G.R. No. 164641 December 20, 2007
BANK OF THE PHILIPPINE ISLANDS, petitioner, vs. SECURITIES AND EXCHANGE COMMISSION, REHABILITATION HOLDINGS, INC., ET AL., and THE COURT OF APPEALS, respondents.

FACTS

The ASB Group of Companies filed a petition for rehabilitation and suspension of payments before the Securities and Exchange Commission (SEC). Its proposed Rehabilitation Plan included a provision for a dacion en pago, offering one mortgaged property to petitioner Bank of the Philippine Islands (BPI) at a value of P84 million to settle the total debt, while requesting the release of another mortgaged property to be placed in an asset pool for creditors. BPI, a secured creditor, opposed the plan, arguing it constituted compulsion and violated its contractual rights by imposing a mode of payment it did not consent to.
BPI’s opposition was overruled. The SEC hearing panel approved the Rehabilitation Plan, a decision affirmed by the SEC En Banc and subsequently by the Court of Appeals. BPI elevated the case to the Supreme Court, maintaining that the approved plan coercively impaired its rights as a secured creditor by dictating the terms of settlement, specifically the forced dacion en pago at a valuation set by the debtor.

ISSUE

Did the SEC’s approval of the Rehabilitation Plan, which includes a provision for dacion en pago, unlawfully impair BPI’s contractual rights as a secured creditor?

RULING

No. The Supreme Court denied the petition and affirmed the lower courts’ rulings. The legal logic is that a rehabilitation plan, once approved by the SEC, binds all parties, including dissenting creditors, pursuant to the state’s police power to promote general welfare. The Court clarified that the constitutional non-impairment clause limits legislative power, not the quasi-judicial or adjudicatory power exercised by the SEC in approving a rehabilitation plan aimed at reviving a distressed corporation for the common good of all stakeholders.
Crucially, the Court held that the provision for dacion en pago in the plan does not constitute coercion. The approval of the plan does not automatically force BPI into the dacion agreement. BPI retains the choice to refuse the specific arrangement. Should it reject the dacion, the plan provides an alternative: the obligation will be settled by conveying the mortgaged properties at their selling prices. BPI’s status and preference as a secured creditor remain fully intact. It cannot be compelled to release its mortgage, and it preserves its right to pursue foreclosure or assert its preference in the event of liquidation. The plan’s purpose is to facilitate rehabilitation, not to deprive secured creditors of their substantive rights, and BPI’s fears of coercion are unfounded.