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Updated 24th February 2025
Pryce Corporation vs. China Banking Corporation
This case involves a dispute over the corporate rehabilitation of Pryce Corporation and the conflicting decisions issued by two divisions of the Court of Appeals regarding the approval of its rehabilitation plan. The Supreme Court ultimately resolved whether the principle of res judicata applied and if a hearing was necessary before the issuance of a stay order in corporate rehabilitation cases.

Primary Holding

The Supreme Court ruled that the principle of res judicata applied, affirming the validity of the rehabilitation court’s order approving Pryce Corporation’s rehabilitation plan. The Court also ruled that the Interim Rules of Procedure on Corporate Rehabilitation do not require a hearing before issuing a stay order.

Background

Pryce Corporation filed for corporate rehabilitation in 2004. The Regional Trial Court (RTC) of Makati found the petition sufficient and issued a stay order. The rehabilitation receiver submitted an amended plan, which the RTC approved. China Banking Corporation (China Bank) and Bank of the Philippine Islands (BPI) challenged the approval, leading to conflicting rulings in the Court of Appeals. The Supreme Court resolved the issue in favor of Pryce Corporation.

History

  • July 9, 2004: Pryce Corporation filed a petition for corporate rehabilitation.

  • July 13, 2004: RTC issued a stay order and appointed a rehabilitation receiver.

  • January 17, 2005: RTC approved the amended rehabilitation plan.

  • February 23, 2005: China Bank challenged the RTC order in the Court of Appeals.

  • July 28, 2005: The Court of Appeals Seventh Division granted China Bank’s petition and reversed the RTC’s orders.

  • May 3, 2006: Court of Appeals First Division granted BPI’s separate petition and reversed the RTC decision.

  • May 23, 2007: Court of Appeals First Division reconsidered and upheld the RTC order.

  • February 4, 2008: Supreme Court First Division denied Pryce Corporation’s petition.

  • June 16, 2008: Supreme Court denied motions for reconsideration.

  • June 22, 2009: The case was referred to the Supreme Court En Banc.

  • February 18, 2014: The Supreme Court ruled in favor of Pryce Corporation.

Facts

  • 1. Pryce Corporation sought corporate rehabilitation due to financial distress.
  • 2. The RTC issued a stay order and approved an amended rehabilitation plan.
  • 3. The plan included provisions such as payment of debts through dacion en pago and conversion of dollar-denominated loans into pesos.
  • 4. China Bank opposed the plan, arguing it impaired contracts.
  • 5. The Court of Appeals issued conflicting rulings in two divisions.
  • 6. Pryce Corporation and China Bank elevated the matter to the Supreme Court.

Arguments of the Petitioners

  • 1. The rehabilitation court’s approval of the plan was valid and binding.
  • 2. The non-impairment clause of the Constitution must yield to the police power of the state in allowing corporate rehabilitation.
  • 3. The principle of res judicata applied due to the finality of the decision in BPI v. Pryce Corporation.
  • 4. The Interim Rules do not require a hearing before issuing a stay order.

Arguments of the Respondents

  • 1. The rehabilitation plan impaired contracts, violating the constitutional non-impairment clause.
  • 2. The RTC exceeded its authority by modifying contractual obligations without creditor consent.
  • 3. A hearing was necessary before issuing a stay order to determine the financial viability of Pryce Corporation.

Issues

  • 1. Whether the principle of res judicata applies, barring China Bank’s claims.
  • 2. Whether a hearing is required before issuing a stay order in corporate rehabilitation proceedings.

Ruling

  • 1. Res judicata applies: The Supreme Court ruled that the final decision in BPI v. Pryce Corporation (G.R. No. 180316) bound all creditors, including China Bank.
  • 2. No hearing required for stay orders: The Supreme Court held that the Interim Rules of Procedure on Corporate Rehabilitation only require a petition to be sufficient in form and substance, not a hearing.
  • 3. Non-impairment clause does not prohibit rehabilitation: The Court ruled that the non-impairment clause must yield to the state’s police power when corporate rehabilitation serves the greater public interest.

Doctrines

  • 1. Res Judicata: A final judgment on the merits by a competent court is conclusive of the rights of the parties in any subsequent litigation involving the same subject matter.
  • 2. Cram-Down Principle: A rehabilitation plan may be approved despite creditor opposition if the court finds rehabilitation feasible.
  • 3. Police Power Over Contractual Obligations: The non-impairment clause must yield to the police power of the state for the common good.

Key Excerpts

  • 1. “Corporate rehabilitation is preferred for addressing social costs. Allowing the corporation room to get back on its feet will retain if not increase employment opportunities for the market as a whole.”
  • 2. “Contracts exist within a society where nothing is risk-free, and the government is constantly being called to attend to the realities of the times.”

Precedents Cited

  • 1. BPI v. Pryce Corporation (G.R. No. 180316) – Established res judicata over the rehabilitation plan.
  • 2. Rizal Commercial Banking Corp. v. IAC (1999) – Applied the “serious situations” test for receivership.
  • 3. Pacific Wide Realty & Dev. Corp. v. Puerto Azul Land, Inc. (2009) – Held that the non-impairment clause does not bar corporate rehabilitation.

Statutory and Constitutional Provisions

  • 1. Article III, Section 10 – Non-impairment clause.
  • 2. Interim Rules of Procedure on Corporate Rehabilitation (2000) – Governs rehabilitation proceedings.
  • 3. Presidential Decree No. 902-A – Basis for corporate rehabilitation.