East West Banking Corporation v. Victorias Milling Company

Facts: VMC filed with the SEC, a Petition for Declaration of Suspension of Payments; the Approval of a Rehabilitation Plan; and the Appointment of a Management Committee. SEC’s Securities Investigation and Clearing Department issued an Order that suspended all actions or claims against VMC pending before any court, tribunal, office, board, and /or the SEC.

The appointed Management Committee of VMC submitted a Rehabilitation Plan, which was approved by the SICD. The said Rehabilitation Plan was amended. The SICD approved the Alternative Rehabilitation Plan proposed by the VMC Management Committee. 

To restructure VMC’s outstanding loan obligation pursuant to the ARP, VMC and its creditors, which include East West Bank, executed a Debt Restructuring Agreement. 

VMC was able to settle all its restructured loans. Hence, VMC started to pay/redeem the CNs from the respective holders thereof pursuant to the ARP and DRA. All creditors accepted VMC’s payment/redemption except for East West Bank. VMC repeatedly sent written notices to East West Bank as regards its payment/redemption of the CN. East West Bank, however, refused to accept such payment/redemption and insisted on its right to convert the CN to VMC common shares. East West Bank informed VMC that it will not avail of VMC’s partial offer of redemption and as such, it returned the two checks. East West Bank reiterated to VMC that its Board of Directors had approved the sale of the CN and published the required notice therefor. 

East West Bank notified VMC that it was exercising its option to convert 13% of its outstanding unconverted CN in accordance with Section 16(h)(v) of the DRA and paragraph 5 of the CN. It was granted. SEC En Banc reversed and set aside the Panel’s Order. The SEC En Banc examined the ARP, DRA, and CN and found that, contrary to the Panel’s ruling, there was nothing in the DRA and CN that states that East West Bank is not obligated to accept the payment/redemption made by VMC. CA affirmed the SEC En Banc decision.

Issue: Whether or not VMC had already effectively exercised its option to pay/redeem the CN.

Held: In this case, VMC delivered written notices and checks several times to East West Bank to exercise its option to pay/redeem. Records, however, show no instance when East West Bank refused to accept the same for not being a legal tender. What East West Bank continuously refused to accept is VMC’s exercise of its option to pay/redeem the CN, which refusal, as we have established, is improper and unfounded. East West Bank cannot, therefore, be allowed to use such afterthought as an excuse to justify its unfounded refusal to allow VMC to pay/redeem the CN. Thus, we still hold that VMC had already effectively exercised its option to pay/redeem the CN which East West Bank cannot validly refuse.

In all, the SEC En Banc, as affirmed by the CA, unerringly denied East West Bank’s Motion to Compel VMC to convert the CN into shares. VMC had effectively exercised its option to pay/redeem the subject CN and East West Bank has no legal or contractual basis to refuse to accept VMC’s payment/redemption, much less, to insist on the conversion of the subject CN to VMC’s common shares.