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SUPREMECOURTREPORTSANNOTATED
BankofthePhilippineIslandsvs.SecuritiesandExchangeCommission

G.R.No.164641.December20,2007.*
BANKOFTHEPHILIPPINEISLANDS,assuccessorofFarEastBank
and Trust Company, petitioner, vs. SECURITIES AND EXCHANGE
COMMISSION, REHABILITATION, RECEIVER, ASB HOLDINGS,
INC.,ASBDEVELOPMENTCORPORATION,ASBLAND,INC.,ASB
FINANCE,INC.,MAKATIHOPECHRISTIANSCHOOL,INC.,BEL
AIR HOLDINGS CORP., WINCHESTER TRADING, INC., VYL
DEVELOPMENT CORP., GERRICK HOLDINGS CORP.,
NEIGHBORHOODHOLDINGS,INC.,andTHECOURTOFAPPEALS,
respondents.
DacionEnPago;Contracts;Adacionenpagocontainedinarehabilitation
plan approved by the Securities and Exchange Commission does not impair the
contractualrightsofasecuredcreditorasthecreditorrefusetoenterintoadacion.
TheverysameissuesconfrontedtheCourtinthecaseof MetropolitanBank&
Trust Company v. ASB Holdings, et al., 517 SCRA 1 (2007). In this case,
MetropolitanBank&TrustCompany(MBTC)refusedtoenterintoadacionenpago
arrangement contained in ASBs proposed Rehabilitation Plan. MBTC argued,
amongothers,thattheforcedtransferofpropertiesandthediminutionofitsrightto
enforceitslienonthemortgagedpropertiesviolateitsconstitutionalrightagainst
impairmentofcontractsandrighttodueprocess.TheCourtruledthatthereisno
impairment of contracts because the approval of the Rehabilitation Plan and the
appointmentofarehabilitationreceivermerelysuspendstheactionforclaimsagainst
theASBGroup,andMBTCmaystillenforceitspreferencewhentheassetsofthe
ASBGroupwill beliquidated.Butif therehabilitationisfoundtobenolonger
feasible,thentheclaimsagainstthedistressedcorporationwouldhavetobesettled
eventuallyandthesecuredcreditorsshallenjoypreferenceovertheunsecuredones.
Moreover,theCourtstatedthatthereisnocompulsiontoenterintoadacionenpago
agreement,nortowaivetheinterests,penaltiesandrelatedcharges,sincetheseare
merely proposals to creditors such as MBTC, such that in the event the secured
creditorsrefusethedacion,theReha
_______________
*ENBANC.

295

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BankofthePhilippineIslandsvs.SecuritiesandExchangeCommission

bilitation Plan proposes to settle the obligations to secured creditors with

mortgagedpropertiesatsellingprices.
Same; ConstitutionalLaw; Thenonimpairmentofcontractclauseisalimit
onlyagainstlegislativepower,notjudicialpower.TheCourtreiteratesthatthe
SECsapprovaloftheRehabilitationPlandidnotimpairBPIsrighttocontract.As
correctlycontendedbyprivaterespondents,thenonimpairmentclauseisalimiton
theexerciseoflegislativepowerandnotofjudicialorquasijudicialpower.TheSEC,
throughthehearingpanelthatheardthepetitionforapprovaloftheRehabilitation
Plan,wasactingasaquasijudicialbodyandthus,itsorderapprovingtheplancannot
constituteanimpairmentoftherightandthefreedomtocontract.Same.IfBPIdoes
notfindthe dacionenpago modalityacceptable,theASBGroupcanproposeto
settleitsdebtsatsuchamountasisequivalenttothesellingpriceofthemortgaged
properties.IfBPIstillrefusesthisoption,itcanassertitsrightsintheliquidationand
distributionoftheASBGroupsassets.Itwillnotloseitsstatusasasecuredcreditor,
retainingitspreferenceoverunsecuredcreditorswhentheassetsofthecorporation
arefinallyliquidated.

PETITIONforreviewoncertiorariofadecisionoftheCourtofAppeals.
ThefactsarestatedintheopinionoftheCourt.
MichaelG.Jornalesforpetitioner.
JunameC.DeLeonforF.B.Cruz.
Siazon,DeJesus&Salvadorforprivaterespondents.
Benjamin M. Javier, Jr. for private respondent ASB Group of
Companies.
TINGA,J.:
For resolution is a petition seeking to nullify the 30 January 2004
Decision1oftheCourtofAppealsinCAG.R.SPNo.
_______________
1Rollo,pp.1929.

296

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SUPREMECOURTREPORTSANNOTATED

BankofthePhilippineIslandsvs.SecuritiesandExchangeCommission

773092 upholding the Securities and Exchange Commissions (SEC)

approval of the rehabilitation of the ASB Group of Companies (ASB
Group)inSECEnBancCaseNo.EB726.3
Theantecedentfactsareasfollows:
TheBankofthePhilippineIslands(BPI),throughitspredecessorin
interest, Far East Bank and Trust Company (FEBTC), extended credit
accommodations to the ASB Group4 with an outstanding aggregate
principal amount of P86,800,000.00, secured by a real estate mortgage
overtwo(2)propertieslocatedinGreenhills,SanJuan.5On2May2000,
the ASB Group filed a petition for rehabilitation and suspension of
payments before the SEC, docketed as SEC Case No. 05006609.6
Thereafter,on18August2000,theinterimreceiversubmitteditsProposed
Rehabilitation Plan (Rehabilitation Plan)7 for the ASB Group. The
RehabilitationPlanprovides,amongothers,adacionenpagobytheASB
GrouptoBPIofoneofthepropertiesmortgagedtothelatterattheASB
GroupassellingvalueofP84,000,000.00againstthetotalamountofthe
ASBGroupsexposuretothebank.Inturn,ASBGroupwouldrequirethe
releaseoftheotherprop
_______________
2 BankofthePhilippineIslands,assuccessorininterestofFarEastBankandTrust

Companyv.SecuritiesandExchangeCommission,etal.
3

Bank of the Philippine Islands (Successorininterest of Far East Bank and Trust

Company)v.HonorableHearingPanel,etal.
4 ASBRealtyCorporation,ASBDevelopmentCorporation,ASBLand,Inc.andASB

Holdings,Inc.havebeenrenamedSt.FrancisSquareRealtyCorporation,St.FrancisSquare
DevelopmentCorporation,St.FrancisSquareLand,Inc.,andSt.FrancisSquareHoldings,
Inc.,respectively.AmendedArticlesofIncorporationforthesaidcompanieswereapproved
by the SEC on 29 March 2007, 02 April 2007, 28 February 2007 and 12 April 2007,
respectively;Rollo,pp.201206.
5Id.,atp.6.
6Id.,atp.5.
7Id.,atpp.48126.

VOL.541,DECEMBER20,2007

297
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BankofthePhilippineIslandsvs.SecuritiesandExchangeCommission

erty mortgaged to BPI, to be thereafter placed in the asset pool.

Specifically,thepertinentportionoftheplanreads:
xxxASBplanstoinvokea dacionenpago forits#35Eisenhowerpropertyat
ASBssellingvalueofP84millionagainstthetotalamountoftheASBsexposureto
thebank.Inreturn,ASBrequeststhereleaseofthe#27Annapolispropertywhich
willbeplacedintheASBcreditorsassetpool.8

The dacion wouldconstitutefullpaymentoftheentireobligationdueto

BPIbecausethebalancewasthentobeconsideredwaived,asperthe
RehabilitationPlan.9
BPIopposedtheRehabilitationPlanandmovedforthedismissalofthe
ASBGroupspetitionforrehabilitation.10However,on26April2001,the
SEC hearing panel issued an order11 approving ASB Groups proposed
rehabilitation plan and appointed Mr. Fortunato Cruz as rehabilitation
receiver.
BPIfiledapetitionforreview12ofthe26April2001orderbeforethe
SECenbanc,imputinggraveabuseofdiscretiononthepartofthehearing
panel.ItarguedthattheOrderconstitutedanarbitraryviolationofBPIs
freedomandrighttocontractsincetheRehabilitationPlancompelledBPI
toenterintoadacionenpagoagreementwiththeASBGroup.13TheSEC
enbancdeniedthepetition.14
BPIthenfiledapetitionforreview15beforetheCourtofAppeals(CA),
claiming that the SEC en banc erred in affirming the approval of the
RehabilitationPlandespitebeingviolativeofBPIscontractualrights.BPI
contended that the terms of the Rehabilitation Plan would impair its
freedomto
_______________
8RehabilitationPlan,id.,atp.98.
9Id.
10Id.,atpp.172175.
11Id.,atpp.128132.
12SECCaseNo.EB726;id.,atpp.133142.
13Id.,atp.139.
14Id.,atpp.4447.
15Id.,atpp.3139.

298

298
SUPREMECOURTREPORTSANNOTATED
BankofthePhilippineIslandsvs.SecuritiesandExchangeCommission

contract, andalleged that the dacion enpago wasamode ofpayment

beneficialtotheASBGrouponly.16
TheCAdismissedthepetitionforlackofmerit.Itheldthatconsidering
thatthedacionenpagotransactioncouldproceedonlyproceeduponthe
mutualagreementoftheparties,BPIsassertionthatitisbeingcoerced
couldnotbesustained.AtnopointwouldtheRehabilitationPlancompel
securedcreditorssuchasBPItoagreetoasettlementagreementagainst
their will, the CA added. Moreover, BPI could refuse to accept any
arrangementcontemplatedbythereceiverandjustassertitspreferredright
intheliquidationanddistributionoftheassetsoftheASBGroup. 17 BPI
filedamotionforreconsideration,butthesamewasdeniedforlackof
merit.18
Before this Court, BPI asserts that the CA erred in ruling that the
approval by the SEC of the ASB Groups Rehabilitation Plan did not
violateBPIsrightsasacreditor.19Itmaintainsitspositionthatthedacion
enpagoisaformofcoercionorcompulsion,andviolativeoftherightsof
securedcreditors.20ItassertsthatinorderfortheRehabilitationPlantobe
feasibleandlegallytenable,itmustreflecttheexpressandfreeconsentof
theparties;i.e,thattheconditionsshouldnotbeimposedbutagreedupon
by the parties. By approving the Rehabilitation Plan, the SEC hearing
paneltotallydisregardedtheefficacyofthemortgageagreementsbetween
the parties,andsanctioned amodeofpaymentwhichissolelyfor the
unilateralbenefitoftheASBGroup.21Thisissobecauseintheeventthat
thesecuredcreditorssuchasitselfwouldnotagreetodacionenpago,the
ASB Groups obligations would be settled at the selling prices of the
mortgagedproper
_______________
16Id.,atpp.3435.
17Id.,atpp.2328.
18Resolutiondated13July2004;id.,atp.30.
19Id.,atp.8.
20Id.,atp.11.
21PetitionersMemorandum;pp.268276;271.

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BankofthePhilippineIslandsvs.SecuritiesandExchangeCommission

ties to be dictated by the ASB Group, 22 rendering BPIs status as a

preferredcreditorillusory.23
BPIfurtherclaimsthatdespiteitsrejectionoftheRehabilitationPlan,
no effort was made to resolve the impasse on the valuation of the
mortgagedproperties.Withnorepaymentschemeforsecuredcreditorsnot
acceptingtheRehabilitationPlan,thesamehasbecomediscriminatory. 24
Moreover,anyinterferenceontherightsofthesecuredcreditorsmustnot
besoindefiniteandopenendedastoeffectivelydeprivesecuredcreditors
oftheirrighttotheirsecurity,25BPIadds.
InitsComment,26theSEC,throughtheOfficeoftheSolicitorGeneral,
claims that the terms and conditions of the Rehabilitation Plan do not
violateBPIsrightasacreditorbecausethe dacionenpago transaction
contemplatedintheplancanonlyproceeduponmutualagreementofthe
parties.Moreover,beingasecuredcreditor,BPIenjoyspreferenceover
unsecured creditors, thus there is no reason for BPI to fear the non
paymentoftheloan,ortheinabilitytoassertitspreferredrightoverthe
mortgagedproperty.27
On the other hand, private respondents maintain that the non
impairmentclauseoftheConstitutionreliedonbyBPIisalimitonthe
exerciseoflegislativepowerandnotofjudicialorquasijudicialpower.
The SECs approval of the Rehabilitation Plan was an exercise of
adjudicatory power by an administrative agency and thus the non
impairmentclausedoesnotapply.28Inaddition,theystressthatthereisno
coercionorcompulsionthatwouldbeemployedundertheRehabilitation
_______________
22Rollo,pp.9,272.
23Id.,atp.273.
24Id.,atpp.274275.
25Id.
26Id.,atpp.217227.
27 Citing RizalCommercialBankingCorporationv.IntermediateAppellateCourt,378

Phil.10;320SCRA279(1999).

28Rollo,p.200,citingLimv.SecretaryofAgriculture,No.L26990,31August1970,34

SCRA751.
300

300
SUPREMECOURTREPORTSANNOTATED
BankofthePhilippineIslandsvs.SecuritiesandExchangeCommission

Plan. If dacion en pago fails to materialize, the Rehabilitation Plan

contemplatestosettletheobligationstosecuredcreditorswithmortgaged
propertiesatsellingprices.29Finally,theyclaimthatBPIfailedtosubmit
anyvaluationofthemortgagepropertiestosubstantiateitsobjectiontothe
RehabilitationPlan,makingitsobjectiontheretototallyunreasonable.30
Thepetitionmustbedenied.
TheverysameissuesconfrontedtheCourtinthecaseofMetropolitan
Bank&TrustCompanyv.ASBHoldings,etal. 31Inthiscase,Metropolitan
Bank&TrustCompany(MBTC)refusedtoenterintoa dacionenpago
arrangementcontainedinASBsproposedRehabilitationPlan.32 MBTC
argued, among others, that the forced transfer of properties and the
diminution of its right to enforce its lien on the mortgaged properties
violateitsconstitutionalrightagainstimpairmentofcontractsandrightto
due process. The Court ruled that there is no impairment of contracts
becausetheapprovaloftheRehabilitationPlanandtheappointmentofa
rehabilitationreceivermerelysuspendstheactionforclaimsagainstthe
ASBGroup,andMBTCmaystillenforceitspreferencewhentheassetsof
theASBGroupwillbeliquidated.Butiftherehabilitationisfoundtobe
nolongerfeasible,thentheclaimsagainstthedistressedcorporationwould
have to be settled eventually and the secured creditors shall enjoy
preferenceovertheunsecuredones.Moreover,theCourtstatedthatthere
isnocompulsiontoenterintoadacionenpagoagreement,nortowaive
the interests, penalties and related charges, since these are merely
proposalstocreditorssuchas
_______________
29Id.,atp.207.
30Id.
31G.R.No.166197,27February2007,517SCRA1.

32TheverysameRehabilitationPlanthatisthesubjectoftheinstantpetition.MBTCis

alsoacreditorofASBGroup.IntheRehabilitationPlan,ASBGroupproposedpaymentby
daciononsomeofthepropertiesmortgagedtoMBTC.
VOL.541,DECEMBER20,2007

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BankofthePhilippineIslandsvs.SecuritiesandExchangeCommission

MBTC,suchthatintheeventthesecuredcreditorsrefusethedacion,the
RehabilitationPlanproposestosettletheobligationstosecuredcreditors
withmortgagedpropertiesatsellingprices.
Rehabilitationproceedingsinourjurisdiction,muchlikethebankruptcy
lawsoftheUnitedStates,haveequitableandrehabilitativepurposes.On
the one hand, they attempt to provide for the efficient and equitable
distributionofaninsolventdebtorsremainingassetstoitscreditors;and
ontheother,toprovidedebtorswithafreshstartbyrelievingthemof
theweightoftheiroutstandingdebtsandpermittingthemtoreorganize
theiraffairs.33TherationaleofP.D.No.902A,asamended,istoeffecta
feasibleandviablerehabilitation,34bypreservingafounderingbusinessas
goingconcern,becausetheassetsofabusinessareoftenmorevaluable
whensomaintainedthantheywouldbewhenliquidated.35
TheCourtreiteratesthattheSECsapprovaloftheRehabilitationPlan
didnotimpairBPIsrighttocontract.Ascorrectlycontendedbyprivate
respondents, the nonimpairment clause is a limit on the exercise of
legislativepowerandnotofjudicialorquasijudicialpower. 36 TheSEC,
through the hearing panel that heard the petition for approval of the
RehabilitationPlan,wasactingasaquasijudicialbodyandthus,itsorder
approvingtheplancannotconstituteanimpairmentoftherightandthe
freedomtocontract.
Besides,themerefactthattheRehabilitationPlanproposesadacionen
pagoapproachdoesnotrenderitdefective
_______________
33WestmorelandHumanOpportunities,Inc,v.Walsh,246F.3d233,C.A.3(Pa),2001.

SeealsoInre:Epstein(39B.R.938,Bkrtcy.D.N.M.1984).
34Supranote27atp.25.
35Inre:EdwardR.Fitzsimmons,725F.2d1208,76A.L.R.Fed.845.

36

Bernas,

THE 1987 CONST. OF THE REPUBLIC OF THE

PHILIPPINES:ACOMMENTARY, 1996 Edition, p. 397, citing Lim v. Secretary of

Agriculture,34SCRA751,764(1970).
302

302
SUPREMECOURTREPORTSANNOTATED
BankofthePhilippineIslandsvs.SecuritiesandExchangeCommission

onthegroundofimpairmentoftherighttocontract.Dacionenpagoisa
special mode of payment where the debtor offers another thing to the
creditorwhoacceptsitasequivalentofpaymentofanoutstandingdebt. 37
Theundertakingreallypartakesinasenseofthenatureofsale,thatis,the
creditorisreallybuyingthethingorpropertyofthedebtor,thepayment
forwhichistobechargedagainstthedebtorsdebt.Assuch,theessential
elementsofacontractofsale,namely;consent,objectcertain,andcause
orconsiderationmustbepresent.38Beingaformofcontract,thedacionen
pago agreement cannot be perfected without the consent of the parties
involved.
Wefindnoelementofcompulsioninthe dacionenpagoprovisionof
theRehabilitationPlan.ItwasnottheonlysolutionpresentedbytheASB
topayitscreditors.Infact,itwasstatedintheRehabilitationPlanthat:
xxx.Ifthedacionenpagohereincontemplateddoesnotmaterializeforfailureof
thesecuredcreditorstoagreethereto,therehabilitationplancontemplatestosettlethe
obligations(withoutinterest,penaltiesandotherrelatedchargesaccruingafterthe
dateoftheinitialsuspensionorder)tosecuredcreditorswithmortgagedpropertiesat
ASBsellingpricesforthegeneralinterestoftheemployees,creditors,unitbuyers,
government,generalpublicandtheeconomy.39

Thus,ifBPIdoesnotfindthe dacionenpago modalityacceptable,the

ASBGroupcanproposetosettleitsdebtsatsuchamountasisequivalent
tothesellingpriceofthemortgagedproperties.IfBPIstillrefusesthis
option,itcanassertitsrightsintheliquidationanddistributionoftheASB
Groupsassets.Itwillnotloseitsstatusasasecuredcreditor,
_______________
37Uyv.Sandiganbayan,etal.,G.R.No.111544,06July2004,433SCRA424,438.
38PhilippineLawinBus,etal.v.CourtofAppeals,425Phil.146,155;374SCRA332,

338(2002).
39RehabilitationPlan,pp.1718;Rollo,pp.7071.

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BankofthePhilippineIslandsvs.SecuritiesandExchangeCommission

retainingitspreferenceoverunsecuredcreditorswhentheassetsofthe
corporationarefinallyliquidated.40
WHEREFORE,inviewoftheforegoing,thepetitionisDENIEDand
theDecisiondated30January2004oftheCourtofAppealsinCAG.R.
SPNo.77309isAFFIRMED.Costsagainstpetitioner.
SOORDERED.
Puno (C.J.), Quisumbing, YnaresSantiago, SandovalGutierrez,
AustriaMartinez, Corona, CarpioMorales, Azcuna,Velasco, Jr.,
Nachura,ReyesandLeonardoDeCastro,JJ.,concur.
Carpio,J.,OnLeave.
ChicoNazario, J., I certify that J. Nazario, concurred with the
Decision.(Sgd.Puno,C.J.)
Petitiondenied,judgmentaffirmed.
Notes.Itisnottheprovinceofcourtstoamendacontract.(Sabiovs.
InternationalCorporationBank,Inc.,364SCRA385[2001])
Equitycannotbeconsideredwherethereisacontractualstipulation.
(Tanvs.CourtofAppeals,367SCRA571[2001])
o0o
_______________
40 RizalCommercialBankingCorporationv.IntermediateAppellateCourt,supra note

27atp.26.
304
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