This is another example of a case becoming moot and academic because of supervening events while the case is pending.
This is the case of the SSS investment consisting of 187.84 million common shares in Equitable PCI Bank (EPCIB) with the use of 10% of its reserve funds. Believing that it could no longer hold said shares with its level of income, SSS deemed it prudent to dispose of them sometime in 2003 in order to liquefy its investments and diversify them in higher yielding and less volatile investment products.
Of the many interested parties only Banco de Oro Universal Bank (BDO) and its subsidiary, BDO Capital appeared in earnest to acquire said shares. Thus following a series of talks, SSS and BDO signed a letter agreement for the sale and purchase of the said EPCIB common shares at P43.50 per share, which represents a premium of 30% of their then market value which was trading at P34.50 per share in the stock market.
To ascertain that the transaction did not violate the public bidding requirement of the Commission on Audit (COA) Circular No. 89-296 on the divestment of assets of government agencies, SSS asked for a COA opinion on the matter. In reply COA said that the proposed sale substantially complies with the general policy on public bidding because the said shares of stock are actually being auctioned to the general public every time the stock exchanges are openly operating.
Thus SSS and BDO Group signed a Share Purchase Agreement (SPA) wherein they mutually agreed to the purchase by the BDO Capital and the sale by SSS of all the latter’s EPCIB shares at P43.50 or a total of P8.2 billion through the Swiss Challenge Method. Under this method, the SSS EPCI shares of stock will be bid out subject to the right of the BDO Capital to match the highest bid. Thus on Aug. 23-25, SSS advertised an invitation to bid for the block purchase of said shares pursuant to said SPA.
But even before the bid envelopes could be opened, the Supreme Court issued a Temporary Restraining Order (TRO) on a petition for certiorari filed by some Senators and private individuals questioning mainly the legality of the Swiss Challenge Method. They argued that bidding with such kind of method is contrary to the COA circular and public policy which requires adherence to competitive public bidding in a government contract award to assure the best possible price for the government assets.
While the case was pending, BDO announced in January 2006 its intent to merge with EPCIB under which EPCIB shareholders would get 1.6 BDO shares for every EPCIB shares. Then on August 31, 2006, SM Investments Corporation (SM) an affiliate of the BDO group, commenced, through the facilities of the Philippine Stock Exchange (PSE) a mandatory tender offer covering the purchase of the entire outstanding capital stock of EPCIB at P92 per share. Pursuant to this offer all shares validly tendered within the tender offer period shall be deemed accepted for payment.
The positive response to the tender offer paved the way for a BDO-EPCIB merger where both shall become a single corporation with BDO as the surviving corporation with all EPCIB assets transferred to the merged bank. Thus BDO issued common shares to SSS corresponding to the number of its former EPCIB shareholdings at the unit price of P92 per share which was very much higher than the P43.50 per share stated in the invitation to bid.
With these developments, SSS contended that the case before the SC had become moot and academic and should therefore be dismissed. Was SSS correct?
Yes. As a necessary consequence of the BDO-EPCIB merger which saw EPCIB being absorbed by the surviving BDO, the 187.84 million EPCIB common shares of SSS have already been transferred to BDO and converted to BDO shares under the exchange ratio set forth in the merger plan. As thus converted the subject shares are no longer equity security issuances of the now defunct EPCIB but those of BDO-EPCIB, which, needless to stress, is a totally separate and distinct entity from what used to be EPCIB. In net effect therefore, the said 187.84 million EPCIB common shares are now lost and inexistent.
Under the Civil Code, the obligation to give a determinate thing is extinguished if the object is lost without the fault of the debtor. And a thing is considered lost when it perishes or disappears in such a way that it cannot be recovered. The BDO-EPCIB merger and the cancellation of the subject shares and their replacement by totally new BDO shares has rendered the erstwhile 187.84 million shares of SSS unrecoverable within the contemplation of the said Civil Code provision. Hence, the SSS cannot under any circumstance cause the implementation of it resolution to dispose of said EPCIB shares be it via the competitive bidding or the challenged public bidding with a Swiss Challenge.
Even assuming that the said shares are still existing, the BDO-EPCIB merger has rendered the fulfillment of any of the obligations under the letter-agreement, the SPA or the Swiss Challenge package legally impossible. When the service has become as difficult as to be manifestly beyond the contemplation of the parties, release from their respective obligation is allowed. Parties stipulate in the light certain prevailing conditions, and once the conditions cease to exist, the contract also ceases to exist. The conditions in which SSS and BDO executed the Letter Agreement, upon which the pricing component — at P43.50 per share — of the invitation to bid was predicated, have ceased to exist. Hence the implementation of said letter agreement cannot plausibly push through even if the central figures in the case are so minded (Osmeña et. al. vs. SSS et. al. G.R. 165272, September 13, 2007)
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