Case Digest (G.R. No. 175844)
Facts:
In Bank of the Philippine Islands v. Sarabia Manor Hotel Corporation, decided on July 29, 2013 under G.R. No. 175844, Sarabia Manor Hotel Corporation (Sarabia), a hotel operator incorporated in 1982 with a paid‐up capital of ₱10 million, outsourced the construction of a new five‐storey building in 1997 financed by a ₱150 million loan and a ₱20 million standby credit line from Far East Bank and Trust Company (FEBTC), subsequently assumed by BPI through merger. Due to the contractor’s abandonment and external shocks—such as the September 11 attacks—Sarabia incurred cost overruns and cash‐flow problems. Despite positive net assets, Sarabia filed for corporate rehabilitation on July 26, 2002 in the Regional Trial Court (RTC) of Iloilo City, Branch 39, praying for a stay on collection actions. The Receiver’s Report of July 10, 2003 recommended a detailed rehabilitation plan: recomputing principal with capitalized interest, waiving penalties, extending payment to 2019 at 6.75% p.a. plCase Digest (G.R. No. 175844)
Facts:
- Corporate background
- Sarabia Manor Hotel Corporation (Sarabia) was incorporated on February 22, 1982 with authorized capital of ₱10,000,000, fully paid. Its primary business was hotel ownership, leasing, management, and related services in Iloilo City.
- In 1997, Sarabia obtained a special loan package of ₱150,000,000 from Far East Bank and Trust Company (FEBTC) plus a ₱20,000,000 standby line to finance a five-storey hotel expansion (New Building).
- Loans were secured by real estate mortgages over multiple land parcels and by a comprehensive surety agreement of its stockholders. Through merger, Bank of the Philippine Islands (BPI) assumed FEBTC’s rights against Sarabia.
- Onset of financial distress and petition for rehabilitation
- Completion of the New Building was delayed until late 2000 due to contractor default, causing cost overruns and skewed revenue projections.
- Grace period ended in 2000, increasing amortizations. External factors (September 11 attacks, Abu Sayyaf threat) further depressed hotel revenues.
- Despite having assets (₱481.6 M) exceeding liabilities (₱226.0 M), Sarabia foresaw inability to meet maturing obligations and filed a Petition for Corporate Rehabilitation with stay order on July 26, 2002.
- Rehabilitation proceedings and plan
- Sarabia’s proposed plan restructured all debts: uniform escalating interest rates of 7–14% p.a., principal payments commencing in 2004, and on-time payments to government and suppliers.
- RTC Branch 39, Iloilo City, issued a stay order (August 2, 2002) and appointed Liberty Valderrama as Rehabilitation Receiver. BPI opposed.
- Receiver’s July 10, 2003 Report recommended:
- Recompute outstanding balances (capitalize 2001–2002 interest), waive penalties, extend term to 2003–2019 with two-year principal grace, fix interest at 6.75% p.a. plus VAT, with annual amortizations.
- Convert stockholder advances (₱18.75 M) to equity, other advances (₱42.69 M) to deferred credits; require shareholders to pay certain receivables; and impose restrictions on dividends, capital expenditures, and management contracts.
- Maintain existing real estate mortgages and release personal sureties only upon adequate collateral.
- RTC approved the plan in an Order dated August 7, 2003, finding it feasible, realistic, and viable.
- Court of Appeals (CA), in Decision dated April 24, 2006, affirmed with modification by reinstating stockholders’ surety obligations to BPI. Reconsideration was denied December 6, 2006.
Issues:
- Primary issue
- Whether the CA correctly affirmed Sarabia’s rehabilitation plan as approved by the RTC, with modification reinstating stockholders’ surety obligations.
- Subsidiary issues
- Whether the fixed interest rate of 6.75% p.a. and extended repayment unduly prejudice BPI as a secured creditor.
- Whether Sarabia’s alleged misrepresentations in its petition concerning asset valuations warrant dismissal or modification of the plan.
Ruling:
- (Subscriber-Only)
Ratio:
- (Subscriber-Only)
Doctrine:
- (Subscriber-Only)