Title
Richardson Steel Corp. vs. Union Bank of the Philippines
Case
G.R. No. 224235
Decision Date
Jun 28, 2021
Petitioners sued Union Bank for failing to release promised working capital, leading to foreclosure. Supreme Court ruled foreclosure premature, awarded damages, and ordered bank to fulfill obligations.

Case Digest (G.R. No. 176535)
Expanded Legal Reasoning Model

Facts:

  • Parties and Procedural History
    • Petitioners: Richardson Steel Corporation (RSC), Ayala Integrated Steel Manufacturing, Co., Inc. (AISMC), Asian Footwear and Rubber Corp. (AFRC), and Spouses Ricardo O. Cheng and Eleanor S. Cheng.
    • Respondent: Union Bank of the Philippines (UBP).
    • April 2001: Petitioners filed Complaint for Specific Performance and Damages with Prayer for Injunctions before the RTC of Makati City, Branch 62 (Civil Case No. 01-575).
  • Loan Transactions and Agreements
    • January 1996: UBP agreed to finance RSC’s Continuous Galvanizing Line (CGL) project under DBP JEXIM 2 Program—P240 million for plant and equipment released; promised P600 million working capital not released; CGL Plant completed but under-operational.
    • December 3, 1999: Petitioners restructured existing loans (Restructuring Agreements, “RAs”) and executed Memoranda of Agreement (MOAs) and Credit Line Agreements (CLAs) granting working‐capital lines—P150 million for RSC, P30 million for AISMC; AFRC received no line.
    • 1999–2000: Despite execution of promissory notes and supporting documents, petitioners’ requests to draw on CLAs were denied; UBP unilaterally applied CLA proceeds to interest payments on the restructured loans.
  • Foreclosure Proceedings
    • October 17, 2003: UBP filed petition for extrajudicial foreclosure of real‐estate mortgages (REMs) on petitioners’ properties during RTC proceedings.
    • November 24, 2003: Sheriff’s sale held; UBP highest bidder. Petitioners moved to annul foreclosure as premature.
  • RTC Decision (June 4, 2012)
    • Held CLAs independent of RAs; CLAs serve working-capital needs, not debt servicing.
    • Ordered UBP to release P150 million to RSC and P30 million to AISMC under CLAs; declared foreclosure null and void.
    • Declared interest on petitioners’ obligations null until working-capital release; awarded compensatory damages (P5 million each to RSC and AISMC), moral damages (P2 million to spouses Cheng), exemplary damages (P5 million), attorney’s fees (P500,000), and costs.
  • CA Decision (June 29, 2015)
    • Reversed RTC: treated CLAs and RAs as complementary (executed contemporaneously); allowed UBP to apply CLA proceeds to interest under a Set-Off Clause.
    • Upheld foreclosure for petitioners’ default on restructured loans; denied damages.
    • Reconsideration denied April 20, 2016. Petitioners filed Rule 45 petition to the SC.

Issues:

  • Contractual Scope and Independence
    • Are the CLAs independent agreements for working-capital finance, or accessory to RAs for servicing interest?
    • May UBP apply CLA proceeds to interest under the Set-Off Clause without petitioners’ default?
  • Validity of Foreclosure
    • Was extrajudicial foreclosure valid when petitioners’ obligations were not yet due and UBP had not released working-capital advances?
  • Damages and Attorney’s Fees
    • Are awards of compensatory, moral, exemplary damages and attorney’s fees supportable?

Ruling:

  • (Subscriber-Only)

Ratio:

  • (Subscriber-Only)

Doctrine:

  • (Subscriber-Only)

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