COASTAL PACIFIC TRADING, INC., VS. SOUTHERN ROLLING MILLS, CO., INC. (NOW KNOWN AS VISAYAN INTEGRATED STEEL CORPORATION), FAR EAST BANK & TRUST COMPANY, PHILIPPINE COMMERCIAL INDUSTRIAL

Ruling

WHEREFORE, the decision of the Regional Trial Court is hereby AFFIRMED in toto." [6] The challenged Resolution denied reconsideration. The Facts Respondent Southern Rolling Mills Co., Inc. was organized in 1959 for the purpose of engaging in a steel processing business. It was later renamed Visayan Integrated Steel Corporation (VISCO). [7] On December 11, 1961, VISCO obtained a loan from the Development Bank of the Philippines (DBP) in the amount of P836,000. This loan was secured by a duly recorded Real Estate Mortgage over VISCO's three (3) parcels of land, including all the machineries and equipment found there. [8] On August 15, 1963, VISCO entered into a Loan Agreement [9] with respondent banks (later referred to as "Consortium" [10] ) for the amount of US$5,776,186.71 or P21,745,707.36 (at the then prevailing exchange rate) to finance its importation of various raw materials. To secure the full and faithful performance of its obligation, VISCO executed on August 3, 1965, a second mortgage [11] over the same land, machineries and equipment in favor of respondent banks. This second mortgage remained unrecorded. [12] VISCO eventually defaulted in the performance of its obligation to respondent banks. This prompted the Consortium to file on January 26, 1966, Civil Case No. 1841, which was a Petition for Foreclosure of Mortgage with Petition for Receivership. [13] This case was eventually dismissed for failure to prosecute. [14] Afterwards, negotiations were conducted between VISCO and respondent banks for the conversion of the unpaid loan into equity in the corporation. [15] Vicente Garcia, vice-president of VISCO and of Far East Bank and Trust Company (FEBTC), [16] testified that sometime in 1966, the creditor banks were given management of and control over VISCO. [17] In time, [18] in order to reorganize it, its principal creditors agreed to group themselves into a creditors' consortium. [19] As a result of the reorganized corporate structure of VISCO, respondent banks acquired more than 90 percent of its equity. Notwithstanding this conversion, it remained indebted to the Consortium in the amount of P16,123,918.02. [20] Meanwhile from 1964 to 1965, VISCO also entered into a processing agreement with Petitioner Coastal Pacific Trading, Inc. ("Coastal"). Pursuant to that agreement, petitioner delivered 3,000 metric tons of hot rolled steel coils to VISCO for processing into block iron sheets. Contrary to their agreement, the latter was able to process and deliver to petitioner only 1,600 metric tons of those sheets. Hence, a total of 1,400 metric tons of hot rolled steel coils remained unaccounted for. [21] The fact that petitioner was among the major creditors of VISCO was recognized by the latter's vice-president, Vicente Garcia. [22] Indeed, on October 9, 1970, it forwarded to petitioner a proposal for a Compromise Agreement. [23] Subsequent developments indicate, however, that the parties did not arrive at a compromise. Two years later, on