Corpo Case Digest

UNION BANK OF THE PHILIPPINES vs. COURT OF APPEALS

290 SCRA 198 (1998)

FACT OF THE CASE

Private respondents EYCO Group of Companies (“EYCO”), Eulogio O. Yutingco, Caroline Yutingco-Yao, and Theresa T. Lao (the “Yutingcos”), all of whom are controlling stockholders of the aforementioned corporations, jointly filed with the SEC a Petition for the Declaration of Suspension of Payments, Formation and Appointment of Rehabilitation Receiver/Committee, Approval of Rehabilitation Plan with Alternative Prayer for Liquidation and Dissolution of Corporations alleging that “the present combined financial condition of the petitioners clearly indicates that their assets are more than enough to pay off the credits” but that due to “factors beyond the control and anticipation of the management, the inability of the EYCO Group of Companies to meet the obligations as they fall due on the schedule agreed with the creditors has now become a stark reality.” The Yutingcos justified their inclusion as co-petitioners before the SEC on the ground that they had personally bound themselves to EYCO’s creditors under a J.S.S. Clause (Joint Several Solidary Guaranty) Cos., thereby in effect discarding the Veil of Corporate Fiction on their personal selves.

In connection with this petition, a the SEC Hearing Panel issued an order dated September 19, 1997 setting its hearing on October 22, 1997 and directed the suspension of all actions, claims and proceedings against private respondents pending before any court, tribunal, office, board and/or commission.

Meanwhile, some of private respondents’ creditors, composed mainly of 22 domestic banks (the “consortium”) including herein petitioner Union Bank of the Philippines Philippines, also convened on September 19, 1997 for the purpose of deciding their options in the event that private Respondents invoke the provisions of Presidential Decree No. 902-A, as amended.

Without notifying the members of the consortium, petitioner, however, decided to break away from the group by suing private respondents in the regular courts. Aside from commencing suits in the regular courts, petitioner also vehemently opposed private respondents’ petition for suspension of payments in the SEC by filing a Motion to Dismiss wherein it contended that the SEC  was bereft of jurisdiction over such petition on the ground that the inclusion of the Yutingcos in the petition “cannot be allowed since the authority and power of the Commission under the virtue of the law applies only to corporations, partnerships and other forms of associations, and not to individual petitioners who are not clearly covered by P.D. 902-A as amended.”

Subsequently, a creditors’ meeting was again convened pursuant to SEC’s order wherein the matter of creating a Mancom was submitted for resolution. Apparently, only petitioner opposed the creation of said Mancom as it filed earlier with the SEC its Motion to Dismiss.

The SEC Hearing Panel then issued an Omnibus Order directing this time the creation of the Mancom and likewise granted an earlier Urgent Motion for Reconsideration filed by creditor banks which sought to annotate the suspension order on the titles of the properties of the private respondent corporations. This directive expressly stated that the same was without prejudice to the resolution of petitioner’s Motion to Dismiss.

Aggrieved, petitioner immediately took recourse to the Court of Appeals by filing therewith a Petition for Certiorari with Prayer for the Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction. It imputed grave abuse of discretion on the part of the SEC Hearing Panel in precipitately issuing the suspension order and in prematurely directing the creation of the Mancom prior to the scheduled hearing of its Motion to Dismiss. Petitioner lamented that these actions of the panel deprived it of due process by effectively rendering moot and academic its Motion to dismiss which allegedly presented a prejudicial question to the propriety of creating a Mancom.

Meanwhile, members of the so-called steering committee of the consortium filed with the appellate court an Urgent Motion for Intervention and a Consolidated Intervention and Counter-Motion for Contempt and for the Imposition of Disciplinary Measures Against Petitioner’s Counsel claiming that they were not impleaded at all by petitioner in its petition before the appellate court when in fact they had actual, material, direct and legal interest in the outcome of said case as owners of at least eighty-five percent (85%) of private respondents’ obligations. Moreover, they opposed said petition because of petitioner’s ostensible failure to exhaust administrative remedies in the consortium and for being guilty of forum-shopping.

Series of Motions were filed and after several exchanges of pleadings finally rendered its assailed decision granting the Motion for Intervention. Without moving for reconsideration of the appellate court’s decision, petitioner elevated the said matter to this Court through Petition for Certiorari.

ISSUE

Whether suspension of payments with the SEC is the proper remedy on account of the alleged insolvency of private respondents when they allegedly disposed of a substantial portion of their properties in fraud of creditors.

RULING

Yes. The Supreme Court held that what determines the nature of an action, as well as which court or body has jurisdiction over it, are the allegations of the complaint, or a petition as in this case, and the character of the relief sought. that the petitioner’s reasoning that the Yutingcos and the corporate entities making up the EYCO Group, on the basis of the footnote that the former were filing the petition because they bound themselves as surety to the corporate obligations, should be considered as mere individuals who should file their petition for suspension of payments with the regular courts pursuant to Section 2 of the Insolvency Law.  The doctrine of piercing the veil of corporate fiction heavily relied upon by petitioner is entirely misplaced, as said doctrine only applies when such corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime.