G.R. No. 118692 - Coastal Pacific Trading, Inc. vs. Southern Rolling Mills Co., Inc.

Respondent Southern Rolling Mills Co., Inc. (later renamed Visayan Integrated Steel Corporation or VISCO) was organized in 1959 to engage in steel processing.
On December 11, 1961, VISCO obtained a loan of P836,000 from the Development Bank of the Philippines (DBP), secured by a duly recorded real estate mortgage over three parcels of land including machinery and equipment.
On August 15, 1963, VISCO entered a loan agreement with a consortium of banks (Far East Bank & Trust Company [FEBTC], Philippine Commercial Industrial Bank [PCIB], Equitable Banking Corporation [EBC], Prudential Bank, United Coconut Planters Bank [UCPB], and others) amounting to US$5,776,186.71 (approx. P21,745,707.36) to finance import of raw materials.
On August 3, 1965, VISCO executed a second mortgage over the same collaterals in favor of the respondent banks; however, the second mortgage was unrecorded.

VISCO defaulted on the loan obligations owed to the respondent banks.
On January 26, 1966, the Consortium filed a petition for foreclosure of mortgage with petition for receivership, which was later dismissed for failure to prosecute.
Negotiations for debt-to-equity conversion followed, through which the creditor banks gradually obtained management and control of VISCO by acquiring more than 90% of its equity, yet VISCO remained indebted to the Consortium in the amount of P16,123,918.02.

Coastal entered into a processing agreement with VISCO in 1964-65, delivering 3,000 metric tons of hot rolled steel coils for processing. VISCO delivered only 1,600 metric tons of processed block iron sheets, leaving 1,400 metric tons unaccounted for.
VISCO recognized Coastal as a major creditor and, in 1970, forwarded a proposal for a compromise agreement, which did not materialize.

In 1972, a letter from Vicente Garcia (VISCO VP) to Arturo P. Samonte (FEBTC director and VISCO director) suggested renaming VISCO’s bank account to eliminate "VISCO" from the name, so the account would read "Board of Trustees Consortium of Banks," evidencing a move to protect Consortium interests.
On September 20, 1974, the Consortium met to address VISCO’s demand to settle DBP obligations. They approved the sale of two generator sets to Filmag (Phil.), Inc., agreeing that proceeds would be used to pay DBP and secure release of DBP’s first mortgage. Payment was to be routed through VISCO to the Consortium, which then pays DBP, allowing the Consortium to be subrogated to DBP’s mortgage rights.

Coastal filed a complaint on May 22, 1975, for recovery of property and damages against VISCO for fraudulent conversion of goods, and a writ of attachment was issued on June 3, 1975.
FEBTC denied holding VISCO’s account but admitted a deposit account in the name of "Board of Trustees-Consortium of Banks" which was withheld pending bank’s liens.
VISCO’s vice-president and a director procured from FEBTC a cash advance to settle VISCO’s obligation to DBP; FEBTC issued a check to DBP dated June 29, 1976. DBP assigned all mortgage rights to the Consortium on June 29, 1976.
The Consortium acquired DBP’s primary lien on VISCO’s mortgaged properties.
On September 23, 1980, the Consortium filed a petition for extrajudicial foreclosure; the auction sale was scheduled for November 11, 1980. Southern Industrial Projects, Inc. (SIP), a VISCO creditor, filed suit for nullity of mortgage and injunction, claiming DBP mortgage was extinguished by sale proceeds. A temporary restraining order was secured.

SIP’s case was decided in favor of the Consortium on March 2, 1984, and affirmed on June 14, 1985, holding that the payment and assignment of mortgage rights to the Consortium were valid and not fraudulent.
Auction was conducted on March 19, 1985, with the Consortium as highest bidder; certificate of sale was registered on May 22, 1985.
VISCO executed a deed of assignment of right of redemption to the National Steel Corporation (NSC) on June 27, 1985, and on the same day, the Consortium sold VISCO’s foreclosed properties to NSC.

Coastal filed Civil Case No. 3929 for annulment or rescission of sale and damages, alleging fraudulent disposition of VISCO’s properties despite active writ of attachment.
Coastal asserted the assignment of mortgage was fraudulent since DBP was purportedly paid with VISCO’s generating sets sale proceeds, not Consortium’s funds.
Trial court upheld foreclosure sale and assignment, dismissed Coastal’s claims, and ordered Coastal to pay damages and attorney’s fees.
The Court of Appeals affirmed RTC ruling, dismissing petitioner’s claims and applying res judicata based on SIP case.
Petitioner filed for reconsideration which was denied.
The case was elevated to the Supreme Court via a Petition for Review under Rule 45.

Whether the present action is barred by the doctrine of res judicata based on the previous case, Southern Industrial Projects, Inc. v. United Coconut Planters Bank.
Whether the assignment of mortgage, extrajudicial foreclosure proceedings, and sale of VISCO’s properties by the respondent banks were done in fraud of VISCO’s other creditors, specifically petitioner Coastal Pacific Trading, Inc.