EN BANC

BANK OF THE PHILIPPINE G.R. No. 164641

ISLANDS, as successor of Far
East Bank and Trust Company,
Petitioner, Present:
PUNO, C.J.,
QUISUMBING,
YNARES-SANTIAGO,
SANDOVAL-GUTIERREZ,
- versus - CARPIO,
AUSTRIA-MARTINEZ,
CORONA,
CARPIO-MORALES,
AZCUNA,
SECURITIES AND EXCHANGE TINGA,
COMMISSION, REHABILITATION CHICO-NAZARIO, RECEIVER, ASB HOLDINGS,
INC., VELASCO, JR.,
ASB DEVELOPMENT CORPORATION, NACHURA,
ASB LAND, INC., ASB FINANCE, REYES, and
INC., MAKATI HOPE CHRISTIAN LEONARDO DE CASTRO, JJ.
SCHOOL, INC., BEL-AIR HOLDINGS
CORP., WINCHESTER TRADING, Promulgated:
INC., VYL DEVELOPMENT CORP.,
GERRICK HOLDINGS CORP., December 20, 2007
NEIGHBORHOOD HOLDINGS, INC.,
and THE COURT OF APPEALS,
Respondents.
x--------------------------------------------------------------------------- x

DECISION

TINGA, J.:
For resolution is a petition seeking to nullify the 30 January
2004 Decision[1] of the Court of Appeals in CA-G.R. SP No. 77309[2] upholding the
Securities and Exchange Commissions (SEC) approval of the rehabilitation of the
ASB Group of Companies (ASB Group) in SEC En Banc Case No. EB-726.[3]

The antecedent facts are as follows:

The Bank of the Philippine Islands (BPI), through its predecessor-in-

interest, Far East Bank and Trust Company
[4]
(FEBTC), extended credit accommodations to the ASB Group with an outstandin
g aggregate principal amount of P86,800,000.00, secured by a real estate mortgage
over two (2) properties located in Greenhills, San Juan.[5] On 2 May 2000, the ASB
Group filed a petition for rehabilitation and suspension of payments before the SEC,
docketed as SEC Case No. 05-00-6609.[6] Thereafter, on 18 August 2000, the interim
receiver submitted its Proposed Rehabilitation Plan (Rehabilitation Plan)[7] for the
ASB Group. The Rehabilitation Plan provides, among others, a dacion en pago by
the ASB Group to BPI of one of the properties mortgaged to the latter at the ASB
Group as selling value of P84,000,000.00 against the total amount of the ASB
Groups exposure to the bank. In turn, ASB Group would require the release of the
other property mortgaged to BPI, to be thereafter placed in the asset
pool. Specifically, the pertinent portion of the plan reads:

x x x ASB plans to invoke a dacion en pago for its #35 Eisenhower property at ASBs selling
value of P84 million against the total amount of the ASBs exposure to the bank. In return,
ASB requests the release of the #27 Annapolis property which will be placed in the ASB
creditors asset pool. [8]

The dacion would constitute full payment of the entire obligation due to BPI
because the balance was then to be considered waived, as per the Rehabilitation
Plan.[9]

BPI opposed the Rehabilitation Plan and moved for the dismissal of the ASB
Groups petition for rehabilitation.[10] However, on 26 April 2001, the SEC hearing
panel issued an order[11] approving ASB Groups proposed rehabilitation plan and
appointed Mr. Fortunato Cruz as rehabilitation receiver.

BPI filed a petition for review[12] of the 26 April 2001 order before the SEC en banc,
imputing grave abuse of discretion on the part of the hearing panel. It argued that
the Orderconstituted an arbitrary violation of BPIs freedom and right to contract
since the Rehabilitation Plan compelled BPI to enter into a dacion en
pago agreement with the ASB Group.[13] The SEC en banc denied the petition.[14]
BPI then filed a petition for review[15] before the Court of Appeals (CA), claiming
that the SEC en banc erred in affirming the approval of the Rehabilitation Plan
despite being violative of BPIs contractual rights. BPI contended that the terms of
the Rehabilitation Plan would impair its freedom to contract, and alleged that
the dacion en pago was a mode of payment beneficial to the ASB Group only.[16]
The CA dismissed the petition for lack of merit. It held that considering that
the dacion en pago transaction could proceed only proceed upon the mutual
agreement of the parties, BPIs assertion that it is being coerced could not be
sustained. At no point would the Rehabilitation Plan compel secured creditors such
as BPI to agree to a settlement agreement against their will, the CA added.
Moreover, BPI could refuse to accept any arrangement contemplated by the
receiver and just assert its preferred right in the liquidation and distribution of the
assets of the ASB Group.[17] BPI filed a motion for reconsideration, but the same
was denied for lack of 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 violate BPIs rights as a
creditor.[19] It maintains its position that the dacion en pago is a form of coercion
or compulsion, and violative of the rights of secured creditors. [20] It asserts that in
order for the Rehabilitation Plan to be feasible and legally tenable, it must reflect
the express and free consent of the parties; i.e, that the conditions should not be
imposed but agreed upon by the parties. By approving the Rehabilitation Plan, the
SEC hearing panel totally disregarded the efficacy of the mortgage agreements
between the parties, and sanctioned a mode of payment which is solely for the
unilateral benefit of the ASB Group.[21] This is so because in the event that the
secured creditors such as itself would not agree to dacion en pago, the ASB Groups
obligations would be settled at the selling prices of the mortgaged properties to be
dictated by the ASB Group,[22] rendering BPIs status as a preferred creditor
illusory.[23]

BPI further claims that despite its rejection of the Rehabilitation Plan, no effort was
made to resolve the impasse on the valuation of the mortgaged properties. With
no repayment scheme for secured creditors not accepting the Rehabilitation Plan,
the same has become discriminatory.[24] Moreover, any interference on the rights
of the secured creditors must not be so indefinite and open-ended as to effectively
deprive secured creditors of their right to their security,[25] BPI adds.

In its Comment,[26] the SEC, through the Office of the Solicitor General, claims that
the terms and conditions of the Rehabilitation Plan do not violate BPIs right as a
creditor because the dacion en pago transaction contemplated in the plan can only
proceed upon mutual agreement of the parties. Moreover, being a secured
creditor, BPI enjoys preference over unsecured creditors, thus there is no reason
for BPI to fear the non-payment of the loan, or the inability to assert its preferred
right over the mortgaged property.[27]

On the other hand, private respondents maintain that the non-impairment clause
of the Constitution relied on by BPI is a limit on the exercise of legislative power
and not of judicial or quasi-judicial power. The SECs approval of the Rehabilitation
Plan was an exercise of adjudicatory power by an administrative agency and thus
the non-impairment clause does not apply.[28] In addition, they stress that there is
no coercion or compulsion that would be employed under the Rehabilitation
Plan. If dacion en pago fails to materialize, the Rehabilitation Plan contemplates to
settle the obligations to secured creditors with mortgaged properties at selling
prices.[29] Finally, they claim that BPI failed to submit any valuation of the mortgage
properties to substantiate its objection to the Rehabilitation Plan, making its
objection thereto totally unreasonable.[30]

The petition must be denied.

The very same issues confronted the Court in the case of Metropolitan Bank
& Trust Company v. ASB Holdings, et al.[31] In this case, Metropolitan Bank & Trust
Company (MBTC) refused to enter into a dacion en pago arrangement contained in
ASBs proposed Rehabilitation Plan.[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 violate its constitutional right against impairment of
contracts and right to due process.The Court ruled that there is no impairment of
contracts because the approval of the Rehabilitation Plan and the appointment of
a rehabilitation receiver merely suspends the action for claims against the ASB
Group, and MBTC may still enforce its preference when the assets of the ASB Group
will be liquidated. But if the rehabilitation is found to be no longer feasible, then
the claims against the distressed corporation would have to be settled eventually
and the secured creditors shall enjoy preference over the unsecured
ones.Moreover, the Court stated that there is no compulsion to enter into a dacion
en pago agreement, nor to waive the interests, penalties and related charges, since
these are merely proposals to creditors such as MBTC, such that in the event the
secured creditors refuse the dacion, the Rehabilitation Plan proposes to settle the
obligations to secured creditors with mortgaged properties at selling prices.

Rehabilitation proceedings in our jurisdiction, much like the bankruptcy laws of

the United States, have equitable and rehabilitative purposes. On the one hand,
they attempt to provide for the efficient and equitable distribution of an insolvent
debtors remaining assets to its creditors; and on the other, to provide debtors with
a fresh start by relieving them of the weight of their outstanding debts and
permitting them to reorganize their affairs.[33] The rationale of P.D. No. 902-A, as
amended, is to effect a feasible and viable rehabilitation,[34] by preserving a
foundering business as going concern, because the assets of a business are often
more valuable when so maintained than they would be when liquidated. [35]

The Court reiterates that the SECs approval of the Rehabilitation Plan did not
impair BPIs right to contract. As correctly contended by private respondents, the
non-impairment clause is a limit on the exercise of legislative power and not of
judicial or quasi-judicial power.[36] The SEC, through the hearing panel that heard
the petition for approval of the Rehabilitation Plan, was acting as a quasi-judicial
body and thus, its order approving the plan cannot constitute an impairment of the
right and the freedom to contract.

Besides, the mere fact that the Rehabilitation Plan proposes a dacion en
pago approach does not render it defective on the ground of impairment of the
right to contract.Dacion en pago is a special mode of payment where the debtor
offers another thing to the creditor who accepts it as equivalent of payment of an
outstanding debt.[37] The undertaking really partakes in a sense of the nature of
sale, that is, the creditor is really buying the thing or property of the debtor, the
payment for which is to be charged against the debtors debt. As such, the essential
elements of a contract of sale, namely; consent, object certain, and cause or
consideration must be present.[38] Being a form of contract, the dacion en
pago agreement cannot be perfected without the consent of the parties involved.

We find no element of compulsion in the dacion en pago provision of the

Rehabilitation Plan. It was not the only solution presented by the ASB to pay its
creditors. In fact, it was stated in the Rehabilitation Plan that:

x x x. If the dacion en pago herein contemplated does not materialize for failure of the
secured creditors to agree thereto, the rehabilitation plan contemplates to settle the
obligations (without interest, penalties and other related charges accruing after the date
of the initial suspension order) to secured creditors with mortgaged properties at ASB
selling prices for the general interest of the employees, creditors, unit buyers,
government, general public and the economy.[39]

Thus, if BPI does not find the dacion en pago modality acceptable, the ASB Group
can propose to settle its debts at such amount as is equivalent to the selling price
of the mortgaged properties. If BPI still refuses this option, it can assert its rights in
the liquidation and distribution of the ASB Groups assets. It will not lose its status
as a secured creditor, retaining its preference over unsecured creditors when the
assets of the corporation are finally liquidated.[40]

WHEREFORE, in view of the foregoing, the petition is

DENIED and the Decision dated 30 January 2004 of the Court of Appeals in CA-G.R.
SP No. 77309 is AFFIRMED.Costs against petitioner.
SO ORDERED.

DANTE O. TINGA
Associate Justice

WE CONCUR:

REYNATO S. PUNO
Chief Justice
 LEONARDO A. QUISUMBING CONSUELO YNARES-SANTIAGO
Associate Justice Associate Justice

ANGELINA SANDOVAL-GUTIERREZ ANTONIO T. CARPIO

Associate Justice Associate Justice

MA. ALICIA AUSTRIA-MARTINEZ RENATO C. CORONA

Associate Justice Associate Justice
 CONCHITA CARPIO MORALES ADOLFO J. AZCUNA
Associate Justice Associate Justice

MINITA V. CHICO-NAZARIO PRESBITERO J. VELASCO, JR.

Associate Justice Associate Justice

ANTONIO EDUARDO B. NACHURA RUBEN T. REYES

Associate Justice Associate Justice

TERESITA J. LEONARDO-DE CASTRO

Associate Justice
 CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified

that the conclusions in the above Decision were reached in consultation before
the case was assigned to the writer of the opinion of the Court.

REYNATO S. PUNO
Chief Justice

[1]
Rollo, pp. 19-29.
[2]
Bank of the Philippine Islands, as successor-in-interest of Far East Bank and Trust Company v. Securities
and Exchange Commission, et al.
[3]
Bank of the Philippine Islands (Successor-in-interest of Far East Bank and Trust Company) v. Honorable
Hearing Panel, et al.
[4]
ASB Realty Corporation, ASB Development Corporation, ASB Land, Inc. and ASB Holdings, Inc. have
been renamed St. Francis Square Realty Corporation, St. Francis Square Development Corporation, St. Francis Square
Land, Inc., and St. Francis Square Holdings, Inc., respectively. Amended Articles of Incorporation for the said
companies were approved by the SEC on 29 March 2007, 02 April 2007, 28 February 2007 and 12 April 2007,
respectively; Rollo, pp. 201-206.
[5]
Id. at 6.
[6]
Id. at 5.
[7]
Id. at 48-126.
[8]
Rehabilitation Plan, id. at 98.
[9]
Id.
 [10]
Id. at 172-175.
[11]
Id. at 128-132.
[12]
SEC Case No. EB 726; id. at 133-142.
[13]
Id. at 139.
[14]
Id. at 44-47.
[15]
Id. at 31-39.
[16]
Id. at 34-35.
[17]
Id. at 23-28.
[18]
Resolution dated 13 July 2004; id. at 30.
[19]
Id. at 8.
[20]
Id. at 11.
[21]
Petitioners Memorandum; pp. 268-276; 271.
[22]
Rollo, pp. 9, 272.
[23]
Id. at 273.
[24]
Id. at 274-275.
[25]
Id.
[26]
Id. at 217-227.
[27]
Citing Rizal Commercial Banking Corporation v. IAC, 378 Phil. 10 (1999).

[28]
Rollo, p. 200, citing Lim v. Secretary of Agriculture, No. L-26990, 31 August 1970, 34 SCRA 751.
[29]
Id. at 207.
[30]
Id.

[31]
G.R. No. 166197, 27 February 2007.
[32]
The very same Rehabilitation Plan that is the subject of the instant petition. MBTC is also a creditor of ASB
Group. In the Rehabilitation Plan, ASB Group proposed payment by dacion on some of the properties mortgaged to
MBTC.
[33]
Westmoreland Human Opportunities, Inc, v. Walsh, 246 F. 3d 233, C.A.3 (Pa)., 2001. see also In re:
Epstein (39 B.R. 938, Bkrtcy. D.N.M. 1984).
[34]
Supra note 27 at 25.
[35]
In re: Edward R. Fitzsimmons, 725 F.2d 1208, 76 A.L.R. Fed. 845.
 [36]
BERNAS, THE 1987 CONST. OF THE REPUBLIC OF THE PHILIPPINES: A COMMENTARY, 1996
Edition, p. 397 citing Lim v. Secreatry of Agriculture, 34 SCRA 751, 764 (1970).
[37]
Uy v. Sandiganbayan, et al., G.R. No. 111544, 06 July 2004, 433 SCRA 424, 438.
[38]
Philippine Lawin Bus, et al. v. Court of Appeals, 425 Phil. 146, 155 (2002).
[39]
Rehabilitation Plan, pp. 17-18; Rollo, pp. 70-71.
[40]
Rizal Commercial Banking Corporation v. Intermediate Appellate Court, supra note 27 at 26.