OSMENA V Ca

OSMENA v.
SSS
Facts: SSS took steps to liquefy its long term investments and diversify them into higher
yielding and less volatile investments. Among its assets determined as needing to be
liquefied were its shareholdings in EPCIB. Albeit there were interested parties, only
Banco de Oro (BDO) and its investment subsidiary, respondent BDO Capital, appeared
in earnest to acquire the shares in question. In the final draft of the Sale Purchase
Agreement (SPA), the parties mutually agreed to the purchase by the BDO Capital and
the sale by SSS of all the latter’s EPCIB shares at the closing date at the specified price
of 43.50 pesos per share or a total of 8,171,383,258.50 pesos. COA and DOJ approved
the proposed SPA.
The records do not show whether any interested groups submitted bids. The
bottom line, however, is that even before the bid envelopes, if any, could be opened, the
herein petitioners commenced the instant special civil action for certiorari, setting their
sights primarily on the legality of the Swiss Challenge angle and a provision in the
instruction to Bidders under which the SSS undertakes to offer the Shares to BDO
should no bidder or prospective bidders qualifies. Under the Swiss Challenge format,
one of the bidders is given the option or preferential “right to match” the winning bid.
SSS issued a resolution approving the proposed sale of the entire equity stake of
the SSS in the Equitable PCIBank, through the Swiss Challenge bidding procedure.
Petitioners filed a petition for certiorari and prohibition of the resolution by SSC.
Pending consideration of the petition, supervening events and corporate
movements transpired that radically altered the factual complexion of the case. BDO
made public its intent to merge with the EPCIB. Under what BDO termed as “Merger of
Equals”, EPCIB shareholders would get 1.6 BDO shares for every EPCIB share. Owing
to the foregoing developments, the court issued a resolution requiring the parties to
confirm the news reports that price of subject shares has been agreed upon at 92
pesos, and if so, to manifest whether this case has become moot. It appears that BDO,
has since issued BDO common shares to respondents SSS corresponding to the
number of its former EPCIB shareholdings under the ratio and exchange procedure
prescribed in the plan of merger. In net effect, SSS, once the owner of a block of EPCIB
shares, is now a stockholder of BDO.
Issue: Whether parties were released from the agreement due to supervening events
Held: Yes, the petition has become moot. It cannot be overemphasized, however, that
the shares, as a necessary consequence of the BDO- EPCIB merger which was EPCIB
being absorbed by the surviving BDO, have been transferred to BDO common shares
under the exchange ratio set forth in the BDO- EPCIB Plan of Merger. As thus
converted, the subject shares are no longer equity security issuances of the now
defunct EPCIB, but those of BDO- EPCIB, which needles to stress, is a totally separate
and distinct entity from what used to be EPCIB. In net effect, therefore, the 182.84
million EPCIB common shares are now lost or inexistent. And, in this regard the court
takes judicial notice of the disappearance of EPCIB stocks from the local bourse listing.
Instead, BDO-EPCIB stocks are presently listed and being traded in the PSE.
Under the law on Obligations and Contracts, the obligation to give a determinate
thing is extinguished if the object is lost without the fault of the debtor. And the Article
1192 of Civil Code provides that a thing is considered lost when it perishes or
disappears in such a way that it cannot be recovered. In a very real sense, the interplay
of ensuing factors:
a. BDO- EPCIB Merger
b. the cancellation of subject shares and their replacement by totally new
common shares of BDO, has rendered erstwhile 187.84 million EPCIB shares of SSS
“unrecoverable” in the contemplation of the adverted Civil Code provision.
With the above consideration, SSS or SSC cannot cause the implementation of
the assailed resolutions, let alone proceed with the planned disposition of the shares, be
it via the traditional competitive bidding or the challenged public bidding with a swiss
challenge feature. At any rate, the moot-and-academic angle would still hold sway even
if it were to be assumed hypothetically that the subject shares are still existing. This is
so for the supervening BDO- EPCIB Merger has so effected changes in the
circumstances of SSS and BDO capital as to render the fulfillment of any of the
obligations that each may have agreed to undertake under their letter agreement , the
SPA or swiss challenge packed legally impossible. When the service has become so
difficult as to be manifestly beyond the contemplation of the parties, total or partial
release from a prestation and from the counter prestation is allowed. Under the theory
of rebus sic stantibus, the parties stipulate in the light of certain prevailing conditions,
and once these conditions cease to exist, the contact also cease to exist. Upon the facts
obtained in the case, it is clear that the conditions in which SSS and BDO capital and/or
BDO executed the letter- agreement upon which the pricing component at 43.50 per
share of the invitation to bid was predicated, have ceased to exist. Accordingly, the
implementation of the letter- agreement cannot plausibly push through, even if the
central figures in this case are so minded.

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