1169 – PRINCIPLE OF DELAY 1.
Whether the Credit Line Agreements (CLAs)
and the Restructuring Agreements (RAs)
Richardson Steel Corporation v. Union Bank of should be interpreted independently or
the Philippines together.
G.R. No. 224235 2. Whether UBP was justified in applying the
proceeds of the credit line to the interest
payments on the restructured loans.
Facts:
3. Whether the foreclosure proceedings initiated
by UBP were valid.
The case involves Richardson Steel Corporation, Ayala
4. Whether the award of damages and attorney's
Integrated Steel Manufacturing Co., Inc., Asian
fees by the RTC was proper.
Footwear and Rubber Corp., and Spouses Ricardo O.
Cheng and Eleanor S. Cheng (collectively referred to as
Ruling:
petitioners) against Union Bank of the Philippines
1. The Supreme Court ruled that the CLAs and
(UBP). The dispute originated from a Complaint for
the RAs should be interpreted independently.
Specific Performance and Damages with a Prayer for
2. The Court held that UBP was not justified in
Preliminary Mandatory and Prohibitory Injunctions.
applying the proceeds of the credit line to the
interest payments on the restructured loans.
The petitioners, who are sister companies with the
3. The foreclosure proceedings initiated by UBP
spouses Cheng as their principal stockholders, alleged
were declared null and void for being
that in January 1996, UBP proposed a special
premature.
financing arrangement to fund Richardson Steel
4. The award of exemplary damages and
Corporation's (RSC) business venture under the
attorney's fees was upheld, but the amount of
Development Bank of the Philippines' (DBP) JEXIM 2
attorney's fees was reduced.
Program. This arrangement included a credit
accommodation of P240,000,000.00 for the
Ratio:
construction of a new plant and a working capital of
P600,000,000.00.
The Supreme Court found that the terms of the
contracts were clear and unambiguous, indicating that
While the credit accommodation was released, the
the CLAs were intended to provide working capital for
working capital was not. Despite this, the construction
the petitioners' business operations, not to service the
of the Continuous Galvanizing Line (CGL) Plant was
interest payments on the restructured loans. The Court
completed, but RSC could not commence full
emphasized that the CLAs and the RAs were
operations due to insufficient funds.
independent contracts with distinct purposes.
Petitioners negotiated for loan restructuring and
The automatic application of the credit line proceeds
additional credit lines, but UBP failed to release the
to the interest payments was a circumvention of the
agreed amounts, instead applying the proceeds to the
agreement, depriving the petitioners of the opportunity
payment of monthly interests on the restructured
to manage their working capital effectively. The Court
loans. Consequently, petitioners filed a complaint in
also noted that UBP's refusal to release the credit line
April 2001.
proceeds contributed to the petitioners' inability to
sustain their business operations, leading to the
During the pendency of the case, UBP initiated
premature foreclosure of the mortgaged properties.
extrajudicial foreclosure proceedings on the properties
mortgaged by the petitioners, which were sold at a
The foreclosure was deemed invalid as the petitioners
public auction with UBP as the highest bidder. The
were not in default at the time of the foreclosure
Regional Trial Court (RTC) of Makati City ruled in favor
proceedings. The award of exemplary damages was
of the petitioners, declaring the foreclosure
justified to set an example for the public good, given
proceedings null and void and ordering UBP to release
the higher standard of integrity expected from banking
the credit availments. UBP appealed, and the Court of
institutions. However, the award of actual and moral
Appeals (CA) reversed the RTC's decision, leading the
damages was deleted for lack of sufficient basis, and
petitioners to elevate the case to the Supreme Court.
the attorney's fees were reduced to a reasonable
amount.
Issues:
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