Case Summary (G.R. No. 224235)
Key Dates
• January 1996 – UBP’s initial financing proposal.
• December 3, 1999 – Execution of Memoranda of Agreement (MOAs), Restructuring Agreements (RAs), and Credit Line Agreements (CLAs).
• April 2001 – Petitioners filed Complaint for Specific Performance and Damages.
• October 20, 2003 – UBP filed petition for extrajudicial foreclosure.
• November 24, 2003 – Public auction of mortgaged properties.
• June 4, 2012 – RTC Decision in favor of petitioners.
• June 29, 2015 – CA Decision reversing RTC.
• April 20, 2016 – CA Resolution denying motion for reconsideration.
• June 28, 2021 – Supreme Court Decision.
Applicable Law
• 1987 Philippine Constitution (decision rendered after 1990).
• Civil Code of the Philippines: Article 1370 (plain-meaning rule), Article 1169 (default and demand).
• Rules of Court: Rule 45 (certiorari review parameters), Rule 130, Section 9 (parol evidence rule).
• Jurisprudential doctrines on contract interpretation, complementary contracts, extrajudicial foreclosure, and damages.
Factual Background
Petitioners’ Version
• UBP agreed to provide RSC a P240 million term loan and a P600 million working-capital credit line to build and operate the CGL plant.
• UBP released the term-loan proceeds but refused to release working-capital funds. Despite this, petitioners completed the plant but lacked operating funds.
• In December 1999 petitioners negotiated restructuring of existing indebtedness and executed MOAs, RAs, and CLAs: RSC secured a P150 million line; AISMC, P30 million; AFRC received no line.
• From December 1999 to November 2000 petitioners repeatedly requested drawdowns under the CLAs; UBP instead unilaterally applied those proceeds to interest on restructured loans.
• Petitioners sued for specific performance, damages, and injunctive relief in April 2001.
Respondent’s Version
• UBP maintained that it financed the P180 million plant construction loan through DBP’s JEXIM 2 facility, fully disbursed by July 1998.
• Working-capital requirements ballooned to P600 million. Petitioners failed to provide required equity and additional collateral, hindering syndication.
• UBP asserted compliance with its obligations under MOAs, CLAs, and RAs, and that the CLAs expressly authorized set-off against interest and other obligations.
• UBP foreclosed the real-estate mortgages after petitioners defaulted on restructured-loan interest payments.
RTC Ruling (June 4, 2012)
• Distinguished CLAs (working-capital facilities) from RAs (restructured-loan payment schedules) as independent contracts.
• Held CLAs’ clear language entitled petitioners to draw working-capital funds; UBP’s set-off practice contradicted the written agreements under the parol evidence rule.
• Ordered UBP to release P150 million to RSC and P30 million to AISMC upon execution of required documents.
• Declared foreclosure proceedings void for prematurity, as petitioners’ accounts were not yet due and demandable.
• Awarded liquidated 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 Ruling (June 29, 2015)
• Treated CLAs and RAs as complementary, contemporaneous contracts to be construed together.
• Found CLAs permitted application of advances to interest and obligations via an express set-off clause and petitioners had consented by issuing promissory notes and checks.
• Upheld foreclosure upon petitioners’ default on restructured-loan interest.
• Dismissed petitioners’ complaint and counterclaims.
Issues for Supreme Court Review
- Whether factual findings on contract interpretation and foreclosure were conflicting or beyond permissible certiorari review.
- Whether CLAs and RAs should be construed independently or as complementary.
- Whether UBP lawfully applied CLA proceeds to interest on restructured loans.
- Whether foreclosure was premature.
- Whether awards of damages and attorney’s fees were proper.
Contract Interpretation
• Applicable doctrine: plain-meaning rule under Civil Code Article 1370; parol evidence rule (Rule 130, Sec. 9).
• CLAs expressly state their purpose is “for working capital purposes” and grant petitioners discretion to draw and use proceeds for general operating liquidity.
• RAs address restructuring of existing indebtedness with a seven-year payment term; CLAs grant a two-year credit line for working capital.
• No principal–accessory relationship exists; CLAs and RAs are distinct, separable agreements with different objectives.
• UBP’s invocation of the set-off clause to preemptively apply working-capital advances to interest was inconsistent with the CLAs’ clear purpose and deprived petitioners of operating liquidity.
• UBP failed to demonstrate intrinsic ambiguity or latent intent to override the CLAs’ stated purpose.
Foreclosure Proceedings
• Under Civil Code Article 1169, debtor delay (default) requires a judicial or extrajudicial demand or circumstances making demand unnecessary.
• Petitioners’ obligations under the RAs were rendered current by UBP’s application of CLA proc
Case Syllabus (G.R. No. 224235)
Procedural History
- Petition for Review on Certiorari under Rule 45 filed before the Supreme Court.
- Regional Trial Court (RTC) of Makati City, Branch 62 rendered Decision on June 4, 2012 in Civil Case No. 01-575 in favor of petitioners.
- Court of Appeals (CA), in CA-G.R. CV No. 100331, reversed and set aside the RTC Decision on June 29, 2015; motion for reconsideration denied on April 20, 2016.
- Petitioners elevated case to the Supreme Court invoking Rule 45 exceptions to review CA factual findings and legal conclusions.
Facts
- 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—sister companies with common principal stockholders.
- January 1996: Union Bank of the Philippines (UBP) proposed P240 M credit accommodation for construction of a Continuous Galvanizing Line (CGL) and P600 M working capital under DBP JEXIM 2 Program.
- UBP released P240 M but never provided the promised P600 M working capital; petitioners completed CGL plant but could not commence full operations.
- Petitioners repeatedly requested release of working-capital line; UBP declined.
- December 3, 1999: petitioners restructured existing loans and applied for new credit lines—P150 M for RSC, P30 M for AISMC—via Memoranda of Agreement (MOAs) and Credit Line Agreements (CLAs). AFRC received no line.
- December 1999 to November 2000: petitioners executed promissory notes but UBP unilaterally applied available credit-line proceeds to interest on restructured loans, refusing to release funds for working capital.
- April 2001: petitioners filed Complaint for Specific Performance and Damages with preliminary injunctions.
- October 20, 2003: UBP filed petition for extrajudicial foreclosure of real-estate mortgages (REMs); November 24, 2003: public auction, UBP highest bidder.
- Petitioners moved to admit supplemental complaint, asserting no default or notice prior to foreclosure.
Petitioners’ Version
- CLAs were independent contracts aimed at financing working-capital requirements, not servicing interest.
- UBP breached CLAs by applying proceeds to restructured-loan interest without consent.
- UBP never declared default or notified petitioners before foreclosing security.
Respondent’s Version
- UBP facilitated P180 M DBP financing; petitioners fully drew funds by July 1998.
- Working-capital estimate ballooned from P119.4 M to P600 M due to equity deficiencies, industry conditions, and lack of track record.
- UBP complied with contractual requirements; non-release attributed to petitioners’ failure to meet syndicated financiers’ credit and collateral con