In a 20-page decision, the CA First Division through Associate Justice Rebecca de Guia-Salvador granted a petition of the Bank of the Philippine Islands to set aside a ruling of the Makati regional trial court last year that approved the rehabilitation plan for Pryce Corp.
"To our mind the corporate rehabilitation it has precipitately approved should not have detracted the trial court’s attention from the fundamental principle that a contract is, first and foremost, the law between the contracting parties, and that obligations arising therefrom should be complied with in good faith," the CA ruled.
The appellate court also ruled that from the moment that it signed the loan agreement, the respondent company is bound to honor its obligations to the bank in keeping with good faith and the law.
"From the moment of its perfection, the parties are, therefore, bound not only to the fulfillment of what has been expressly stipulated therein but also to all consequences which, according to their nature may be in keeping with good faith, usage and law," the decision further stated.
Pryce, whose subsidiary, Pryce Gases Inc. produces and sells industrial gases as well as imports and distributes liquefied petroleum gas, is also involved in hotel operations in Mindanao.
The company acquired a loan from BPI amounting to more than P100 million, to keep it afloat. The loan was secured by real estate mortgages on the company’s properties.
But on July 9, 2004, Pryce filed a petition for corporate rehabilitation, with prayer for suspension of payments citing its inability to pay its obligations with the said bank as its businesses were badly affected by the Asian financial crisis.
On Jan. 17, 2005, the Makati RTC granted the petition allowing Pryce to pay its obligations by means of dacion en pago, or by delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of obligation.
But such rehabilitation plan was opposed by BPI, which argued that the lower court has no "legal and factual" basis to approve a dacion en pago as part of the rehabilitation plan and that such method of payment would curtail the freedom of parties to voluntarily enter into a contract.
The CA agreed with the bank’s argument that dacion en pago is governed by the law on sales which, as contracts, are perfected at the moment there is a meeting of the parties’ minds over the thing which is the subject matter thereof and upon the price.