer tender offer involves the issuer or its affiliate acquiring its own shares, with no bidding process involved. The offeror proposes to buy shares at a stated price and terms, and stockholders simply accept the tender to effect the sale. On the issue of mootness and rebus sic stantibus: The Court held that the case had become moot and academic due to the supervening events. The primary subject of the petition, the 187.84 million EPCIB common shares held by SSS, ceased to exist as such following the merger of BDO and EPCIB. EPCIB was absorbed by BDO, and the EPCIB shares were converted into BDO common shares under a specific exchange ratio. Consequently, the subject shares are no longer equity issuances of the defunct EPCIB but are now shares of BDO-EPCI, Inc., a distinct entity. The Court took judicial notice of the disappearance of EPCIB stocks from the local bourse and their replacement by BDO-EPCI stocks. Under the law on obligations and contracts, an obligation to deliver a determinate thing is extinguished if the object is lost without the fault of the debtor, and a thing is considered lost when it perishes or disappears in such a way that it cannot be recovered. The merger and conversion of shares rendered the erstwhile EPCIB shares of SSS unrecoverable. Even hypothetically assuming the shares still existed, the Court found the case moot and academic. The supervening BDO-EPCIB merger fundamentally altered the circumstances of SSS and BDO/BDO Capital, rendering the fulfillment of obligations under the Letter-Agreement, Share Purchase Agreement (SPA), or Swiss Challenge legally impossible. The doctrine of rebus sic stantibus allows for release from contractual obligations when prevailing conditions cease to exist, making performance manifestly beyond the contemplation of the parties. The conditions upon which the P43.50 per share pricing was predicated had ceased to exist due to the merger.
Main Doctrine
A case becomes moot and academic when supervening events render the adjudication of the case of no practical value or use. In this instance, the merger of Equitable PCI Bank, Inc. (EPCIB) with Banco de Oro Universal Bank (BDO), resulting in the conversion of SSS's EPCIB shares into BDO shares, rendered the subject matter of the petition (the sale of EPCIB shares) inexistent and unrecoverable, thus mooting the case.