GR 225181; (December, 2019) (Digest)
G.R. No. 225181, December 5, 2019
East West Banking Corporation, Petitioner, vs. Victorias Milling Company, Inc, Respondent.
FACTS
Respondent Victorias Milling Company, Inc. (VMC) filed a Petition for Rehabilitation with the SEC in 1997. An approved Alternative Rehabilitation Plan (ARP) led to a Debt Restructuring Agreement (DRA) dated April 29, 2002, between VMC and its creditors, including petitioner East West Banking Corporation (East West Bank). Under the DRA, VMC issued a Convertible Note (CN) to East West Bank on September 1, 2003, with a principal amount of P200,396,734.00. The CN could be converted into VMC common shares or paid/redeemed by VMC per the agreement’s terms. On May 31, 2013, VMC settled all its restructured loans and began redeeming the CNs. All creditors accepted redemption except East West Bank. From February to April 2014, VMC sent written notices and checks for full payment/redemption, but East West Bank refused, insisting on its right to convert the CN to shares. East West Bank’s Board approved the sale of the CN and published notices. VMC consigned the redemption checks to its Rehabilitation Receiver. On October 14, 2015, East West Bank notified VMC of its exercise of the option to convert 13% of the outstanding CN. VMC refused, stating the CN had been redeemed. East West Bank filed a Motion to Compel with the SEC to enforce conversion.
ISSUE
Did the Court of Appeals err in sustaining the SEC’s denial of East West Bank’s Motion to Compel VMC to convert its Convertible Note to common stocks?
RULING
No. The Supreme Court denied the petition, affirming the CA and SEC En Banc. The right of the holder (East West Bank) to convert the CN into common shares prevails over the issuer’s (VMC’s) right to redeem only if exercised during the specified conversion periods. East West Bank attempted to exercise its conversion right outside the conversion period and after VMC had already validly exercised its redemption right by sending written notices and tendering payment. VMC’s redemption was in compliance with the mandatory terms of the ARP, DRA, and CN. The contract is the law between the parties, and VMC’s redemption, made pursuant to the clear terms of the agreements, was valid and extinguished the obligation. Therefore, East West Bank could no longer demand conversion.