Union Bank of the Philippines v. ASB Development Corporation
REITERATIONFacts
The Antecedents: Respondent ASB Development Corporation (ASBDC), a domestic corporation, executed a Mortgage Trust Indenture (MTI) and supplemental indentures in favor of Rizal Commercial Banking Corporation (RCBC) as trustee for several creditor banks, including petitioner Union Bank of the Philippines (UBP). Under these agreements, ASBDC obtained a loan of P1.198 billion, with UBP extending P122 million. ASBDC mortgaged real properties as security for the loan. On May 2, 2000, ASBDC and affiliated companies filed a Petition for Rehabilitation with the Securities and Exchange Commission (SEC), seeking a suspension of actions and proceedings against them. Procedural History: ASBDC's Petition for Rehabilitation was met with opposition from several creditor banks, including UBP. The SEC Hearing Panel initially issued a sixty-day suspension order against all claims against the ASB Group of Companies and appointed an interim receiver, later replaced by a rehabilitation receiver. The SEC Hearing Panel eventually gave due course to the Petition for Rehabilitation and approved the Rehabilitation Plan on April 26, 2001. During these proceedings, UBP, citing ASBDC's alleged failure to pay its indebtedness, initiated an extrajudicial foreclosure of the mortgaged properties on July 27, 2001. The SEC Hearing Panel, on December 11, 2003, annulled and set aside this extrajudicial sale. UBP appealed this decision to the SEC En Banc, which denied the petition on July 6, 2004. UBP then elevated the matter to the Court of Appeals (CA), which affirmed the SEC En Banc's resolution on May 31, 2005, and denied UBP's motion for reconsideration on May 31, 2006. The Petition: Petitioner Union Bank of the Philippines (UBP) filed this Petition for Review on Certiorari seeking to set aside the Court of Appeals' decision and resolution. UBP argues that the Court of Appeals erred in applying the Rules of Procedure on Corporate Recovery, asserting that ASBDC's initial petition for rehabilitation was jurisdictionally defective because ASBDC admitted to possessing sufficient properties to cover its obligations, thus not qualifying for rehabilitation. UBP also contends that the May 4, 2000 Suspension Order by the SEC Hearing Panel was void and could not become final, and that the Court of Appeals erred in ruling that UBP lacked the power to foreclose the mortgaged property. The petition raises questions regarding the SEC's jurisdiction over the rehabilitation petition, the validity of the suspension order, and UBP's right to foreclose.
Issue(s)
Whether the SEC had jurisdiction over ASBDC's Petition for Rehabilitation despite ASBDC's admission of solvency. Whether the May 4, 2000 Suspension Order issued by the SEC Hearing Panel was valid and could no longer be questioned. Whether petitioner UBP had the power to unilaterally foreclose the mortgaged property despite the MTI provisions and the SEC's suspension order.
Ruling
The Petition is DENIED. The Decision dated 31 May 2005 and Resolution dated 31 May 2006 of the Court of Appeals in CA-G.R. SP No. 85780 are AFFIRMED.
Ratio Decidendi
On the SEC's jurisdiction over the Petition for Rehabilitation: The Court held that ASBDC, despite admitting sufficient assets, could still file a Petition for Rehabilitation if it foresaw the impossibility of meeting its obligations within a year, which constitutes technical insolvency. The Rules of Procedure on Corporate Recovery allow a technically insolvent corporation to seek rehabilitation. The determination of technical insolvency is a question of fact, and the SEC Hearing Panel's finding, affirmed by the SEC En Banc and the Court of Appeals, was given great respect and finality. Furthermore, the Court noted that the validity of the rehabilitation plan had already been upheld in a prior case (Metropolitan Bank & Trust Company v. ASB Holdings, Inc.), which implicitly affirmed the SEC's jurisdiction over the rehabilitation petition. On the validity of the May 4, 2000 Suspension Order: The Court reiterated that the validity of the May 4, 2000 Suspension Order had already been passed upon and upheld with finality by the Supreme Court in G.R. No. 153830. While an interlocutory order cannot become final and executory for purposes of res judicata, the principle of 'law of the case' applies, meaning that the decision of the Court on appeal becomes the controlling legal rule of decision between the same parties in the same case. Therefore, UBP was barred from questioning the validity of the suspension order again. On UBP's power to unilaterally foreclose the mortgaged property: The Court found that while Section 7.16 of the MTI allowed a Holder of Participation Certificates to initiate foreclosure under certain conditions, the primary authority rested with RCBC as the Trustee. The conditions for direct foreclosure by a certificate holder, including a written request from at least 51% of the certificate holders and a reasonable period for the trustee to act, were not met by UBP. Although UBP correctly identified an Event of Default under Section 7.01(e) of the MTI, which under Section 7.04 could allow immediate foreclosure without the 51% written request, this right was suspended by the SEC's May 4, 2000 Order. The Court clarified that the term 'claim' under the Rules of Procedure on Corporate Recovery includes secured obligations, and thus, UBP's right to foreclose was suspended.
Main Doctrine
The filing of a petition for rehabilitation, even by a technically insolvent corporation, is permissible under the Rules of Procedure on Corporate Recovery, and the suspension order issued pursuant to such petition is valid and binding, even if it affects secured creditors. The principle of 'law of the case' precludes relitigation of issues already passed upon by a higher court.