Philnico Industrial Corporation v. Privatization

Summary

This case involved a contractual dispute over the sale of 22.5 million shares of Philnico Processing Corporation from PMO to PIC under installment terms. When PIC defaulted on payments, PMO sought to enforce an automatic reversion clause returning the shares without foreclosure proceedings. The Supreme Court definitively ruled that this ipso facto reversion clause constituted pactum commissorium - a prohibited automatic appropriation of pledged property. The Court held that despite being in separate documents, the sale agreement (ARDA) and pledge agreement must be read together, creating both elements of pactum commissorium: a pledge for security and automatic appropriation upon default. This violated Article 2088 of the Civil Code and was declared null and void. The decision affirmed the preliminary injunction preventing automatic reversion and established important precedent on contractual interpretation and the prohibition against pactum commissorium in complex commercial transactions involving government asset privatization.