1

REPUBLIC v BLOOMBERRY RESORT & HOTELS

G.R. No. 224112
SEPTEMBER 02, 2020

TOPIC: Anti-Money Laundering Act

FACTS:
In February 2016, news and media broke the story of the hacking of the account
of Bangladesh Bank with Federal Reserve Bank of New York where US$81,000,000.00
found its way to the Philippine Banking System. Bangladesh Bank Governor Rahman
sought the assistance of Bangko Sentral ng Pilipinas Governor Tetangco regarding the
loss. According to Governor Rahman, some fraudulent payment transactions were made
to the New York Fed in favour of RCBC involving US$81,000,000.00. Governor
Rahman requested Governor Tetangco to conduct an immediate inquiry and help for the
recovery of the money. The Incident Report prepared by Bangladesh Bank showed that
the beneficiaries of the fraudulent transfer, having accounts with the RCBC are Cruz,
Lagrosas, Vergara and Vasquez. Rab and Hossain, the Joint Director of the Bangladesh
Financial Intelligence Unit (BFIU) and the Deputy General Manager, Accounts and
Budgeting Department of Bangladesh Bank, respectively, visited the AMLC and
presented the facts of their case also sought for assistance. On investigation, it was
found that the following events transpired leading to the transfer of US$29,000,000.00
to BDO Account of BRHI.

An unauthorized user issued 35 SWIFT payment instructions to the New York

Fed, New York Fed did not execute 30 payment instructions for lack of beneficiary
details however, five remaining payment instructions, including transfers to Cruz,
Lagrosas, Vergara, and Vasquez, were cleared. On a public non-working holiday in the
Philippines, Bangladesh Bank sent "stop payment" requests to RCBC. However, RCBC
was able to respond only and placed on hold the remaining proceeds a day after said
holiday. The remittances to the four account holders of RCBC were either transferred or
withdrawn on the next working day. Because of the huge amount of money transferred
to their accounts, originating from the same payment instructions, the AMLC conducted
initial investigations including the account of Go and Wong. It was found that the
withdrawals from the four RCBC accounts were eventually transferred to Go's account
and then said amount was credited to PhilRem Service Corporation's account a
remittance company, upon Go's instructions. Hence, upon Go's instructions, PhilRem
delivered: to Bloomberry Resorts and Hotels, Inc.'s (BRHI); Eastern Hawaii Leisure
Company; and Weikang Xu.

Upon finding of probable cause that BRHI's BDO Account was related to the
unlawful activity of hacking, the AMLC filed, an ex parte petition for the issuance of a
freeze order against the subject account. The CA issued the freeze order effective for 30
days for it was convinced that there was ample basis to believe that the bank account in
the name of BRHI with BDO was related to or involved in unlawful activities or offenses
of money laundering under Republic Act No. 9160, as amended. However, considering
that BRHI is a legitimate business entity that caters to the needs of the public
concerning leisure and entertainment, CA limited the duration of the Freeze Order to 30
days only. AMLC also filed an application for bank inquiry with the CA which was
granted and CA held that based on the totality of the facts and circumstances
surrounding BDO Account in the name of BRHI, there is at least a prima facie ground to
believe that the BDO account is related to an unlawful activity such as hacking or
cracking within the purview of R.A. 9160, as amended. The Blue Ribbon Committee also
yielded the same finding. For its part, BRHI claims that it is the casino operator of
Solaire and as a casino operator, it is not a covered institution under the Anti-Money
Laundering Act of 2001 (AMLA) at the time the incident happened. It also explained
that the subject BDO account is a bank account for peso payments or
deposits/remittances to BRHI that is being used by the players to be able to play in the
Casino.

A Chinese national advised BRHI that he and his companions will remit millions
of dollars to Solaire to be used by a group of Chinese players who intended to play,
hence, BRHI received from the BDO account of PhilRem and such amount was used by
the chinese national as front money to play in Solaire. News articles broke out about the
hacking of the Bangladesh Bank account and mentioned Solaire. Hence, BRHI froze
whatever remaining balance the Chinese National had in their accounts and their
members were barred from playing in Solaire. Upon receipt of the freeze order issued by
the CA, BRHI filed an Urgent Motion to Lift Freeze Order while the AMLC filed an
Urgent Motion for Additional Period of Freeze Order. CA granted the Urgent Motion to
Lift Freeze Order filed by BRHI and directed the BDO to unfreeze Account in the name
of BRHI. Aggrieved, AMLC filed its Petition for Review on Certiorari and so it issued a
Temporary Restraining Order and directed BRHI to Comment on the Petition. BRHI
filed its Comment and thereafter, the AMLC filed its Reply. BDO also filed a
manifestation that it has already lifted the Freeze Order over the account even before
receiving the TRO issued by the Court.

AMLC insists that the assailed Resolution is not a fait acompli. BRHI, on the
other hand submitted that the petition is moot because a freeze order cannot be issued
or extended for a period longer than six months.

ISSUE:
Whether or not the CA erred in lifting the freeze order earlier issued against
BRHI?

RULING:
YES. A freeze order may only be effective for a maximum period of six months;
hence, even assuming that the Urgent Motion for Additional Period of Freeze Order
should have been granted, the six-month maximum period has elapsed.

R.A. 9160, otherwise known as the AMLA, as amended by R.A. 10365, provides
that: Section 10. Freezing of Monetary Instrument or Property. – Upon a verified ex
parte petition by the AMLC and after determination that probable cause exists that any
monetary instrument or property is in any way related to an unlawful activity as defined
in Section 3(i) hereof, the Court of Appeals may issue a freeze order which shall be
effective immediately, and which shall not exceed six (6) months depending upon the
circumstances of the case: Provided, That if there is no case filed against a person whose
account has been frozen within the period determined by the court, the freeze order
shall be deemed ipso facto lifted: Provided, further, That this new rule shall not apply to
pending cases in the courts. In any case, the court should act on the petition to freeze
within twenty-four (24) hours from filing of the petition. If the application is filed a day
before a nonworking day, the computation of the twenty-four (24)-hour period shall
exclude the nonworking days.

A person whose account has been frozen may file a motion to lift the freeze order
and the court must resolve this motion before the expiration of the freeze order. No
court shall issue a temporary restraining order or a writ of injunction against any freeze
order, except the Supreme Court.

Clearly, a Freeze Order may not be issued indefinitely, lest the same be
characterized as a violation of the person's right to due process and to be presumed
innocent of a charge. In this case, the Freeze Order was issued by the CA on March 15,
2016. Even assuming that the CA erred in failing to issue an extension of the Freeze
Order, nevertheless, a period of more than six months has already elapsed. If we grant
the petition now, it has been more than four years from the issuance of the Freeze
Order. This development squarely falls under the principle of a moot and academic
issue. The adjudication of this case has no practical use and value owing also to the fact
that as manifested by the BDO, upon receipt of the CA Resolution dated March 15, 2016
granting BRHI's motion to lift the freeze order, BDO has complied with the order to
unfreeze BRHI's Account. Assuming that the petition is meritorious, We cannot order
the re-freezing of the subject account for to do so would be to put BRHI in an unfair
situation where its bank account is being frozen for a transaction that has happened four
years ago and where it was not yet proven that it indeed participated in money
laundering activities.

2.
REPUBLIC VS. EUGENIO, JR.
G.R. NO. 174629, FEBRUARY 14, 2008

DOCTRINE:

Sec. 2 of the Bank Secrecy Act itself prescribes exceptions whereby these bank
accounts may be examined by any person, government official, bureau or offial;
namely when: (1) upon written permission of the depositor; (2) in cases of
impeachment; (3) the examination of bank accounts is upon order of a competent
court in cases of bribery or dereliction of duty of public officials; and (4) the money
deposited or invested is the subject matter of the litigation. Section 8 of R.A. Act No.
3019, the Anti-Graft and Corrupt Practices Act, has been recognized by this Court as
constituting an additional exception to the rule of absolute confidentiality, and there
have been other similar recognitions as well.

FACTS:

Under the authority granted by the Resolution, the AMLC filed an application to
inquire into or examine the deposits or investments of Alvarez, Trinidad, Liongson and
Cheng Yong before the RTC of Makati, Branch 138, presided by Judge (now Court of
Appeals Justice) Sixto Marella, Jr. The application was docketed as AMLC No. 05-005.
The Makati RTC heard the testimony of the Deputy Director of the AMLC, Richard
David C. Funk II, and received the documentary evidence of the AMLC.[14] Thereafter,
on 4 July 2005, the Makati RTC rendered an Order (Makati RTC bank inquiry order)
granting the AMLC the authority to inquire and examine the subject bank accounts of
Alvarez, Trinidad, Liongson and Cheng Yong, the trial court being satisfied that there
existed p]robable cause [to] believe that the deposits in various bank accounts, details of
which appear in paragraph 1 of the Application, are related to the offense of violation of
Anti-Graft and Corrupt Practices Act now the subject of criminal prosecution before the
Sandiganbayan as attested to by the Informations, Exhibits C, D, E, F, and G Pursuant
to the Makati RTC bank inquiry order, the CIS proceeded to inquire and examine the
deposits, investments and related web accounts of the four.[16]

Meanwhile, the Special Prosecutor of the Office of the Ombudsman, Dennis Villa-
Ignacio, wrote a letter dated 2 November 2005, requesting the AMLC to investigate the
accounts of Alvarez, PIATCO, and several other entities involved in the nullified
contract. The letter adverted to probable cause to believe that the bank accounts were
used in the commission of unlawful activities that were committed a in relation to the
criminal cases then pending before the Sandiganbayan. Attached to the letter was a
memorandum on why the investigation of the [accounts] is necessary in the prosecution
of the above criminal cases before the Sandiganbayan. In response to the letter of the
Special Prosecutor, the AMLC promulgated on 9 December 2005 Resolution No. 121
Series of 2005,[19] which authorized the executive director of the AMLC to inquire into
and examine the accounts named in the letter, including one maintained by Alvarez with
DBS Bank and two other accounts in the name of Cheng Yong with Metrobank. The
Resolution characterized the memorandum attached to the Special Prosecutors letter as
extensively justif[ying] the existence of probable cause that the bank accounts of the
persons and entities mentioned in the letter are related to the unlawful activity of
violation of Sections 3(g) and 3(e) of Rep. Act No. 3019, as amended.

ISSUE:

1. Whether or not the bank accounts of respondents can be examined.

2. Whether a bank inquiry order issued in accordance with Section 10 of the
AMLA may be stayed by injunction.
3. What is the difference between the “Freeze Order” under Section 10 and the
“Bank Inquiry Order” authorized under Section 11?
4. What is the “Freeze Order” authorized under Section 10?
5. What is the “Bank Inquiry Order” authorized under Section 11?

RULING:

1. Any exception to the rule of absolute confidentiality must be specifically

legislated. Section 2 of the Bank Secrecy Act itself prescribes exceptions
whereby these bank accounts may be examined by any person, government
official, bureau or official; namely when: (1) upon written permission of the
depositor; (2) in cases of impeachment; (3) the examination of bank accounts
is upon order of a competent court in cases of bribery or dereliction of duty of
public officials; and (4) the money deposited or invested is the subject matter
of the litigation. Section 8 of R.A. Act No. 3019, the Anti-Graft and Corrupt
Practices Act, has been recognized by this Court as constituting an additional
exception to the rule of absolute confidentiality, and there have been other
similar recognitions as well.

The AMLA also provides exceptions to the Bank Secrecy Act. Under Section
11, the AMLC may inquire into a bank account upon order of any competent
court in cases of violation of the AMLA, it having been established that there
is probable cause that the deposits or investments are related to unlawful
activities as defined in Section 3(i) of the law, or a money laundering offense
under Section 4 thereof. Further, in instances where there is probable cause
that the deposits or investments are related to kidnapping for ransom,[certain
violations of the Comprehensive Dangerous Drugs Act of 2002,hijacking and
other violations under R.A. No. 6235, destructive arson and murder, then
there is no need for the AMLC to obtain a court order before it could inquire
into such accounts. It cannot be successfully argued the proceedings relating
to the bank inquiry order under Section 11 of the AMLA is a litigation
 encompassed in one of the exceptions to the Bank Secrecy Act which is when
money deposited or invested is the subject matter of the litigation. The
orientation of the bank inquiry order is simply to serve as a provisional relief
or remedy. As earlier stated, the application for such does not entail a full-
blown trial. Nevertheless, just because the AMLA establishes additional
exceptions to the Bank Secrecy Act it does not mean that the later law has
dispensed with the general principle established in the older law that all
deposits of whatever nature with banks or banking institutions in the
Philippines x x x are hereby considered as of an absolutely confidential
nature. Indeed, by force of statute, all bank deposits are absolutely
confidential, and that nature is unaltered even by the legislated exceptions
referred to above.

2. NO.
In the instances where a court order is required for the issuance of the
bank inquiry order, nothing in Section 11 specifically authorizes that such
court order may be issued ex parte. It might be argued that this silence does
not preclude the ex parte issuance of the bank inquiry order since the same is
not prohibited under Section 11. Yet this argument falls when the immediately
preceding provision, Section 10, is examined.

SEC. 10. Freezing of Monetary Instrument or Property. ― The Court of

Appeals, upon application ex parte by the AMLC and after determination
that probable cause exists that any monetary instrument or property is in
any way related to an unlawful activity as defined in Section 3(i) hereof,
may issue a freeze order which shall be effective immediately. The freeze
order shall be for a period of twenty (20) days unless extended by the court.

Although oriented towards different purposes, the freeze order under

Section 10 and the bank inquiry order under Section 11 are similar in that they
are extraordinary provisional reliefs which the AMLC may avail of to
effectively combat and prosecute money laundering offenses. Crucially,
Section 10 uses specific language to authorize an ex parte application for the
provisional relief therein, a circumstance absent in Section 11. If indeed the
legislature had intended to authorize ex parte proceedings for the issuance of
the bank inquiry order, then it could have easily expressed such intent in the
law, as it did with the freeze order under Section 10.

The necessary implication of this finding that Section 11 of the AMLA does
not generally authorize the issuance ex parte of the bank inquiry order would
be that such orders cannot be issued unless notice is given to the owners of
the account, allowing them the opportunity to contest the issuance of the
order. Without such a consequence, the legislated distinction between ex
parte proceedings under Section 10 and those which are not ex parte under
Section 11 would be lost and rendered useless.

3. The freeze order under Section 10 and the bank inquiry order under
Section 11 are similar in that they are extraordinary provisional reliefs which
the AMLC may avail of to effectively combat and prosecute money laundering
offenses. Crucially, Section 10 uses specific language to authorize an ex parte
 application for the provisional relief therein, a circumstance absent in Section
11. If indeed the legislature had intended to authorize ex parte proceedings for
the issuance of the bank inquiry order, then it could have easily expressed
such intent in the law, as it did with the freeze order under Section 10.

Even more tellingly, the current language of Sections 10 and 11 of the

AMLA was crafted at the same time, through the passage of R.A. No. 9194.
Prior to the amendatory law, it was the AMLC, not the Court of Appeals,
which had authority to issue a freeze order, whereas a bank inquiry order
always then required, without exception, an order from a competent court. It
was through the same enactment that ex parte proceedings were introduced
for the first time into the AMLA, in the case of the freeze order which now can
only be issued by the Court of Appeals. It certainly would have been
convenient, through the same amendatory law, to allow a similar ex parte
procedure in the case of a bank inquiry order had Congress been so minded.
Yet nothing in the provision itself, or even the available legislative record,
explicitly points to an ex parte judicial procedure in the application for a bank
inquiry order, unlike in the case of the freeze order.

4. SEC. 10. Freezing of Monetary Instrument or Property. ― The Court of

Appeals, upon application ex parte by the AMLC and after determination
that probable cause exists that any monetary instrument or property is in
any way related to an unlawful activity as defined in Section 3(i) hereof,
may issue a freeze order which shall be effective immediately. The freeze
order shall be for a period of twenty (20) days unless extended by the
court.73

5. SEC. 11. Authority to Inquire into Bank Deposits. ― Notwithstanding the

provisions of Republic Act No. 1405, as amended, Republic Act No. 6426, as
amended, Republic Act No. 8791, and other laws, the AMLC may inquire into
or examine any particular deposit or investment with any banking
institution or non bank financial institution upon order of any competent
court in cases of violation of this Act, when it has been established that there
is probable cause that the deposits or investments are related to an unlawful
activity as defined in Section 3(i) hereof or a money laundering offense
under Section 4 hereof, except that no court order shall be required in cases
involving unlawful activities defined in Sections 3(i)1, (2) and (12).

3.
SUBIDO PAGENTE CERTEZA MENDOZA AND BINAY LAW OFFICES,
Petitioner, v. THE COURT OF APPEALS,
G.R. No. 216914, December 06, 2016

FACTS:

In 2015, a year before the 2016 presidential elections, reports abounded on the
supposed disproportionate wealth of then Vice President Jejomar Binay and the rest of
his family.
 From various news reports announcing the inquiry into then Vice President
Binay's bank accounts, including accounts of members of his family, petitioner Subido
Pagente Certeza Mendoza & Binay Law Firm (SPCMB) was most concerned with the
article published in the Manila Times on 25 February 2015 entitled "Inspect Binay Bank
Accounts" which read, in pertinent part:

xxx The Anti-Money Laundering Council (AMLC) asked the Court of Appeals (CA) to
allow the [C]ouncil to peek into the bank accounts of the Binays, their corporations, and
a law office where a family member was once a partner.

By 8 March 2015, the Manila Times published another article entitled, "CA orders probe
of Binay's assets" reporting that the appellate court had issued a Resolution granting the
ex-parte application of the AMLC to examine the bank accounts of SPCMB.

Forestalled in the CA thus alleging that it had no ordinary, plain, speedy, and adequate
remedy to protect its rights and interests in the purported ongoing unconstitutional
examination of its bank accounts by public respondent Anti-Money Laundering Council
(AMLC), SPCMB undertook direct resort to this Court via this petition for certiorari and
prohibition.

ISSUE:

1. Whether or not Sec. 11 of the AMLA violates due process.

2. Whether Section 11 is violative of the constitutional right to privacy enshrined in

Section 2, Article III of the Constitution.

3. Whether or not the bank inquiry order is in the nature of a general warrant.

4. Whether or not the appellate court, through the Presiding Justice, gravely abused
its discretion when it effectively denied SPCMB's letter-request for confirmation that the
AMLC had applied (ex-parte) for, and was granted, a bank inquiry order to examine
SPCMB's bank accounts relative to the investigation conducted on Vice-President
Binay's accounts.

RULING:

1. No. Plainly, the AMLC's investigation of money laundering offenses and its
determination of possible money laundering offenses, specifically its inquiry into certain
bank accounts allowed by court order, does not transform it into an investigative body
exercising quasi-judicial powers. Hence, Section 11 of the AMLA, authorizing a bank
inquiry court order, cannot be said to violate SPCMB's constitutional right to procedural
due process.

2. No. We thus subjected Section 11 of the AMLA to heightened scrutiny and found
nothing arbitrary in the allowance and authorization to AMLC to undertake an inquiry
into certain bank accounts or deposits. Instead, we found that it provides safeguards
before a bank inquiry order is issued, ensuring adherence to the general state policy of
preserving the absolutely confidential nature of Philippine bank accounts:
(1) The AMLC is required to establish probable cause as basis for its ex-parte application
for bank inquiry order;

(2) The CA, independent of the AMLC's demonstration of probable cause, itself makes a
finding of probable cause that the deposits or investments are related to an unlawful
activity under Section 3(i) or a money laundering offense under Section 4 of the AMLA;

(3) A bank inquiry court order ex-parte for related accounts is preceded by a bank
inquiry court order ex-parte for the principal account which court order ex-parte for
related accounts is separately based on probable cause that such related account is
materially linked to the principal account inquired into; and

(4) The authority to inquire into or examine the main or principal account and the
related accounts shall comply with the requirements of Article III, Sections 2 and 3 of
the Constitution.

The foregoing demonstrates that the inquiry and examination into the bank account are
not undertaken whimsically and solely based on the investigative discretion of the
AMLC. In particular, the requirement of demonstration by the AMLC, and
determination by the CA, of probable cause emphasizes the limits of such governmental
action.

3. No. Eugenio already declared that Section 11, even with the allowance of an ex
parte application therefor, "is not a search warrant or warrant of arrest as it
contemplates a direct object but not the seizure of persons or property."34 It bears
repeating that the ''bank inquiry order" under Section 11 is a provisional remedy to aid
the AMLC in the enforcement of the AMLA.

4. No. In enacting the amendment to Section II of the AMLC, the legislature saw it
fit to place requirements before a bank inquiry order may be issued. We discussed these
requirements as basis for a valid exception to the general rule on absolute
confidentiality of bank accounts. However, these very safe guards allow SPCMB, post
issuance of the ex-parte bank inquiry order, legal bases to question the propriety of such
issued order, if any. To emphasize, this allowance to the owner of the bank account to
question the bank inquiry order is granted only after issuance of the freeze order
physically seizing the subject bank account. It cannot be undertaken prior to the
issuance of the freeze order.

While no grave abuse of discretion could be ascribed on the part of the appellate court
when it explained in its letter that petitions of such nature "is strictly confidential in that
when processing the same, not even the handling staff members of the Office of the
Presiding Justice know or have any knowledge who the subject bank account holders
are, as well as the bank accounts involved," it was incorrect when it declared that "under
the rules, the Office of the Presiding Justice is strictly mandated not to disclose, divulge,
or communicate to anyone directly or indirectly, in any manner or by any means, the
fact of the filing of any petition brought before [the Court of Appeals] by the Anti-Money
Laundering Council, its contents and even its entry in the logbook." As a result, the
appellate court effectively precluded and prevented SPCMB of any recourse, amounting
to a denial of SPCMB's letter request.
We cannot overemphasize that SPCMB, as the owner of the bank account which may be
the subject of inquiry of the AMLC, ought to have a legal remedy to question the validity
and propriety of such an order by the appellate court under Section 11 of the AMLA even
if subsequent to the issuance of a freeze order. Moreover, given the scope of inquiry of
the AMLC, reaching and including even related accounts, which inquiry into specifies a
proviso that: "[t]hat the procedure for the ex-parte application of the ex-parte court
order for the principal account shall be the same with that of the related accounts,"
SPCMB should be allowed to question the government intrusion. Plainly, by implication,
SPCMB can demonstrate the absence of probable cause, i.e. that it is not a related
account nor are its accounts materially linked to the principal account being
investigated.

4.
LIGOT VS. REPUBLIC
GR 176944, March 6, 2013

FACTS:

On June 27, 2005, the Republic, represented by the Anti-Money Laundering Council
(AMLC), filed an Urgent Ex-Parte Application for the issuance of a freeze order with the
CA against certain monetary instruments and properties of the petitioners, pursuant to
Section 10 of Republic Act (RA) No. 9160, as amended (otherwise known as the Anti-
Money Laundering Act of 2001). This application was based on the February 1, 2005
letter of the Office of the Ombudsman to the AMLC, recommending that the latter
conduct an investigation on Lt. Gen. Ligot and his family for possible violation of RA No.
9160.

Lt. Gen. Ligot declared in his SALN that as of December 31, 2003, he had assets in the
total amount of ₱3,848,003.00. In contrast, his declared assets in his 1982 SALN
amounted to only ₱105,000.00.

Aside from these declared assets, the Ombudsman’s investigation revealed that Lt. Gen.
Ligot and his family had other properties and bank accounts, not declared in his SALN,
amounting to at least ₱54,001,217.00.

Lt. Gen. Ligot’s main source of income was his salary as an officer of the AFP, and given
his wife and children’s lack of any other substantial sources of income, the Ombudsman
declared the assets registered in Lt. Gen. Ligot’s name, as well as those in his wife’s and
children’s names, to be illegally obtained and unexplained wealth, pursuant to the
provisions of RA No. 1379 (An Act Declaring Forfeiture in Favor of the State Any
Property Found to Have Been Unlawfully Acquired by Any Public Officer or Employee
and Providing for the Proceedings Therefor).

The Ombudsman’s investigation also looked into Mrs. Ligot’s younger brother, Edgardo
Yambao. The records of the SSS revealed that Yambao had been employed in the private
sector. Based on his contributions to the SSS, Yambao did not have a substantial salary
during his employment.

Despite Yambao’s lack of substantial income, the records show that he has real
properties and vehicles registered in his name, amounting to ₱8,763,550.00, which he
acquired from 1993 onwards. The Office of the Ombudsman further observed that in the
documents it examined, Yambao declared three of the Ligots’ addresses as his own.
From these circumstances, the Ombudsman concluded that Yambao acted as a dummy
and/or nominee of the Ligot spouses, and all the properties registered in Yambao’s
name actually belong to the Ligot family.

On April 5, 2005, the Ombudsman for the Military and Other Law Enforcement Officers
issued a resolution holding that probable cause exists that Lt. Gen. Ligot violated
Section 8, in relation to Section 11, of RA No. 6713, as well as Article 183 of the Revised
Penal Code.

On May 25, 2005, the AMLC issued Resolution No. 52, Series of 2005, directing the
Executive Director of the AMLC Secretariat to file an application for a freeze order
against the properties of Lt. Gen. Ligot and the members of his family with the
CA. Subsequently, on June 27, 2005, the Republic filed an Urgent Ex-Parte Application
with the appellate court for the issuance of a Freeze Order against the properties of the
Ligots and Yambao.

On July 5, 2005, the CA ruled that probable cause existed that an unlawful activity
and/or money laundering offense had been committed by Lt. Gen. Ligot and his family,
including Yambao, and that the properties sought to be frozen are related to the
unlawful activity or money laundering offense. Accordingly, the CA issued a freeze order
against the Ligots’ and Yambao’s various bank accounts, web accounts and vehicles,
valid for a period of 20 days from the date of issuance.

Finding merit in the Republic’s arguments, the CA granted the motion in its September
20, 2005 resolution, extending the freeze order until after all the appropriate
proceedings and/or investigations have been terminated. The Ligots have not been able
to access the properties subject of the freeze order for 6 years or so simply on the basis
of the existence of probable cause to issue a freeze order, which was intended mainly as
an interim preemptive remedy.

ISSUE:

Whether or not there is a remedy for the Ligots and Yambaos considering that their
money instruments and properties were “frozen” for an indefinite period of time.

RULING

Yes. There is a remedy for the Ligots and Yambaos considering that their money
instruments and properties were “frozen” for an indefinite period of time.

The Ligots filed a Motion to Lift the extended Freeze Order but was denied by the Court
of Appeals. Thus, the Ligots elevated the case to the Supreme Court.

It should be noted that the existence of an unlawful activity would justify the issuance
and the extension of the Freeze Order. However, a Freeze Order cannot be issued for an
indefinite period. A Freeze Order is meant to have a temporary effect; it was never
intended to supplant or replace the actual forfeiture cases.

As a rule, the effectivity of a Freeze Order may be extended by the Court of Appeals for a
period not exceeding six (6) months. Before or upon the lapse of this period, ideally, a
case should have already been filed for civil forfeiture against the property of the owner
with the proper courts and accordingly secure an asset preservation order or it should
have filed the necessary information. Otherwise, the property owner should already be
able to fully enjoy his property without any legal process affecting it.

In the present case, the Supreme Court noted that the Republic as represented by
AMLC, has not offered an explanation why it took six (6) years (from the time it secured
a Freeze Order) before a civil forfeiture case was filed in court, despite the clear tenor of
the Rule in Civil Forfeiture Cases allowing the extension of a Freeze Order only for a
period of six (6) months. Thus, the Freeze Order was lifted.

5.
Republic vs. Glasgow Credit
G.R. No. 170281, January 18, 2008

FACTS:
On July 18, 2003, petitioner filed a complaint for civil forfeiture of assets with the RTC
of Manila against the bank deposit in an account number CS-005-10-000121-5,
maintained by the respondent. The case was filed pursuant to RA 9160 or the Anti-
Money Laundering Act of 2001. Three days after, the RTC of Manila issued a 72-hour
TRO and a writ of preliminary injunction followed. Meanwhile, summons to the
respondent was returned "unserved" as it could no longer be found at its last known
address.

In 2003, petitioner filed a verified omnibus motion for a.) issuance of alias summons
and b) leave of court to serve summons by publication. No mention was made of the
motion for leave of court to serve summons by publication to which the court archived
the case for its failure to serve alias summons.

Sometime in 2004, the trial court ordered the reinstatement of the case directing the
petitioner to serve the alias summons to the respondent within 15 days. A month later,
the petitioner received a copy of the sheriff's return stating that the alias summons was
returned "unserved".

In 2005, the petitioner filed a manifestation and ex parte motion to resolve its motion
for leave of court to serve summons by publication. The OSG received a copy of
GLASGOW's motion to dismiss by way of special appearance alleging that:

1) the court had no jurisdiction over its person as summons had not yet been served,
2) the complaint was premature and stated no cause of action and
3) there was failure to prosecute on the part of the Republic

On October 17, 2005, the trial court dismissed the case on the grounds of

1) Improper venue
2) Insufficiency of the complaint in form and substance; and
3) Failure to prosecute
The petitioner filed a petition for review.

ISSUE:

Whether the complaint for civil forfeiture was correctly dismissed on grounds of
improper venue, insufficiency in form and substance and failure to prosecute.

RULING:
Yes, the court ruled with the Republic. The October 27, 2005 order of the
Regional Trial Court of Manila, Branch 47, in Civil Case No. 03-107319 was set aside.
The August 11, 2005 motion to dismiss of Glasgow Credit and Collection Services, Inc. is
denied. And the complaint for forfeiture of the Republic of the Philippines, represented
by the Anti-Money Laundering Council, is reinstated. 

The venue of civil forfeiture cases is any Regional Trial Court of the judicial region
where the monetary instrument, property or proceeds representing, involving, or
relating to an unlawful activity or to a money laundering offense are located.—Under
Section 3, Title II of the Rule of Procedure in Cases of Civil Forfeiture, therefore, the
venue of civil forfeiture cases is any RTC of the judicial region where the monetary
instrument, property or proceeds representing, involving, or relating to an unlawful
activity or to a money laundering offense are located. Pasig City, where the account
sought to be forfeited in this case is situated, is within the National Capital Judicial
Region (NCJR). Clearly, the complaint for civil forfeiture of the account may be filed in
any RTC of the NCJR. Since the RTC Manila is one of the RTCs of the NCJR, it was a
proper venue of the Republic’s complaint for civil forfeiture of Glasgow’s account.

Two Conditions When Applying for Civil Forfeiture; It is the preliminary seizure of the
property in question which brings it within the reach of judicial process.—RA 9160, as
amended, and its implementing rules and regulations lay down two conditions when
applying for civil forfeiture: (1) when there is a suspicious transaction report or a
covered transaction report deemed suspicious after investigation by the AMLC and (2)
the court has, in a petition filed for the purpose, ordered the seizure of any monetary
instrument or property, in whole or in part, directly or indirectly, related to said report.
It is the preliminary seizure of the property in question which brings it within the reach
of the judicial process. It is actually within the court’s possession when it is submitted to
the process of the court. The injunctive writ issued on August 8, 2003 removed account
no. CA-005-10-000121-5 from the effective control of either Glasgow or CSBI or their
representatives or agents and subjected it to the process of the court.

A criminal conviction for an unlawful activity is not a prerequisite for the institution of a
civil forfeiture proceeding—a finding of guilt for an unlawful activity is not an essential
element of civil forfeiture. —Whether or not there is truth in the allegation that account
no. CA-005-10-000121-5 contains the proceeds of unlawful activities is an evidentiary
matter that may be proven during trial. The complaint, however, did not even have to
show or allege that Glasgow had been implicated in a conviction for, or the commission
of, the unlawful activities of estafa and violation of the Securities Regulation Code. A
criminal conviction for an unlawful activity is not a prerequisite for the institution of a
civil forfeiture proceeding. Stated otherwise, a finding of guilt for an unlawful activity is
not an essential element of civil forfeiture.

Dismissal of Cases; While a court can dismiss a case on the ground of non prosequitur,
the real test for the exercise of such power is whether, under the circumstances, plaintiff
is chargeable with want of due diligence in failing to proceed with reasonable
promptitude.—In Marahay v. Melicor, 181 SCRA 811 (1990), this Court ruled: While a
court can dismiss a case on the ground of non prosequitur, the real test for the exercise
of such power is whether, under the circumstances, plaintiff is chargeable with want of
due diligence in failing to proceed with reasonable promptitude. In the absence of a
pattern or scheme to delay the disposition of the case or a wanton failure to observe the
mandatory requirement of the rules on the part of the plaintiff, as in the case at bar,
courts should decide to dispense with rather than wield their authority to dismiss.

Forfeiture proceedings are actions in rem—service may be made by publication; The

same principle in forfeiture proceedings under RA 1379 applies in cases for civil
forfeiture under RA 9160, as amended, since both cases do not terminate in the
imposition of a penalty but merely in the forfeiture of the properties either acquired
illegally or related to unlawful activities in favor of the State.—In Republic v.
Sandiganbayan, 406 SCRA 190 (2003), this Court declared that the rule is settled that
forfeiture proceedings are actions in rem. While that case involved forfeiture
proceedings under RA 1379, the same principle applies in cases for civil forfeiture under
RA 9160, as amended, since both cases do not terminate in the imposition of a penalty
but merely in the forfeiture of the properties either acquired illegally or related to
unlawful activities in favor of the State. As an action in rem, it is a proceeding against
the thing itself instead of against the person. In actions in rem or quasi in rem,
jurisdiction over the person of the defendant is not a prerequisite to conferring
jurisdiction on the court, provided that the court acquires jurisdiction over the res.
Nonetheless, summons must be served upon the defendant in order to satisfy the
requirements of due process. For this purpose, service may be made by publication as
such mode of service is allowed in actions in rem and quasi in rem.

6.
G.R. NO. 158143 SEPTEMBER 21, 2011

PHILIPPINE COMMERCIAL INTERNATIONAL BANK, PETITIONER,

VS. ANTONIO B. BALMACEDA AND ROLANDO N. RAMOS,

RESPONDENTS.

FACTS:

PCIB filed an action for recovery of sum of money with damages before the RTC against
Antonio Balmaceda, the Branch Manager of its Sta. Cruz, Manila branch. In its
complaint, PCIB alleged that between 1991 and 1993, Balmaceda, by taking advantage of
his position as branch manager, fraudulently obtained and encashed 31 Manager’s
checks.

PCIB moved to be allowed to file an amended complaint to implead Rolando Ramos as

one of the recipients of a portion of the proceeds from Balmaceda’s alleged fraud. PCIB
also increased the number of fraudulently obtained and encashed Manager’s checks to
34.

Also, PCIB unilaterally froze the bank account of Ramos.

ISSUE:

Whether PCIB could unilaterally freeze the bank account of Ramos.

HELD:

No.
We (SC) also find that PCIB acted illegally in freezing and debiting Ramos’ bank
account. In BPI Family Bank v. Franco,36 we cautioned against the unilateral freezing of
bank accounts by banks, noting that:

More importantly, [BPI Family Bank] does not have a unilateral right to freeze the
accounts of Franco based on its mere suspicion that the funds therein were proceeds of
the multi-million peso scam Franco was allegedly involved in. To grant [BPI Family
Bank], or any bank for that matter, the right to take whatever action it pleases on
deposits which it supposes are derived from shady transactions, would open the
floodgates of public distrust in the banking industry.37

We see no legal merit in PCIB’s claim that legal compensation took place between it and
Ramos, thereby warranting the automatic deduction from Ramos’ bank account. For
legal compensation to take place, two persons, in their own right, must first be creditors
and debtors of each other.38 While PCIB, as the depositary bank, is Ramos’ debtor in
the amount of his deposits, Ramos is not PCIB’s debtor under the evidence the PCIB
adduced. PCIB thus had no basis, in fact or in law, to automatically debit from Ramos’
bank account.

7.

G.R. No. 195341, August 28, 2019

ALLIED BANKING CORPORATION (NOW PHILIPPINE NATIONAL BANK),

PETITIONER, v. ELIZABETH SIA, RESPONDENTS.

FACTS:

Elizabeth Sia (Elizabeth) maintained two accounts with the now defunct Orient
Commercial Banking Corporation (Orient Bank). Specifically, Elizabeth was the
depositor of Orient Bank Account No. 023190001020, while Account No.
023190001031 was a joint account with her father, See Sia (See). At the time of Orient
Bank's closure, the two accounts had uninsured deposits in the total amount of
P5,228,883.71. On the other hand, herein petitioner Allied Banking Corporation (Allied
Bank) was the bank which assumed the uninsured deposit liabilities of Orient Bank.

See executed a Special Power of Attorney (SPA), wherein he constituted Elizabeth as his
attorney-in-fact granting her authority to claim and receive payment from the PDIC in
connection with the deposits in Orient Bank Account No. 023190001020. See further
authorized Elizabeth to execute any deed or instrument for the purpose of assigning or
transferring his claim against Orient Bank in favor of Allied Bank.

On the same date, Elizabeth and Allied Bank executed a Deed of Assignment, 6 to
facilitate the payment of her and her father's claims. All payments were to be made by
crediting Allied Bank Savings Account (SA) No. 0570231382, a bank account which
Elizabeth opened in Allied Bank, under her name for the purpose of receiving the
payments mentioned in the Deed of Assignment.

Allied Bank received a letter from Atty. Rolando M. Lim, who introduced himself as the
counsel for the heirs of See, informed Allied Bank that See died on May 4, 2000.
Attached to the letter was a copy of See's Death Certificate. He then requested that
Allied Bank withhold any transaction relating to See's account with the said bank
pending settlement of his estate. Aware that the source of the funds in SA No.
0570231382 were the payments for the uninsured deposits with Orient Bank previously
maintained, not only by Elizabeth, but also by See, Allied Bank acceded to Atty. Lim's
request.

Allied Bank formally informed Elizabeth of Atty. Lim's letter. Allied Bank told Elizabeth
that they temporarily froze SA No. 0570231382 pending the settlement of the conflicting
claims among See's heirs.

Instead of settling the matter with her siblings, Elizabeth filed the present complaint for
specific performance, breach of contract, and damages. Elizabeth alleged that Allied
Bank's denial of her withdrawal was malicious and unfounded as it was not supposed to
go beyond the depositor's name in its dealings with its depositors. She argued that since
she is the only one named as the depositor of SA No. 0570231382, then Allied Bank's
refusal to allow her to withdraw from the said account was without any basis.

In its defense, Allied Bank averred that the temporary freezing of SA No. 0570231382
was proper. It argued that since SA No. 0570231382 was opened precisely to receive the
payments by the PDIC for the two Orient Bank accounts, of which See was a
co-owner/co-depositor, a portion of the deposits found therein formed part of See's
estate upon his death. As such, when Elizabeth's siblings and other heirs of See made a
formal claim thereon, it acted properly and within its legal rights and prerogatives when
it acceded to their request not to allow any withdrawal from the said account. The bank
further argued that Elizabeth was mistaken in her belief that only the terms and
conditions found in her Passbook No. SAL 782654-AB shall govern their legal
relationship. It asserted that the principal contract between her and the bank was
actually the Deed of Assignment dated December 13, 1999. Allied Bank averred that it is
clear from the Deed of Assignment that See also owns a portion of the fund in SA No.
0570231382, and not Elizabeth alone.

ISSUE:

Whether or not Allied Bank’s temporary freezing of the subject account is proper.

RULING:

YES.

The authority of a bank to temporarily freeze the bank account of a deceased depositor
could be found in Section 97, Republic Act (R.A.) No. 8424 or the Tax Reform Act of
1997,16 which is the law governing the factual antecedents of this case. The second
paragraph of Section 97 provides:

If a bank has knowledge of the death of a person, who maintained a bank deposit
account alone, or jointly with another, it shall not allow any withdrawal from the said
deposit account, unless the Commissioner has certified that the taxes imposed thereon
by this Title have been paid; Provided, however, That the administrator of the estate or
any one (1) of the heirs of the decedent may, upon authorization by the Commissioner,
withdraw an amount not exceeding Twenty thousand pesos (P20,000) without the said
certification. For this purpose, all withdrawal slips shall contain a statement to the effect
that all of the joint depositors are still living at the time of withdrawal by any one of the
joint depositors and such statement shall be under oath by the said depositors..

For the authority under the above-cited provision to take effect, the bank needs only two
things: (1) a person is maintaining a bank deposit account; and (2) the bank has
knowledge of the said person's death. The authority applies with equal force to joint
accounts even to a joint "and/or" account as the law did not make any distinction. After
all, it is the knowledge of the death of a co-depositor which gives the bank the license to
withhold any withdrawal from the bank account. The authority is not dependent on
whether the surviving co-depositor could previously withdraw from the joint deposit
even without the knowledge or consent of the other.

In this regard, Section 85, Chapter I, Title III of R.A. No. 8424 states that all properties
of the decedent at the time of his death, whether real or personal, tangible or intangible,
wherever situated, shall be included in his gross estate.

Reading Section 97 together with Section 85, the Court opines that the "person who
maintained a bank deposit account" could reasonably be interpreted to mean the person
who owned the fund or a portion of the fund in the said bank deposit account. This
interpretation would cover any person, even those not expressly named as the depositor,
as long as it is clear that the fund in the bank deposit or a portion thereof belongs to
him. This is logical because even if the decedent was not named as the depositor of a
bank account, as long as the records would show that he was the owner or a co-owner of
it, then the deposit or his share thereon shall form part of his gross estate, which
transmission, in turn, would be the subject of estate tax.

From the foregoing, it is clear that Allied Bank could not be faulted for considering See
as one of the depositors of SA No. 0570231382. Again, it is evident that See has a share
in the deposits in the subject savings account, as could be adequately shown by the bank
records available to Allied Bank at that time. While Elizabeth was the only one expressly
named as the depositor of SA No. 0570231382, the Deed of Assignment dated December
13, 1999, indicates that the subject savings account is essentially a joint account between
her and her father. This fact is not controverted by See's mistake when he authorized
Elizabeth to claim and receive payment for Orient Bank Account No. 023190001020,
which was her individual account, instead of Orient Bank No. 023190001031. Even with
this error, the fact remains that the settlement payments for Orient Bank No.
023190001031 was one of the sources of the deposits in SA No. 0570231382, making
See a co-owner, and effectively a co-depositor, of the said account.

Further, Allied Bank was not obliged to demand from Atty. Lim further proof that his
clients were really See's heirs. Section 97 only provides that the as long as it has
knowledge of a depositor's death, the bank can exercise the authority to temporarily
withhold withdrawal therefrom. An adverse claim by the depositor's heirs is not even
required.

In sum, the Court holds that Allied Bank, was actually legally bound to temporarily
withhold any withdrawal from SA No. 0570231382 after it was informed of See's death.
As such, no breach of contract could be attributed to it. Obviously, there is also no
reason to adjudge the bank liable for damages.

8.

Garcillano vs House of Representatives

G.R. No. 170338
December 23, 2008

TOPIC: Electronic Commerce Act

FACTS:
Tapes ostensibly containing a wiretapped conversation purportedly between the
President of the Philippines and a high-ranking official of the COMELEC Surfaced. The
tapes, notoriously referred to as the "Hello Garci" tapes, allegedly contained the
President’s instructions to COMELEC Commissioner Garcillano to manipulate in her
favor results of the 2004 presidential elections. In the House of Representatives, then
Minority Floor Leader Escudero set in motion a congressional investigation conducted
by the respondent House Committees. NBI Director Wycoco, Atty. Paguia and the
lawyer of former NBI Deputy Director Ong submitted to the respondent House
Committees seven alleged "original" tape recordings of the supposed three-hour taped
conversation.

Petitioner Garcillano filed with this Court a Petition for Prohibition and
Injunction, he prayed that the respondent House Committees be restrained from using
these tape recordings of the "illegally obtained" wiretapped conversations in their
committee reports and for any other purpose. The respondent House Committees
directed to desist from further using the recordings in any of the House proceedings.
After more than two years Senator Lacson sought an inquiry into the perceived
willingness of telecommunications providers to participate in nefarious wiretapping
activities. Petitioners Ranada and Agcaoili, filed before this Court a Petition for
Prohibition seeking to bar the Senate from conducting its scheduled legislative inquiry.
They argued in the main that the intended legislative inquiry violates R.A. No. 4200 and
Section 3, Article III of the Constitution. The Court did not issue an injunctive writ, the
Senate proceeded with its public hearings. Intervening as respondents, Senators
Pimentel, Jr., Aquino, Biazon, Lacson, Legarda, Madrigal and Trillanes filed their
Comment on the petition. Maj. Sagge, a member of the ISAFP and one of the resource
persons summoned by the Senate to appear and testify at its hearings, moved to
intervene as petitioner in G.R. No. 179275.

Court resolved to consolidate G.R. Nos. 170338 and 179275. While both petitions
involve the "Hello Garci" recordings, they have different objectives–the first is poised at
preventing the playing of the tapes and the second seeks to prohibit and stop the
conduct of the Senate inquiry on the wiretapped conversation. Court dismisses the first
petition, and grants the second.

ISSUE:
Whether or not the Senate cannot be allowed to continue with the conduct of the
questioned legislative inquiry without duly published rules of procedure?

RULING:
YES. Section 21, Article VI of the 1987 Constitution explicitly provides that
"[t]he Senate or the House of Representatives, or any of its respective committees may
conduct inquiries in aid of legislation in accordance with its duly published rules of
procedure." The requisite of publication of the rules is intended to satisfy the basic
requirements of due process. Publication is indeed imperative, for it will be the height
of injustice to punish or otherwise burden a citizen for the transgression of a law or
rule of which he had no notice whatsoever, not even a constructive one.

The respondents admit in their pleadings and even on oral argument that the
Senate Rules of Procedure Governing Inquiries in Aid of Legislation had been published
in newspapers of general circulation only in 1995 and in 2006. With respect to the
present Senate of the 14th Congress, no effort was undertaken for the publication of
these rules when they first opened their session.

The phrase "duly published rules of procedure" requires the Senate of every
Congress to publish its rules of procedure governing inquiries in aid of legislation
because every Senate is distinct from the one before it or after it. Since Senatorial
elections are held every three (3) years for one-half of the Senate’s membership, the
composition of the Senate also changes by the end of each term. Each Senate may thus
enact a different set of rules as it may deem fit. Not having published its Rules of
Procedure, the subject hearings in aid of legislation conducted by the 14th Senate, are
therefore, procedurally infirm. The language of Section 21, Article VI of the Constitution
requiring that the inquiry be conducted in accordance with the duly published rules of
procedure is categorical. It is incumbent upon the Senate to publish the rules for its
legislative inquiries in each Congress or otherwise make the published rules clearly state
that the same shall be effective in subsequent Congresses or until they are amended or
repealed to sufficiently put public on notice. If it was the intention of the Senate for its
present rules on legislative inquiries to be effective even in the next Congress, it could
have easily adopted the same language it had used in its main rules regarding effectivity.

Respondents justify their non-observance of the constitutionally mandated

publication by arguing that the rules have never been amended since 1995 and, despite
that, they are published in booklet form available to anyone for free, and accessible to
the public at the Senate’s internet web page. The Court does not agree. The absence of
any amendment to the rules cannot justify the Senate’s defiance of the clear and
unambiguous language of Section 21, Article VI of the Constitution. The organic law
instructs, without more, that the Senate or its committees may conduct inquiries in aid
of legislation only in accordance with duly published rules of procedure, and does not
make any distinction whether or not these rules have undergone amendments or
revision. The constitutional mandate to publish the said rules prevails over any custom,
practice or tradition followed by the Senate.

The invocation by the respondents of the provisions of R.A. No. 8792, otherwise
known as the Electronic Commerce Act of 2000, to support their claim of valid
publication through the internet is all the more incorrect. R.A. 8792 considers an
electronic data message or an electronic document as the functional equivalent of a
written document only for evidentiary purposes. In other words, the law merely
recognizes the admissibility in evidence (for their being the original) of electronic data
messages and/or electronic documents. It does not make the internet a medium for
publishing laws, rules and regulations.

The respondent Senate Committees, therefore, could not, in violation of the

Constitution, use its unpublished rules in the legislative inquiry subject of these
consolidated cases. The conduct of inquiries in aid of legislation by the Senate has to be
deferred until it shall have caused the publication of the rules, because it can do so only
"in accordance with its duly published rules of procedure."

9.
MCC INDUSTRIAL SALES CORPORATION vs. SSANGYONG
CORPORATION

G.R. NO. 170633, OCTOBER 17, 2007

FACTS:

Petitioner MCC Industrial Sales (MCC), a domestic corporation engaged in the

business of importing and wholesaling stainless steel products. One of its suppliers is
the Ssangyong Corporation (Ssangyong), an international trading company with head
office in Seoul, South Korea and regional headquarters in Makati City, Philippines. The
two corporations conducted business through telephone calls and facsimile or telecopy
transmissions. Ssangyong would send the pro forma invoices containing the details of
the steel product order to MCC; if the latter conforms thereto.

Ssangyong then filed, a civil action for damages due to breach of contract against
defendants MCC, Sanyo Seiki and Gregory Chan before the Regional Trial Court of
Makati City. In its complaint, Ssangyong alleged that defendants breached their
contract when they refused to open the L/C in the amount of US$170,000.00 for the
remaining 100MT of steel under Pro Forma Invoice Nos. ST2-POSTS0401-1 and ST2-
POSTS0401-2.
 After Ssangyong rested its case, defendants filed a Demurrer to Evidence40
alleging that Ssangyong failed to present the original copies of the pro forma invoices on
which the civil action was based. In an Order dated April 24, 2003, the court denied the
demurrer, ruling that the documentary evidence presented had already been admitted in
the December 16, 2002 Order41 and their admissibility finds support in Republic Act
(R.A.) No. 8792, otherwise known as the Electronic Commerce Act of 2000. Considering
that both testimonial and documentary evidence tended to substantiate the material
allegations in the complaint, Ssangyong’s evidence sufficed for purposes of a prima facie
case.

The parties did not raise the question whether the original facsimile
transmissions are “electronic data messages” or “electronic documents” within the
context of the Electronic Commerce Act (the petitioner merely assails as inadmissible
evidence the photocopies of the said facsimile transmissions).

ISSUE:

1. Whether or not MCC is liable for breach of contract when they refused to open
the L/C in the amount of US$170,000.00 for the remaining 100MT of steel?
2. Whether the print-out and/or photocopies of facsimile transmissions are
electronic evidence and admissible as such?
3. How is Fascimile transmissions defined in the case?
4. Whether or not a Facsimile Transmission is included in the terms defined under
the Electronic Commerce Act of 2000
5. Whether or not the respondent has proven by preponderance of evidence the
existence of a perfected contract of sale.

RULING:

1. Yes.
The Supreme Court, finds that the award of actual damages is not in
accord with the evidence on record. It is axiomatic that actual or compensatory
damages cannot be presumed, but must be proven with a reasonable degree of
certainty.

Pro Forma Invoice No. ST2-POSTS080-1 (Exhibit “X”), however, is a mere

photocopy of its original. But then again, petitioner MCC does not assail the
admissibility of this document in the instant petition. Verily, evidence not
objected to is deemed admitted and may be validly considered by the court in
arriving at its judgment. Issues not raised on appeal are deemed abandoned.

Because these documents are mere photocopies, they are simply secondary
evidence, admissible only upon compliance with Rule 130, Section 5, which
states, “[w]hen the original document has been lost or destroyed, or cannot be
produced in court, the offeror, upon proof of its execution or existence and the
 cause of its unavailability without bad faith on his part, may prove its contents by
a copy, or by a recital of its contents in some authentic document, or by the
testimony of witnesses in the order stated.” Furthermore, the offeror of secondary
evidence must prove the predicates thereof, namely: (a) the loss or destruction of
the original without bad faith on the part of the proponent/offeror which can be
shown by circumstantial evidence of routine practices of destruction of
documents; (b) the proponent must prove by a fair preponderance of evidence as
to raise a reasonable inference of the loss or destruction of the original copy; and
(c) it must be shown that a diligent and bona fide but unsuccessful search has
been made for the document in the proper place or places. It has been held that
where the missing document is the foundation of the action, more strictness in
proof is required than where the document is only collaterally involved.103

Given these norms, we find that respondent failed to prove the existence of
the original fax transmissions of Exhibits E and F, and likewise did not
sufficiently prove the loss or destruction of the originals. Thus, Exhibits E and F
cannot be admitted in evidence and accorded probative weight.

These invoices (ST2-POSTS0401, ST2-POSTS080-1 and ST2-POSTS080-

2), along with the other unchallenged documentary evidence of respondent
Ssangyong, preponderate in favor of the claim that a contract of sale was
perfected by the parties.

With our finding that there is a valid contract, it is crystal-clear that when
petitioner did not open the L/C for the first half of the transaction (100MT),
despite numerous demands from respondent Ssangyong, petitioner breached its
contractual obligation. It is a well-entrenched rule that the failure of a buyer to
furnish an agreed letter of credit is a breach of the contract between buyer and
seller. Indeed, where the buyer fails to open a letter of credit as stipulated, the
seller or exporter is entitled to claim damages for such breach. Damages for
failure to open a commercial credit may, in appropriate cases, include the loss of
profit which the seller would reasonably have made had the transaction been
carried out.

2. NO.
R.A. No. 8792, otherwise known as the Electronic Commerce Act of 2000,
considers an electronic data message or an electronic document as the functional
equivalent of a written document for evidentiary purposes. The Rules on
Electronic Evidence regards an electronic document as admissible in evidence if
it complies with the rules on admissibility prescribed by the Rules of Court and
related laws, and is authenticated in the manner prescribed by the said Rules. An
electronic document is also the equivalent of an original document under the Best
Evidence Rule, if it is a printout or output readable by sight or other means,
shown to reflect the data accurately.

Thus, to be admissible in evidence as an electronic data message or to be

considered as the functional equivalent of an original document under the Best
Evidence Rule, the writing must foremost be an “electronic data message” or an
“electronic document.”
 We, therefore, conclude that the terms “electronic data message” and “electronic
document,” as defined under the Electronic Commerce Act of 2000, do not
include a facsimile transmission. Accordingly, a facsimile transmission cannot be
considered as electronic evidence. It is not the functional equivalent of an original
under the Best Evidence Rule and is not admissible as electronic evidence.

Since a facsimile transmission is not an “electronic data message” or an

“electronic document,” and cannot be considered as electronic evidence by the
Court, with greater reason is a photocopy of such a fax transmission not
electronic evidence. In the present case, therefore, Pro Forma Invoice Nos. ST2-
POSTS0401-1 and ST2-POSTS0401-2 which are mere photocopies of the original
fax transmittals, are not electronic evidence, contrary to the position of both the
trial and the appellate courts.

3. Facsimile transmissions are not, in this sense, "paperless," but verily are
paper-based. A facsimile machine, which was first patented in 1843 by Alexander
Bain,83 is a device that can send or receive pictures and text over a telephone
line. It works by digitizing an image—dividing it into a grid of dots. Each dot is
either on or off, depending on whether it is black or white. Electronically, each
dot is represented by a bit that has a value of either 0 (off) or 1 (on). In this way,
the fax machine translates a picture into a series of zeros and ones (called a bit
map) that can be transmitted like normal computer data. On the receiving side, a
fax machine reads the incoming data, translates the zeros and ones back into
dots, and reprints the picture.84 A fax machine is essentially an image scanner, a
modem and a computer printer combined into a highly specialized package. The
scanner converts the content of a physical document into a digital image, the
modem sends the image data over a phone line, and the printer at the other end
makes a duplicate of the original document.

4. No.
In the case at bar, the court concluded that the terms "electronic data
message" and "electronic document," as defined under the Electronic Commerce
Act of 2000, do not include a facsimile transmission. Accordingly, a facsimile
transmission cannot be considered as electronic evidence. It is not the functional
equivalent of an original under the Best Evidence Rule and is not admissible as
electronic evidence.

Since a facsimile transmission is not an "electronic data message" or an

"electronic document," and cannot be considered as electronic evidence by the
Court, with greater reason is a photocopy of such a fax transmission not
electronic evidence. In the present case, therefore, Pro Forma Invoice Nos. ST2-
POSTS0401-1 and ST2-POSTS0401-2 (Exhibits "E" and "F"), which are mere
photocopies of the original fax transmittals, are not electronic evidence, contrary
to the position of both the trial and the appellate courts.

5. Yes.
Despite the pro forma invoices not being electronic evidence, this Court
finds that respondent has proven by preponderance of evidence the existence of a
perfected contract of sale.
 In an action for damages due to a breach of a contract, it is essential that
the claimant proves (1) the existence of a perfected contract, (2) the breach
thereof by the other contracting party and (3) the damages which he/she
sustained due to such breach. Actori incumbit onus probandi. The burden of
proof rests on the party who advances a proposition affirmatively.95 In other
words, a plaintiff in a civil action must establish his case by a preponderance of
evidence, that is, evidence that has greater weight, or is more convincing than
that which is offered in opposition to it.

In general, contracts are perfected by mere consent,97 which is manifested

by the meeting of the offer and the acceptance upon the thing and the cause
which are to constitute the contract. The offer must be certain and the acceptance
absolute.98 They are, moreover, obligatory in whatever form they may have been
entered into, provided all the essential requisites for their validity are present.99
Sale, being a consensual contract, follows the general rule that it is perfected at
the moment there is a meeting of the minds upon the thing which is the object of
the contract and upon the price. From that moment, the parties may reciprocally
demand performance, subject to the provisions of the law governing the form of
contracts.

The essential elements of a contract of sale are (1) consent or meeting of

the minds, that is, to transfer ownership in exchange for the price, (2) object
certain which is the subject matter of the contract, and (3) cause of the obligation
which is established.

10.
ASSOCIATE JUSTICE DELILAH VIDALLON-MAGTOLIS, COURT OF
APPEALS, Complainant, vs.

CIELITO M. SALUD, CLERK IV, COURT OF APPEALS, Respondent.

A.M. No. CA-05-20-P; September 9, 2005

FACTS:

Respondent is charged and held liable for offenses on inefficiency and

incompetence of official duty; conduct grossly prejudicial to the best interest of the
service; and directly and indirectly having financial and material interest in an official
transaction considering his undue interest in the service of the order of release and
actual release of Melchor Lagua.

Lagua was found guilty of homicide and was then detained at the Bureau of Prisons
National Penitentiary in Muntinlupa City. Lagua’s petition for bond was approved in a
Resolution where the appellate court directed the issuance of an order of release in favor
of Lagua. The resolution was brought to the office of Atty. Madarang, Division Clerk of
Court, for promulgation.

Respondent served the resolution and order of release of Lagua at the National
Penitentiary, where Lagua was detained for homicide.
Meanwhile, Atty. Madarang received a call from a certain Melissa Melchor, who
introduced herself as Lagua’s relative, asking how much more they had to give to
facilitate Lagua’s provisional liberty, and that they sought the help of a certain Rhodora
Valdez of RTC Pasig, but was told that they still had a balance. When Atty. Madarang
was able to get the mobile number of respondent, he represented himself as Lagua’s
relative and exchanged text messages with said respondent for a possible pay-off for the
Lagua’s provisional liberty. Atty. Madarang later discovered that the respondent did not
properly serve the copies of the Resolution and Order of Release upon the accused-
appellant and his counsel. but gave them to a certain Art Baluran, allegedly Lagua’s
relative.

Later on, Complainant called the respondent to her office. When confronted, the
respondent denied extorting or receiving money for Lagua’s release, or in any other
case. He, however, admitted serving the copies of resolution and order of release
intended for Lagua and his counsel to Art Baluran.

ISSUE:

Whether or not the admission of text messages as evidence constitutes a violation

of right to privacy of the accused.

RULING:

No. The respondent's claim that the admission of the text messages as evidence
against him constitutes a violation of his right to privacy is unavailing. Text messages
have been classified as ephemeral electronic communication under Section 1(k), Rule 2
of the Rules on Electronic Evidence, [45] and 'shall be proven by the testimony of a
person who was a party to the same or has personal knowledge thereof. Any question as
to the admissibility of such messages is now moot and academic, as the respondent
himself, as well as his counsel, already admitted that he was the sender of the first three
messages on Atty. Madarang's cell phone.

The respondent's claim that the admission of the text messages as evidence against him
constitutes a violation of his right to privacy is unavailing. Text messages have been
classified as ephemeral electronic communication under Section 1(k), Rule 2 of the
Rules on Electronic Evidence, [45] and 'shall be proven by the testimony of a person
who was a party to the same or has personal knowledge thereof. Any question as to the
admissibility of such messages is now moot and academic, as the respondent himself, as
well as his counsel, already admitted that he was the sender of the first three messages
on Atty. Madarang's cell phone.

11.
CHATO VS. HOUSE REPRESENTATIVES ELECTORAL TRIBUNAL
GR 199149, January 22, 2013

FACTS:

Liwayway Vinzons-Chato (Chato) renewed her bid in the May 10, 2010 elections as
representative of the Second Legislative District of Camarines Norte, composed of the
seven (7) Municipalities of Daet, Vinzons, Basud, Mercedes, Talisay, San Vicente, and
San Lorenzo, with a total of 205 clustered precincts. She lost to Elmer E. Panotes
(Panotes) who was proclaimed the winner on May 12, 2010 having garnered a total of
51,707 votes as against Chato's 47,822 votes, or a plurality of 3,885 votes.
On May 24, 2010, Chato filed an electoral protest before the House of Representatives
Electoral Tribunal (HRET), which was docketed as HRET Case No. 10-040, assailing the
results in all the 160 clustered precincts in four (4) municipalities, namely: Daet,
Vinzons, Basud and Mercedes. Panotes lost no time in moving 7 for the suspension of the
proceedings in the case, and praying that a preliminary hearing be set in order to
determine first the integrity of the ballots and the ballot boxes used in the elections.

Consequently, in its Resolution, the HRET directed the copying of the picture image
files of ballots relative to the protest. Chato then filed an Urgent Motion to Prohibit the
Use by Protestee of the Decrypted and Copied Ballot Images in the Instant
Case12 reiterating the lack of legal basis for the decryption and copying of ballot images
inasmuch as no preliminary hearing had been conducted showing that the integrity of
the ballots and ballot boxes was not preserved. The HRET denied Chato’s motion. HRET
declared that, although the actual ballots used in the May 10, 2010 elections are the best
evidence of the will of the voters, the picture images of the ballots are regarded as the
equivalent of the original ballots. Chato filed a motion for reconsideration but the HRET
denied the same.

Chato then moved for the revision of the ballots in all of the protested clustered
precincts arguing that the results of the revision of twenty-five percent (25%) of the
precincts indicate a reasonable recovery of votes in her favor. She filed a second motion
reiterating her prayer for the continuance of the revision. The HRET denied the motion.

However, on March 22, 2012, the HRET issued the assailed Resolution No. 12-079
directing the continuation of the revision of ballots in the remaining seventy-five
percent (75%) protested clustered precincts, or a total of 120 precincts. Panotes moved
for reconsideration but the HRET denied the same. Hence, Panotes filed a petition for
certiorari and prohibition before the Supreme Court.

ISSUE:

Whether or not the picture images of the ballots may be considered as the "official
ballots" or the equivalent of the original paper ballots which the voters filled out.

RULING:

Yes. Section 2 (3) of R.A. No. 9369 defines "official ballot" where AES is utilized as the
"paper ballot, whether printed or generated by the technology applied, that faithfully
captures or represents the votes cast by a voter recorded or to be recorded in electronic
form."

An automated election system, or AES, is a system using appropriate technology which

has been demonstrated in the voting, counting, consolidating, canvassing, and
transmission of election result, and other electoral process. There are two types of AES
identified under R.A. No. 9369: (1) paper-based election system; and (2) direct
recording electronic election system. A paper-based election system, such as the one
adopted during the May 10, 2010 elections, is the type of AES that "use paper ballots,
records and counts votes, tabulates, consolidates/canvasses and transmits electronically
the results of the vote count." On the other hand, direct recording electronic election
system "uses electronic ballots, records, votes by means of a ballot display provided with
mechanical or electro-optical component that can be activated by the voter, processes
data by means of computer programs, record voting data and ballot images, and
transmits voting results electronically."

As earlier stated, the May 10, 2010 elections used a paper-based technology that allowed
voters to fill out an official paper ballot by shading the oval opposite the names of their
chosen candidates. Each voter was then required to personally feed his ballot into the
Precinct Count Optical Scan (PCOS) machine which scanned both sides of the ballots
simultaneously, meaning, in just one pass. As established during the required demo
tests, the system captured the images of the ballots in encrypted format which, when
decrypted for verification, were found to be digitized representations of the ballots cast.

We agree, therefore, with both the HRET and Panotes that the picture images of the
ballots, as scanned and recorded by the PCOS, are likewise "official ballots" that
faithfully captures in electronic form the votes cast by the voter, as defined by Section 2
(3) of R.A. No. 9369. As such, the printouts thereof are the functional equivalent of the
paper ballots filled out by the voters and, thus, may be used for purposes of revision of
votes in an electoral protest.

12.
Maliksi vs COMELEC
G.R. No. 203302 April 11, 2013

FACTS: 

During the 2010 Elections, the Municipal Board of Canvassers proclaimed Saquilayan
the winner for the position of Mayor of Imus, Cavite. Maliksi, the candidate who
garnered the second highest number of votes, brought an election protest in the
Regional Trial Court (RTC) in Imus, Cavite alleging that there were irregularities in the
counting of votes in 209 clustered precincts. Subsequently, the RTC held a revision of
the votes, and, based on the results of the revision, declared Maliksi as the duly elected
Mayor of Imus commanding Saquilayan to cease and desist from performing the
functions of said office. Saquilayan appealed to the COMELEC. In the meanwhile, the
RTC granted Maliksi’s motion for execution pending appeal, and Maliksi was then
installed as Mayor. In resolving the appeal, the COMELEC First Division, without giving
notice to the parties, decided to recount the ballots through the use of the printouts of
the ballot images from the CF cards. Thus, it issued an order dated March 28, 2012
requiring Saquilayan to deposit the amount necessary to defray the expenses for the
decryption and printing of the ballot images. Later, it issued another order dated April
17, 2012 for Saquilayan to augment his cash deposit.

ISSUE: Whether or not the conduct of recount by the first division of the COMELEC is
proper.

RULING: No. View that the printing of the picture images of the ballots may be
resorted to only after the proper Revision/Recount Committee has first determined that
the integrity of the ballots and the ballot box was not preserved.—Section 6, Rule 15 of
COMELEC Resolution No. 8804 (In Re: Comelec Rules of Procedure on Disputes In An
Automated Election System in Connection with the May 10, 2010 Elections) itself
requires that “the Recount Committee determines that the integrity of the ballots has
been violated or has not been preserved, or are wet and otherwise in such a condition
that (the ballots) cannot be recounted” before the printing of the image of the ballots
should be made, and that such printing should be done “in the presence of the parties,”
to wit: x x x x (g) Only when the Recount Committee, through its chairman, determines
that the integrity of the ballots has been preserved or that no signs of tampering of the
ballots are present, will the recount proceed. In case there are signs that the ballots
contained therein are tampered, compromised, wet or are otherwise in such a condition
that it could not be recounted, the Recount Committee shall follow paragraph (l) of this
rule. x x x x (l) In the event the Recount Committee determines that the integrity of the
ballots has been violated or has not been preserved, or are wet and otherwise in such a
condition that it cannot be recounted, the Chairman of the Committee shall request
from the Election Records and Statistics Department (ERSD), the printing of the image
of the ballots of the subject precinct stored in the CF card used in the May 10, 2010
elections in the presence of the parties. Printing of the ballot images shall proceed only
upon prior authentication and certification by duly authorized personnel of the Election
Records and Statistics Department (ERSD) that the data or the images to be printed are
genuine and not substitutes. (As amended by COMELEC Resolution No. 9164, March
16, 2011) x x x x All the foregoing rules on revision of ballots stipulate that the printing
of the picture images of the ballots may be resorted to only after the proper
Revision/Recount Committee has first determined that the integrity of the ballots and
the ballot box was not preserved. The foregoing rules further require that the decryption
of the images stored in the CF cards and the printing of the decrypted images take place
during the revision or recount proceedings, and that it is the Revision/Recount
Committee that determines whether the ballots are unreliable.

View that it is during the revision or recount conducted by the Revision/Recount

Committee when the parties are allowed to be represented, with their representatives
witnessing the proceedings and timely raising their objections in the course of the
proceedings. —There is a good reason for thus fixing where and by whom the decryption
and the printing should be conducted. It is during the revision or recount conducted by
the Revision/Recount Committee when the parties are allowed to be represented, with
their representatives witnessing the proceedings and timely raising their objections in
the course of the proceedings. Moreover, whenever the Revision/Recount Committee
makes any determination that the ballots have been tampered and have become
unreliable, the parties are immediately made aware of such determination. Here,
however, it was not the Revision/Recount Committee or the RTC exercising its original
jurisdiction over the protest that made the finding that the ballots had been tampered,
but the First Division in the exercise of its appellate jurisdiction. Maliksi was not
immediately made aware of that crucial finding because the First Division did not even
issue any written resolution stating its reasons for ordering the printing of the picture
images.

View that the blatant disregard of Maliksi’s right to be informed of the decision to print
the picture images of the ballots and to conduct the recount proceedings during the
appellate stage cannot be brushed aside by the invocation of the fact that Maliksi was
able to file, after all, a motion for reconsideration.—The blatant disregard of Maliksi’s
right to be informed of the decision to print the picture images of the ballots and to
conduct the recount proceedings during the appellate stage cannot be brushed aside by
the invocation of the fact that Maliksi was able to file, after all, a motion for
reconsideration. To be exact, the motion for reconsideration was actually directed
against the entire resolution of the First Division, while Maliksi’s claim of due process
violation is directed only against the First Division’s recount proceedings that resulted
in the prejudicial result rendered against him. I note that the First Division did not issue
any order directing the recount. Without the written order, Maliksi was deprived of the
chance to seek any reconsideration or even to assail the irregularly-held recount through
a seasonable petition for certiorari in this Court. In that context, he had no real
opportunity to assail the conduct of the recount proceedings.

View that Based on the pronouncement in Alliance of Barangay Concerns v. COMELEC,

the power of the COMELEC to adopt procedures that will ensure the speedy resolution
of its cases should still be exercised only after giving to all the parties the opportunity to
be heard on their opposing claims. —The COMELEC En Banc should not have upheld
the deviation of the First Division. Based on the pronouncement in Alliance of Barangay
Concerns v. COMELEC, the power of the COMELEC to adopt procedures that will
ensure the speedy resolution of its cases should still be exercised only after giving to all
the parties the opportunity to be heard on their opposing claims. The parties’ right to be
heard upon adversarial issues and matters is never to be waived or sacrificed, or to be
treated so lightly because of the possibility of the substantial prejudice to be thereby
caused to the parties, or to any of them.

View that the First Division should not conduct the proceedings now being assailed
because it was then exercising appellate jurisdiction as to which no existing rule of
procedure allowed the First Division to conduct the recount in the first instance. The
recount proceedings authorized under Section 6, Rule 15 of COMELEC Resolution No.
8804, are to be conducted by the COME-

LEC Divisions only in the exercise of their exclusive original jurisdiction over all election
protests involving elective regional (the autonomous regions), provincial and city
officials.—We should not ignore that the parties’ participation during the
revision/recount proceedings would not benefit only the parties. Such participation was
as vital and significant for the COMELEC as well, for only by their participation would
the COMELEC’s proceedings attain credibility as to the result. In this regard, the
COMELEC was less than candid, and was even cavalier in its conduct of the decryption
and printing of the picture images of the ballots and the recount proceedings. The
COMELEC En Banc was merely content with listing the guidelines that the First
Division had followed in the appreciation of the ballots and the results of the recount. In
short, there was vagueness as to what rule had been followed in the decryption and
printing proceeding. Moreover, I respectfully point out that the First Division should not
conduct the proceedings now being assailed because it was then exercising appellate
jurisdiction as to which no existing rule of procedure allowed the First Division to
conduct the recount in the first instance. The recount proceedings authorized under
Section 6, Rule 15 of COMELEC Resolution No. 8804, are to be conducted by the
COMELEC Divisions only in the exercise of their exclusive original jurisdiction over all
election protests involving elective regional (the autonomous regions), provincial and
city officials.

13.
G.R. No. 166018               June 4, 2014
THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED-
PHILIPPINE BRANCHES, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent;
x-----------------------x
G.R. No. 167728
THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED-
PHILIPPINE BRANCHES, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

FACTS:
HSBC performs, among others, custodial services on behalf of its investor-clients,
corporate and individual, resident or non-resident of the Philippines, with respect to
their passive investments in the Philippines, particularly investments in shares of stocks
in domestic corporations. As a custodian bank, HSBC serves as the collection/payment
agent with respect to dividends and other income derived from its investor-clients’
passive investments.

HSBC’s investor-clients maintain Philippine peso and/or foreign currency accounts,

which are managed by HSBC through instructions given through electronic messages.
The said instructions are standard forms known in the banking industry as SWIFT, or
"Society for Worldwide Interbank Financial Telecommunication." In purchasing shares
of stock and other investment in securities, the investor-clients would send electronic
messages from abroad instructing HSBC to debit their local or foreign currency accounts
and to pay the purchase price therefor upon receipt of the securities. 7

Pursuant to the electronic messages of its investor-clients, HSBC purchased and paid
Documentary Stamp Tax (DST).

BIR, thru its then Commissioner, issued BIR Ruling to the effect that instructions or
advises from abroad on the management of funds located in the Philippines which do
not involve transfer of funds from abroad are not subject to DST. A documentary stamp
tax shall be imposed on any bill of exchange or order for payment purporting to be
drawn in a foreign country but payable in the Philippines.

ISSUE:

Whether the electronic messages are considered transactions pertaining to negotiable

instruments that warrant the payment of DST.

RULING

No.

The Court finds for HSBC.

The Court agrees with the CTA that the DST under Section 181 of the Tax Code is levied
on the acceptance or payment of "a bill of exchange purporting to be drawn in a foreign
country but payable in the Philippines" and that "a bill of exchange is an unconditional
order in writing addressed by one person to another, signed by the person giving it,
requiring the person to whom it is addressed to pay on demand or at a fixed or
determinable future time a sum certain in money to order or to bearer." A bill of
exchange is one of two general forms of negotiable instruments under the Negotiable
Instruments Law.15

The Court further agrees with the CTA that the electronic messages of HSBC’s investor-
clients containing instructions to debit their respective local or foreign currency
accounts in the Philippines and pay a certain named recipient also residing in the
Philippines is not the transaction contemplated under Section 181 of the Tax Code as
such instructions are "parallel to an automatic bank transfer of local funds from a
savings account to a checking account maintained by a depositor in one bank." The
Court favorably adopts the finding of the CTA that the electronic messages "cannot be
considered negotiable instruments as they lack the feature of negotiability, which, is the
ability to be transferred" and that the said electronic messages are "mere memoranda"
of the transaction consisting of the "actual debiting of the [investor-client-payor’s] local
or foreign currency account in the Philippines" and "entered as such in the books of
account of the local bank," HSBC.16
More fundamentally, the instructions given through electronic messages that are
subjected to DST in these cases are not negotiable instruments as they do not comply
with the requisites of negotiability under Section 1 of the Negotiable Instruments Law,
which provides:

Sec. 1. Form of negotiable instruments.– An instrument to be negotiable must conform

to the following requirements:

(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in

money;

(c) Must be payable on demand, or at a fixed or determinable future time;

(d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be named or

otherwise indicated therein with reasonable certainty.

The electronic messages are not signed by the investor-clients as supposed drawers of a
bill of exchange; they do not contain an unconditional order to pay a sum certain in
money as the payment is supposed to come from a specific fund or account of the
investor-clients; and, they are not payable to order or bearer but to a specifically
designated third party. Thus, the electronic messages are not bills of exchange. As there
was no bill of exchange or order for the payment drawn abroad and made payable here
in the Philippines, there could have been no acceptance or payment that will trigger the
imposition of the DST under Section 181 of the Tax Code.

14.

G.R. No. 187581               October 20, 2014

PHILIPPINE BANK OF COMMUNICATIONS, Petitioner,  vs. BASIC

POLYPRINTERS AND PACKAGING CORPORATION, Respondent.

FACTS:

Basic Polyprinters, along with the eight other corporations belonging to the Limtong
Group of Companies filed a joint petition for suspension of payments with approval of
the proposed rehabilitation in the RTC. The RTC issued a stay order, and eventually
approved the rehabilitation plan, but the CA reversed the RTC on October 25, 2005, and
directed the petitioning corporations to file their individual petitions for suspension of
payments and rehabilitation in the appropriate courts.

Accordingly, Basic Polyprinters brought its individual petition, averring therein that: (a)
its business since incorporation had been very viable and financially profitable; (b) it
had obtained loans from various banks, and had owed accounts payable to various
creditors; (c) the Asian currency crisis, devaluation of the Philippine peso, and the
current state of affairs of the Philippine economy, coupled with: (i) high interest rates,
penalties and charges by its creditors; (ii) low demand for gift items and cards due to the
economic recession and the use of cellular phones; (iii) direct competition from stores
like SM, Gaisano, Robinson and other malls; and (iv) the fire of July 19, 2002 that had
destroyed its warehouse containing inventories worth ₱264,000,000.00, resulting in
difficulty of meeting its obligations; (d) its operations would be hampered and would
render rehabilitation difficult should its creditors enforce their claims through legal
actions, including foreclosure proceedings; (e) included in its overall Rehabilitation
Program was the full payment of its outstanding loans in favor of petitioner Philippine
Bank of Communications (PBCOM), RCBC, Land Bank, EPCI Bank and AUB via
repayment over 15 years with moratorium of two-years for the interest and five years for
the principal at 5% interest per annum and a dacion en pago of its affiliate property in
favor of EPCI Bank; and (f) its assets worth ₱15,374,654.00 with net liabilities
amounting to ₱13,031,438.00.

Finding the petition sufficient in form and substance, the RTC issued the stay order
dated August 31, 2006. It appointed Manuel N. Cacho III as the rehabilitation receiver,
and required all creditors and interested parties, including the Securities and Exchange
Commission (SEC), to file their comments. After the initial hearing and evaluation of the
comments and opposition of the creditors, including PBCOM, the RTC gave due course
to the petition and referred it to the rehabilitation receiver for evaluation and
recommendation.

On October 18, 2007, the rehabilitation receiver submitted his report recommending the
approval of the rehabilitation plan. On December 19, 2007, the rehabilitation receiver
submitted his clarifications and corrections to his report and recommendations. On
January 11, 2008, the RTC issued an order approving the rehabilitation plan. In the
assailed decision promulgated on December 16, 2008, 12 the CA affirmed the questioned
order of the RTC, agreeing with the finding of the rehabilitation receiver that there were
sufficient evidence, factors and actual opportunities in the rehabilitation plan indicating
that Basic Polyprinters could be successfully rehabilitated in due time.

ISSUES:

Whether or not the approval of the rehabilitation plan was proper despite:

a. the alleged insolvency of Basic Polyprinters; and

b. absence of a material financial commitment pursuant to Section 5, Rule 4 of the

Interim Rules

RULING:

a. NO.

Under the Interim Rules, rehabilitation is the process of restoring "the debtor
to a position of successful operation and solvency, if it is shown that its
continuance of operation is economically feasible and its creditors can recover by
way of the present value of payments projected in the plan more if the
corporation continues as a going concern that if it is immediately liquidated." It
contemplates a continuance ofcorporate life and activities in an effort to restore
and reinstate the corporation to its former position of successful operation and
solvency.

In Asiatrust Development Bank v. First Aikka Development, Inc., we said that

rehabilitation proceedings have a two-pronged purpose, namely: (a) to
efficiently and equitably distribute the assets of the insolvent debtor to its
creditors; and (b) to provide the debtor with a fresh start, viz: Rehabilitation
proceedings in our jurisdiction have equitable and rehabilitative purposes. On the
one hand, they attempt to provide for the efficient and equitable distribution ofan
insolvent debtor's remaining assets to its creditors; and on the other, to provide
debtors with a "fresh start" by relieving them of the weight of their outstanding
debts and permitting them to reorganize their affairs. The purpose of
 rehabilitation proceedings is to enable the company to gain a new lease on life
and thereby allow creditors to be paid their claims from its earnings.

The basic issues in rehabilitation proceedings concern the viability and

desirability of continuing the business operations of the petitioning corporation.
The determination of such issues was to be carried out by the court-appointed
rehabilitation receiver.

Republic Act No. 10142 (Financial Rehabilitation and Insolvency Act (FRIA) of
2010), a law that is applicable hereto, has defined a corporate debtor as a
corporation duly organized and existing under Philippine laws that has become
insolvent. The term insolvent is defined in Republic Act No. 10142 as "the
financial condition of a debtor that is generally unable to pay its or his liabilities
as they fall due in the ordinary course of business or has liabilities that are
greater than its or his assets."

As such, the contention that rehabilitation becomes inappropriate because of the

perceived insolvency of BasicPolyprinters was incorrect

b. NO.

A material financial commitment is significant in a rehabilitation plan

A material financial commitment becomes significant in gauging the

resolve, determination, earnestness and good faith ofthe distressed corporation
in financing the proposed rehabilitation plan. This commitment may include the
voluntary undertakings ofthe stockholders or the would-be investors of the
debtor-corporation indicating their readiness, willingness and ability to
contribute funds or property to guarantee the continued successful operation of
the debtor corporation during the period of rehabilitation.

Basic Polyprinters presented financial commitments, as follows: (a) Additional

₱10 million working capital to be sourced from the insurance claim; (b)
Conversion of the directors’ and shareholders’ deposit for future subscription to
common stock; (c) Conversion of substituted liabilities, if any, to additional paid-
in capital to increase the company’s equity; and (d) All liabilities (cash advances
made by the stockholders) of the company from the officers and stockholders
shall be treated as trade payables.

However, these financial commitments were insufficient for the purpose. We

explain.

We also declared in Wonder Book Corporation v. Philippine Bank of

Communications (Wonder Book) that the conversion of all deposits for future
subscriptions to common stock and the treatment of all payables to officers and
stockholders as trade payables was hardly constituting material financial
commitments. Such "conversion" of cash advances to trade payables was, in fact,
a mere re-classification of the liability entry and had no effect on the
shareholders’ deficit. On the other hand, we cannot determine the effect of the
"conversion"of the directors’ and shareholders’ deposits for future subscription to
common stock and substituted liabilities on the shareholders’ deficit because
their amounts were not reflected in the financial statements contained in the
rollo.

We observe, too, that Basic Polyprinters’s proposal to enter into the dacion en
pagoto create a source of "fresh capital" was not feasible because the object
thereof would not be its own property but one belonging to its affiliate, TOL
 Realty and Development Corporation, a corporation also undergoing
rehabilitation. Moreover, the negotiations (for the return of books and magazines
from Basic Polyprinters’s trade creditors) did not partake of a voluntary
undertaking because no actual financial commitments had been made thereon.

Due to the rehabilitation plan being an indispensable requirement in corporate

rehabilitation proceedings, Basic Polyprinters was expected to exert a conscious
effort in formulating the same, for such plan would spell the future not only for
itself but also for its creditors and the public in general. The contents and
execution of the rehabilitation plan could not be taken lightly. We are not
oblivious to the plight of corporate debtors like Basic Polyprinters that have
inevitably fallen prey to economic recession and unfortunate incidents in the
course of their operations. However, we must endeavor to balance the interests of
all the parties that had a stake in the success of rehabilitating the debtors. In
doing so here, we cannot now find the rehabilitation plan for Basic Polyprinters
to be genuine and in good faith, for it was, in fact, unilateral and detrimental to
its creditors and the public.

15.
NEW FRONTIER SUGAR CORP vs RTC
G.R. No. 165001, January 31, 2007

TOPIC: Financial Rehabilitation, Insolvency, Liquidation & Suspension of Payments

FACTS:
New Frontier Sugar Corporation (petitioner) is a domestic corporation engaged
in the business of raw sugar milling. Foreseeing that it cannot meet its obligations with
its creditors, petitioner filed a Petition for the Declaration of State of Suspension of
Payments with Approval of Proposed Rehabilitation Plan under the Interim Rules of
Procedure on Corporate Rehabilitation (2000) in August 2002. Finding the petition to
be sufficient, RTC issued a Stay Order and appointed Clemente as rehabilitation receiver
and also ordered to put up a bond, and setting the hearing on the petition. One of
petitioner’s creditors, the Equitable PCI Bank (respondent bank), filed an Opposition
alleging that petitioner is not qualified for corporate rehabilitation, as it can no longer
operate because it has no assets left. Respondent bank also alleged that the
rehabilitation plan and other documents submitted by petitioner are misleading and
inaccurate since its properties have already been foreclosed and transferred to
respondent bank before the petition for rehabilitation was filed, and petitioner, still
owes respondent bank deficiency liability.

The RTC issued an Order terminating the proceedings and dismissing the case.
Petitioner filed a Motion but it was denied by the RTC. Petitioner then filed with the CA
however such petition was denied by the CA. The CA sustained the findings of the RTC
that since petitioner no longer has sufficient assets and properties to continue with its
operations and answer its corresponding liabilities, it is no longer eligible for
rehabilitation. Hence, herein petition.

ISSUE:
Whether or not the dismissal of the rehabilitation plan in favour of New Frontier
Sugar Corporation is proper?

RULING:
YES, the dismissal of the rehabilitation plan in favour of NFSC was proper.
 Rehabilitation contemplates a continuance of corporate life and activities in an
effort to restore and reinstate the corporation to its former position of successful
operation and solvency.

In this case, respondent bank instituted the foreclosure proceedings against

petitioner’s properties on March 13, 2002 and a Certificate of Sale at Public Auction was
issued on May 6, 2002, with respondent bank as the highest bidder. The mortgage on
petitioner’s chattels was likewise foreclosed and the Certificate of Sale was issued on
May 14, 2002. It also appears that titles over the properties have already been
transferred to respondent bank.

On the other hand, the petition for corporate rehabilitation was filed only on
August 14, 2002 and the Rehabilitation Receiver appointed on August 20, 2002.
Respondent bank, therefore, acted within its prerogatives when it foreclosed and bought
the property, and had title transferred to it since it was made prior to the appointment
of a rehabilitation receiver.

The fact that there is a pending case for the annulment of the foreclosure
proceedings and auction sales is of no moment. Until a court of competent jurisdiction,
which in this case is the RTC of Dumangas, Iloilo, Branch 68, annuls the foreclosure sale
of the properties involved, petitioner is bereft of a valid title over the properties. In fact,
it is the trial courts ministerial duty to grant a possessory writ over the properties.

Consequently, the CA was correct in upholding the RTCs dismissal of the petition
for rehabilitation in view of the fact that the titles to petitioners properties have already
passed on to respondent bank and petitioner has no more assets to speak of, especially
since petitioner does not dispute the fact that the properties which were foreclosed by
respondent bank comprise the bulk, if not the entirety, of its assets. Therefore, a
corporation that no longer has any assets is not qualified for corporate rehabilitation.

16.
PHIL ASSET GROWTH VS. FASTECH

G.R. NO. 206528, JUNE 28, 2016

FACTS:

Among the common creditors listed in the rehabilitation petition was PDB,
10which had earlier filed a petition 11 for extra judicial foreclosure of mortgage over the
two (2) parcels of land, covered by Transfer Certificate of Title (TCT) Nos. T-45810212
and T-458103 13 and registered in the name of Fastech Properties (subject properties),
14 listed as common assets of respondents in the rehabilitation petition. 15 The
foreclosure sale was held on April 13, 2011, with PDB emerging as the highest bidder. 16
Respondents claimed that this situation has impacted on their chance to recover from
the losses they have suffered over the years, since the said properties are being used by
Fastech Microassembly and Fastech Electronique17 in their business operations, and a
source of significant revenue for their owner-lessor, Fastech Properties.
 After the initial hearing on May 18, 2011, and the filing of the
comments/oppositions on the rehabilitation petition,23 the RTC-Makati gave due
course to the said petition, and, thereafter, referred the same to the court-appointed
Rehabilitation Receiver, who submitted in due time her preliminary report, 24 opining
that respondents may be rehabilitated, considering that their assets appear to be
sufficient to cover their liabilities, but reserved her comment to the Rehabilitation Plan's
underlying assumptions, financial goals, and procedures to accomplish said goals after
the submission of a revised rehabilitation plan as directed by the RTC-Makati, 25 which
respondents subsequently complied. 26

After the creditors had filed their respective comments and/or oppositions to the
revised Rehabilitation Plan, and respondents had submitted their consolidated reply27
thereto, the court-appointed Rehabilitation Receiver submitted her comments,28
opining that respondents may be successfully rehabilitated, considering the sufficiency
of their assets to cover their liabilities and the underlying assumptions, financial
projections and procedures to accomplish said goals in their Rehabilitation Plan.29

Issue:

1. Whether or not the Rehabilitation Plan is feasible.

2. How is Rehabilitation defined by law?
3. What are the Characteristics of a rehabilitation plan that is infeasible?
4. Whether or not the petition for review on certiorari was timely filed
5. What is a “Corporate Rehabilitation” ?

Ruling:

1. No.
In the present case, however, the Rehabilitation Plan failed to comply with
the minimum requirements, i.e.: (a) material financial commitments to support
the rehabilitation plan; and (b) a proper liquidation analysis, under Section 18,
Rule 3 of the 2008 Rules of Procedure on Corporate Rehabilitation80 (Rules),
which Rules were in force at the time respondents' rehabilitation petition was
filed on April 8, 2011:

Section 18. Rehabilitation Plan. - The rehabilitation plan shall include (a)
the desired business targets or goals and the duration and coverage of the
rehabilitation; (b) the terms and conditions of such rehabilitation which shall
include the manner of its implementation, giving due regard to the interests of
secured creditors such as, but not limited, to the non-impairment of their security
liens or interests; (c) the material financial commitments to support the
rehabilitation plan; (d) the means for the execution of the rehabilitation plan,
which may include debt to equity conversion, restructuring of the debts, dacion
en pago or sale or exchange or any disposition of assets or of the interest of
shareholders, partners or members; (e) a liquidation analysis setting out for each
creditor that the present value of payments it would receive under the plan is
more than that which it would receive if the assets of the debtor were sold by a
liquidator within a six-month period from the estimated date of filing of the
 petition; and (f) such other relevant information to enable a reasonable investor
to make an informed decision on the feasibility of the rehabilitation plan.
(Emphases supplied)

Even if the Court were to set aside the failure of the Rehabilitation Plan to
comply with the fundamental requisites of material financial commitment to
support the rehabilitation and an accompanying liquidation analysis, a review of
the financial documents presented by respondents fails to convince the Court of
the feasibility of the proposed plan.

2. Rehabilitation is statutorily defined under Republic Act No. 10142,77

otherwise known as the "Financial Rehabilitation and Insolvency Act of 2010"
(FRIA), as follows:

Section 4. Definition of Terms. - As used in this Act, the term: x x x x

(gg) Rehabilitation shall refer to the restoration of the debtor to a condition of

successful operation and solvency, if it is shown that its continuance of
operation is economically feasible and its creditors can recover by way of the
present value of payments projected in the plan, more if the debtor continues as
a going concern than if it is immediately liquidated. (Emphasis supplied)

Case law explains that corporate rehabilitation contemplates a

continuance of corporate life and activities in an effort to restore and reinstate
the corporation to its former position of successful operation and solvency, the
purpose being to enable the company to gain a new lease on life and allow its
creditors to be paid their claims out of its earnings. 78 Thus, the basic issues in
rehabilitation proceedings concern the viability and desirability of continuing the
business operations of the distressed corporation,79 all with a view of effectively
restoring it to a state of solvency or to its former healthy financial condition
through the adoption of a rehabilitation plan.

3. This court enumerated the characteristics of a rehabilitation plan that is

infeasible:
(a) the absence of a sound and workable business plan;

(b) baseless and unexplained assumptions, targets and goals;

(c) speculative capital infusion or complete lack thereof for the execution of the
business plan;

(d) cash flow cannot sustain daily operations; and

(e) negative net worth and the assets are near full depreciation or fully
depreciated.

In addition to the tests of economic feasibility, Professor Stephanie V.

Gomez also suggests that the Financial and Rehabilitation and Insolvency Act of
2010 emphasizes on rehabilitation that provides for better present value recovery
for its creditors.
 4. It is a long-standing doctrine that where a party is represented by several
counsels, notice to one is sufficient, and binds the said party. 70 Notice to any one
of the several counsels on record is equivalent to notice to all, and such notice
starts the running of the period to appeal notwithstanding that the other counsel
on record has not received a copy of the decision or resolution.71

In the present case, PDB was represented by both Janda Asia & Associates
and DivinaLaw. It was not disputed that Janda Asia & Associates, which
remained a counsel of record, albeit, as collaborating counsel, received notice of
the CA's March 5, 2013 Resolution on March 12, 2013. As such, it is from this
date, and not from DivinaLaw's receipt of the notice of said resolution on April 3,
2013 that the fifteen (15)-day period72 to file the petition for review on certiorari
before the Court started to run. Hence, petitioners only had until March 27, 2013
to file a petition for review on certiorari before the Court, and the petition filed on
April 18, 2013 was filed out of time. Notably, there is no showing that the CA had
already resolved PAGTI's motion for substitution; 73 hence, it remained bound
by the proceedings and the judgment rendered against its transferor, PDB.
Generally, the failure to perfect an appeal in the manner and within the period
provided for by law renders the decision appealed from final and executory, 74
and beyond the competence of the Court to review. However, the Court has
repeatedly relaxed this procedural rule in the higher interest of substantial
justice. In Barnes v. Padilla,75it was held that:

[A] final and executory judgment can no longer be attacked by any of the
parties or be modified, directly or indirectly, even by the highest court of the land.

However, this Court has relaxed this rule in order to serve substantial
justice[,] considering (a) matters of life, liberty, honor or property, (b) the
existence of special or compelling circumstances, (c) the merits of the case, (d) a
cause not entirely attributable to the fault or negligence of the party favored by
the suspension of the rules, (e) a lack of any showing that the review sought is
merely frivolous and dilatory, and (f) the other party will not be unjustly
prejudiced thereby.

5. Case law explains that corporate rehabilitation contemplates a

continuance of corporate life and activities in an effort to restore and reinstate
the corporation to its former position of successful operation and solvency, the
purpose being to enable the company to gain a new lease on life and allow its
creditors to be paid their claims out of its earnings. Thus, the basic issues in
rehabilitation proceedings concern the viability and desirability of continuing the
business operations of the distressed corporation, all with a view of effectively
restoring it to a state of solvency or to its former healthy financial condition
through the adoption of a rehabilitation plan.

17.

BPI FAMILY SAVINGS BANK, INC., Petitioner, v. ST. MICHAEL MEDICAL

CENTER, INC., Respondent.
 G.R. No. 205469, March 25, 2015

FACTS:

Spouses Virgilio and Yolanda Rodil (Sps. Rodil) are the owners and sole
proprietors of St. Michael Diagnostic and Skin Care Laboratory Services and Hospital
(St. Michael Hospital), a 5-storey secondary level hospital built on their property located
in Molino 2, Bacoor, Cavite. With a vision to upgrade St. Michael Hospital into a
modern, well-equipped and full service tertiary 11-storey hospital, Sps. Rodil purchased
two (2) parcels of land adjoining their existing property and, on May 22, 2003,
incorporated SMMCI, with which entity they planned to eventually consolidate St.
Michael Hospital’s operations. SMMCI had an initial capital of P2,000,000.00 which
was later increased to P53,500,000.00, 94.49% of which outstanding capital stock, or
P50,553,000.00, was subscribed and paid by Sps. Rodil. 5cralawred

In May 2004, construction of a new hospital building on the adjoining properties

commenced, with Sps. Rodil contributing personal funds as initial capital for the project
which was estimated to cost at least P100,000,000.00. 6 To finance the costs of
construction, SMMCI applied for a loan with petitioner BPI Family Savings Bank, Inc.
(BPI Family) which gave a credit line of up to P35,000,000.00, 7 secured by a Real
Estate Mortgage8 (mortgage) over three (3) parcels of land 9 belonging to Sps. Rodil, on a
portion of which stands the hospital building being constructed. 

In September 25, 2009, BPI Family demanded immediate payment of the entire loan
obligation15 and, soon after, filed a petition for extrajudicial foreclosure 16 of the real
properties covered by the mortgage. The auction sale was scheduled on December 11,
2009, which was postponed to February 15, 2010 with the conformity of BPI
Family.17cralawred

On August 11, 2010, SMMCI filed a Petition for Corporate

Rehabilitation  (Rehabilitation Petition), docketed as SEC Case No. 086-10, before the
18

RTC, with prayer for the issuance of a Stay Order as it foresaw the impossibility of
meeting its obligation to BPI Family, its purported sole creditor. 19cralawred

In the said petition, SMMCI claimed that it had to defer the construction of the
projected 11-storey hospital building due to the problems it had with its first contractor
as well as the rise of the cost of construction materials. As of date, only two (2) floors of
the new building are functional, in which some of the operations of St. Michael had
already been transferred.

In its proposed Rehabilitation Plan, 23 SMMCI merely sought for BPI Family (a) to defer
foreclosing on the mortgage and (b) to agree to a moratorium of at least two (2) years
during which SMMCI – either through St. Michael Hospital or its successor – will retire
all other obligations. After which, SMMCI can then start servicing its loan obligation to
the bank under a mutually acceptable restructuring agreement. 24 SMMCI declared that
it intends to conclude pending negotiations for investments offered by a group of
medical doctors whose capital infusion shall be used (a) to complete the finishing
requirements for the 3rd and 5th floors of the new building; (b) to renovate the old 5-
storey building where St. Michael Hospital operates; and (c) to pay, in whole or in part,
the bank loan with the view of finally integrating St. Michael Hospital with SMMCI.
In an Order dated August 4, 2011, the RTC approved the Rehabilitation Plan with the
modifications recommended by the Rehabilitation Receiver and thus, ordered: (a) a
five-year moratorium on SMMCI’s bank loan; (b) a restructuring and payment of
obligations to other creditors such as suppliers and lenders; (c) a programmed spending
of a reasonable part of the hospital’s revenues for the finishing of the 5th floor and the
improvement of hospital facilities in the next two or three years; and (d) use of fresh
capital from prospective investors to partly pay SMMCI’s bank loan and improve St.
Michael Hospital’s competitiveness.

In a Decision dated August 30, 2012, the CA affirmed the RTC’s approval of the
Rehabilitation Plan.

ISSUE:

1. Whether the petitioning corporation, SMMCI, had been in a position of

successful operation and solvency at the time the Rehabilitation Petition was
filed.
2. Whether SMMCI complied with the form and substance of a proper
rehabilitation petition.
3. Whether SMMCI’s Rehabilitation Plan comply with the fundamental
requisites outlined in Section 18, Rule 3 of the Rules, particularly, that of a
material financial commitment to support the rehabilitation and an
accompanying liquidation analysis
RULING:

1. No. Restoration is the central idea behind the remedy of corporate

rehabilitation. In common parlance, to “restore” means “to bring back to or
put back into a former or original state.” 42 Case law explains that corporate
rehabilitation contemplates a continuance of corporate life and activities in an
effort to restore and reinstate the corporation to its former position
of successful operation and solvency, the purpose being to enable
the company to gain a new lease on life and allow its creditors to be
paid their claims out of its earnings.

In other words, rehabilitation assumes that the corporation has been

operational but for some reasons like economic crisis or
mismanagement had become distressed or insolvent, i.e., that it is
generally unable to pay its debts as they fall due in the ordinary course of
business or has liability that are greater than its assets. 45 Thus, the basic issues
in rehabilitation proceedings concern the viability and desirability of
continuing the business operations of the distressed corporation, 46  all with a
view of effectively restoring it to a state of solvency or to its former healthy
financial condition through the adoption of a rehabilitation plan.

In this case, it cannot be said that the petitioning corporation, SMMCI, had
been in a position of successful operation and solvency at the time the
Rehabilitation Petition was filed on August 11, 2010. While it had indeed
“commenced business” through the preparatory act of opening a credit line
with BPI Family to finance the construction of a new hospital building for its
future operations, SMMCI itself admits that it has not formally operated nor
earned any income since its incorporation. This simply means that there
exists no viable business concern to be restored. Perforce, the remedy of
 corporate rehabilitation is improper, thus rendering the dispositions of the
courts a quo infirm.

2. No. In fact, for the same reasons, the Court observes that SMMCI could not
have even complied with the form and substance of a proper rehabilitation
petition, and submit its accompanying documents, among others, the
required financial statements of a going concern. Section 2, Rule 4 of the
2008 Rules of Procedure on Corporate Rehabilitation 47 (Rules), which were in
force at the time SMMCI’s rehabilitation petition was filed on August 11, 2010,
pertinently provides:chanRoblesvirtualLawlibrary

SEC. 2. Contents of Petition. -

x x x x

(b) The petition shall be accompanied by the following documents:

(1) An audited financial statement of the debtor at the end of its last fiscal
year;ChanRoblesVirtualawlibrary

(2) Interim financial statements as of the end of the month prior to the filing of
the petition;ChanRoblesVirtualawlibrary

x x x xcralawlawlibrary

Note that this defect is not negated by the submission of the financial
documents pertaining to St. Michael Hospital, which is a separate and distinct
entity from SMMCI. While the CA gave considerable weight to St. Michael
Hospital’s supposed “profitability,” as explicated in its own financial
statements, as well as the feasibility study conducted by Mrs. Alibangbang, 48 
in affirming the RTC, it has unwittingly lost sight of the essential fact that
SMMCI stands as the sole petitioning debtor in this case; as such, its
rehabilitation should have been primarily examined from the lens of its own
financial history. While SMMCI claims that it would absorb St. Michael
Hospital’s operations, there was dearth of evidence to show that a merger was
already agreed upon between them. Accordingly, St. Michael Hospital’s
financials cannot be utilized as basis to determine the feasibility of SMMCI’s
rehabilitation.

3. No. A material financial commitment becomes significant in gauging the

resolve, determination, earnestness and good faith of the distressed
corporation in financing the proposed rehabilitation plan. This commitment
may include the voluntary undertakings of the stockholders or the would-
be investors of the debtor-corporation indicating their readiness, willingness
and ability to contribute funds or property to guarantee the continued
successful operation of the debtor corporation during the period of
rehabilitation.50cralawred

In this case, aside from the harped on merger of St. Michael Hospital with
SMMCI, the only proposed source of revenue the Rehabilitation Plan suggests
is the capital which would come from SMMCI’s potential investors, which
negotiations are merely pending. Evidently, both propositions commonly
 border on the speculative and, hence, hardly fit the description of a material
financial commitment which would inspire confidence that the rehabilitation
would turn out to be successful. 

SMMCI likewise failed to include any liquidation analysis in its Rehabilitation

Plan. The Court observes that as of November 16, 2009, or about 9 months
prior to the filing of the petition for rehabilitation, the loan with BPI Family
had already amounted to P52,784,589.34, with interest at 10.25% p.a. or a
daily interest of about P6,655.48 and late payment charge of 36%
p.a.53 However, with no SMMCI financial statement on record, it is unclear to
the Court what assets it possesses in order to determine the values to be
derived if liquidation has to be had thereby. Accordingly, this prevents the
Court from ascertaining if the petitioning debtor’s creditors can
recover by way of the present value of payments projected in the
plan, more if the debtor continues as a going concern than if it is
immediately liquidated, a crucial factor in a corporate rehabilitation case.
Again, the financial records of St. Michael Hospital, being a separate and
distinct entity whose merger with SMMCI only exists in the realm of
probability, cannot be taken as a substitute to fulfill the requirement. What
remains pertinent are the financial statements of SMMCI for it solely stands
as the debtor to be rehabilitated, or liquidated in this case.

18.
ALIED BANK V. IN THE MATTER
GR 191939, March 14, 2018

FACTS:

On 11 September 2006, Equitable PCI Bank, Inc. (EPCIB), as creditor, filed a petition
for the corporate rehabilitation of its debtor SCP with the RTC.

The petition for corporate rehabilitation is grounded on Section 1, Rule 4 of the Interim
Rules of Corporate Rehabilitation, which provides that "any debtor who foresees the
impossibility of meeting its debts when they respectively fall due, or any creditor or
creditors holding at least twenty-five percent (25%) of the debtor's total liabilities, may
petition the proper Regional Trial Court to have the debtor placed under rehabilitation."

Apart from the foregoing agreements, Allied Banking Corporation (ABC) granted SCP
with a revolving credit facility denominated as a letter of credit/trust receipt line in the
amount of P100 million, which SCP availed of to finance the importation of its raw
materials. Pursuant to this arrangement, SCP executed a trust receipt (TR), which
authorizes ABC to charge SCP's account in its possession under instances specified in
paragraph 9 thereof, viz:

In the event of any bankruptcy, insolvency, suspension of payment, or failure, or

assignment for the benefit of creditors, on my/our part, or of the non-fulfillment of any
obligation, or of the non-payment at maturity of any acceptance specified hereon or
under any credit issued by the ALLIED BANKING CORPORATION for my/our account,
or of the nonpayment of any indebtedness on my/our part to the said bank, all
obligations, acceptances, indebtedness, and liabilities whatsoever shall thereupon (with
or without notice) mature and become due and payable. The ALLIED BANKING
CORPORATION is hereby constituted my/our attorney-in-fact, with authority to
examine my/our books and records, to charge my/our account or to sell any other
property of mine/ours in its possession, and to liquidate any or all of my/our obligations
under this Trust Receipt.

On 12 September 2006, the RTC issued an Order (the subject order) granting EPCIB's
petition.

On 15 September 2006, petitioner applied the remaining proceeds of SCP's Current

Account (subject account) in the amount of P6,750,000.00, maintained with its Aguirre
Branch, to its obligations under the TR.

On 29 October 2006, SCP filed an urgent omnibus motion alleging that petitioner
violated the rehabilitation court's stay order when it applied the proceeds of its current
account to the payment of obligations covered by the stay order. Consequently, it prayed
for ABC to immediately restore its current account, credit back to said account the
amount of P6,750,000.00, and honor any and all transactions of SCP in said account.

On 22 November 2006, the RTC issued a resolution (the subject resolution), finding
merit in SCP's position The CA affirmed the resolution of the RTC.

ISSUE:

1. Whether the rehabilitation court can reverse or invalidate acts that are
inconsistent with its stay order and are made after its issuance but prior to its
publication.

2. Whether the Rehabilitation Rules can be applied to resolve the present petition,
when the subject petition for rehabilitation was filed under the Interim Rules.

RULING:

1. Yes. The rehabilitation petition was filed by EPCIB under A.M. No. 00-8-10-SC
dated 21 November 2000, or the 2000 Interim Rules of Procedure on Corporate
Rehabilitation (Interim Rules).

On 27 August 2013, however, the Court enacted A.M. No. 12-12-11-SC, or the
Financial Rehabilitation Rules of Procedure (Rehabilitation Rules), which
amended and revised the Interim Rules and the subsequent 2008 Rules of
Procedure on Corporate Rehabilitation (2008 Rules), in order to incorporate the
significant changes brought about by Republic Act No. 10142 (R.A. No. 10142),
otherwise known as the Financial Rehabilitation and Insolvency Act of 2010
(FRIA).

The Rehabilitation Rules provides that the court shall issue a commencement
order once it finds the petition for rehabilitation sufficient in form and substance.
This commencement order primarily contains: a declaration that the debtor is
under rehabilitation, the appointment of a rehabilitation receiver, a directive for
all creditors to file their verified notices of claim, and an order staying claims
against the debtor. The rehabilitation proceedings shall be deemed to have
commenced from the date of filing of the petition, which is also termed the
commencement date.

Under the same Rules, the effects of such commencement order shall retroact to
the date that the petition was filed, and renders void any attempt to collect on or
enforce a claim against the debtor or to set off any debt by the debtor's creditors,
after the commencement date.
 The order issued by the RTC on 12 September 2006, which effectively initiated
rehabilitation proceedings and included a suspension of all claims against SCP, is
akin to the commencement order under the Rehabilitation Rules.

Clearly, therefore, if the Rehabilitation Rules were to be applied, the directive of

the rehabilitation court restoring SCP's current account and crediting back the
offset amount is valid and proper, since the offsetting was made on 15 September
2006, after the commencement date on 11 September 2006, when the petition for
rehabilitation was filed.

2. Yes. Section 2, Rule 1 of the Rehabilitation Rules governs rehabilitation cases

already pending, except when its application would not prove feasible or would
work injustice, to wit:

These Rules shall similarly govern all further proceedings in suspension of

payments and rehabilitation cases already pending, except to the extent that, in
the opinion of the court, its application would not be feasible or would work
injustice, in which event the procedures originally applicable shall continue to
govern.

The soundness of upholding the retroactive effect of a commencement order is

easily discernible. In Philippine Bank of Communications v. Basic Polyprinters
and Packaging Corporation, the Court said that rehabilitation proceedings seek to
give insolvent debtors the opportunity to reorganize their affairs and to efficiently
and equitably distribute its remaining assets, viz:

Rehabilitation proceedings in our jurisdiction have equitable and rehabilitative

purposes. On the one hand, they attempt to provide for the efficient and equitable
distribution of an insolvent debtor's remaining assets to its creditors; and on the
other, to provide debtors with a "fresh start" by relieving them of the weight of
their outstanding debts and permitting them to reorganize their affairs. The
purpose of rehabilitation proceedings is to enable the company to gain a new
lease on life and thereby allow creditors to be paid their claims from its earnings.

The filing of a petition for the rehabilitation of a debtor, when the court finds that
it is sufficient in form and substance, is both (1) an acknowledgment that the
debtor is presently financially distressed; and (2) an attempt to conserve and
administer its assets in the hope that it will eventually return to its former state of
successful financial operation and liquidity.13 The inherent purpose of
rehabilitation is to find ways and means to minimize the expenses of the
distressed corporation during the rehabilitation period by providing the best
possible framework for the corporation to gradually regain or achieve a
sustainable operating form.

Certainly, when a petition for rehabilitation is filed and subsequently granted by

the court, its purpose will be defeated if the debtors are still allowed to arbitrarily
dispose of their property and pay their liabilities, outside of the ordinary course
of business and what is allowed by the court, after the filing of the said petition.
Such a scenario does not promote an environment where the debtor could regain
its operational footing, contrary to the dictates of rehabilitation.

The petition itself, when granted by the court, is already a recognition of the
debtor's distressed financial status not only at the time the order is issued, but
also at the time the petition is filed. It is, therefore, more consistent with the
objectives of rehabilitation to recognize that the effects of an order commencing
rehabilitation proceedings and staying claims against the debtor should retroact
to the date the petition is filed.
Accordingly, the Court finds that application of the Rehabilitation Rules to the
case at bar is proper, insofar as it clarifies the effect of an order staying claims
against a debtor sought to be rehabilitated. Such application promotes a just and
sound resolution to the present controversy, bearing in mind the inherent
purpose of rehabilitation proceedings. It is also feasible, considering the subject
resolution was within the Rehabilitation Court's powers, wielded for the same
purpose identified in both the Interim Rules and the Rehabilitation Rules which
is to promote a timely, fair, transparent, effective, and efficient rehabilitation of
debtors.

Even if the retroactive effect under the Rehabilitation Rules is inapplicable to the
case at bar, the Interim Rules expressly provides that the stay order is effective
upon its issuance, viz:

Sec. 11. Period of the Stay Order. - The stay order shall be effective from the date
of its issuance until the dismissal of the petition or the termination of the
rehabilitation proceedings.

This Court quotes with approval the CA's disquisition on this matter:

From the above provisions, a stay order issued by the court in a corporate
rehabilitation proceeding is effective from the date of its issuance until the
dismissal of the petition or the termination of the rehabilitation proceedings. In
fact, it is immediately executory.

In the case at bar, there is no doubt that the rehabilitation court correctly held
that the appellant is bound by the September 12, 2006 Stay Order as of the date
of its issuance, the same being immediately executory and effective without any
further act, event, or condition being necessary to compel compliance therewith
as expressly provided in Sec. 11, Rule IV and Sec. 5, Rule III of the Interim Rules
of Procedure on Corporate Rehabilitation.

Taking into consideration the laudable objectives of rehabilitation proceedings,

the immediate effectivity of the stay order means that the RTC, through an order
commencing rehabilitation and staying claims against the debtor, acknowledges
that the debtor requires rehabilitation immediately and therefore it can not only
prohibit but also nullify acts made after its effectivity, when such acts are
violative of the stay order, to prevent any irreparable detriment to the debtor's
successful restoration.

The foregoing is validated by the Interim Rules, where the court can declare void
any transaction made in violation of the stay order.

The publication requirement only means that all affected persons must, to satisfy
the requirements of due process, be notified that as of a particular date, the
debtor in question requires rehabilitation and should temporarily be exempt
from paying its obligations, unless allowed by the court. Once due notice is made,
the rehabilitation court may nullify actions inconsistent with the stay order but
which may have been taken prior to publication, precisely because prior to
publication, creditors may not yet be aware that they are to desist from pursuing
claims against the insolvent debtor.

Again, the immediate effectivity of the stay order can be traced to the purpose of
rehabilitation: once the necessity of rehabilitating the debtor is recognized,
through a petition duly granted, it is imperative that the necessary steps to
preserve its assets are taken at the earliest possible time.
 It is thus apparent that the RTC properly invalidated petitioner's action made on
15 September 2006, after the subject order was issued.

19.
Situs v Asiatrust
G.R. No. 180036 January 16, 2013

FACTS:
In 1972, the Chua Family, headed by its patriarch, Cua Yong Hu, a.k.a. Tony Chua,
started a printing business and put up Color Lithographic Press, Inc. (COLOR). On June
6, 1995, the Chua Family ventured into real estate development/leasing by organizing
Situs Development Corporation (SITUS) in order to build a shopping mall complex,
known as Metrolane Complex (COMPLEX) at 20th Avenue corner P. Tuazon, Cubao,
Quezon City. To finance the construction of the COMPLEX, SITUS, COLOR and Tony
Chua and his wife, Siok Lu Chua, obtained several loans from (1) ALLIED secured by
real estate mortgages over two lots covered by TCT Nos. RT-13620 and RT-13621; (2)
ASIATRUST secured by a real estate mortgage over a lot covered by TCT No. 79915; and
(3) Global Banking Corporation, now METROBANK, secured by a real estate mortgage
over a lot covered by TCT No. 79916. The COMPLEX was built on said four (4) lots, all
of which are registered in the names of Tony Chua and his wife, Siok Lu Chua. On March
21, 1996, the Chua Family expanded into retail merchandising and organized Daily
Supermarket, Inc. (DAILY). All three (3) corporations have interlocking directors and
are all housed in the COMPLEX. The Chua Family also resides in the COMPLEX, while
the other units are being leased to tenants. SITUS, COLOR and DAILY obtained
additional loans from ALLIED, ASIATRUST and METROBANK and their real estate
mortgages were updated and/or amended. Spouses Chua likewise executed five (5)
Continuing Guarantee/Comprehensive Surety in favor of ALLIED to guarantee the
payment of the loans of SITUS and DAILY.
SITUS, COLOR, DAILY and the spouses Chua failed to pay their obligations as they fell
due, despite demands.
On November 22, 2000, ALLIED filed with the Office of the Clerk of Court and Ex-
Officio Sheriff of Quezon City an application for extrajudicial foreclosure of the
mortgage on the properties of spouses Chua covered by TCT Nos. RT-13620 and RT-
13621. The auction sale was scheduled on February 6, 2001. However, on February 5,
2001, SITUS, COLOR and spouses Chua filed a complaint for nullification of foreclosure
proceedings, with prayer for temporary restraining order/injunction, with the Regional
Trial Court, Branch 87, Quezon City, docketed as Civil Case No. Q-01-43280. As no
temporary restraining order was issued, the scheduled auction sale proceeded wherein
ALLIED emerged as the highest bidder in the amount of P88,958,700.00. The
Certificate of Sale dated March 9, 2001 in favor of ALLIED was approved by the
Executive Judge of the Regional Trial Court of Quezon City on September 9, 2002 and
the same was annotated on TCT Nos. RT-13620 and RT-13621 on September 23, 2002.
On July 26, 2001, METROBANK likewise filed an application for extrajudicial
foreclosure of the mortgage on the property of spouses Chua covered by TCT No. 79916.
The auction sale was conducted on September 18, 2001, with METROBANK as the
highest bidder in the amount of P95,282,563.86.
On May 16, 2002, ASIATRUST sent a demand letter to DAILY and COLOR for the
payment of their outstanding obligations.
On June 11, 2002, SITUS, DAILY and COLOR, herein petitioners, filed a petition for the
declaration of state of suspension of payments with approval of proposed rehabilitation
plan, docketed as Civil Case No. Q-02-010, with the Regional Trial Court, Branch 93,
Quezon City. Petitioners alleged that due to the 1997 Asian financial crisis, peso
devaluation and high interest rate, their loan obligations ballooned and they foresee
their inability to meet their obligations as they fall due; that their loan obligations are
secured by the real properties of their major stockholder, Tony Chua; that ALLIED has
already initiated foreclosure proceedings; that Global Banking Corporation, now
METROBANK, and ASIATRUST made final demands for payment of their obligations;
that they foresee a very good future ahead of them if they would be given a “breathing
spell” from their obligations as they fall due; and that their assets are more than
sufficient to pay off their debts. Petitioners submitted a program of rehabilitation for the
approval of creditors and the court a quo.

ISSUES: 
1. Whether the dismissal of the Petition for Rehabilitation is in order;
2. Whether the Stay Order affects foreclosure proceedings involving properties
mortgaged by stockholders to secure corporate debts.

HELD:
1. YES. Financial Rehabilitation and Insolvency Act of 2010 (FRIA); The Financial
Rehabilitation and Insolvency Act of 2010 (FRIA) provides that its provisions
may be applicable to further proceedings in pending cases, except to the extent
that, in the opinion of the court, their application would not be feasible or would
work injustice.—Under the FRIA, the Stay Order may now cover third-party or
accommodation mortgages, in which the “mortgage is necessary for the
rehabilitation of the debtor as determined by the court upon recommendation by
the rehabilitation receiver.” The FRIA likewise provides that its provisions may
be applicable to further proceedings in pending cases, except to the extent that, in
the opinion of the court, their application would not be feasible or would work
injustice. Sec. 146 of the FRIA, which makes it applicable to “all further
proceedings in insolvency, suspension of payments and rehabilitation cases x x x
except to the extent that in the opinion of the court their application would not be
feasible or would work injustice,” still presupposes a prospective application. The
wording of the law clearly shows that it is applicable to all further proceedings. In
no way could it be made retrospectively applicable to the Stay Order issued by the
rehabilitation court back in 2002.

2. NO. The issuance of a Stay Order cannot suspend the foreclosure of

accommodation mortgages. —At the time of the issuance of the Stay Order, the
rules in force were the 2000 Interim Rules of Procedure on Corporate
Rehabilitation (the “Interim Rules”). Under those rules, one of the effects of a
Stay Order is the stay of the “enforcement of all claims, whether for money or
otherwise and whether such enforcement is by court action or otherwise, against
the debtor, its guarantors and sureties not solidarily liable with the debtor.”
Nowhere in the Interim Rules is the rehabilitation court authorized to suspend
foreclosure proceedings against properties of third-party mortgagors. In fact, we
have expressly ruled in Pacific Wide Realty and Development Corp. v. Puerto
Azul Land, Inc., 605 SCRA 503 (2009), that the issuance of a Stay Order cannot
suspend the foreclosure of accommodation mortgages. Whether or not the
properties subject of the third-party mortgage is used by the debtor corporation
or are necessary for its operation is of no moment, as the Interim Rules do not
make a distinction. To repeat, when the Stay Order was issued, the rehabilitation
court was only empowered to suspend claims against the debtor, its guarantors,
and sureties not solidarily liable with the debtor. Thus, it was beyond the
 jurisdiction of the rehabilitation court to suspend foreclosure proceedings against
properties of third-party mortgagors.

20.
G.R. No. 172302, February 18, 2014
PRYCE CORPORATION, Petitioner, v. CHINA BANKING
CORPORATION, Respondent.

Facts:

This case resolves conflicting decisions between two divisions. Only one may serve as res
judicata or a bar for the other to proceed. This case also settles the doctrine as to
whether a hearing is needed prior to the issuance of a stay order in corporate
rehabilitation proceedings.

The present case originated from a petition for corporate rehabilitation filed by
petitioner Pryce Corporation on July 9, 2004 with the Regional Trial Court of Makati,
Branch 138.1

The rehabilitation court found the petition sufficient in form and substance and issued a
stay order on July 13, 2004 appointing Gener T. Mendoza as rehabilitation receiver.

On September 13, 2004, the rehabilitation court gave due course to the petition and
directed the rehabilitation receiver to evaluate and give recommendations on petitioner
Pryce Corporation’s proposed rehabilitation plan attached to its petition. 3

The rehabilitation receiver did not approve this plan and submitted instead an amended
rehabilitation plan, which the rehabilitation court approved by order dated January 17,
2005.4 In its disposition, the court found petitioner Pryce Corporation “eligible to be
placed in a state of corporate rehabilitation.” 5 The disposition likewise identified the
assets to be held and disposed of by petitioner Pryce Corporation and the manner by
which its liabilities shall be paid and liquidated. 6

On February 23, 2005, respondent China Banking Corporation elevated the case to the
Court of Appeals.

Respondent China Banking Corporation contended that the rehabilitation plan’s

approval impaired the obligations of contracts. It argued that neither the provisions of
Presidential Decree No. 902–A nor the Interim Rules of Procedure on Corporate
Rehabilitation (Interim Rules) empowered commercial courts “to render without force
and effect valid contractual stipulations.” 8 Moreover, the plan’s approval
authorizing dacion en pago of petitioner Pryce Corporation’s properties without
respondent China Banking Corporation’s consent not only violated “mutuality of
contract and due process, but [was] also antithetical to the avowed policies of the state
to maintain a competitive financial system.” 9

The Bank of the Philippine Islands (BPI), another creditor of petitioner Pryce
Corporation, filed a separate petition with the Court of Appeals assailing the same order
by the rehabilitation court. BPI called the attention of the court “to the non–impairment
clause and the mutuality of contracts purportedly ran roughshod by the [approved
rehabilitation plan].”
Issue:
 1. Whether the rehabilitation court is required to hold a hearing to comply with the
“serious situations” test laid down in the case of Rizal Commercial Banking
Corp. v. IAC before issuing a stay order.

Held:

No.

The rehabilitation court complied with the Interim Rules in its order dated July 13,
2004 on the issuance of a stay order and appointment of Gener T. Mendoza as
rehabilitation receiver.53

The 1999 Rizal Commercial Banking Corp. v. IAC 54 case provides for the “serious
situations” test in that the suspension of claims is counted only upon the appointment of
a rehabilitation receiver,55 and certain situations serious in nature must be shown to
exist before one is appointed, viz:chanRoblesvirtualLawlibrary
Furthermore, as relevantly pointed out in the dissenting opinion, a petition for
rehabilitation does not always result in the appointment of a receiver or the creation of a
management committee. The SEC has to initially determine whether such appointment
is appropriate and necessary under the circumstances. Under Paragraph (d), Section 6
of Presidential Decree No. 902–A, certain situations must be shown to exist before a
management committee may be created or appointed, such as:

1.  when there is imminent danger of dissipation, loss, wastage or destruction of assets
or other properties; or

2.  when there is paralization of business operations of such corporations or entities

which may be prejudicial to the interest of minority stockholders, parties–litigants or to
the general public.

On the other hand, receivers may be appointed whenever:

1.  necessary in order to preserve the rights of the parties–litigants; and/or

2.  protect the interest of the investing public and creditors. (Section 6 [c], P.D. 902–A.)

These situations are rather serious in nature, requiring the appointment of a

management committee or a receiver to preserve the existing assets and property of the
corporation in order to protect the interests of its investors and creditors. Thus, in such
situations, suspension of actions for claims against a corporation as provided in
Paragraph (c) of Section 6, of Presidential Decree No. 902–A is necessary, and here we
borrow the words of the late Justice Medialdea, “so as not to render the SEC
management Committee irrelevant and inutile and to give it unhampered ‘rescue efforts’
over the distressed firm” (Rollo, p. 265).”

Otherwise, when such circumstances are not obtaining or when the SEC finds no such
imminent danger of losing the corporate assets, a management committee or
rehabilitation receiver need not be appointed and suspension of actions for claims may
not be ordered by the SEC. When the SEC does not deem it necessary to appoint a
receiver or to create a management committee, it may be assumed, that there are
sufficient assets to sustain the rehabilitation plan, and that the creditors and investors
are amply protected.56ChanRoblesVirtualawlibrary
However, this case had been promulgated prior to the effectivity of the Interim Rules
that took effect on December 15, 2000.
 Section 6 of the Interim Rules states explicitly that “[i]f the court finds the petition to
be sufficient in form and substance, it shall, not later than five (5) days from the
filing of the petition, issue an Order (a) appointing a Rehabilitation Receiver and
fixing his bond; (b) staying enforcement of all claims x x x.” 57

Compliant with the rules, the July 13, 2004 stay order was issued not later than five
(5) days from the filing of the petition on July 9, 2004 after the rehabilitation court
found the petition sufficient in form and substance.

We agree that when a petition filed by a debtor “alleges all the material facts and
includes all the documents required by Rule 4–2 [of the Interim Rules],” 58 it is
sufficient in form and substance.

Nowhere in the Interim Rules does it require a comprehensive discussion in the stay
order on the court’s findings of sufficiency in form and substance.

The stay order and appointment of a rehabilitation receiver dated July 13, 2004 is an
“extraordinary, preliminary, ex parte remed[y].”59 The effectivity period of a stay
order is only “from the date of its issuance until dismissal of the petition or
termination of the rehabilitation proceedings.”60 It is not a final disposition of the
case. It is an interlocutory order defined as one that “does not finally dispose of the
case, and does not end the Court’s task of adjudicating the parties’ contentions and
determining their rights and liabilities as regards each other, but obviously indicates
that other things remain to be done by the Court.” 61

Thus, it is not covered by the requirement under the Constitution that a decision
must include a discussion of the facts and laws on which it is based. 62

Neither does the Interim Rules require a hearing before the issuance of a stay order.
What it requires is an initial hearing before it can give due course to 63 or dismiss64 a
petition.

Nevertheless, while the Interim Rules does not require the holding of a hearing
before the issuance of a stay order, neither does it prohibit the holding of one. Thus,
the trial court has ample discretion to call a hearing when it is not confident that the
allegations in the petition are sufficient in form and substance, for so long as this
hearing is held within the five (5)–day period from the filing of the petition — the
period within which a stay order may issue as provided in the Interim Rules.

2. Whether the rehabilitation plan’s approval impaired the obligations of contracts.

Held:

No.

Respondent China Banking Corporation mainly argues the violation of the

constitutional proscription against impairment of contractual obligations 68 in that
neither the provisions of Pres. Dec. No. 902–A as amended nor the Interim Rules
empower commercial courts “to render without force and effect valid contractual
stipulations.”69

The non–impairment clause first appeared in the United States Constitution as a

safeguard against the issuance of worthless paper money that disturbed economic
stability after the American Revolution.70 This constitutional provision was designed to
promote commercial stability.71 At its core is “a prohibition of state interference with
debtor–creditor relationships.”72
This clause first became operative in the Philippines through the Philippine Bill of 1902,
the fifth paragraph of Section 5 which states “[t]hat no law impairing the obligation of
contracts shall be enacted.” It was consistently adopted in subsequent Philippine
fundamental laws, namely, the Jones Law of 1916,73 the 1935 Constitution,74 the 1973
Constitution,75 and the present Constitution.76

Nevertheless, this court has brushed aside invocations of the non–impairment clause to
give way to a valid exercise of police power 77 and afford protection to labor. 78

In Pacific Wide Realty and Development Corporation v. Puerto Azul Land, Inc. 79 which
similarly involved corporate rehabilitation, this court found no merit in Pacific Wide’s
invocation of the non–impairment clause, explaining as
follows:chanRoblesvirtualLawlibrary
We also find no merit in PWRDC’s contention that there is a violation of the impairment
clause. Section 10, Article III of the Constitution mandates that no law impairing the
obligations of contract shall be passed. This case does not involve a law or an executive
issuance declaring the modification of the contract among debtor PALI, its creditors and
its accommodation mortgagors. Thus, the non–impairment clause may not be invoked.
Furthermore, as held in Oposa v. Factoran, Jr. even assuming that the same may be
invoked, the non–impairment clause must yield to the police power of the State.
Property rights and contractual rights are not absolute. The constitutional guaranty of
non–impairment of obligations is limited by the exercise of the police power of the State
for the common good of the general public.

Successful rehabilitation of a distressed corporation will benefit its debtors, creditors,

employees, and the economy in general. The court may approve a rehabilitation plan
even over the opposition of creditors holding a majority of the total liabilities of the
debtor if, in its judgment, the rehabilitation of the debtor is feasible and the opposition
of the creditors is manifestly unreasonable. The rehabilitation plan, once approved, is
binding upon the debtor and all persons who may be affected by it, including the
creditors, whether or not such persons have participated in the proceedings or have
opposed the plan or whether or not their claims have been
scheduled.80ChanRoblesVirtualawlibrary
Corporate rehabilitation is one of many statutorily provided remedies for businesses
that experience a downturn. Rather than leave the various creditors unprotected,
legislation now provides for an orderly procedure of equitably and fairly addressing
their concerns. Corporate rehabilitation allows a court–supervised process to rejuvenate
a corporation. Its twin, insolvency, provides for a system of liquidation and a procedure
of equitably settling various debts owed by an individual or a business. It provides a
corporation’s owners a sound chance to re–engage the market, hopefully with more
vigor and enlightened services, having learned from a painful experience.

Necessarily, a business in the red and about to incur tremendous losses may not be able
to pay all its creditors. Rather than leave it to the strongest or most resourceful amongst
all of them, the state steps in to equitably distribute the corporation’s limited resources.

21.

G.R. No. 163156             December 10, 2008

NEGROS NAVIGATION CO., INC., petitioner,  vs. COURT OF APPEALS,

SPECIAL TWELFTH DIVISION AND TSUNEISHI HEAVY INDUSTRIES
(CEBU), INC., respondents.

x---------------------------------------------------x
 G.R. No. 166845             December 10, 2008

TSUNEISHI HEAVY INDUSTRIES (CEBU), INC., petitioner, 

vs.
NEGROS NAVIGATION CO., INC., SULFICIO O. TAGUD, JR., AND THE
REHABILITATION RECEIVER FOR NEGROS NAVIGATION CO.,
INC., respondents.

FACTS:

NNC is a shipping company that is primarily engaged in the business of transporting

through shipping vessels, passengers and cargoes at various ports of call in the country.
THI, on the other hand, is engaged in the business of shipbuilding and repair. NNC
engaged the services of THI for the repair of its vessels.

THI filed a case for sum of money and damages with prayer for issuance of writ of
attachment against NNC before the Regional Trial Court of Cebu. The action is based on
the unpaid services for the repair of NNC’s vessels, otherwise known as repairman’s lien.
The Cebu RTC issued an Order granting the issuance of a writ of preliminary attachment
against the properties of NNC. By virtue of the writ of preliminary attachment, Sheriff
Rogelio T. Pinar levied on one of the vessels of NNC, the M/V St. Peter the Apostle.

On March 29, 2004, NNC filed a Petition for Corporate Rehabilitation with Prayer for
Suspension of Payments with the RTC of Manila. The Manila RTC granted the NNC’s
petition and issued a Stay Order on April 1, 2004. Upon the issuance of the stay order by
the Manila RTC, NNC filed a Manifestation and Motion to Suspend Proceedings and to
Lift Preliminary Attachment with the Cebu RTC.

On April 5, 2004, THI filed an Amended Complaint in the Cebu RTC. In the amended
complaint, THI impleaded the following vessels of NNC as co-defendants in the suit:
M/V San Sebastian, M/S Princess of Negros, M/V NossaSenhora (NuestraSeñora) De
Fatima, M/V St. Peter the Apostle, M/V Santa Ana and M/V San Paolo.

On April 6, 2004, the Cebu RTC issued two (2) Orders. The first was an Order admitting
the amended complaint as a matter of right since NNC had not yet filed a responsive
pleading when the same was filed. The second was an Order for the arrest of the vessels
of NNC in the in rem aspect of the case.

On April 12, 2004, NNC’s Rehabilitation Receiver filed with the Manila RTC a
Motion for the clarification of the stay order. It sought to confirm whether the claim
sought to be enforced by THI against the vessels of NNC is covered by the stay order. On
the same date, the Manila RTC issued an Order addressing the said motion.

On October 6, 2004, the CA issued the Decision assailed in what is now G.R. No.
166845, denying the petition of THI that sought to annul and enjoin the enforcement
and implementation of the Orders of the Manila RTC dated April 1, 2004 and April 12,
2004.

THI filed a motion for reconsideration. The same was denied in a Resolution dated
January 24, 2005. Hence, this petition in G.R. No. 166845.

ISSUE:

1. Whether or not the Stay Order issued by virtue of the petition for corporate
rehabilitation suspends the enforcement of THI’s maritime liens.
2. What is treatment of claims involving corporations undergoing rehabilitation?
RULING:

1. YES.

Rehabilitation contemplates continuance of corporate life and activities in an

effort to restore and reinstate the corporation to its former position of successful
operation and solvency. The purpose of rehabilitation proceedings is
precisely to enable the company to gain a new lease on life and thereby allow
creditors to be paid their claims from its earnings. The rehabilitation of a
financially distressed corporation benefits its employees, creditors, stockholders
and, in a larger sense, the general public.

The governing law concerning rehabilitation and suspension of actions for claims
against corporations is PD 902-A, as amended. Republic Act No. 8799 (RA 8799),
otherwise known as The Securities Regulation Code, amended Section 5 of PD
902-A, thereby transferring to the Regional Trial Courts the jurisdiction of the
Securities and Exchange Commission (SEC) over cases, among others, involving
petitions of corporations, partnerships or associations to be declared in the state
of suspension of payments where the corporation, partnership or association
possesses property to cover all its debts but foresees the impossibility of meeting
them when they respectively fall due, or where the corporation, partnership or
association has no sufficient assets to cover its liabilities, but is under the
management of a rehabilitation receiver or a management committee.

The Court adopted the Interim Rules of Procedure on Corporate Rehabilitation

on December 15, 2000, and these rules apply to petitions for rehabilitation filed
by corporations, partnerships, and associations pursuant to PD 902-A.

The justification for the suspension of actions or claims, without

distinction, pending rehabilitation proceedings is to enable the
management committee or rehabilitation receiver to effectively exercise its/his
powers free from any judicial or extra-judicial interference that might unduly
hinder or prevent the "rescue" of the debtor company. To allow such other
actions to continue would only add to the burden of the management committee
or rehabilitation receiver, whose time, effort and resources would be wasted in
defending claims against the corporation instead of being directed toward its
restructuring and rehabilitation.

It is undisputed that THI holds a preferred maritime lien over NNC’s assets by
virtue of THI’s unpaid services. The issuance of the stay order by the
rehabilitation court does not impair or in any way diminish THI’s preferred
status as a creditor of NNC. The enforcement of its claim through court action
was merely suspended to give way to the speedy and effective rehabilitation of the
distressed shipping company. Upon termination of the rehabilitation proceedings
or in the event of the bankruptcy and consequent dissolution of the company,
THI can still enforce its preferred claim upon NNC.

When a distressed company is placed under rehabilitation, the appointment of a

management committee follows to avoid collusion between the previous
management and creditors it might favor, to the prejudice of the other creditors.
The stay order is effective on all creditors of the corporation without distinction,
whether secured or unsecured. All assets of a corporation under rehabilitation
receivership are held in trust for the equal benefit of all creditors to preclude one
from obtaining an advantage or preference over another by the expediency of
attachment, execution or otherwise. As between the creditors, the key phrase is
equality in equity. Once the corporation threatened by bankruptcy is taken over
by a receiver, all the creditors ought to stand on equal footing. Not any one of
 them should be paid ahead of the others. This is precisely the reason for
suspending all pending claims against the corporation under receivership.

2. Rizal Commercial Banking Corporation v. Intermediate Appellate Court,

promulgated by the Court en banc before the effectivity of the Interim Rules on
Corporate Rehabilitation, is still valid case law up to the present. It enumerates
the guidelines in the treatment of claims involving corporations undergoing
rehabilitation, viz.:
a. All claims against corporations, partnerships, or associations that are pending
before any court, tribunal, or board, without distinction as to whether or not a
creditor is secured or unsecured, shall be suspended effective upon the
appointment of a management committee, rehabilitation receiver, board, or
body in accordance with the provisions of Presidential Decree No. 902-A.
b. Secured creditors retain their preference over unsecured creditors, but
enforcement of such preference is equally suspended upon the appointment of
a management committee, rehabilitation receiver, board, or body. In the
event that the assets of the corporation, partnership, or association are finally
liquidated, however, secured and preferred credits under the applicable
provisions of the Civil Code will definitely have preference over unsecured
ones.42

22

LBP vs POLILIO PARADISE

G.R. No. 211537
December 10, 2019

TOPIC: Financial Rehabilitation, Insolvency, Liquidation and Suspension of Payments.

FACTS:
Respondent obtained P5 Million Short Term Loan Line with petitioner in 2000.
As a security two parcels of land was registered in the name of Aimee and Chris Almeda.
Petitioner approved the request into a 5-year term loan and an additional P1.2 Million
STLL was granted. Respondent failed to pay its loan obligation. Thus, petitioner was
constrained to file a petition for extrajudicial foreclosure of the mortgaged properties.
Subsequently, the
subject properties were sold wherein petitioner emerged as the highest bidder. A
Certificate of Sale was issued and registered before the Registry of Deeds. Respondent
failed to redeem said properties within the redemption period and the petitioner
consolidated its title over the subject properties. Register of Deeds cancelled and in lieu
thereof, issued TCT in the name of petitioner.

Respondent filed a petition for corporate rehabilitation. It asserted that the

decrease in financial revenues deprived it of enough cash flow to service payment of its
debts. Respondent insisted that rehabilitation is the only viable option for it to continue
its operations and settle its liabilities. RTC dismissed the petition for lack of merit. It
took note that there is nothing left to be rehabilitated considering that the subject
properties subject of the foreclosure sale comprise the bulk of respondent's assets.
Respondent filed an amended petition for corporate rehabilitation, invoking the
application of Republic Act No. 10142 or the Financial Rehabilitation and Insolvency Act
of 2010 (FRIA). After finding the petition sufficient in form and in substance, the RTC
granted the same and issued a Suspension Order. Alleging that it was not notified of the
petition and surprised to receive the Order, petitioner filed its Opposition to the
Petition. Petitioner alleged that it is no longer a creditor of respondent following the
extrajudicial foreclosure sale; therefore, relieving respondent of any liability arising
from the loan it previously obtained from it. As such, the proceedings concerning the
sale of the subject properties are no longer covered by the FRIA. RTC fortified its earlier
order and denied petitioner's opposition.

Motion for Reconsideration was filed by petitioner, which was denied. RTC
explained that when such consolidation took place after the date of the filing of the
amended petition, the same and the proceedings before it are void for being violative of
Section 17 of the FRIA since the ownership of the subject properties still lies with the
respondent at the time that said petition was filed. RTC emphasized that the effects of
the Commencement Order, which prohibits or renders null and void the results of any
extrajudicial activity or process to seize property after the commencement date, can be
reckoned from the date of the filing of the amended petition. Verily, the RTC maintained
that the petitioner is still considered as respondent's creditor within the purview of the
law. Aggrieved, petitioner filed this instant petition.

ISSUE:
Whether or not the consolidation of ownership in the name of petitioner violated
the FRIA?

Whether or not the Commencement Order issued by the RTC has the effect of
rendering void the foreclosure sale of the subject properties and the effects thereof?

RULING:
RA No. 10142 or the FRIA defines rehabilitation as the restoration of the debtor
to a condition of successful operation and solvency, if it is shown that its continuance of
operation is economically feasible and its creditors can recover by way of the present
value of payments projected in the plan, more if the debtor continues as a going concern
than if it is immediately liquidated. Thus, corporate rehabilitation contemplates a
continuance of corporate life and activities in an effort to restore and reinstate the
corporation to its former position of successful operation and solvency, the purpose
being to enable the company to gain a new lease on life and allow its creditors to be paid
their claims out of its earnings. To achieve this end, the rehabilitation court may issue a
Commencement Order, which marks the start of the rehabilitation proceedings.

Section 17. Effects of the Commencement Order. - Unless otherwise provided for
in this Act, the court's issuance of a Commencement Order shall, in addition to the
effects of a Stay or Suspension Order described in Section 16 hereof: (b) prohibit or
otherwise serve as the legal basis rendering null and void the results of any extrajudicial
activity or process to seize property, sell encumbered property, or otherwise attempt to
collect on or enforce a claim against the debtor after commencement date unless
otherwise allowed in this Act, subject to the provisions of Section 50 hereof.

The FRIA provides that the effects of the Commencement Order shall be
reckoned from the date of the filing of the petition for corporate rehabilitation, be it
voluntary or involuntary.

It is undisputed that the Commencement Order was issued on January 11, 2013.
As to the date of the filing of the petition, petitioner claimed that the same was filed on
August 17, 2012. However, the records reveal otherwise. It is apparent that it was on
August 17, 2012 that the petition was prepared by petitioner's counsel but it was actually
filed on August 22, 2012, as evidenced by the rubber stamp of the RTC. Moreover, the
Notice of Lis Pendens annotated in the titles of the subject properties reads that the
petition for corporate rehabilitation was filed before the RTC on August 22, 2012. Be
that as it may, petitioner still erred in considering August 2012 as the reckoning point.

The October 18, 2012 Amended Petition is in reality not an amendment to the
earlier petition as it was filed only after the RTC dismissed the August 22, 2012 petition.
Verily, there was nothing more to amend when the petition had already been dismissed.
Likewise, it must be emphasized that it was the October 18, 2012 petition which was
granted by the RTC and initiated the rehabilitation proceedings. Thus the
commencement date is reckoned on October 18, 2012. As the commencement date is
ascertained, it is indispensable to discern the period where the extrajudicial foreclosure
sale and its effects took place as Section 17 of the FRIA extends only to processes which
occurred after the commencement date. It is undisputed that Certificate of Sale was
issued and registered on August 22, 2011. As such, the last day of the redemption period
is on August 22, 2012. The determination of such expiration date is relevant insofar as
the ownership of the subject properties is concerned. Case law dictates that the
purchaser in an extrajudicial foreclosure of real property becomes the absolute owner of
the property if no redemption is made within one year from the registration of the
Certificate of Sale by those entitled to redeem.

Hence, in this case, the ownership of the subject properties was vested upon the
petitioner on August 22, 2012 as its registered owners failed to redeem the same.
Notably, such period precedes the filing of the petition for corporate rehabilitation on
October 18, 2012. The effect of such sale is to release the debtor from its outstanding
obligation. In fact, petitioner issued a Certification stating that respondent fully paid the
same by virtue of the foreclosure sale. As it is settled that the acquisition of absolute
ownership by respondent over the subject properties on August 22, 2012 is antecedent
to the commencement date or the filing of the petition for corporate rehabilitation on
October 18, 2012, the sale of the subject properties is valid. Corollary, petitioner is no
longer considered as respondent's creditor.

23.

VETERANS VS. FDPHI

G.R. NO. 190907, AUGUST 23, 2012

FACTS:

Petitioner Veterans Philippine Scout Security Agency, Inc. (Veterans) is a

corporation duly organized and existing under Philippine laws. It is engaged in the
business of providing security services.

Respondent First Dominion Prime Holdings, Inc. (FDPHI), on the other hand, is
a holding investment and management company which owns and operates various
subsidiaries and affiliates. Among its subsidiaries are Clearwater Tuna Corporation,
Maranaw Canning Corporation and Nautica Canning Corporation, collectively referred
to as the FDPHI Group of Companies. Said companies are engaged in the production of
canned tuna.

Respondent FDPHI and its aforementioned subsidiaries jointly filed before the
RTC of Pasig City, Branch 158 a Petition for Rehabilitation. Said petition was docketed
as Civil Case No. 68343. Attached to the petition was a Schedule of Debts and Liabilities
as of January 31, 2001 showing that Clearwater Tuna Corporation (Clearwater) had an
outstanding indebtedness to petitioner in the total amount of ₱ 356,842.42.5 Said
amount represents the security services rendered by petitioner to Clearwater pursuant
to a Contract of Guard Services6 between petitioner and Inglenook Food Corporation
(Clearwater’s former name) for the latter’s manufacturing facility at the Navotas Fish
Port Complex.

ISSUE:

1. Whether the existence of the corporate rehabilitation proceedings of the

FDPHI Group of Companies has the effect of barring petitioner from
asserting its claim for the payment of security services against Clearwater by
reason of the approved Amended Rehabilitation Plan
2. Whether the CA erred in ruling that petitioner’s action to enforce the
payment of the unpaid security services is covered by the Amended
Rehabilitation Plan such that petitioner can no longer institute a separate
action to collect the same.
3. Whether the claims of the petitioner that Clearwater was denied
rehabilitation and asserts that the Amended Rehabilitation Plan did not
include Clearwater’s obligation to petitioner is meritorious
4. How was “Rehabilitation Plan” explained in the case at bar?
5. What provision governs the effects of the Rehabilitation Plan in the case at
bar?

RULING:

1. Yes.

An essential function of corporate rehabilitation is the mechanism of

suspension of all actions and claims against the distressed corporation upon the
due appointment of a management committee or rehabilitation receiver.25
Section 6(c) of PD 902-A mandates that upon appointment of a management
committee, rehabilitation receiver, board, or body, all actions for claims against
corporations, partnerships or associations under management or receivership
pending before any court, tribunal, board, or body shall be suspended. The
actions to be suspended cover all claims against a distressed corporation whether
for damages founded on a breach of contract of carriage, labor cases, collection
suits or any other claims of pecuniary nature. Jurisprudence is settled that the
suspension of proceedings referred to in the law uniformly applies to "all actions
for claims" filed against the corporation, partnership or association under
management or receivership, without distinction, except only those expenses
incurred in the ordinary course of business.26 The stay order is effective on all
creditors of the corporation without distinction, whether secured or unsecured.

Thus, petitioner’s action to collect the sum owed to it is not exempted from
the coverage of the stay order. The enforcement of petitioner’s claim through
court action is likewise suspended to give way to the speedy and effective
rehabilitation of the FDPHI Group of Companies.

2. No.
 First of all, it must not be overlooked that petitioner initially filed its
complaint against Clearwater but its complaint was dismissed for failure to
prosecute. Petitioner amended its complaint and impleaded respondent FDPHI
as defendant, on its own allegation that Clearwater had changed its name to
herein respondent First Dominion Prime Holdings, Inc. However, as can be
gleaned from the records and pleadings of the parties, respondent FDPHI and
Clearwater are two separate corporate entities and the obligation petitioner seeks
to enforce was not contracted between petitioner and respondent FDPHI but by
petitioner and Clearwater under its former name, Inglenook Foods Corporation.
For this reason, both the trial court and the appellate court are in agreement that
the Amended Complaint fails to state a cause of action against respondent
FDPHI. On this ground alone, the Amended Complaint filed by petitioner against
respondent FDPHI was properly dismissed. Indeed, while respondent FDPHI
may be the parent company of Clearwater, these two corporations have distinct
and separate juridical personalities and therefore respondent FDPHI cannot be
held liable for the debts of its subsidiary Clearwater nor can respondent FDPHI
assume the liabilities of Clearwater. As aptly found by the CA:

Clearwater and FDPHI have been organized as separate corporate entities,

as evidenced by their respective Certificates of Filing of Amended Articles of
Incorporation on file with the Securities and Exchange Commission. The filing of
petitioner of Joint Petition for Rehabilitation for the FDPHI Group of Companies
cannot in any way be taken as an assumption by petitioner of any liability of
Clearwater. It must be noted that in the Consolidated Inventory of Assets and
Consolidated Schedule of Accounts Receivables of the FDPHI Group of
Companies, Clearwater holds assets entirely separate from its parent company.

3. No.

In an attempt to exempt its money claim from the coverage of the

rehabilitation proceedings, petitioner claims that Clearwater was denied
rehabilitation and asserts that the Amended Rehabilitation Plan did not include
Clearwater’s obligation to petitioner. This contention, however, is bereft of merit.

Nothing in the records of the case supports petitioner’s claim that the
petition for rehabilitation of Clearwater was denied or was not pursued. On the
contrary, the rehabilitation proceedings involved all the petitioning corporations,
i.e., FDPHI, Maranaw Canning Corporation, Clearwater Tuna Corporation and
Nautica Canning Corporation. The stay order issued by the rehabilitation court
also stayed the enforcement of all the claims against FDPHI and its subsidiaries
including Clearwater. More, the approved Amended Rehabilitation Plan covered
all the debts of the FDPHI Group of Companies. The fact that Clearwater was not
specifically mentioned in the Amended Rehabilitation Plan does not mean the
denial of its rehabilitation. A careful perusal of the Amended Rehabilitation Plan
would show that all the assets and liabilities of FDPHI and its subsidiaries
undergoing rehabilitation were collectively managed and a payment scheme was
introduced for the settlement of all of the FDPHI Group’s secured and unsecured
creditors.

Thus, contrary to petitioner’s claim, Clearwater’s debt to petitioner

pursuant to their security services was already included as it was specifically
included as part of the unsecured debts of the FDPHI Group in the Amended
Rehabilitation Plan. The Amended Rehabilitation Plan also provides for a debt-
to-equity conversion in favor of the creditors which led to the incorporation of a
Joint Venture Corporation (JVC) as vehicle for the repayment of the obligations
of the FDPHI Group of Companies.

4. To stress, the rehabilitation plan, once approved, is binding upon the

debtor and all persons who may be affected by it, including the creditors, whether
such persons have or have not participated in the proceedings or have opposed
the plan or whether their claims have or have not been scheduled. With the
approval by the Rehabilitation Court of the plan for the FDPHI Group of
Companies, there is nothing left to be done but to enforce the terms and schedule
of payment as provided in the said plan.

At the time petitioner filed the complaint before the trial court, the
Amended Rehabilitation Plan had been under implementation for two years
already. We note that various checks30 had been tendered to petitioner in
connection with the implementation of the plan but these were refused by
petitioner. To this date, the Court has not received any notice of termination of
the rehabilitation proceedings. Thus, to allow petitioner to separately enforce its
claim for unpaid security services while there is an ongoing implementation of
the rehabilitation plan would violate the provisions of the law.

5. Section 20 of the 2008 Rules of Procedure on Corporate Rehabilitation

provides:

SEC. 20. Effects of Rehabilitation Plan. – The approval of the

rehabilitation plan by the court shall result in the following:

(a) The plan and its provisions shall be binding upon the debtor and all
persons who may be affected thereby, including the creditors, whether or not
such persons have participated in the proceedings or opposed the plan or
whether or not their claims have been scheduled;

(b) The debtor shall comply with the provisions of the plan and shall take
all actions necessary to carry out the plan;
 (c) Payments shall be made to the creditors in accordance with the
provisions of the plan;

(d) Contracts and other arrangements between the debtor and its
creditors shall be interpreted as continuing to apply to the extent that they do
not conflict with the provisions of the plan; and

(e) Any compromises on amounts or rescheduling of timing of payments

by the debtor shall be binding on creditors regardless of whether or not the plan
is successfully implemented. (Emphasis ours.)

24.
ABRERA, et. al. vs. HON. ROMEO F. BARZA and COLLEGE
ASSURANCEPLAN PHILIPPINES, INC.PLAN PHILIPPINES, INC. G.R. No.
171681 September 11, 2009

FACTS:

CAP was incorporated on February 14, 1980 for the purpose of engaging in the
sale of pre-need educational plans. Initially, it sold open-ended educational plans which
guaranteed the payment of tuition and other standard school fees to the planholder
irrespective of the cost at the time of availment. Later, it engaged in the sale of fixed
value plans which guaranteed the payment of a predetermined amount to the
planholder. In 1982, CAP was among the country’s top 2000 corporations. It started
sending its scholars to college in 1984 and saw its first batch of graduates in 1988.
However, it subsequently suffered financial difficulties.

On April 28, 2005, six petitioners herein, together with other CAP planholders, filed an
action with the RTC of Makati City for Specific Performance and/or Annulment of
Contract due to Fraud, Return and Disgorgement of Illegal Profits, Damages with
Application for Receiver and/or Management Committee against CAP, its Directors and
Officers, and the Fil-Estate Group of Companies. The case was assigned to respondent
Judge Romeo Barza of the RTC of Makati City, Branch 61.

Petitioners alleged that proceedings commenced but the prayer for the appointment of a
receiver and creation of a management committee was not acted upon by the RTC.

On September 8, 2005, CAP filed a Petition for Corporate Rehabilitation which was
raffled to the RTC of Makati City, Branch 61, presided by respondent Judge Romeo F.
Barza.

On September 13, 2005, Judge Barza issued an Order staying the enforcement of all
claims against CAP

ISSUE:

1. Whether the claims arising from the pre-need contracts between petitioners and
CAP can be stayed.
 2. Whether the plan holders are considered creditors.

RULING:

1. Yes. Section 6, Rule 4 of the Interim Rules provides: SEC. 6. Stay Order. -- If the
court finds the petition to be sufficient in form and substance, it shall, not later
than five (5) days from the filing of the petition, issue an Order: (a) appointing a
Rehabilitation Receiver and fixing his bond; (b) staying enforcement of all claims,
whether for money or otherwise, and whether such enforcement is by court
action or otherwise, against the debtor, its guarantors and sureties not solidarily
liable with the debtor; (c) prohibiting the debtor from selling, encumbering,
transferring, or disposing in any manner any of its properties except in the
ordinary course of business; (d) prohibiting the debtor from making any payment
of its liabilities outstanding as of the date of filing of the petition; (e) prohibiting
the debtor's suppliers of goods or services from withholding supply of goods and
services in the ordinary course of business for as long as the debtor makes
payments for the services and goods supplied after the issuance of the stay order;
(f) directing the payment, in full, of all administrative expenses incurred after the
issuance of the stay order; (g) fixing the initial hearing on the petition not earlier
than forty-five (45) days but not later than sixty (60) days from the filing thereof;
(h) directing the petitioner to publish the Order in a newspaper of general
circulation in the Philippines once a week for two (2) consecutive weeks; (i)
directing all creditors and all interested parties (including the Securities and
Exchange Commission) to file and serve on the debtor a verified comment on or
opposition to the petition, with supporting affidavits and documents, not later
than ten (10) days before the date of the initial hearing and putting them on
notice that their failure to do so will bar them from participating in the
proceedings; and (j) directing the creditors and interested parties to secure from
the court copies of the petition and its annexes within such time as to enable
themselves to file their comment on or opposition to the petition and to prepare
for the initial hearing of the petition.

The above provision does not provide that a claim arising from a pre-need
contract is an exception to the power of the trial court to stay enforcement of all
claims upon the finding that the petition for rehabilitation is sufficient in form
and substance.

The foregoing provision echoes the provision in Section 6(c) of the governing law,
P.D. No. 602-A, as amended by P.D. No. 1758, which mandates that "upon
appointment of a management committee, rehabilitation receiver, board or body,
x x x all actions for claims against corporations, partnerships or associations
under management or receivership pending before any court, tribunal, board or
body shall be suspended accordingly."

2. Yes. CAP filed the petition under Section 1, Rule 4 of the Interim Rules, which
provides:
SECTION 1. Who May Petition.— Any debtor who foresees the impossibility of
meeting its debts when they respectively fall due, or any creditor or creditors
holding at least twenty-five percent (25%) of the debtor’s total liabilities, may
petition the proper Regional Trial Court to have the debtor placed under
rehabilitation.13
 Under the Interim Rules, "debtor" shall mean "any corporation, partnership, or
association, whether supervised or regulated by the Securities and Exchange
Commission or other government agencies, on whose behalf a petition for
rehabilitation has been filed under these Rules."14

The Interim Rules does not distinguish whether a pre-need corporation like CAP
cannot file a petition for rehabilitation before the RTC. Courts are not authorized
to distinguish where the Interim Rules makes no distinction.15

Moreover, under the Interim Rules, "claim" shall include "all claims or demands
of whatever nature or character against a debtor or its property, whether for
money or otherwise." "Creditor" shall mean "any holder of a claim."

Hence, the claim of petitioners for payment of tuition fees from CAP is included
in the definition of "claims" under the Interim Rules.

25.
MOLINA VS. PACIFIC PLANS
GR 165476, August 15, 2011

FACTS:

On March 10, 2006, this Court promulgated its Decision in the instant case finding the
dismissal of herein petitioner to be illegal and ordering respondent to immediately
reinstate petitioner to his former position as Assistant Vice-President without demotion
in rank and salary, and to pay him his backwages from August 1, 2001 up to his actual
reinstatement, as well as other accrued monetary benefits.

In compliance with the Decision of the NLRC, the CEU submitted its Re-Computation
indicating a total award of ₱4,366,954.80 to petitioner.

Subsequently, pre-execution conferences were held. During the proceedings, petitioner

manifested that he had no objection to the monetary award as re-computed. However,
he claimed that he is entitled to a legal interest of 12% on the amount due him reckoned
from the finality of the decision of the SC. The respondent claims that the execution of
the claim must be suspended since the company is undergoing corporate rehabilitation.
Petitioner filed with the SC a very urgent manifestation and motion to order execution
of a final executory judgment. Petitioner prayed, among others, for the issuance of a writ
of execution based on the approved recomputed amount awarded to petitioner plus
legal interest of twelve (12%) per annum until full satisfaction thereof.

ISSUE:

Whether or not the judgment in favor of petitioner may be executed in view of

respondent's claim that it is still undergoing corporate rehabilitation.

RULING:
No. Petitioner does not dispute respondent's claim of its ongoing corporate
rehabilitation. Neither does he question the existence and validity of the Stay Order
issued by the RTC. The only point he raises, insofar as this issue is concerned, is that the
Interim Rules on Corporate Rehabilitation, upon which the Stay Order was based,
applies only to claims or cases which are pending before any court tribunal or board but
not to cases which have already been adjudicated, much less to those where there is
already an entry of judgment, as in the present case.

Petitioner's argument is without merit.

The Court finds that all pending actions in the instant case, including the execution of
the judgment in favor of petitioner, should be suspended pending termination of the
rehabilitation proceedings.

In Finasia Investments and Finance Corporation v. Court of Appeals [G.R. No. 107002,
October 7, 1994, 237 SCRA 446, 450], the term "claim" has been construed to refer to
debts or demands of a pecuniary nature, or the assertion to have money paid. It was
referred to, in Arranza v. B.F. Homes, Inc., [389 Phil. 318], as an action involving
monetary considerations and in Philippine Airlines v. Kurangking [438 Phil. 375], the
term was identified as the right to payment, whether or not it is reduced to
judgment, liquidated or unliquidated, fixed or contingent, matured or unmatured,
disputed or undisputed, legal or equitable, and secured or unsecured. Furthermore, the
actions that were suspended cover all claims against a distressed
corporation whether for damages founded on a breach of contract of
carriage, labor cases, collection suits or any other claims of a pecuniary
nature. More importantly, the new rules on corporate rehabilitation, as well as the
interim rules, provide an all-encompassing definition of the term and, thus, include all
claims or demands of whatever nature or character against a debtor or its
property, whether for money or otherwise. There is no doubt that petitioner’s
claim in this case, arising as it does from his alleged illegal dismissal, is a claim covered
by the suspension order issued by the SEC, as it is one for pecuniary consideration.

26.
ADVENT CAPITAL AND FINANCE CORPORATION, 
vs.
ROLAND YOUNG
G.R. No. 183018               August 3, 2011

FACTS:

Advent filed for corporate rehabilitation with the Regional Trial Court of Makati City,
Branch 142 (rehabilitation court). The rehabilitation court issued an Order (stay order)
which states that "the enforcement of all claims whether for money or otherwise, and
whether such enforcement is by court action or otherwise, against the petitioner
(Advent), its guarantors and sureties not solidarily liable with it, is stayed. Young filed
his Comment to the Petition for Rehabilitation, claiming, among others, several
employee benefits allegedly due him as Advent’s former president and chief executive
officer. the rehabilitation court approved the rehabilitation plan submitted by Advent.
Included in the inventory of Advent’s assets was the subject car which remained in
Young’s possession at the time. Young’s obstinate refusal to return the subject car, after
repeated demands, prompted Advent to file the replevin case on 8 July 2003. 

After Advent’s posting of ₱3,000,000 replevin bond, which was double the value of the
subject car at the time, through Stronghold Insurance Company, Incorporated
(Stronghold), the trial court issued a Writ of Seizure directing the Sheriff to seize the
subject car from Young. Upon receipt of the Writ of Seizure, Young turned over the car
to Advent, which delivered the same to the rehabilitation receiver. hereafter, Young filed
an Answer alleging that as a former employee of Advent, he had the option to purchase
the subject car at book value pursuant to the company car plan and to offset the value of
the car with the proceeds of his retirement pay and stock option plan. Young sought the
(1) execution of a deed of sale over the subject car; and (2) determination and payment
of the net amount due him as retirement benefits under the stock option plan.

Advent filed a Reply with a motion to dismiss Young’s counterclaim, alleging that the
counterclaim did not arise from or has no logical relationship with the issue of
ownership of the subject car.

the trial court issued an Order dismissing the replevin case without prejudice for
Advent’s failure to prosecute. In the same order, the trial court dismissed Young’s
counterclaim against Advent for lack of jurisdiction.

The order pertinently reads: It appears that as of July 28, 2003, subject motor vehicle
has been turned over to the plaintiff, thru its authorized representative, and
acknowledged by the parties’ respective counsels in separate Manifestations filed. To
date, no action had been taken by the plaintiff in the further prosecution of this case.
Accordingly, this case is ordered dismissed without prejudice on the ground of failure to
prosecute.

In the instant case, defendant, in his counterclaim anchored her [sic] right of possession
to the subject vehicle on his alleged right to purchase the same under the company car
plan. However, considering that the Court has already declared that it no longer has
jurisdiction to try defendant’s counterclaim as it is now part of the rehabilitation
proceedings before the corporate court concerned, the assertions in the Motion for
Reconsiderations (sic) will no longer stand.

On the other hand, the plaintiff did not file a Motion for Reconsideration of the same
Order, dismissing the complaint for failure to prosecute, within the reglamentary
period. Hence, the same has attained finality.

ISSUES:

1.) Whether the Court of Appeals committed reversible error in directing the return
of the seized car to Young; and
2.) ordering the trial court to set a hearing for the determination of damages against
the replevin bond.
RULING:

1.NO. Upon the dismissal of the replevin case for failure to prosecute, the writ of seizure,
which is merely ancillary in nature, became functus officio and should have been lifted.
There was no adjudication on the merits, which means that there was no determination
of the issue who has the better right to possess the subject car. Advent cannot therefore
retain possession of the subject car considering that it was not adjudged as the
prevailing party entitled to the remedy of replevin. Contrary to Advent’s view, Olympia
International Inc. v. Court of Appeals applies to this case. The dismissal of the replevin
case for failure to prosecute results in the restoration of the parties’ status prior to
litigation, as if no complaint was filed at all. To let the writ of seizure, stand after the
dismissal of the complaint would be adjudging Advent as the prevailing party, when
precisely no decision on the merits had been rendered. Accordingly, the parties must be
reverted to their status quo ante. Since Young possessed the subject car before the filing
of the replevin case, the same must be returned to him, as if no complaint was filed at
all.

Advent’s contention that returning the subject car to Young would constitute a violation
of the stay order issued by the rehabilitation court is untenable. As the Court of Appeals
correctly concluded, returning the seized vehicle to Young is not an enforcement of a
claim against Advent which must be suspended by virtue of the stay order issued by the
rehabilitation court pursuant to Section 6 of the Interim Rules on Corporate
Rehabilitation (Interim Rules).17 The issue in the replevin case is who has better right to
possession of the car, and it was Advent that claimed a better right in filing the replevin
case against Young. In defense, Young claimed a better right to possession of the car
arising from Advent’s car plan to its executives, which he asserts entitles him to offset
the value of the car against the proceeds of his retirement pay and stock option plan.

Young cannot collect a money "claim" against Advent within the contemplation of the
Interim Rules. The term "claim" has been construed to refer to debts or demands of a
pecuniary nature, or the assertion to have money paid by the company under
rehabilitation to its creditors.18 In the replevin case, Young cannot demand that Advent
pay him money because such payment, even if valid, has been "stayed" by order of the
rehabilitation court. However, in the replevin case, Young can raise Advent’s car plan,
coupled with his retirement pay and stock option plan, as giving him a better right to
possession of the car. To repeat, Young is entitled to recover the subject car as a
necessary consequence of the dismissal of the replevin case for failure to prosecute
without prejudice.

2.YES. Section 10, Rule 60 of the Rules of Court governs claims for damages on account
of improper or irregular seizure in replevin cases. It provides that in replevin cases, as in
receivership and injunction cases, the damages to be awarded upon the bond "shall be
claimed, ascertained, and granted" in accordance with Section 20 of Rule 57 which
reads: Sec. 20. Claim for damages on account of improper, irregular or excessive
attachment. - An application for damages on account of improper, irregular or excessive
attachment must be filed before the trial or before appeal is perfected or before the
judgment becomes executory, with due notice to the attaching obligee or his surety or
sureties, setting forth the facts showing his right to damages and the amount thereof.
Such damages may be awarded only after proper hearing and shall be included in the
judgment on the main case. 

If the judgment of the appellate court be favorable to the party against whom the
attachment was issued, he must claim damages sustained during the pendency of the
appeal by filing an application in the appellate court with notice to the party in whose
favor the attachment was issued or his surety or sureties, before the judgment of the
appellate court becomes executory. The appellate court may allow the application to be
heard and decided by the trial court.

Nothing herein contained shall prevent the party against whom the attachment was
issued from recovering in the same action the damages awarded to him from any
property of the attaching obligee not exempt from execution should the bond or deposit
given by the latter be insufficient or fail to fully satisfy the award.
The above provision essentially allows the application to be filed at any time before the
judgment becomes executory. It should be filed in the same case that is the main
action, and with the court having jurisdiction over the case at the time of the
application.

In this case, there was no application for damages against Stronghold resulting from the
issuance of the writ of seizure before the finality of the dismissal of the complaint for
failure to prosecute. It appears that Young filed his omnibus motion claiming damages
against Stronghold after the dismissal order issued by the trial court on 28 April 2005
had attained finality. While Young filed a motion for partial reconsideration on 10 June
2005, it only concerned the dismissal of his counterclaim, without any claim for
damages against the replevin bond. It was only on 8 July 2005 that Young filed an
omnibus motion seeking damages against the replevin bond, after the dismissal order
had already become final for Advent’s non-appeal of such order. In fact, in his omnibus
motion, Young stressed the finality of the dismissal order. Thus, Young is barred from
claiming damages against the replevin bond.

27.
27. G.R. No. 201199               October 16, 2013
STEEL CORPORATION OF THE PHILIPPINES, Petitioner,
vs.
MAPFRE INSULAR INSURANCECORPORATIQN, NEW INDIAASSURANCE
COMPANY LIMITED, PHILIPPINE CHARTER INSURANCECORPORATION,
MALAYAN INSURANCECO., INC., and ASIA INSURANCE CO., INC., and
ASIA INSURANCE PHIL. CORP., Respondents.

Facts:

SCP is a domestic corporation.It obtained loans from several creditors and, as security,
mortgaged its assets in their favor. The creditors appointed Bank of the Philippine
Islands (BPI) as their trustee. SCP and BPI entered into a Mortgage Trust Indenture
(MTI) requiring SCP to insure all of its assets until the loans are fully paid. Under the
MTI, the insurance policies were to be made payable to BPI.

SCP suffered financial difficulties. One of the creditors, Equitable PCI Bank, Inc., now
known as Banco de Oro-EPCI, Inc., filed with the RTC a petition to have SCP placed
under corporate rehabilitation. On 12 September 2006, the RTC issued a stay order to
defer all claims against SCP and appointed Atty. Santiago T. Gabionza, Jr. as
rehabilitation receiver. On 3 December 2007, the RTC rendered a Decision approving
the modified rehabilitation plan.

Under Collective Master Policy No. UCPB Gem HOF075089, SCP insured against
material damage and business interruption its assets located in Barangay Munting
Tubig, Balayan, Batangas, for the period 19 August2007 to 19 August 2008. On 8 June
2008, a fire broke out at SCP’s plant damaging its machineries. Invoking its right under
the MTI, BPI demanded and received from the insurers $450,000 insurance proceeds.

On 13 October 2009, SCP filed with the RTC a motion to direct BPI to turn over the
$450,000 insurance proceeds in order for SCP to repair and replace the damaged
machineries. On 5 January 2010, the RTC issued an Order directing BPI to release the
insurance proceeds directly to the contractors and suppliers who will undertake the
repairs and replacements of the damaged machineries. BPI filed with the Court of
Appeals a petition for certiorari under Rule 65 of the Rules of Court and, in its 28
September 2010Decision,5 the Court of Appeals affirmed the RTC’s 5 January 2010
Order. However, in its 3 October 2012 Amended Decision, 6 the Court of Appeals
reversed itself and set aside the RTC’s 5 January 2010 Order. SCP filed with the Court a
petition for review on certiorari under Rule 45 and, in its 16 September 2013
Resolution,7 the Court denied the petition.

Issue:

Whether a rehabilitation court has jurisdiction

Held:

No.

The Court disagrees. The RTC, acting as rehabilitation court, has no jurisdiction over the
subject matter of the insurance claim of SCP against respondent insurers. SCP must file
a separate action for collection where respondent insurers can properly thresh out their
defenses. SCP cannot simply file with the RTC a motion to direct respondent insurers to
pay insurance proceeds. Section 3 of Republic Act No. 10142 18 states that rehabilitation
proceedings are "summary and non-adversarial" in nature. They do not include
adjudication of claims that require full trial on the merits, like SCP’s insurance claim
against respondent insurers. In Advent Capital and Finance Corporation v.
Alcantara,19 the Court held that:

Ultimately, the issue is what court has jurisdiction to hear and adjudicate the conflicting
claims of the parties over the dividends that Belson held in trust for their owners.
Certainly, not the rehabilitation court which has not been given the power to resolve
ownership disputes between Advent Capital and third parties. x x x.

Advent Capital must file a separate action for collection to recover the trust fees that it
allegedly earned and, with the trial court’s authorization if warranted, put the money in
escrow for payment to whoever it belongs. Having failed to collect the trust fees at the
end of each calendar quarter as stated in the contract, all it had against the Alcantaras
was a claim for payment which is proper subject for an ordinary action for collection. It
cannot enforce its money claim by simply filing a motion in the rehabilitation case for
delivery of money belonging to the Alcantaras but in the possession of a third party.

Rehabilitation proceedings are summary and non-adversarial in nature, and do not

contemplate adjudication of claims that must be threshed out in ordinary court
proceedings. Adversarial proceedings similar to that in ordinary courts are inconsistent
with the commercial nature of a rehabilitation case. The latter must be resolved quickly
and expeditiously for the sake of the corporate debtor, its creditors and other interested
parties. Thus, the Interim Rules "incorporate the concept of prohibited pleadings,
affidavit evidence in lieu of oral testimony, clarificatory hearings instead of the
traditional approach of receiving evidence, and the grant of authority to the court to
decide the case, or any incident, on the basis of affidavits and documentary evidence."

Here,

Advent Capital’s claim is disputed and requires a full trial on the merits. It must be
resolved in a separate action where the Alcantaras’ claim and defenses may also be
presented and heard.20 (Emphases supplied)

The Court agrees with the ruling of the Court of Appeals that the jurisdiction of the
rehabilitation courts is over claims against the debtor that is under rehabilitation, not
over claims by the debtor
against its own debtors or against third parties. In its 8 February 2012 Decision, the
Court of Appeals held that:

x x x Said insurance claims cannot be considered as "claims" within the jurisdiction of

the trial court functioning as a rehabilitation court. Rehabilitation courts only have
limited jurisdiction over the claims by creditors against the distressed company, not on
the claims of said distressed company against its debtors. The interim rules define claim
as referring to all claims or demands, of whatever nature or character against a debtor or
its property, whether for money or otherwise.

Even under the new Rules of Procedure on Corporate Rehabilitation, claim is defined
under Section 1, Rule 2 as "all claims or demands of whatever nature or character
against a debtor or its property, whether for money or otherwise." This is also the
definition of a claim under Republic Act No. 10142. Section 4(c) thereof reads:

"(c) Claim shall refer to all claims or demands of whatever nature or character against
the debtor or its property, whether for money or otherwise, liquidated or unliquidated,
fixed or contingent, matured or unmatured, disputed or undisputed, including, but not
limited to: (1) all claims of the government, whether national or local, including taxes,
tariffs and customs duties; and (2) claims against directors and officers of the debtor
arising from the acts done in the discharge of their functions falling within the scope of
their authority: Provided, That, this inclusion does not prohibit the creditors or third
parties from filing cases against the directors and officers acting in their personal
capacities."21 (Emphasis supplied)

Respondent insurers are not claiming or demanding any money or property from SCP.
In other words, respondent insurers are not creditors of SCP. Respondent insurers are
contingent debtors of SCP because they may possibly be, subject to proof during trial,
liable to SCP. Thus, the RTC has no jurisdiction over the insurance claim of SCP against
respondent insurers. SCP must file a separate action against respondent insurers to
recover whatever claim it may have against them. WHEREFORE, the petition is
DENIED. The Court AFFIRMS the8 February 2012 Decision and 27 March 2012
Resolution of the Court of Appeals in CA-G.R. SP No.119760.

28.

G.R. No. 168672 : August 8, 2010

EQUITABLE PCI BANK, INC., Petitioner, v. DNG REALTY and

DEVELOPMENT CORPORATION, Respondent.

FACTS:

(Respondent) DNG Realty and Development Corporation (DNG) obtained a loan

of P20M from Equitable PCI Bank (EPCIB) secured by a real estate mortgage over the
land of the former situated in Cabanatuan City. Due to the Asian Economic Crisis, DNG
experienced liquidity problems disenabling DNG from paying its loan on time. For this
reason, EPCIB sought the extrajudicial foreclosure of the said mortgage by filing a
petition for sale on 30 June 2003 before the Office of the Ex-Officio Sheriff. On 4
September 2003, the mortgage property was sold at public auction, which was
eventually awarded to EPCIB as the highest bidder. That same day, the Sheriff executed
a Certificate of Sale in favor of EPCIB.

On October 21, 2003, DNG filed a petition for rehabilitation under Rule 4 of the Interim
Rules of Procedure on Corporate Rehabilitation before the Regional Trial Court.
Pursuant to this, a Stay Order was issued by RTC Branch 28 on 27 October 2003. The
petition for rehabilitation was then published in a newspaper of general circulation on
19 and 26 November 2003.

On the other hand, EPCIB caused the recording of the Sheriff's Certificate of Sale on 3
December 2003 with the Registry of Deeds of Cabanatuan City. EPCIB executed an
Affidavit of Consolidation of Ownership and had the same annotated on the title of
DNG. Consequently, the Register of Deeds cancelled DNG's title and issued TCT No. T-
109482 in the name of EPCIB on 10 December 2003. This prompted DNG to file Civil
Case No. 4631 with RTC-Br. 28 for annulment of the foreclosure proceeding before the
Office of the Ex-Officio Sheriff. This case was dismissed for failure to prosecute.

In order to gain possession of the foreclosed property, EPCIB on 17 March 2004 filed an
Ex-Parte Petition for Issuance of Writ of Possession before RTC Br. 23 in Cabanatuan
City. After hearing, RTC-Br. 23 on 6 September 2004 issued an order directing the
issuance of a writ of possession. On 4 October 2004, RTC-Br. 23 issued the Writ of
Possession. Consequently, the Office of the Ex-Officio Sheriff issued the Notice to Vacate
dated 6 October 2004.

On October 15, 2004, respondent filed with the CA a petition for certiorari, prohibition

and mandamus with prayer for the issuance of temporary restraining order/ preliminary
injunction.

In finding the petition meritorious, the CA stated that under A.M. No. 00-8-10-SC
adopting the Interim Rules of Procedure on Corporate Rehabilitation, all petitions for
rehabilitation by corporations, partnerships and associations under Presidential Decree
(PD) 902-A, as amended by Republic Act (RA) 8799, were directed to be transferred
from the Securities and Exchange Commission (SEC) to the RTCs, and allowed the RTCs
to issue a stay order, i.e., staying enforcements of all claims, whether for money or
otherwise, and whether such enforcement is by court action or otherwise, against the
debtor. And under Section 6 (c) of PD 902-A, the Commission (now the RTC) upon
appointment of a management committee, rehabilitation receiver, board or body, all
actions or claims against the corporations, partnerships or associations under
management or receivership pending before any court, tribunal, board or body shall be
suspended accordingly.

ISSUE:

Whether or not all subsequent actions pertaining to respondent DNG's Cabanatuan

property should have been held in abeyance after the Stay Order was issued by the
rehabilitation court.

RULING:

NO.

Section 6 of the Interim Rules of Procedure on Corporate Rehabilitation provides:

SEC. 6. Stay Order. - If the court finds the petition to be sufficient in form and
substance, it shall, not later than five (5) days from the filing of the petition, issue an
Order (a) appointing a Rehabilitation Receiver and fixing his bond; (b) staying
enforcement of all claims, whether for money or otherwise and whether such
enforcement is by court action or otherwise, against the debtor, its guarantors and
sureties not solidarily liable with the debtor; (c) prohibiting the debtor from selling,
encumbering, transferring, or disposing in any manner any of its properties except in
the ordinary course of business; (d) prohibiting the debtor from making any payment of
its liabilities outstanding as of the date of filing of the petition; (e) prohibiting the
debtor's suppliers of goods or services from withholding supply of goods and services in
the ordinary course of business for as long as the debtor makes payments for the
services and goods supplied after the issuance of the stay order; (f) directing the
payment in full of all administrative expenses incurred after the issuance of the stay
order; (g) fixing the initial hearing on the petition not earlier than forty five (45) days
but not later than sixty (60) days from the filing thereof; (h) directing the petitioner to
publish the Order in a newspaper of general circulation in the Philippines once a week
for two (2) consecutive weeks; (i) directing all creditors and all interested parties
(including the Securities and Exchange Commission) to file and serve on the debtor a
verified comment on or opposition to the petition, with supporting affidavits and
documents, not later than ten (10) days before the date of the initial hearing and putting
them on notice that their failure to do so will bar them from participating in the
proceedings; and (j) directing the creditors and interested parties to secure from the
court copies of the petition and its annexes within such time as to enable themselves to
file their comment on or opposition to the petition and to prepare for the initial hearing
of the petition.

The suspension of the enforcement of all claims against the corporation is subject to the
rule that it shall commence only from the time the Rehabilitation Receiver is appointed.

The CA annulled the RTC Order dated September 6, 2004 directing the issuance of a
writ of possession, as well as the writ of possession issued pursuant thereto on October
4, 2004, and the notice to vacate issued by the Sheriff for being premature and untimely
and ordered the cancellation of TCT No. T-109482 in the name of petitioner EPCIB as
they were all done after the Stay Order was issued on October 27, 2003 by the
rehabilitation court.

We find merit in petitioner EPCIB's argument on the applicability of RCBC v. IAC, an en

banc case decided in 1999, to the instant case. There, we ruled that RCBC can rightfully
move for the extrajudicial foreclosure of the mortgage on the BF Home properties on
October 16, 1984, because a management committee was not appointed by the SEC until
March 18, 1985. Such ruling was a reversal of our earlier decision in the same case
where we found that the prohibition against foreclosure attaches as soon as a petition
for rehabilitation was filed.

In RCBC, we upheld the extrajudicial foreclosure sale of the mortgage properties of BF

Homes wherein RCBC emerged as the highest bidder as it was done before the
appointment of the management committee. Noteworthy to mention was the fact that
the issuance of the certificate of sale in RCBC's favor, the consolidation of title, and the
issuance of the new titles in RCBC's name had also been upheld notwithstanding that
the same were all done after the management committee had already been appointed
and there was already a suspension of claims. Thus, applying RCBC v. IAC in this case,
since the foreclosure of respondent DNG's mortgage and the issuance of the certificate
of sale in petitioner EPCIB's favor were done prior to the appointment of a
Rehabilitation Receiver and the Stay Order, all the actions taken with respect to the
foreclosed mortgage property which were subsequent to the issuance of the Stay Order
were not affected by the Stay Order. Thus, after the redemption period expired without
respondent redeeming the foreclosed property, petitioner becomes the absolute owner
of the property and it was within its right to ask for the consolidation of title and the
issuance of new title in its name as a consequence of ownership; thus, it is entitled to the
possession and enjoyment of the property.

29

TOWN & COUNTRY ENT vs QUISUMBING

G.R. No. 173610
October 1, 2012
TOPIC: Financial Rehabilitation, Insolvency, Liquidation and Suspension of Payments

FACTS

Town and Country Enterprises, Inc. (TCEI) borrowed P12 million from
Metrobank, and said loan was secured by a mortgage over 20 parcels of land. Unable to
pay upon demand, TCEI lost the properties to Metrobank due to foreclosure and
auction. When TCEI held on to the properties, Metrobank asked the Regional Trial
Court (RTC) to issue a writ of possession in the bank's favor. Meanwhile, in a separate
corporate rehabilitation proceeding, TCEI successfully asked the Securities and
Exchange Commission (SEC) for a stay order on the payment of its obligations. Based
on that stay order, TCEI asked the RTC which is hearing the writ of possession case to
suspend the said proceedings, which the RTC granted. On review by the Court of
Appeals, the latter reversed the decision and ordered the RTC to continue with the writ
of possession case. The RTC later granted Metrobank's petition and issued a writ of
possession. On appeal, the Court of Appeals affirmed the RTC's decision, after which
TCEI's land titles were then cancelled in exchange for new titles in the name of
Metrobank. TCEI sought remedy before the SEC, the rehabilitation court which had
earlier issued the stay order, to annul the said cancellation and transfer of titles, but the
SEC denied TCEI's petition. On review, the Court of Appeals agreed with the SEC.

ISSUES:

1. Whether or not the granting of the Writ of Possession by the RTC in favor of
Metrobank valid, in view of the stay order issued by the SEC in the rehabilitation
proceeding?

2. Whether or not the register of deeds can transfer the titles to Metrobank in view
of the said stay order?

RULING

1. Yes, the granting of the Writ of Possession is valid because the subject properties
are no longer within the scope of the corporate rehabilitation proceeding.

The purpose of corporate rehabilitation is to enable an insolvent company to gain

a new lease on life and eventually pay its loans. To allow this to happen, a stay order is
issued to defer all present claims against the company until the time of its projected
recovery. In this case, however, Metrobank had already acquired ownership over the
mortgaged parcels of land when TCEI started its petition for corporate rehabilitation.
No doubt Metrobank acquired ownership over the properties when TCEI failed to
redeem these within the three-month period prescribed by Section 47 of Republic Act
8791.

It does not matter, then, if Metrobank only had the certificate of sale registered
before the Deed of Registry a couple of months later, and had consolidated its
ownership over a year later. "The mortgagor loses all interest over the foreclosed
property after the expiration of the redemption period and the purchaser becomes the
absolute owner thereof when no redemption is made."

Thus, having acquired ownership of the said properties, Metrobank can simply
file an ex-parte motion for issuance of the writ of possession - "the issuance of which has
been held to be a ministerial function which cannot be hindered by an injunction or an
action for the annulment of the mortgage or the foreclosure itself." There is an exception
to this rule, however, and that is where the property is held by a third party claiming a
right adverse to that of the judgment debtor. But, on the other hand, the rehabilitation
receiver's claim is far from adverse. He is an officer of the court who is appointed to
protect the interests of TCEI's investors and creditors, not the interests of TCEI per se or
its officers and directors.

2. YES. It follows then that the register of deeds can transfer the titles to
Metrobank.

"Upon failure to redeem foreclosed realty, consolidation of title becomes a matter

of right on the part of the auction buyer, and the issuance of a certificate of title in favor
of the purchaser becomes ministerial upon the Register of Deeds."

Finally, proceedings in corporate rehabilitation cases are summary and non-

adversarial, and do not impair the debtor's contracts or diminish the status of preferred
creditors. Thus, the stay order, which only suspends the enforcement of all claims,
cannot be held to extend to the period not within its scope. In this case, there was no
more claim by Metrobank to speak of because the bank had already acquired ownership
over the subject properties prior to the issuance of the stay order.

30.

TIDCORP VS. PVB

G.R. NO. 233850, JULY 01, 2019

FACTS:

Typhoon Yolanda made landfall in Central Visayas, which resulted in widespread

devastation in the province of Leyte where PhilPhos' manufacturing plant was situated.
Due to the damage brought by said typhoon to PhilPhos' manufacturing facilities, it
failed to resume its operations.

Thus PhilPhos filed a Petition for Voluntary Rehabilitation under the Financial
Rehabilitation and Insolvency Act of 20107 (FRIA) before the Regional Trial Court of
Ormoc City, Branch 12 (Rehabilitation Court). The Rehabilitation Court issued a
Commencement Order, which included a Stay Order.

On the 45th day as provided in the Guarantee Agreement,9 respondent PVB filed
its Notice of Claim 10 with petitioner TIDCORP, which received the same on November
6, 2015. Petitioner TIDCORP declined to give due course to respondent PVB's Notice of
Claim, invoking the Stay Order issued by the Rehabilitation Court. Despite several
demands12 made by respondent PVB pursuant to the Guarantee Agreement, petitioner
TIDCORP maintained its position to deny PVB 's claim due to the issuance of the said
Stay Order.

In its Complaint, respondent PVB asserted that "[t]o secure the payment of the
Serie's A Notes, [petitioner] TIDCORP, with the express conformity of PhilPhos,
executed a Guarantee Agreement with the Series A Noteholders (except CBC) x x x,
whereby, among others, it: (a) agreed to guarantee payment to the Series A Noteholders
to the extent of Ninety (90%,) Percent of the Series A Notes and interest; and (b) waived
the benefit of excussion, x x x."13
 In its Answer with Counterclaim (Answer), petitioner TIDCORP argued that the
RTC cannot validly try the case because of the Rehabilitation Court's Stay Order, which
enjoined the enforcement of all claims, actions and proceedings against PhilPhos.

In view of the Answer filed by petitioner TIDCORP, respondent PVB filed a

Motion for Summary Judgment (Motion for Summary Judgment). Thereafter,
petitioner TIDCORP filed its Comment (On Plaintiffs Motion for Summary Judgment).

ISSUE:

1. Whether the provision of the FRIA on the non-application of a stay order

with respect to the enforcement of claims against sureties and other persons
solidarily liable with the debtor applies to petitioner TIDCORP.

2. Whether an obligation is a suretyship is not a matter of nomenclature and

semantics.
3. What is an Ordinary Guarantee as explained in the case at bar?
4. What is the difference between “Guarantee” and “Suretyship”
5. What is a “Genuine Issue”

RULING:

1. Under a normal contract of guarantee, the guarantor binds himself to the

creditor to fulfill the obligation of the principal debtor in case the latter should fail
to do so. The guarantor who pays for a debtor, in turn, must be indemnified by the
latter. However, the guarantor cannot be compelled to pay the creditor unless the
latter has exhausted all the property of the debtor and resorted to all the legal
remedies against the debtor. This is what is otherwise known as the benefit of
excussion.33 Conversely, if this benefit of excussion is waived, 34 the guarantor
can be directly compelled by the creditor to pay the entire debt even without the
exhaustion of the debtor's properties.

In other words, a guarantor who engages to directly shoulder the debt of

the debtor, waiving the benefit of excussion and the requirement of prior
presentment, demand, protest or notice of any kind, undoubtedly makes
himself/herself solidarily liable to the creditor.

In the instant case, without any shadow of doubt, petitioner TIDCORP had
expressly renounced the benefit of excussion and in no uncertain terms made
itself directly and principally liable without any qualification to the Series A
Noteholders and without the need of any prior recourse to PhilPhos.

In effect, the nature of the guarantee obligation assumed by petitioner

TIDCORP under the Guarantee Agreement was transformed into a suretyship.
This is the case because the defining characteristic that distinguishes a
guarantee from a suretyship is that in the latter, the obligor promises to pay
the principal's debt if the principal will not pay, while in the former, the obligor
 agrees that the creditor, after proceeding against the principal and exhausting
all of the principal's properties, may proceed against the obligor.

And yet, petitioner TIDCORP insists that despite the waiver of the benefit
of excussion, it is still considered a guarantor because the Guarantee
Agreement expressly designates petitioner TIDCORP as an "Ordinary
Guarantor."

2. An obligor is designated as a "guarantor" or that the contract is

denominated as a "guarantee agreement" does not automatically mean that the
obligor is a guarantor or that the contract entered into is a contract of
guarantee. As previously held by the Court, even assuming that a party was
expressly made liable only as a "guarantor" in an agreement, he/she can be
held immediately liable directly and immediately if the benefit of excussion
was waived.41

Petitioner TIDCORP downplays the waiver of the benefit of ex cuss ion by

making the specious argument that the waiver does not define or characterize
a guaranty and that it is supposedly merely one of the effects of a guaranty. But
as already explained, the waiver of the benefit of excussion is the crucial factor
that differentiates a surety from a guaranty. Otherwise stated, when a
person/entity engages that he/she will be directly liable to the creditor as to
another debtor's obligation without the need for the creditor to exhaust the
properties of the debtor and to have prior recourse against the latter, then for
all intents and purposes, such obligation is in the nature of a suretyship
regardless of how the parties labelled the agreement.

3. Under a normal contract of guarantee, the guarantor binds himself to the

creditor to fulfill the obligation of the principal debtor in case the latter
should fail to do so. The guarantor who pays for a debtor, in turn, must be
indemnified by the latter. However, the guarantor cannot be compelled to
pay the creditor unless the latter has exhausted all the property of the debtor
and resorted to all the legal remedies against the debtor. This is what is
otherwise known as the benefit of excussion. Conversely, if this benefit of
excussion is waived, 34 the guarantor can be directly compelled by the
creditor to pay the entire debt even without the exhaustion of the debtor's
properties.

In other words, a guarantor who engages to directly shoulder the debt of

the debtor, waiving the benefit of excussion and the requirement of prior
presentment, demand, protest or notice of any kind, undoubtedly makes
himself/herself solidarily liable to the creditor.

4. The defining characteristics that distinguishes a guarantee from a

suretyship is that in the latter, the obligor promises to pay the principal's
debt if the principal will not pay, while in the former, the obligor agrees that
 the creditor, after proceeding against the principal and exhausting all of the
principal's properties, may proceed against the obligor.

5. The term "genuine issue" has been defined as an issue of fact which calls
for the presentation of evidence as distinguished from an issue which is
sham, fictitious, contrived, set up in bad faith and patently unsubstantial so
as not to constitute a genuine issue for trial. The court can determine this on
the basis of the pleadings, admissions, documents, affidavits and/or counter-
affidavits submitted by the parties before the court.

31.
PANLILIO vs. REGIONAL TRIAL COURT
G.R. No. 173846, February 2, 2011

FACTS:
Jose Marcel Panlilio, Erlinda Panlilio, Nicole Morris and Mario
Cristobal (petitioners), as corporate officers of Silahis International Hotel,
Inc. (SIHI), filed with the Regional Trial Court (RTC) of Manila, Branch 24,
a petition for Suspension of Payments and Rehabilitation in SEC Corp. Case
No. 04-111180. The RTC of Manila, Branch 24, issued an Order staying all
claims against SIHI upon finding the petition sufficient in form and
substance.

At the time, however, of the filing of the petition for rehabilitation,

there were a number of criminal charges pending against petitioners in
Branch 51 of the RTC of Manila. These criminal charges were initiated by
respondent Social Security System (SSS) and involved charges of violations
of Section 28 (h) of Republic Act 8282, or the Social Security Act of 1997
(SSS law), in relation to Article 315 (1) (b) of the Revised Penal Code, or
Estafa. Consequently, petitioners filed with the RTC of Manila, Branch 51, a
Manifestation and Motion to Suspend Proceedings. Petitioners argued that
the stay order issued by Branch 24 should also apply to the criminal
charges pending in Branch 51. Petitioners, thus, prayed that Branch 51
suspend its proceedings until the petition for rehabilitation was finally
resolved.

ISSUE:
Whether or not suspension of claims during corporate rehabilitation
include suspension of the criminal action against it.

RULING:
NO.
To begin with, corporate rehabilitation connotes the restoration of the
debtor to a position of successful operation and solvency, if it is shown that
its continued operation is economically feasible and its creditors can
recover more, by way of the present value of payments projected in the
rehabilitation plan, if the corporation continues as a going concern than if it
is immediately liquidated. It contemplates a continuance of corporate life
and activities in an effort to restore and reinstate the corporation to its
former position of successful operation and solvency, the purpose being to
enable the company to gain a new lease on life and allow its creditors to be
paid their claims out of its earnings.

A principal feature of corporate rehabilitation is the suspension of

claims against the distressed corporation. Section 6 © of Presidential
Decree No. 902-A, as amended, provides for suspension of claims against
corporations undergoing rehabilitation, to wit:
Section 6 ©. . . . . . .

Provided, finally, that upon appointment of a management

committee, rehabilitation receiver, board or body, pursuant to this Decree,
all actions for claims against corporations, partnerships or associations
under management or receivership pending before any court, tribunal,
board or body, shall be suspended accordingly.

Consequently, the filing of the case for violation of B.P. Blg. 22 is not
a “claim” that can be enjoined within the purview of P.D. No. 902-A. True,
although conviction of the accused for the alleged crime could result in the
restitution, reparation or indemnification of the private offended party for
the damage or injury he sustained by reason of the felonious act of the
accused, nevertheless, prosecution for violation of B.P. Blg. 22 is a criminal
action.

The rehabilitation of SIHI and the settlement of claims against the

corporation is not a legal ground for the extinction of petitioners’ criminal
liabilities. There is no reason why criminal proceedings should be
suspended during corporate rehabilitation, more so, since the prime
purpose of the criminal action is to punish the offender in order to deter
him and others from committing the same or similar offense, to isolate him
from society, reform and rehabilitate him or, in general, to maintain social
order. As correctly observed in Rosario, it would be absurd for one who has
engaged in criminal conduct could escape punishment by the mere filing of
a petition for rehabilitation by the corporation of which he is an officer.

The prosecution of the officers of the corporation has no bearing on

the pending rehabilitation of the corporation, especially since they are
charged in their individual capacities. Such being the case, the purpose of
the law for the issuance of the stay order is not compromised, since the
appointed rehabilitation receiver can still fully discharge his functions as
mandated by law. It bears to stress that the rehabilitation receiver is not
charged to defend the officers of the corporation. If there is anything that
the rehabilitation receiver might be remotely interested in is whether the
court also rules that petitioners are civilly liable. Such a scenario, however,
is not a reason to suspend the criminal proceedings, because as aptly
discussed in Rosario, should the court prosecuting the officers of the
corporation find that an award or indemnification is warranted, such award
would fall under the category of claims, the execution of which would be
subject to the stay order issued by the rehabilitation court. The penal
sanctions as a consequence of violation of the SSS law, in relation to the
revised penal code can therefore be implemented if petitioners are found
guilty after trial. However, any civil indemnity awarded as a result of their
conviction would be subject to the stay order issued by the rehabilitation
court. Only to this extent can the order of suspension be considered
obligatory upon any court, tribunal, branch or body where there are
pending actions for claims against the distressed corporation.

32.
VILLAMOR vs. UMALE
GR 172843 Sept 24, 2014

FACTS:
MC Home Depot occupied a prime property (Rockland area) in Pasig.
The property was part of the area owned by Mid-Pasig Development
Corporation (Mid-Pasig). On March 1, 2004, Pasig Printing Corporation
(PPC) obtained an option to lease portions of MidPasigs property, including
the Rockland area. On November 11, 2004, PPCs board of directors issued a
resolution waiving all its rights, interests, and participation in the option to
lease contract in favor of the law firm of Atty. Alfredo Villamor, Jr.
(Villamor). PPC received no consideration for this waiver in favor of
Villamors law firm.

PPC, represented by Villamor, entered into a memorandum of

agreement (MOA) with MC Home Depot. Under the MOA, MC Home
Depot would continue to occupy the area as PPCs sublessee for 4 years,
renewable for another 4 years, at a monthly rental of P4,500,000.00 plus
goodwill of P18,000,000.00. In compliance with the MOA, MC Home
Depot issued 20 post-dated checks representing rental payments for one
year and the goodwill money. The checks were given to Villamor who did
not turn these or the equivalent amount over to PPC, upon encashment.

Hernando Balmores, a stockholder and director of PPC, wrote a letter

addressed to PPCs directors on April 4, 2005. He informed them that
Villamor should be made to deliver to PPC and account for MC Home
Depots checks or their equivalent value.

Due to the alleged inaction of the directors, respondent Balmores

filed with the RTC an intra-corporate controversy complaint under Rule 1,
Section 1(a)(1) of the Interim Rules for Intra-Corporate Controversies
(Interim Rules) against petitioners for their alleged devices or schemes
amounting to fraud or misrepresentation "detrimental to the interest of the
corporation and its stockholders."

Respondent Balmores alleged in his complaint that because of

petitioners actions, PPCs assets were "not only in imminent danger, but
have actually been dissipated, lost, wasted and destroyed." Respondent
Balmores prayed that a receiver be appointed from his list of nominees. He
also prayed for petitioners prohibition from "selling, encumbering,
transferring or disposing in any manner any of [PPCs] properties, including
the MC Home Depot checks and/or their proceeds." He prayed for the
accounting and remittance to PPC of the MC Home Depot checks or their
proceeds and for the annulment of the boards resolution waiving PPCs
rights in favor of Villamors law firm.

The RTC denied respondent Balmores prayer for the appointment of

a receiver or the creation of a management committee. RTC held PPCs
entitlement to the checks was doubtful. The resolution issued by PPCs
board of directors, waiving its rights to the option to lease contract in favor
of Villamors law firm, must be accorded prima facie validity. Also, there
was a pending case filed by one Leonardo Umale against Villamor,
involving the same checks. Umale was also claiming ownership of the
checks. This, according to the trial court, weakened respondent Balmores
claim that the checks were properties of PPC.

Balmores filed with the CA a petition for certiorari under Rule 65 of

the Rules of Court and the same was granted. It reversed the trial courts
decision, and issued a new order placing PPC under receivership and
creating an interim management committee. As a justification of said
decision, the CA stated that the boards waiver of PPCs rights in favor of
Villamors law firm without any consideration and its inaction on Villamors
failure to turn over the proceeds of rental payments to PPC warrant the
creation of a management committee. The circumstances resulted in the
imminent danger of loss, waste, or dissipation of PPCs assets.

According to the CA, the trial court abandoned its duty to the
stockholders in a derivative suit when it refused to appoint a receiver or
create a management committee, all during the pendency of the
proceedings.

ISSUE:
Whether or not the appointment of a management committee was not
proper.

RULING:
YES.
A corporation may be placed under receivership, or management
committees may be created to preserveproperties involved in a suit and to
protect the rights of the parties under the control and supervision of the
court.83 Management committees and receivers are appointed when the
corporation is in imminent danger of "(1) [d]issipation, loss, wastage or
destruction of assets or other properties; and (2) [p]aralysation of its
business operations that may be prejudicial to the interest of the minority
stockholders, parties-litigants, or the general public."84

Respondent Balmores, however, failed to show that there was an

imminent danger of paralysis of PPC’s business operations. Apparently,
PPC was earning substantial amounts from its other sub-lessees.
Respondent Balmores did not prove otherwise. He, therefore, failed to
show at least one of the requisites for appointment of a receiver or
management committee.

33.
VIVA SHIPPING vs. KEPPEL
G.R NO. 177382, FEBRUARY 17, 2016

FACTS:
Viva Shipping Lines, Inc. (Viva Shipping Lines) filed a Petition for
Corporate Rehabilitation before the Regional Trial Court of Lucena City.
The Regional Trial Court initially denied the Petition for failure to comply
with the requirements in Rule 4, Sections 2 and 3 of the Interim Rules of
Procedure on Corporate Rehabilitation. On October 17, 2005, Viva
Shipping Lines filed an Amended Petition.

In the Amended Petition, Viva Shipping Lines claimed to own and

operate 19 maritime vessels and Ocean Palace Mall, a shopping mall in
downtown Lucena City. Viva Shipping Lines also declared its total
properties’ assessed value at about P45,172,790.00. However, these
allegations were contrary to the attached documents in the Amended
Petition.

One of the attachments, the Property Inventory List, showed that

Viva Shipping Lines owned only two (2) maritime vessels: M/V Viva
Peñafrancia V and M/V Marian Queen. The list also stated that the fair
market value of all of Viva Shipping Lines’ assets amounted to
P447,860,000.00, P400 million more than what was alleged in its
Amended Petition. Some of the properties listed in the Property Inventory
List were already marked as “encumbered” by its creditors; hence, only
P147,630,000.00 of real property and its vessels were marked as “free
assets.

According to Viva Shipping Lines, the devaluation of the Philippine

peso, increased competition, and mismanagement of its businesses made it
difficult to pay its debts as they became due. It also stated that “almost all
[its] vessels were rendered unserviceable either because of age and
deterioration that [it] can no longer compete with modern made vessels
owned by other operators.”

In its Company Rehabilitation Plan, Viva Shipping Lines enumerated

possible sources of funding such as the sale of old vessels and commercial
lots of its sister company, Sto. Domingo Shipping Lines. It also proposed
the conversion of the Ocean Palace Mall into a hotel, the acquisition of two
(2) new vessels for shipping operations, and the “re-operation” of an oil mill
in Buenavista, Quezon.

ISSUE/s:
1. Whether or not Court of Appeals erred in dismissing petitioner Viva
Shipping Lines' Petition for Review on procedural grounds.
2. Whether or not Petitioner was denied substantial justice when the
Court of Appeals did not give due course to its petition.

RULING:
1. NO.
Corporate rehabilitation is a remedy for corporations,
partnerships, and associations “who [foresee] the impossibility of
meeting [their] debts when they respectively fall due.”—Corporate
rehabilitation is a remedy for corporations, partnerships, and
associations “who [foresee] the impossibility of meeting [their] debts
when they respectively fall due.” A corporation under rehabilitation
continues with its corporate life and activities to achieve solvency, or
a position where the corporation is able to pay its obligations as they
fall due in the ordinary course of business. Solvency is a state where
the businesses’ liabilities are less than its assets. Corporate
rehabilitation is a type of proceeding available to a business that is
insolvent. In general, insolvency proceedings provide for
predictability that commercial obligations will be met despite
business downturns. Stability in the economy results when there is
assurance to the investing public that obligations will be reasonably
paid. It is considered state policy to encourage debtors, both juridical
and natural persons, and their creditors to collectively and
realistically resolve and adjust competing claims and property
rights[.] . . . [R]ehabilitation or liquidation shall be made with a view
to ensure or maintain certainty and predictability in commercial
affairs, preserve and maximize the value of the assets of these
debtors, recognize creditor rights and respect priority of claims, and
ensure equitable treatment of creditors who are similarly situated.
When rehabilitation is not feasible, it is in the interest of the State to
facilitate a speedy and orderly liquidation of these debtors’ assets and
the settlement of their obligations.

The rationale in corporate rehabilitation is to resuscitate

businesses in financial distress because “assets . . . are often more
 valuable when so maintained than they would be when liquidated.”—
The rationale in corporate rehabilitation is to resuscitate businesses
in financial distress because “assets . . . are often more valuable when
so maintained than they would be when liquidated.” Rehabilitation
assumes that assets are still serviceable to meet the purposes of the
business. The corporation receives assistance from the court and a
disinterested rehabilitation receiver to balance the interest to recover
and continue ordinary business, all the while attending to the interest
of its creditors to be paid equitably. These interests are also referred
to as the rehabilitative and the equitable purposes of corporate
rehabilitation.

When rehabilitation will not result in a better present value

recovery for the creditors, the more appropriate remedy is
liquidation.—The public’s interest lies in the court’s ability to
effectively ensure that the obligations of the debtor, who has
experienced severe economic difficulties, are fairly and equitably
served. The alternative might be a chaotic rush by all creditors to file
separate cases with the possibility of different trial courts issuing
various writs competing for the same assets. Rehabilitation is a
means to temper the effect of a business downturn experienced for
whatever reason. In the process, it gives entrepreneurs a second
chance. Not only is it a humane and equitable relief, it encourages
efficiency and maximizes welfare in the economy. Clearly then, there
are instances when corporate rehabilitation can no longer be
achieved. When rehabilitation will not result in a better present value
recovery for the creditors, the more appropriate remedy is
liquidation.

2. NO.
Mode of Appeal in Cases Formerly Cognizable by the Securities
and Exchange Commission, the Supreme Court (SC) clarified that all
decisions and final orders falling under the Interim Rules of
Procedure on Corporate Rehabilitation shall be appealable to the
Court of Appeals (CA) through a petition for review under Rule 43 of
the Rules of Court.—Any final order or decision of the Regional Trial
Court may be subject of an appeal. In Re: Mode of Appeal in Cases
Formerly Cognizable by the Securities and Exchange Commission,
this court clarified that all decisions and final orders falling under the
Interim Rules of Procedure on Corporate Rehabilitation shall be
appealable to the Court of Appeals through a petition for review
under Rule 43 of the Rules of Court.

New Frontier Sugar Corporation v. Regional Trial Court,

Branch 39, Iloilo City, 513 SCRA 601 (2007), clarifies that an appeal
from a final order or decision in corporate rehabilitation proceedings
may be dismissed for being filed under the wrong mode of appeal.
New Frontier Sugar doctrinally requires compliance with the
procedural rules for appealing corporate rehabilitation decisions. It is
true that Rule 1, Section 6 of the Rules of Court provides that the
“[r]ules shall be liberally construed in order to promote their
objective of securing a just, speedy and inexpensive disposition of
every action and proceeding.” However, this provision does not
negate the entire Rules of Court by providing a license to disregard all
the other provisions. Resort to liberal construction must be rational
and well-grounded, and its factual bases must be so clear such that
they outweigh the intent or purpose of an apparent reading of the
rules. Rule 43 prescribes the mode of appeal for corporate
rehabilitation cases.

Creditors are indispensable parties to a rehabilitation case, even

if a rehabilitation case is non-adversarial.—The Rules of Court
requires petitioner to implead respondents as a matter of due process.
Under the Constitution, “[n]o person shall be deprived of life, liberty
or property without due process of the law.” An appeal to a corporate
rehabilitation case may deprive creditor-stakeholders of property.
Due process dictates that these creditors be impleaded to give them
an opportunity to protect the property owed to them. Creditors are
indispensable parties to a rehabilitation case, even if a rehabilitation
case is non-adversarial.

A corporate rehabilitation case cannot be decided without the

creditors’ participation. The court’s role is to balance the interests of
the corporation, the creditors, and the general public. Impleading
creditors as respondents on appeal will give them the opportunity to
present their legal arguments before the appellate court. The courts
will not be able to balance these interests if the creditors are not
parties to a case. Ruling on petitioner’s appeal in the absence of its
creditors will not result in judgment that is effective, complete, and
equitable. This court cannot exercise its equity jurisdiction and allow
petitioner to circumvent the requirement to implead its creditors as
respondents. Tolerance of such failure will not only be unfair to the
creditors, it is contrary to the goals of corporate rehabilitation, and
will invalidate the cardinal principle of due process of law. The failure
of petitioner to implead its creditors as respondents cannot be cured
by serving copies of the Petition on its creditors. Since the creditors
were not impleaded as respondents, the copy of the Petition only
serves to inform them that a petition has been filed before the
appellate court. Their participation was still significantly truncated.
Petitioner’s failure to implead them deprived them of a fair hearing.
The appellate court only serves court orders and processes on parties
formally named and identified by the petitioner. Since the creditors
were not named as respondents, they could not receive court orders
prompting them to file remedies to protect their property rights.

By not declaring its former employees as creditors in the

Amended Petition for Corporate Rehabilitation and by not notifying
the same employees that an appeal had been filed, petitioner
 consistently denied the due process rights of these employees.—We
do not see how it will be in the interest of justice to allow a petition
that fails to inform some of its creditors that the final order of the
corporate rehabilitation proceeding was appealed. By not declaring its
former employees as creditors in the Amended Petition for Corporate
Rehabilitation and by not notifying the same employees that an
appeal had been filed, petitioner consistently denied the due process
rights of these employees. This court cannot be a party to the
inequitable way that petitioner’s employees were treated.

The Interim Rules of Procedure on Corporate Rehabilitation

allows the trial court to disapprove a rehabilitation plan and
terminate proceedings or, should the instances warrant, to allow
modifications to a rehabilitation plan.—Petitioner argues that after
Judge Mendoza’s withdrawal as rehabilitation receiver, the Regional
Trial Court should have appointed a new rehabilitation receiver to
evaluate the rehabilitation plan. We rule otherwise. It is not solely the
responsibility of the rehabilitation receiver to determine the validity
of the rehabilitation plan. The Interim Rules of Procedure on
Corporate Rehabilitation allows the trial court to disapprove a
rehabilitation plan and terminate proceedings or, should the
instances warrant, to allow modifications to a rehabilitation plan.

34.
34. G.R. No. 190800, November 07, 2018
METROPOLITAN BANK & TRUST COMPANY, Petitioner, v.
FORTUNA PAPER MILL & PACKAGING CORPORATION,
Respondent.

FACTS:
MBTC is a domestic banking corporation organized and existing
under the laws of the Republic of the Philippines, and who extended
various credit accommodations and loan facilities to Fortuna.

The credit accommodations and loan facilities extended by MBTC to

Fortuna principally amounted to Php 259,981,915.33. In order to secure
these obligations, Fortuna mortgaged to MBTC its real and movable
properties as well as several pieces of realty owned by several sister
companies.6

Fortuna eventually ended up defaulting on its obligations to MBTC,

and failed to pay said indebtedness along with the interests and penalties
despite repeated demands on the part of MBTC. Around this same period,
the Manila Electric Company (Meralco) filed a criminal complaint against
Fortuna for pilferage of electricity and cut off the latter's electrical supply.
Though Fortuna and Meralco eventually executed a compromise agreement
that resulted in the reconnection of Fortuna's power supply, due to alleged
dire financial straits and labor problems, Fortuna subsequently and for the
second time defaulted in its payments. This led Meralco to once again
disconnect Fortuna's supply of electricity, a turn of events which persisted
up until the time the petition was filed.

Instead of paying the overdue obligations to MBTC, Fortuna filed on

June 21, 2007 a Petition for Corporate Rehabilitation (Rehabilitation
Petition) with the RTC of Malabon, Branch 74. Attached therein was
Fortuna's proposed Rehabilitation Plan, which consisted mainly of (i) the
resumption and continuance of its business, to be made possible by the
entry of a supposed investor and a debt moratorium on principal interest,
and (ii) entry into the business condominium development.
Finding the Rehabilitation Petition sufficient in form and substance, on
June 27, 2007, the RTC issued a Stay Order setting the initial hearing
involving the Rehabilitation Petition on August 6, 2007 and directing all of
Fortuna's creditors and other interested parties to file their verified
comments/opposition.10

The court likewise ordered for the appointment of a rehabilitation

receiver pursuant to Rule 4, Section 6 of the Interim Rules. On July 13,
2007, Atty. Rafael F. Teston (Atty. Teston) accepted his appointment as
rehabilitation receiver.

MBTC filed its Comment/Opposition12 to the Rehabilitation Petition

and prayed for its dismissal based on the following grounds: (1) Fortuna
was not qualified for corporate rehabilitation under Section 1 of Rule 4 of
the Interim Rules; (2) the petition was fatally defective for non-compliance
with the minimum requirements of Section 5 of Rule 4 of the Interim
Rules; and (3) the petition was filed solely for the purpose of unjustly
delaying the payment of its debt obligations.

Despite opposition, the Rehabilitation Petition was given due course

in an Order dated September 20, 2007. The RTC thus referred the same to
Atty. Teston for the latter's evaluation and recommendations.14

After reviewing the same, Atty. Teston submitted a Rehabilitation

Receiver's Report and Comments to the Rehabilitation Plan (Receiver's
Report), the said report recommending that the proposed Rehabilitation
Plan be adopted, but subject to the following timelines and benchmarks: (1)
The prospective investor Polycity must complete its due diligence and begin
its infusion of new cash for MBTC within nine (9) months from approval of
the Rehabilitation Plan; and (2) The construction of the Classic Frames
property must be initiated within twelve (12) months from approval of the
Rehabilitation Plan and completed as set forth in the Plan.

ISSUE/s:
1. Whether FORTUNA PAPER is qualified to file a Petition for
Rehabilitation under the Interim Rules given that FORTUNA
PAPER has already failed to meet its debts.

2. What are the characteristics of a feasible rehabilitation plan?

RULING
1. YES.
Rehabilitation refers to the restoration of the debtor to a
condition of successful operation and solvency, if it is shown that its
continuance of operation is economically feasible and its creditors
can recover by way of the present value of payments projected in the
plan, more if the debtor continues as a going concern than if it is
immediately liquidated.38

Section 1, Rule 4 of the Interim Rules on the Procedure on

Corporate Rehabilitation provides for the qualifications of a
corporation to file a petition for corporate rehabilitation, to wit:
Sec. 1. Who May Petition. - Any debtor who foresees the
impossibility of meeting its debts when they respectively fall due, or
any creditor or creditors holding at least twenty-five percent (25%)
of the debtor's total liabilities, may petition the proper Regional
Trial Court to have the debtor placed under rehabilitation.
(Emphasis Ours)

A plain reading of the provision shows that the Interim Rules

does not make any distinction between a corporation which is already
in debt and a corporation which foresees the possibility of debt, or
which would eventually yet surely fall into the same, but may at
present be free from any financial liability. Thus, since the statute is
clear and free from ambiguity, it must be given its literal meaning and
applied without attempted interpretation. This is the plain meaning
rule or verha legis, as expressed in the maxim index animi sermo or
speech is the index of intention.39

In Philippine Bank of Communications v. Basic Polyprinters

and Packaging Corporation,40 the Court underscored that despite the
insolvency of a corporation, it cannot be hindered to file a petition for
corporate rehabilitation. To conclude otherwise will defeat its
purpose of restoring a corporation to its former position of successful
operation and solvency.41

Upon cursory reading of the report and recommendation of

Atty. Teston, it can be seen that Fortuna maintains a status of
solvency, having more assets than its liabilities with a Php
71,000,000.00 margin.42 However, even hypothetically granting that
Fortuna is already in a state of insolvency, the Court finds that is not
precluded from filing its Rehabilitation Petition to facilitate its
restoration to its former busines's stability. Fortuna is seeking a fresh
start to lift itself from its present financial predicament. Thus, the
foreseen viable rehabilitation of Fortuna would be more
advantageous to the business community and its creditors rather than
proceed with its liquidation which may possibly lead to its eventual
corporate death.
 This Court need not distinguish whether the claim has already
matured or not. What is essential in case of rehabilitation is the
inability of the debtor corporation to pay its dues as they fall due. In
the case herein, accepting MBTC's proposition that debtor companies
already in default are unqualified to file a petition for corporate
rehabilitation not only contradicts the purpose of the law, as stated,
but also advocates a limiting bar that is not found under the pertinent
provisions. A better and more sound interpretation adheres to the
very purpose of corporate rehabilitation, which is to allow the debtor-
corporation to be restored "to a position of successful operation and
solvency, if it is shown that its continuance of operation is
economically feasible and its creditors can recover by way of the
present value of payments projected in the plan."

1. In the recent case of Phil. Asset Growth Two, Inc., et al. v.

Fastech Synergy Phils., Inc., et al.,55 the Court took note of the
characteristics of feasible rehabilitation plan as opposed to an
infeasible rehabilitation plan, as follows:
Professor Stephanie V. Gomez of the University of the
Philippines College of Law suggests specific characteristics of an
economically feasible rehabilitation plan:

a. The debtor has assets that can generate more cash if used in its
daily operations than if sold.

b. Liquidity issues can be addressed by a practicable business plan

that will generate enough cash to sustain daily operations.

c. The debtor has a definite source of financing for the proper and
full implementation of a Rehabilitation Plan that is anchored on
realistic assumptions and goals.

These requirements put emphasis on liquidity: the cash flow

that the distressed corporation will obtain from rehabilitating its
assets and operations. A corporation's assets may be more than its
current liabilities, but some assets may be in the form of land or
capital equipment, such as machinery or vessels. Rehabilitation sees
to it that these assets generate more value if used efficiently rather
than if liquidated.

On the other hand, this court enumerated the characteristics of

a rehabilitation plan that is infeasible:

a. the absence of a sound and workable business plan;

b. baseless and unexplained assumptions, targets and goals;

 c. speculative capital infusion or complete lack thereof for the
execution of the business plan;

d. cash flow cannot sustain daily operations; and

e. negative net worth and the assets are near full depreciation or
fully depreciated.

35.
BANK OF THE PHILIPPINE ISLANDS vs. SARABIA MANOR
HOTEL CORPORATION
G.R. No. 175844, July 29, 2013

FACTS:
Sarabia is a corporation duly organized and existing under Philippine
laws, with principal place of business at 101 General Luna Street, Iloilo City.
In 1997, Sarabia obtained a ₱150,000,000.00 special loan package from
Far East Bank and Trust Company (FEBTC) in order to finance the
construction of a five-storey hotel building (New Building) for the purpose
of expanding its hotel business. An additional ₱20,000,000.00 stand-by
credit line was approved by FEBTC in the same year.

The foregoing debts were secured by real estate mortgages over

several parcels of land owned by Sarabia and a comprehensive surety
agreement dated September 1, 1997 signed by its stockholders. By virtue of
a merger, Bank of the Philippine Islands (BPI) assumed all of FEBTC’s
rights against Sarabia.

Sarabia started to pay interests on its loans as soon as the funds were
released in October 1997. However, largely because of the delayed
completion of the New Building, Sarabia incurred various cash flow
problems. Thus, despite the fact that it had more assets than liabilities at
that time, it, nevertheless, filed, on July 26, 2002, a Petition for corporate
rehabilitation (rehabilitation petition) with prayer for the issuance of a stay
order before the RTC as it foresaw the impossibility to meet its maturing
obligations to its creditors when they fall due.

Finding Sarabia’s rehabilitation petition sufficient in form and

substance, the RTC issued a Stay Order. It also appointed Liberty B.
Valderrama as Sarabia’s rehabilitation receiver (Receiver). Thereafter, BPI
filed its Opposition. After several hearings, the RTC gave due course to the
rehabilitation petition and referred Sarabia’s proposed rehabilitation plan
to the Receiver for evaluation. In a Recommendation dated July 10, 2003
(Receiver’s Report), the Receiver found that Sarabia may be rehabilitated.
The RTC approved Sarabia’s rehabilitation plan as recommended by the
Receiver, finding the same to be feasible. In this accord, it observed that the
rehabilitation plan was realistic since, based on Sarabia’s financial history,
it was shown that it has the inherent capacity to generate funds to pay its
loan obligations given the proper perspective. The recommended
rehabilitation plan was also practical in terms of the interest rate pegged at
6.75% p.a. since it is based on Sarabia’s ability to pay and the creditors’
perceived cost of money.

The CA affirmed the RTC’s ruling with the modification of reinstating

the surety obligations of Sarabia’s stockholders to BPI as an additional
safeguard for the effective implementation of the approved rehabilitation
plan.40 It held that the RTC’s conclusions as to the feasibility of Sarabia’s
rehabilitation was well-supported by the company’s financial statements,
both internal and independent, which were properly analyzed and
examined by the Receiver.41 It also upheld the 6.75%. p.a. interest rate on
Sarabia’s loans, finding the said rate to be reasonable given that BPI’s
interests as a creditor were properly accounted for.

ISSUES:
1. What is corporate rehabilitation?
2. What is the purpose of rehabilitation proceedings?
3. When is the remedy of rehabilitation denied to corporations?
4. Whether or not rehabilitation plan may be approved even over the
opposition of the creditors holding a majority of the corporation’s
total liabilities.
5. Whether or not the approval of Sarabia’s rehabilitation plan
proper.

RULING:
1. Case law has defined corporate rehabilitation as an attempt to
conserve and administer the assets of an insolvent corporation in the
hope of its eventual return from financial stress to solvency. It
contemplates the continuance of corporate life and activities in an
effort to restore and reinstate the corporation to its former position of
successful operation and liquidity.

2. The purpose of rehabilitation proceedings is to enable the

company to gain a new lease on life and thereby allow creditors to be
paid their claims from its earnings. Thus, rehabilitation shall be
undertaken when it is shown that the continued operation of the
corporation is economically more feasible and its creditors can
recover, by way of the present value of payments projected in the
plan, more, if the corporation continues as a going concern than if it
is immediately liquidated.

3. Rehabilitation is available to a corporation which, while illiquid,

has assets that can generate more cash if used in its daily operations
than sold. Its liquidity issues can be addressed by a practicable
business plan that will generate enough cash to sustain daily
operations, has a definite source of financing for its proper and full
implementation, and anchored on realistic assumptions and goals.
This remedy should be denied to corporations whose insolvency
 appears to be irreversible and whose sole purpose is to delay the
enforcement of any of the rights of the creditors, which is rendered
obvious by the following: (a) the absence of a sound and workable
business plan; (b) baseless and unexplained assumptions, targets and
goals; (c) speculative capital infusion or complete lack thereof for the
execution of the business plan; (d) cash flow cannot sustain daily
operations; and (e) negative net worth and the assets are near full
depreciation or fully depreciated.

4. YES.
Section 23, Rule 4 of the Interim Rules of Procedure on
Corporate Rehabilitation (Interim Rules) states that a rehabilitation
plan may be approved even over the opposition of the creditors
holding a majority of the corporation’s total liabilities if there is a
showing that rehabilitation is feasible and the opposition of the
creditors is manifestly unreasonable. Also known as the "cram-down"
clause, this provision, which is currently incorporated in the FRIA, is
necessary to curb the majority creditors’ natural tendency to dictate
their own terms and conditions to the rehabilitation, absent due
regard to the greater long-term benefit of all stakeholders. Otherwise
stated, it forces the creditors to accept the terms and conditions of the
rehabilitation plan, preferring long-term viability over immediate but
incomplete recovery.

5. YES.
First, Sarabia has the financial capability to undergo
rehabilitation. Based on the Receiver’s Report, Sarabia’s financial
history shows that it has the inherent capacity to generate funds to
repay its loan obligations if applied through the proper financial
framework. The Receiver’s examination and analysis of Sarabia’s
financial data reveals that the latter’s business is not only an on-going
but also a growing concern. Despite its financial constraints, Sarabia
likewise continues to be profitable with its hotelier business as its
operations have not been disrupted.61 Hence, given its current fiscal
position, the prospect of substantial and continuous revenue
generation is a realistic goal.

Second, Sarabia has the ability to have sustainable profits over a

long period of time. As concluded by the Receiver, Sarabia’s projected
revenues shall have a steady year-on-year growth from the time that
it applied for rehabilitation until the end of its rehabilitation plan in
2018, albeit with decreasing growth rates (growth rate is at 26% in
2003, 5% in 2004-2007, 3% in 2008-2018). Should such projections
come through, Sarabia would have the ability not just to pay off its
existing debts but also to carry on with its intended expansion. The
projected sustainability of its business, as mapped out in the
approved rehabilitation plan, makes Sarabia’s rehabilitation a more
viable option to satisfy the interests of its stakeholders in the long run
as compared to its immediate liquidation.
 Third, the interests of Sarabia’s creditors are well-protected. As
correctly perceived by the CA, adequate safeguards are found under
the approved rehabilitation plan, namely: (a) any deficiency in the
required minimum payments to creditors based on the presented
amortization schedule shall be paid personally by Sarabia’s
stockholders; (b) the conversion of the advances from stockholders
amounting to ₱18,748,306.00 and deferred credits amounting to
₱42,688,734 as of the December 31, 2002 tentative audited financial
statements to stockholder’s equity was granted; (c) all capital
expenditures which are over and above what is provided in the cash
flow of the approved rehabilitation plan which will materially affect
the cash position of the hotel but which are deemed necessary in
order to maintain the hotel’s competitiveness in the industry shall be
subject to the approval by the Court prior to implementation; (d) the
formation of Sarabia’s new management team and the requirement
that the latter shall be required to submit a comprehensive business
plan to support the generation of revenues as reported in the
Rehabilitation Plan, both short term and long term; (e) the
maintenance of all Sarabia’s existing real estate mortgages over hotel
properties as collaterals and securities in favor of BPI until the
former’s full and final liquidation of its outstanding loan obligations
with the latter; and (f) the reinstatement of the comprehensive surety
agreement of Sarabia’s stockholders regarding the former’s debt to
BPI. With these terms and conditions in place, the subsisting
obligations of Sarabia to its creditors would, more likely than not, be
satisfied. Therefore, based on the above-stated reasons, the Court
finds Sarabia’s rehabilitation to be feasible.

36.
PUERTO AZUL LAND vs. PACIFIC WIDE REALTY
G.R. No. 184000, September 17, 2014

FACTS:
PALI is a domestic corporation engaged in the business of developing
the Puerto Azul Complex located in Ternate, Cavite into a “satellite city,”
described as a “self-sufficient and integrated tourist destination community
with residential areas, resort/tourism, and retail commercial centers with
recreation areas like golf courses, jungle trails, and white sand lagoons.” To
finance the full operation of its business, PALI obtained loans in the total
principal amount of P640,225,324.00 from several creditors, among which
were East Asia Capital, Export and Industry Bank , Philippine National
Bank, and Equitable PCI Bank. Foreseeing the impossibility of meeting its
debts and obligations to its creditors as they fall due, PALI filed a Petition
for Suspension of Payments and Rehabilitation before the RTC.

RTC, finding PALI’s petition to be sufficient in form and substance, issued a

Stay Order pursuant to Section 6, Rule 4 of the Interim Rules on Corporate.
PALI submitted Rehabilitation Plan which is fifty percent (50%) reduction
of the principal obligation; condonation of the accrued and substantial
interests and penalty charges; repayment over a period of ten years, with
minimal interest of two percent (2%) for the first five years and five percent
(5%) for the next five years until fully paid, and only upon availability of
cash flow for debt service was later on approved by the RTC. Dissatisfied,
CGAM filed a petition for review before the CA objecting to the approval of
PALI’s Revised Rehabilitation Plan. CA granted PWRDC’s petition for
review and reversed the RTC Decision, thereby dismissing PALI’s petition
for rehabilitation. It found that the 50% “haircut” reduction on the
principal loan and the condonation of penalties and interests to be an
impairment of the parties’ loan
agreements.

ISSUE:
Whether or not the CA erred in reversing RTC Decision, thereby
dismissing PALI’s Revised Rehabilitation Plan?

RULING:
YES, the rehabilitation plan is contested on the ground that the same
is unreasonable and results in the impairment of the obligations of
contract.

PWRDC contests the following stipulations in PALI’s rehabilitation

plan: fifty percent (50%) reduction of the principal obligation; condonation
of the accrued and substantial interests and penalty charges; repayment
over a period of ten years, with minimal interest of two percent (2%) for the
first five years and five percent (5%) for the next five years until fully paid,
and only upon availability of cash flow for debt service.

The Supreme Court finds nothing onerous in the terms of PALI’s

rehabilitation plan. The Interim Rules on Corporate Rehabilitation
provides for means of execution of the rehabilitation plan, which may
include, among others, the conversion of the debts or any portion thereof to
equity, restructuring of the debts, dacion en pago, or sale of assets or of the
controlling interest.

The restructuring of the debts of PALI is part and parcel of its

rehabilitation. Moreover, per findings of fact of the RTC and as affirmed by
the CA, the restructuring of the debts of PALI would not be prejudicial to
the interest of PWRDC as a secured creditor. Enlightening is the
observation of the CA in this regard, viz.:

There is nothing unreasonable or onerous about the 50% reduction of

the principal amount when, as found by the court a quo, a Special Purpose
Vehicle (SPV) acquired the credits of PALI from its creditors at deep
discounts of as much as 85%. Meaning, PALI’s creditors accepted only 15%
of their credit’s value. Stated otherwise, if PALI’s creditors are in a position
to accept 15% of their credit’s value, with more reason that they should be
able to accept 50% thereof as full settlement by their debtor.

37.
MARILYN VICTORIO-AQUINO vs. PACIFIC PLANS, INC. and
MAMERTO A. MARCELO, JR.
G.R. No. 193108, December 10, 2014

FACTS:
Respondent Pacific Plans, Inc. (now “APEC”) is engaged in the
business of selling pre-need plans and educational plans, including
traditional open-ended educational plans (PEPTrads). PEPTrads are
educational plans where respondent guarantees to pay the planholder,
without regard to the actual cost at the time of enrolment, the full amount
of tuition and other school fees of a designated beneficiary.

Petitioner is a holder of two (2) units of respondent’s PEPTrads.

Foreseeing the impossibility of meeting its obligations to the availing plan
holders as they fall due, respondent filed a Petition for Corporate
Rehabilitation with the Regional Trial Court, praying that it be placed
under rehabilitation and suspension of payments. At the time of filing of
the Petition for Corporate Rehabilitation, respondent had more or less
34,000 outstanding PEPTrads.

The Rehabilitation Court issued a Stay Order, directing the

suspension of payments of the obligations of respondent and ordering all
creditors and interested parties to file their comments/oppositions,
respectively, to the Petition for Corporate Rehabilitation. The same Order
also appointed respondent Marcelo as the rehabilitation receiver.

Pursuant to the prevailing rules on corporate rehabilitation,

respondent submitted to the Rehabilitation Court its proposed
rehabilitation plan. Under the terms thereof, respondent proposed the
implementation of a “Swap,” which will essentially give the planholder a
means to exit from the PEPTrads at terms and conditions relative to a
termination value that is more advantageous than those provided under the
educational plan in case of voluntary termination.

The rehabilitation receiver submitted an Alternative Rehabilitation

Plan and was approved by the Court. However due to the fact that the value
of the Philippine Peso strengthened and appreciated, the rehabilitation
receiver submitted a Modified Rehabilitation Plan.

ISSUE:
Whether or not the Rehabilitation Court has the authority to
sanction a rehabilitation plan, or the modification thereof, even when the
essential feature of the plan involves forcing creditors to reduce their claims
against respondent.
RULING:
YES.
The Court upheld the “cram-down” power of the Rehabilitation Court
pursuant to Sec. 23 of FRIA which states that the court may approve a
rehabilitation plan over the opposition of creditors, holding a majority of
the total liabilities of the debtor if, in its judgment, the rehabilitation of the
debtor is feasible and the opposition of the creditors is manifestly
unreasonable.

Moreover, notwithstanding the rejection of the Rehabilitation Plan

by the creditors, the court may confirm the Rehabilitation Plan if all of the
following circumstances are present:

1. The Rehabilitation Plan complies with the requirements specified in

this Act;
2. The rehabilitation receiver recommends the confirmation of the
Rehabilitation Plan;
3. The shareholders, owners or partners of the juridical debtor lose at
least their controlling interest as a result of the Rehabilitation Plan;
and
4. The Rehabilitation Plan would likely provide the objecting class of
creditors with compensation which has a net present value greater
than that which they would have received if the debtor were under
liquidation.

38.
METROPOLITAN BANK AND TRUST COMPANY vs. S.F.
NAGUIAT ENTERPRISES, INC.
G.R. No. 178407, March 18, 2015

FACTS:
Sometime in April 1997, Spouses Rommel Naguiat and Celestina
Naguiat and S.F. Naguiat Enterprises, Inc. (S.F. Naguiat) executed a real
estate mortgage6 in favor of Metropolitan Bank and Trust Company
(Metrobank) to secure certain credit accommodations obtained from the
latter amounting to P17 million.

S.F. Naguiat filed a Petition for Voluntary Insolvency with Application

for the Appointment of a Receiver11 pursuant to Act No. 1956, as amended,
before the Regional Trial Court of Angeles City and which was raffled to
Branch 56. Among the assets declared in the Petition was the property
covered by TCT No. 58676 (one of the properties mortgaged to Metrobank).

Judge Buan issued the Order15 dated July 12, 2005, declaring S.F.
Naguiat insolvent; directing the Deputy Sheriff to take possession of all the
properties of S.F. Naguiat until the appointment of a receiver/assignee; and
forbidding payment of any debts due, delivery of properties, and transfer of
any of its properties.

Pending the appointment of a receiver, Judge Buan directed the

creditors, including Metrobank, to file their respective Comments on the
Petition.16 In lieu of a Comment, Metrobank filed a Manifestation and
Motion17 informing the court of Metrobank's decision to withdraw from
the insolvency proceedings because it intended to extrajudicially foreclose
the mortgaged property to satisfy its claim against S.F. Naguiat.

S.F. Naguiat defaulted in paying its loan.19 On November 8, 2005,

Metrobank instituted an extrajudicial foreclosure proceeding against the
mortgaged property. However, Executive Judge Gabitan-Erum issued the
Order23dated December 15, 2005 denying her approval of the Certificate of
Sale in view of the July 12, 2005 Order issued by the insolvency court.

The Court of Appeals rendered its Decision dismissing the Petition on

the basis of Metrobank's failure to "obtain the permission of the insolvency
court to extrajudicially foreclose the mortgaged property."28 The Court of
Appeals declared that "a suspension of the foreclosure proceedings is in
order, until an assignee [or receiver,] is elected or appointed [by the
insolvency court] so as to afford the insolvent debtor proper representation
in the foreclosure [proceedings]."

ISSUE:
Whether the Court of Appeals erred in ruling that prior leave of the
insolvency court is necessary before a secured creditor, like petitioner
Metropolitan Bank and Trust Company, can extrajudicially foreclose the
mortgaged property.

RULING:
NO. Act No. 1956 impliedly requires a secured creditor to ask the
permission of the insolvent court before said creditor can foreclose the
mortgaged property.

With the declaration of insolvency of the debtor, insolvency courts

"obtain full and complete jurisdiction over all property of the insolvent and
of all claims by and against [it.]"94 It follows that the insolvency court has
exclusive jurisdiction to deal with the property of the insolvent.95
Consequently, after the mortgagor-debtor has been declared insolvent and
the insolvency court has acquired control of his estate, a mortgagee may
not, without the permission of the insolvency court, institute proceedings to
enforce its lien. In so doing, it would interfere with the insolvency court's
possession and orderly administration of the insolvent's properties.96

It is true that under Section 59 of Act No. 1956, the creditor is given
the option to participate in the insolvency proceedings by proving the
balance of his debt, after deducting the value of the mortgaged property as
agreed upon with the receiver or determined by the court or by a sale of the
property as directed by the court; or proving his whole debt, after releasing
his claim to the receiver/sheriff before the election of an assignee, or to the
assignee. However, Section 59 of Act No. 1956 proceeds to state that when
"the property is not sold or released, and delivered up, or its value fixed, the
creditor [is] not allowed to prove any part of his debt," but the assignee
shall deliver to the creditor the mortgaged property. Hence, explicitly under
Section 59 and as a necessary consequence flowing from the exclusive
jurisdiction of the insolvency court over the estate of the insolvent, the
mortgaged property must first be formally delivered by the court or the
assignee (if one has already been elected) before a mortgagee-creditor can
initiate proceedings for foreclosure.97

Here, the foreclosure and sale of the mortgaged property of the

debtor, without leave of court, contravene the provisions of Act No. 1956
and violate the Order dated July 12, 2005 of the insolvency court which
declared S.F. Naguiat insolvent and forbidden from making any transfer of
any of its properties to any person.

Petitioner should have waited for the insolvency court to act on its
Manifestation and Motion before foreclosing the mortgaged property and
its lien (assuming valid) would not be impaired or its claim in any way
jeopardized by any reasonable delay. There are mechanisms within Act No.
1956 such as Section 59 that ensure that the interests of the secured
creditor are adequately protected. Parenthetically, mortgage liens are
retained in insolvency proceedings. What is merely suspended until court
approval is obtained is the creditor's enforcement of such preference.

On the other hand, to give the secured creditor a free hand in

foreclosing its collateral upon the initiation of insolvency proceedings may
frustrate the basic objectives of Act No. 1956 of maximizing the value of the
estate of the insolvent or obtaining the highest return possible from its sale
for the benefit of all the creditors (both secured and unsecured).

39.
YNGSON JR. vs. PNB
GR 171132, Aug 15, 2012

FACTS:
ARCAM applied for and was granted a loan by respondent PNB
between 1991 and 1993. ARCAM executed a Real Estate Mortgage over a
350,004-square meter parcel of land covered by TCT No. 340592-R and a
Chattel Mortgage over various personal properties consisting of machinery,
generators, field transportation and heavy equipment to secure the loan,
but ARCAM defaulted. PNB initiated extrajudicial foreclosure proceedings
in the Office of the Clerk of Court/Ex Officio Sheriff of the RTCof
Pampanga. The public auction was scheduled on December 29, 1993 for the
mortgaged real properties and December 8, 1993 for the mortgaged
personal properties. Prior to the scheduled dates, ARCAM filed before the
SEC a Petition for Suspension of Payments, Appointment of a Management
or Rehabilitation Committee, and Approval of Rehabilitation Plan, with
application for issuance of a TRO and writ of preliminary injunction on
December 7.

The SEC issued a TRO but in February the same year ruled that
ARCAM can no longer be rehabilitated and noted as there was no investor
that infused the necessary capital. SEC recommended that ARCAM be
dissolved and placed under liquidation. PNB revived the foreclosure case
and requested the RTC Clerk of Court to re-schedule the sale at public
auction of the mortgaged properties.

Petitioner Yngson, the liquidator filed with the SEC a motion to

nullify the auction sale, positing that all actions against companies which
are under liquidation, like ARCAM, are suspended because liquidation is a
continuation of the petition for suspension proceedings. SEC denied the
motion and ruled PNB was not barred from foreclosing the properties.

CA denied Yngson’s petition on procedural grounds.

ISSUE:
Whether or not PNB was not barred from foreclosing on the
mortgages?

RULING:
NO.
Under Republic Act No 10142, otherwise known as the Financial
Rehabilitation and Insolvency Act (FRIA) of 2010, the right of a secured
creditor to enforce his lien during liquidation proceedings is retained. The
petitioner’s argument on the right of first preference as regards unpaid
wages, the Court has elucidated in the case of Development Bank of the
Philippines vs. NLRC that a distinction should be made between a
preference of credit and lien. A preference applies only to claim which do
not attach to specific properties. A lien creates a charge on a particular
property. The right of first preference as regard unpaid recognized by
Article 110 of the Labor Code, does not constitute a lien on the property of
the insolvent debtor in favor of workers. It is but a preference of credit in
their favor, a preference in application. It is a method adopted to determine
and specify the order in which credits should be paid in the final
distribution of the proceeds of the insolvent’s assets. It is a right to a first
preference in the discharge of the funds of the judgment debtor.
Consequently, the right of preference for unpaid wages may not be invoked
in this case to nullify the foreclosure sales conducted pursuant to PNB’s
right as a secured creditor to enforce its lien on specific properties of its
debtor, ARCAM.
 40.
HOME GUARANTY CORP. vs. LA SAVOIRE DEVT CORP.
G.R NO. 168616, JANUARY 28, 2015

FACTS:
La Savoie Development Corporation (La Savoie) is a domestic
corporation. It is engaged in the business of "real estate development,
subdivision and brokering... the onset of the Asian financial crisis. La
Savoie found itself unable to pay its obligations. La Savoie filed before the
Regional Trial Court, Makati City a "petition for the declaration of state of
suspension of payments. Interim Rules of Procedure on Corporate
Rehabilitation (Interim Rules).

La Savoie's compliance and finding its "petition to... be sufficient in

form and substance," then Regional Trial Court... issued the Stay Order. As
a consequence of the stay order, petitioner is prohibited from selling,
encumbering, transferring, or disposing in any manner any of its properties
except in the ordinary course of business. It is further prohibited from
making any payment of its liabilities Home Guaranty Corporation filed an
Opposition even though "it [was] not a creditor of Petitioner." It asserted
that it had a "material and beneficial interest, in relation to the interest of
Philippine.

Veterans Bank (PVB), Planters Development Bank (PDB), and Land

Bank of the Philippines (LBP), which are listed as creditors of Petitioner.
Home Guaranty Corporation noted that through the "La Savoie Asset Pool
Formation and Trust Agreement"[16] (Trust Agreement), La Savoie
obtained financing for some of its projects through a securitization process
in which Planters Development Bank as nominal... issuer.
(LSDC certificates)... to be sold to investors... the LSDC certificates were
covered by a guaranty extended by. Home Guaranty Corporation through a
"Contract of Guaranty"

Home Guaranty Corporation argued that it and the investors on the

LSDC certificates had "preferential rights" over the properties making up
the Asset Pool as these "were conveyed as security or collaterals for the
redemption of the [LSDC... certificates]." Thus, they should be excluded
from the coverage of La Savoie's Petition for Rehabilitation.

The Regional Trial Court issued an Order denying due course to La

Savoie's Petition for Rehabilitation and lifting the June 4, 2003 Stay Order.
The trial court reasoned that the "findings of sufficiency in the form and
substance of... the petition for which a stay order was issued has been
flawed". It noted that per the Rehabilitation Receiver's Report, there were
"various inaccuracies in the material allegations of the petition and its
annexes.
 La Savoie filed an Appeal before the Court of Appeals. In the
meantime, Home Guaranty Corporation approved and processed the call on
the guaranty for the redemption of the LSDC certificates. Home Guaranty
Corporation, Planters Development Bank "absolutely conveyed and
assigned to [Home Guaranty Corporation] the ownership and possession of
the entire assets that formed part of the La Savoie Asset Pool."

Home Guaranty Corporation filed its Appellee's Brief. It argued that

all of the properties comprising the Asset Pool should be excluded from the
rehabilitation proceedings... the Court of Appeals... reversed, reinstated the
Stay Order, gave due course to the Petition for Rehabilitation, and
remanded the... case to the trial court for further proceedings.

The Court of Appeals characterized the inaccuracies noted by the trial

court as "minor" and "trivial," Home Guaranty Corporation filed before this
court the present Petition for Review on Certiorari. La Savoie filed its
Comment. It claimed that the supposed assignment and conveyance to
Home Guaranty Corporation was ineffectual considering that "at the time
of the guaranty call, the Stay Order... was admittedly in... effect."

ISSUE:
Whether or not the properties comprising the Asset Pool should be
excluded from the proceedings on La Savoie Development Corporation's
Petition for Rehabilitation.

RULING:
NO.
The Supreme Court (SC) finds the transfer of the Asset Pool to Home
Guaranty Corporation, without going through foreclosure proceedings, to
be in violation of the rule against pactum commissorium.—It is worth
emphasizing that the present Petition or Appeal, being a mere offshoot of
La Savoie’s original Petition for Rehabilitation, is not the act constitutive of
forum shopping. Forum shopping was committed not through the filing of
this Appeal but through the filing of Civil Case No. 05314 before the
Regional Trial Court. In any case, apart from this procedural lapse, we find
the transfer of the Asset Pool to Home Guaranty Corporation, without
going through foreclosure proceedings, to be in violation of the rule against
pactum commissorium. It is ineffectual and does not divest La Savoie of
ownership. Thus, even if valid payment was made by Home Guaranty
Corporation on its guaranty, ownership of the properties comprising the
Asset Pool was not vested in it. Accordingly, Home Guaranty Corporation
must await the disposition of La Savoie’s Petition for Rehabilitation in
order that a resolution may be had on how La Savoie’s obligations to it shall
be settled.

The filing of La Savoie’s Appeal did not restrain the effectivity of the
October 1, 2003 Order. It is true that generally, an appeal stays the
judgment or final order appealed from. Rehabilitation proceedings,
however, are not bound by procedural rules spelled out in the Rules of
Court. The Interim Rules, not the Rules of Court, was the procedural law,
which (at the time of the pivotal incidents in this case) governed
rehabilitation proceedings. In Rule 3, Section 5, the Interim Rules explicitly
carved an exception to the general principle that an appeal stays the
judgment or final order appealed from. Itexplicitly requires the issuance by
the appellate court of an order enjoining or restraining the order appealed
from.

Albeit requiring the intervention of the trustee of the Asset Pool,

Sections 13.1 and 13.2 spell out what is, for all intents and purposes, the
automatic appropriation by the paying guarantor of the properties held as
security. This is thus a clear case of pactum commissorium.—In this case,
Sections 13.1 and 13.2 of the Contract of Guaranty call for the “prompt
assignment and conveyance to [Home Guaranty Corporation] of all the
corresponding properties in the Asset Pool” that are held as security in
favor of the guarantor. Moreover, Sections 13.1 and 13.2 dispense with the
need of conducting foreclosure proceedings, judicial or otherwise. Albeit
requiring the intervention of the trustee of the Asset Pool, Sections 13.1 and
13.2 spell out what is, for all intents and purposes, the automatic
appropriation by the paying guarantor of the properties held as security.
This is thus a clear case of pactum commissorium. It is null and void.
Accordingly, whatever conveyance was made by Planters Development
Bank to Home Guaranty Corporation in view of this illicit stipulation is
ineffectual. It did not vest ownership in Home Guaranty Corporation. All
that this transfer engendered is a constructive trust in which the properties
comprising the Asset Pool are held in trust by Home Guaranty Corporation,
as trustee, for the trustor, La Savoie.

La Savoie’s continuing ownership entails the continuing competence

of the court having jurisdiction over the rehabilitation proceedings to rule
on how the properties comprising the Asset Pool shall be disposed,
managed, or administered in order to satisfy La Savoie’s obligations and/or
effect its rehabilitation.—The restoration of La Savoie’s status as a
corporation under receivership brings into operation the rule against
preference of creditors. On the second point, La Savoie’s continuing
ownership entails the continuing competence of the court having
jurisdiction over the rehabilitation proceedings to rule on how the
properties comprising the Asset Pool shall be disposed, managed, or
administered in order to satisfy La Savoie’s obligations and/or effect its
rehabilitation.

41.
METROPOLITAN BANK & TRUST COMPANY vs. G & P
BUILDERS, INC
G.R. No. 189509, November 23, 2015

FACTS:
 Respondent G & P Builders, Incorporated (G & P) filed a Petition for
Rehabilitation. Among the allegations in the Petition is that G & P
"obtained a loan from Metrobank and mortgaged twelve (12) parcels of land
as collateral[.]" G & P's loan obligation amounted to P52,094,711.00 at the
time of the filing of the Petition before the trial court. The trial court issued
a Stay Order. However, while the rehabilitation proceedings were pending,
Metrobank and G & P executed a Memorandum of Agreement (first MOA)
where the parties agreed that four (4) out of the 12 parcels of land
mortgaged would be released and sold. The sale of the parcels of land
amounted to P15,000,000.00. Pursuant to the first MOA, the amount was
deposited with Metrobank "for subsequent disposition and application [in
conformity with] the Court approved Rehabilitation Plan[.]"

The trial court approved the first MOA as a compromise agreement

between parties. Subsequently, Metrobank entered into a Loan Sale and
Purchase Agreement with Elite Union Investments Limited (Elite Union).
Metrobank sold G & P's loan account for P10,419,000.00. G & P, Elite
Union, and Spouses Victor and Lani Paras executed a Memorandum of
Agreement (second MOA) on September 15, 2006. Elite Union sold all its
rights, titles, and interests over G & P's account to Spouses Victor and Lani
Paras for the amount of P10,419,000.00.

Thereafter, G & P filed a Motion for the Release of Unapplied Deposit

with Metrobank. It cited the September 26, 2003 Order, which approved
the first MOA between G & P and Metrobank and provided that the
P15,000,000.00 proceeds of the sale of real properties that secured the
loan obligation be deposited with Metrobank.

Metrobank opposed the Motion and claimed that the deposit was not
covered by the contract transferring G & P's loan obligation to Elite
Union.32 According to Metrobank, the release of titles was conditioned on
the understanding that the proceeds would "be applied exclusively in favor
of Metrobank."

The rehabilitation court granted G & P's Motion and ordered the
release of unapplied deposit with Metrobank.35 It held that: the record
shows that creditor Metropolitan Bank and Trust Company sold the loan
account of petitioners to Elite Union Investment Ltd.. Metrobank has
absolutely and irrevocably sold, assigned and conveyed all its rights, title
and interests in and to the loan, including all the security interest,
mortgages, reimbursements rights, and similar rights and privileges related
to such loan.

Metrobank then filed before the Court of Appeals a Petition for

Review under Rule 43 of the Rules of Court. The Court of Appeals reversed
and set aside the Order of the rehabilitation court. According to the Court
of Appeals, G & P has no interest nor personality in asking for the release of
the deposit since the loan account was finally sold to Spouses Victor and
Lani Paras. The Court of Appeals also observed that the Petition should
have been dismissed outright since the Order was a mere interlocutory
order and could not be assailed through a Petition for Review under Rule
43 of the Rules of Court. Nevertheless, the Court of Appeals found that
Metrobank sold the entire obligation of G & P to Elite Union;46 hence,
Metrobank was not entitled to the P15,000,000.00 deposit.

Petitioner argues that the trial court's Orders were properly

challenged through an appeal under A.M. No. 04-9-07-SC in relation to
Rule 43 of the Rules of Court such that they are not interlocutory orders.
The assailed orders in this case "finally dispose of a specific and distinct
aspect of a case - the issue on the propriety of Respondent G & P's Motion
for the Release of Unapplied Deposit with Petitioner and Petitioner's right
to retain and consider the same deposit as already applied to Respondent G
& P's outstanding obligations."60 The trial court's Orders are conclusive as
to the release of the deposit to G & P until assailed and reversed on appeal.

ISSUE:
Whether the Orders of the trial court are interlocutory orders and,
thus, not appealable to the Court of Appeals via Rule 43 of the Rules of
Court;

RULING:
YES.
Petitioner's argument is devoid of merit. Under A.M. No. 04-9-07-
SC,82 which provides for the mode of appeal in cases involving corporate
rehabilitation, all decisions and final orders rendered by the trial court shall
be appealed to the Court of Appeals through a petition for review under
Rule 43 of the Rules of Court: 1. All decisions and final orders in cases
falling under the Interim Rules of Corporate Rehabilitation and the Interim
Rules of Procedure Governing Intra-Corporate Controversies under
Republic Act No. 8799 shall be appealable to the Court of Appeals through
a petition for review under Rule 43 of the Rules of Court. xxxxx

This court has laid down the test to determine whether an order is
final or merely interlocutory: "Does it leave something to be done in the
trial court with respect to the merits of the case? If it does, it is
interlocutory; if it does not, it is final." Interlocutory order refers to
something between the commencement and end of the suit which decides
some point or matter but it is not the final decision on the whole
controversy." Conversely, a final order is one which leaves to the court
nothing more to do to resolve the case. . . . In this case, the assailed orders
of the trial court are interlocutory in nature. The orders pertained to an
incidental matter: entitlement to the P15,000,000.00 deposit as proceeds
of the sale of properties that secured respondent G & P's loan obligation. In
contrast, the main proceeding before the commercial court concerns the
approval of the rehabilitation plan under the Interim Rules. To resolve the
merits of the case, the trial court, sitting as commercial court, must either
approve or disapprove the rehabilitation plan, depending on the feasibility
of the proposed plan to rehabilitate the corporation.
 Petitioner committed a procedural error when it filed a Petition for
Review before the Court of Appeals instead of filing a Petition for Certiorari
under Rule 65 of the Rules of Court. The distinction is important because
"[t]he remedy against an interlocutory order not subject of an appeal is an
appropriate special civil action under Rule 65 [.]"The reason behind the
rule is to prevent multiplicity of suits:

The reason for disallowing an appeal from an interlocutory order is to

avoid multiplicity of appeals in a single action, which necessarily suspends
the hearing and decision on the merits of the action during the pendency of
the appeals. Permitting multiple appeals will necessarily delay the trial on
the merits of the case for a considerable length of time, and will compel the
adverse party to incur unnecessary expenses, for one of the parties may
interpose as many appeals as there are incidental questions raised by him
and as there are interlocutory orders rendered or issued by the lower court.
An interlocutory order may be the subject of an appeal, but only after a
judgment has been rendered, with the ground for appealing the order being
included in the appeal of the judgment itself. Moreover, in contrast to a
final judgment or order, an interlocutory order "may not be questioned on
appeal except only as part of an appeal that may eventually be taken from
the final judgment rendered in the case."

42.
ASIATRUST DEVELOPMENT BANK vs. FIRST AIKKA
DEVELOPMENT, INC. and UNIVAC DEVELOPMENT, INC.
G.R. No. 179558, June 11, 2011

FACTS:
First Aikka Development, Inc. (FADI) and Univac Development, Inc.
(UDI) are domestic corporations engaged in the construction and/or
development of roads, bridges, infrastructure projects, subdivisions,
housing, land, memorial parks, and other industrial and commercial
projects for the government or any private entity or individual.

In the course of their business, FADI and UDI availed of separate

loan accommodations or credit lines with petitioner Asiatrust Development
Bank. Respondents religiously and faithfully complied with their loan
obligations, but during the Asian Financial Crisis, which directly and
adversely affected mainly the construction and real estate industry,
respondents could not pay their obligations in cash. This prompted
respondents to negotiate with petitioner for different modes of payment
that the former might avail of. Petitioner thus agreed that respondents
assign the receivables of their various contracts to sell involving the lots in
the residential subdivision projects they were developing, instead of paying
in cash. Notwithstanding the above agreement, petitioner insisted on
collecting the loan per the loan documents.

Respondents denied that they were in default because of the

assignment of their receivables to petitioner. Respondents contested
petitioners claim and demanded for an accounting to determine the correct
and true amount of their obligations. On May 10, 2006, respondents filed a
consolidated Petition for Corporate Rehabilitation with Prayer for
Suspension of Payments with the Regional Trial Court (RTC) of Baguio
City. Respondents alleged that they were unable to pay their loan based on
the claim of petitioner. Though they have sufficient assets to pay their loan,
respondents averred that they were not liquid. They also stated that they
were threatened by petitioner with various cases aimed at disrupting the
operations of respondents which might eventually lead to the cessation of
their business. Respondents prayed that an order be issued staying the
enforcement of any and all claims of their creditors, investors, and
suppliers, whether for money or otherwise, against petitioner, their
guarantors, and sureties. By way of rehabilitation, respondents also sought
the determination of the true and correct amount of their loan obligation
with petitioner.

The RTC ordered staying enforcement of all claims whether for

money or otherwise and whether such enforcement is by court action or
otherwise, against the debtors, their] guarantors and sureties not solidarily
liable with the debtors and appointed a rehabilitation receiver. On the day
of the initial hearing, petitioner, through its counsel Atty. Mario C. Lorenzo
(Atty. Lorenzo), went to court with a Motion for Leave of Court to Admit
Opposition to Rehabilitation Petition with the attached Opposition to
Petition for Rehabilitation. In an Order dated July 17, 2006, the RTC
denied the motion and explained: Under par. 9 of the Stay Order, all
creditors, etc., were given ten (10) days before the initial hearing to file
their comment or opposition to the petition and putting them on notice that
failure to do so will bar them from participating in the proceedings. On July
31, 2006, when the case was called for hearing, Enrico J. Ong (Ong)
appeared as representative of petitioner because the latters counsel could
not go to court due to the cancellation of his flight as a result of bad
weather. The rehabilitation court recognized the appearance of Ong only to
inform the court that the counsel for petitioner could not attend the
hearing. There being no other oppositors or creditors in court despite due
notices, the rehabilitation court terminated the initial hearing and directed
the rehabilitation receiver to evaluate respondents rehabilitation plan and
then report the results thereof to the court. On October 13, 2006, the
rehabilitation receiver called for a conference and presented the draft of the
rehabilitation report to petitioner, represented by Atty. Lorenzo and Ong,
and to respondents. Petitioner filed a manifestation and motion in court
calling its attention to the alleged refusal of the receiver to hear its side.
Petitioner thus asked for judicial assistance to enable it to actively
participate in the rehabilitation proceedings and protect its interest. The
receiver finalized and later on filed his evaluation report in court. He
recommended the approval of the rehabilitation plan. On December 5,
2006, the RTC issued an Order, the Motion of Oppositor Asiatrust to
participate in the Rehabilitation Proceedings is DENIED. As to the
Rehabilitation Report and the Integrated Revised Rehabilitation Plan and
Schedule of the petitioners, the court, after a careful and thorough
examination and review of the report, it is its considered judgment that the
rehabilitation of the debtor is feasible and hereby APPROVES the
Rehabilitation Report and the REVISED REHABILITATION PLAN.

ISSUES:
1. Whether or not the court has jurisdiction.
2. Whether or not the rehabilitation court, as affirmed by the
CA, correctly denied petitioners prayer to participate in the
rehabilitation proceedings because of the belated filing of its
Comment/Opposition to respondents petition for
rehabilitation
3. What is rehabilitation and its purpose?

RULING:
1. NO.
Records show that the Petition for Corporate Rehabilitation
with Prayer for Suspension of Payments was filed by two
corporations, namely, FADI and UDI. Respondent FADI is a real
estate corporation duly organized and existing under and by virtue of
Philippine laws, with principal place of business in Baguio City.
Respondent UDI, on the other hand, is a real estate corporation with
principal place of business in Pasig City. Respondents explain in their
petition that they filed the consolidated petition because they availed
of separate but intertwined loan obligations or credit lines, and that
they have interlocking directors, owners, and officers. As such, a full
and complete settlement of the loan obligations will involve the two
corporations and, consequently, the rehabilitation of one will entail
the rehabilitation of the other. We find that the consolidation of the
petitions involving these two separate entities is not proper. Although
FADI and UDI have interlocking directors, owners, and officers and
intertwined loans, the two corporations are separate, each with a
personality distinct from the other. To be sure, in determining the
feasibility of rehabilitation, the court evaluates the assets and
liabilities of each of these corporations separately and not jointly with
other corporations.

Sec. 2. Venue. Petitions for rehabilitation pursuant to these

Rules shall be filed in the Regional Trial Court having jurisdiction
over the territory where the debtors principal office is located.

Considering that UDIs principal office is located in Pasig City,

the petition should have been filed with the RTC in Pasig City and not
in Baguio City. The latter court cannot, therefore, take cognizance of
the rehabilitation petition insofar as UDI is concerned for lack of
 jurisdiction. This error, however, will not result in the dismissal of the
entire petition since the RTC of Baguio City had jurisdiction over the
petition of FADI in accordance with the above-quoted provision of the
Rules.

2. NO.
The Court promulgated the Rules in order to provide a remedy
for summary and nonadversarial rehabilitation proceedings of
distressed but viable corporations. These Rules are to be construed
liberally to obtain for the parties a just, expeditious, and inexpensive
disposition of the case. To be sure, strict compliance with the rules of
procedure is essential to the administration of justice. Nonetheless,
technical rules of procedure are mere tools designed to facilitate the
attainment of justice. Their strict and rigid application should be
relaxed when they hinder rather than promote substantial justice.
Otherwise stated, strict application of technical rules of procedure
should be shunned when they hinder rather than promote substantial
justice.

In this case, instead of filing its opposition to the petition for

rehabilitation at least ten days before the date of the initial hearing as
required by the Rules, petitioner filed a Motion for Leave of Court to
Admit Opposition to Rehabilitation Petition with the attached
Opposition to Petition for Rehabilitation on the date of the initial
hearing. Because the pleading was not filed on time, the RTC denied
the motion. While the court has the discretion whether or not to
admit the opposition belatedly filed by petitioner, it is our considered
opinion that the RTC gravely abused its discretion when it refused to
grant the motion, even as the factual circumstances of the case
require that the Rules be liberally construed in the interest of justice.
3. Corporate rehabilitation connotes the restoration of the debtor
to a position of successful operation and solvency, if it is shown that
its continued operation is economically feasible and its creditors can
recover by way of the present value of payments projected in the
rehabilitation plan, more if the corporation continues as a going
concern than if it is immediately liquidated. Rehabilitation
proceedings in our jurisdiction have equitable and rehabilitative
purposes. On the one hand, they attempt to provide for the efficient
and equitable distribution of an insolvent debtors remaining assets to
its creditors; and on the other, to provide debtors with a fresh start by
relieving them of the weight of their outstanding debts and permitting
them to reorganize their affairs. The purpose of rehabilitation
proceedings is to enable the company to gain a new Lease on life and
thereby allow creditors to be paid their claims from its earnings.

43.
BIR vs Lepanto Ceramics
 G.R. No. 224764
April 24, 2017

TOPIC: Financial Rehabilitation, Insolvency, Liquidation and

Suspension of Payments

FACTS
Lepanto Ceramics, Inc. (LCI) filed a petition for corporate
rehabilitation. Finding the same to be sufficient in form and substance, the
Rehabilitation Court issued a Commencement Order dated January 13,
2012 which, inter alia: (a) declared LCI to be under corporate
rehabilitation; (b) suspended all actions or proceedings, in court or
otherwise, for the enforcement of claims against LCI; (c) prohibited LCI
from making any payment of its outstanding liabilities as of even date,
except as may be provided under RA 10142; and (d) directed the BIR to file
and serve on LCI its comment or opposition to the petition, or its claims
against LCI.

BIR - personally and by publication - was notified of the

rehabilitation proceedings involving LCI and the issuance of the
Commencement Order related thereto. Despite the foregoing, the BIR,
through Misajon, et al., still opted to send LCI: (a) a notice of informal
informing the latter of its deficiency internal tax liabilities for the Fiscal
Year ending June 30, 2010; and (b) a Formal Letter of Demand requiring
LCI to pay deficiency taxes in the amount of ₱567,5 l 9,348.39,
notwithstanding the written reminder coming from LCI's court-appointed
receiver of the pendency of rehabilitation proceedings concerning LCI and
the issuance of a commencement order.

ISSUE:
Whether or not Misajon, et al. defied the Commencement Order,
hence guilty for indirect contempt?

RULING:
YES.
The acts of sending a notice of informal conference and a Formal
Letter of Demand are part and parcel of the entire process for the
assessment and collection of deficiency taxes from a delinquent taxpayer, -
an action or proceeding for the enforcement of a claim which should have
been suspended pursuant to the Commencement Order.

Unmistakably, Misajon, et al.'s foregoing acts are in clear defiance of

the Commencement Order. Petitioners' insistence that: (a) Misajon, et al.
only performed such acts to toll the prescriptive period for the collection of
deficiency taxes; and (b) to cite them in indirect contempt would unduly
interfere with their function of collecting taxes due to the government,
cannot be given any credence. They could have easily tolled the running of
such prescriptive period, and at the same time, perform their functions as
officers of the BIR, without defying the Commencement Order and without
violating the laudable purpose of RA 10142 by simply ventilating their claim
before the Rehabilitation Court.

After all, they were adequately notified of the LCI's corporate

rehabilitation and the issuance of the corresponding Commencement
Order. In sum, it was improper for Misajon, et al. to collect, or even attempt
to collect, deficiency taxes from LCI outside of the rehabilitation
proceedings concerning the latter, and in the process, willfully disregard
the Commencement Order lawfully issued by the Rehabilitation Court.
Hence, the RTC Br. 35 correctly cited them for indirect contempt.

44.
PHILIPPINE NATIONAL BANK AND EQUITABLE PCI BANK VS.
COURT OF APPEALS, SECURITIES AND EXCHANGE
CORPORATION, ASB HOLDING, ET.AL.
G.R. No. 165571, January 20, 2009

FACTS:
Petitioners Philippine National Bank (PNB) and Equitable PCI Bank
are members of the consortium of creditor banks constituted pursuant to
the Mortgage Trust Indenture (MTI)dated May 29, 1989, as amended,
by and between Rizal Commercial Banking Corporation-Trust and
Investments Division, acting as trustee for the consortium, and ASB
Development Corporation (ASBDC, formerly Tiffany Tower Realty
Corporation).Other members of the consortium include Metropolitan
Bank and Trust Company (Metrobank), Prudential Bank, Union
Bank of thePhilippines, and United Coconut Planters Bank.Private
respondents ASB Holdings, Inc., ASBDC, ASB Land, Inc., ASB Finance,
Inc., Makati Hope Christian School, Inc., Bel-Air Holdings
Corporation, Winchester Trading, Inc., VYL Holdings Corporation, and
Neighborhood Holdings, Inc. (ASB Group) are corporations engaged in
real estate development.The ASB Group is owned by Luke C.
Roxas.Under the MTI, petitioners granted a loan of PhP 1,081,000,000
to ASBDC secured by a mortgage of five parcels of land with
improvements.On May 2, 2000, private respondents filedwith the SEC a
verified petition for rehabilitation with prayer for suspension of
actions and proceedings pending rehabilitation pursuant to Presidential
Decree No. (PD) 902-A, as amended. The case was docketed as SEC
Case No. 05-00-6609. Private respondents stated that they possess
sufficient properties to cover their obligations but foresee inability to pay
them within a period of one year. They cited the sudden non-renewal
and/or massive withdrawal by creditors of their loans to ASB
Holdings, the glut in the real estate market, severe drop in the sale of
real properties, peso devaluation, and decreased investor confidence in
the economy which resulted in the non-completion of and failure to sell
their projects and default in the servicing of their credits as they fell
due.The ASB Group had assets worth PhP 19,410,000,000 and
liabilities worth PhP 12,700,000,000.Faced with at least 712 creditors,
317 contractors/suppliers, and 492 condominium unit buyers, and the
prospect of having secured and non-secured creditors press for payments
and threaten to initiate foreclosure proceedings, the ASB Group pleaded
for suspension of payments while working for rehabilitation with the
help of the SEC.Private respondents’ petition to the SEC was accompanied
by documentary requirements in accordance with the Rules of
Procedure on Corporate Recovery. Finding the petition sufficient in
form and substance, the SEC Hearing Panelissued on May 4, 2000 an
order suspending for 60 days all actions for claims against the ASB Group,
enjoining the latter from disposing its properties in any manner except
in the ordinary course of business and from paying outstanding
liabilities, and appointing Atty. Monico V. Jacob as interim receiver of the
ASB Group.Atty. Jacob was later replaced by Atty. Fortunato Cruz as
interim receiver.On the onset, the consortium of creditor banks prayed for
the dismissal of the petition. the ASB Group submitted a rehabilitation
plan to enable it to meet all of its obligations.The consortium of
creditor banks moved for its disapproval on the ground that it is not
viable; the proposals are unrealistic; and it collides with the freedom
of contract and the constitutional right against non-impairment of
contracts, particularly the release of portions of mortgaged properties
and waiver of interest, penalties, and other charges.The banks further
asserted that the Rehabilitation Plan does not explain the basis of the
selling values and the net realizable values of the properties; it
irregularly nets out inter-corporation transactions and offsets the
receivables amounting to PhP 5.23 billion from Roxas; and it shows that the
ASB Group is insolvent and should be subjected to liquidation
proceedings.The banks opposed the extension of the suspension order
sought by the ASB Group.The consortium also prayed for the early
resolution of their opposition to the petition.The SEC Hearing Panel
denied the opposition of the banks and allowed the filing of the
petition for rehabilitation. Since he ASB Group foresees its inability to
meet its obligations within one year, it was considered technically
insolvent and, thus, qualified forrehabilitation under Sec. 4-1 of the
Rules of Procedure on Corporate Recovery. The panel also held that
suspension of payment is necessarily an effect of the filing of the petition.
Upon motion by the ASB Group, the suspension period was extended
through an order datedOctober 27, 2000.The creditor banks appealed
the October 10 and 27, 2000 orders by filing before the SECen banca
Petition for Review on Certiorari with application for a temporary
restraining order.Subsequently, the Hearing Panel approved the
Rehabilitation Plan. The creditors filed a Supplemental Petition for
Review on Certiorari with the SECen bancto question the foregoing
order but the SEC en banc dismissed the petition. Petitioners went to
the CA via a petition for certiorari under Rule 65, alleging grave abuse of
discretion on the part of the SEC in dismissing the creditors’ petition for
review on the ground that 54% of the total obligations of the ASB Group
with creditor banks have been settled.Petitioners also questioned the
remedy availed of by the ASB Group since a solvent corporation cannot file
a petition for rehabilitation nor be placed under receivership.They
maintained that the SEC should not have approved the Rehabilitation
Plan over the objection of the consortium of creditor banks.TheCA upheld
the ruling of the SEC en banc and explained that the Rules does not
preclude a solvent corporation, like the ASB Group, to file a petition for
rehabilitation instead of just a petition for suspension of payments because
such temporary inability to pay obligations may extend beyond one year or
the corporation may become insolvent in the interim.It stated that the
determination of the sufficiency of the petition and the question of
propriety of the petition filed by the ASB Group are matters within
the technical competence and administrative discretion of the
SEC.Hence, this present petition.

ISSUE:
Is the filing of a petition for suspension of payments necessary
before a corporation which is technically insolvent may file a petition for
rehabilitation?

RULING:
NO.
The Court affirms the ruling of the appellate court. In cases of
technical insolvency, a petition for rehabilitation and suspension of
payments can be filed without previously filing a petition for suspension of
payments since these refer to different reliefs under the Rules.

The correct interpretation of these rules are the following:

(1) A corporation which has sufficient assets to cover its liabilities but
foresees its inability to pay its obligations as they fall due may file a petition
for suspension of payments under Rule III of the Rules (Sec. 3-1);
(2) If the SEC finds that the corporation’s inability to pay will last
more than one year from the filing of the petition for suspension of
payments, that is, the corporation becomes technically insolvent, the
petition shall be dismissed (Sec. 3-12);
(3) If the corporation is shown or actually becomes technically
insolvent anytime during the pendency of the proceedings (supervening
technical insolvency), the SEC may either terminate the proceedings or
it may, upon motion, treat the petition as one for rehabilitation (Sec. 3-
13); and
(4) If from the start, a corporation which has enough assets foresees
its inability to meet its obligations for more than one year, i.e., existing
technical insolvency, it may file a petition for rehabilitation under Rule IV,
Sec. 4-1.A reading of Sec. 4-1 shows that there are two kinds of insolvency
contemplated in it:
(1) actual insolvency, i.e., the corporation’s assets are not enough to
cover its liabilities; and
(2) technical insolvency defined under Sec. 3-12, i.e., the corporation
has enough assets but it foresees its inability to pay its obligations for more
than one year.
 In the case at bar, the ASB Group filed with the SEC a petition
for rehabilitation with prayer for suspension of actions and
proceedings pending rehabilitation.

Contrary to petitioners’ arguments, the mere fact that the ASB Group
averred that it has sufficient assets to cover its obligations does not make it
“solvent” enough to prevent it from filing a petition for rehabilitation. A
corporation may have considerable assets but if it foresees the
impossibility of meeting its obligations for more than one year, it is
considered as technically insolvent.

Thus, at the first instance, a corporation may file a petition for

rehabilitation—a remedy provided under Sec. 4-1.When Sec. 4-1
mentioned technical insolvency under Sec. 3-12, it was referring to the
definition of technical insolvency in the said section; it was not requiring a
previous filing of a petition for suspension of payments which petitioners
would have us believe. Petitioners harp on the SEC’s failure to examine
whether the ASB Group is technically insolvent. They contend that the SEC
should wait for a year after the filing of the petition for suspension of
payments when technical insolvency may or may not arise.

This is erroneous. The period mentioned under Sec. 3-12, “longer

than one year from the filing of the petition,” does not refer to a year-long
waiting period when the SEC can finally say that the ailing
corporation is technically insolvent to qualify for rehabilitation. The period
referred to the corporation’s inability to pay its obligations; when such
inability extends beyond one year, the corporation is considered
technically insolvent. Said inability may be established from the start
by way of a petition for rehabilitation, or it may be proved during the
proceedings for suspension of payments, if the latter was the first
remedy chosen by the ailing corporation. If the corporation opts for a
direct petition for rehabilitation on the ground of technical insolvency, it
should show in its petition and later prove during the proceedings that it
will not be able to meet its obligations for longer than one year from the
filing of the petition.

45.
G.R. No. 188146, February 01, 2017
PILIPINAS SHELL PETROLEUM CORPORATION, Petitioner, v.
ROYAL FERRY SERVICES, INC., Respondent.

FACTS:
Royal Ferry Services Inc. (Royal Ferry) is a corporation duly
organized and existing under Philippine law.5 According to its Articles of
Incorporation, Royal Ferry's principal place of business is located at 2521 A.
Bonifacio Street, Bangkal, Makati City.6 However, it currently holds office
at Room 203, BF Condominium Building, Andres Soriano corner Solano
Streets, Intramuros, Manila.7

Royal Ferry filed a verified Petition for Voluntary Insolvency before

the Regional Trial Court of Manila.8 It alleged that in 2000, it suffered
serious business losses that led to heavy debts.9 Efforts to revive the
company's finances failed, and almost all assets were either foreclosed or
sold to satisfy the liabilities incurred.

The Regional Trial Court declared Royal Ferry insolvent. Pilipinas

Shell Petroleum Corporation filed before the Regional Trial Court of Manila
a Formal Notice of Claim15 and a Motion to Dismiss. In its Motion to
Dismiss, Pilipinas Shell alleged that the Petition was filed in the wrong
venue.18 It argued that the Insolvency Law provides that a petition for
insolvency should be filed before the court with territorial jurisdiction over
the corporation's residence.19 Since Royal Ferry's Articles of Incorporation
stated that the corporation's principal office is located at 2521 A. Bonifacio
St., Bangkal, Makati City, the Petition should have been filed before the
Regional Trial Court of Makati and not before the Regional Trial Court of
Manila.

The Regional Trial Court of Manila issued the Order denying Pilipinas
Shell's Motion to Dismiss for lack of merit. Upon Motion, The Regional
Trial Court reconsidered the denial of Pilipinas Shell's Motion to Dismiss. It
held that a corporation cannot change its place of business without
amending its Articles of Incorporation. Without the amendment, Royal
Ferry's transfer did not produce any legal effect on its residence.25 The
Regional Trial Court granted the dismissal of the Petition for Voluntary
Insolvency.

The Appellate Court ruled reinstating the Insolvency proceedings

setting aside the Trial Court order

ISSUE:
Whether or not the Petition for Voluntary Insolvency was filed in a
proper venue where the company's residence is situated.

RULING:
YES.
Wrong venue is merely a procedural infirmity, not a jurisdictional
impediment. Jurisdiction is a matter of substantive law, while venue is a
matter of procedural law.82 Jurisdiction is conferred by law, and the
Insolvency Law vests jurisdiction in the Court of First Instance—now the
Regional Trial Court.

Jurisdiction is acquired based on the allegations in the complaint.

The relevant portion of respondent's Petition for Voluntary Insolvency
reads:
 Petitioner was incorporated on 18 October 1996 with principal place
of business in 2521 A. Bonifacio Street, Bangkal, Makati City. At present
and during the past six months, [Royal Ferry] has held office in Rm. 203 BF
Condo Building, Andres Soriano cor. Solana St., Intramuros, Manila, within
the jurisdiction of the Honorable Court, where its books of accounts and
most of its remaining assets are kept.

Section 14 of the Insolvency Law specifies that the proper venue for a
petition for voluntary insolvency is the Regional Trial Court of the province
or city where the insolvent debtor has resided in for six (6) months before
the filing of the petition.85 In this case, the issue of which court is the
proper venue for respondent's Petition for Voluntary Insolvency comes
from the confusion on an insolvent corporation's residence.

In Young Auto Supply Co. v. Court of Appeals: A corporation has no

residence in the same sense in which this term is applied to a natural
person. But for practical purposes, a corporation is in a metaphysical sense
a resident of the place where its principal office is located as stated in the
articles of incorporation... The Corporation Code precisely requires each
corporation to specify in its articles of incorporation the "place where the
principal office of the corporation is to be located which must be within the
Philippines"... The purpose of this requirement is to fix the residence of a
corporation in a definite place, instead of allowing it to be ambulatory.

As there is a specific law that covers the rules on venue, the Rules of
Court do not apply. The old Insolvency Law provides that in determining
the venue for insolvency proceedings, the insolvent corporation should be
considered a resident of the place where its actual place of business is
located six (6) months before the filing of the petition.

To determine the venue of an insolvency proceeding, the residence of

a corporation should be the actual place where its principal office has been
located for six (6) months before the filing of the petition. If there is a
conflict between the place stated in the articles of incorporation and the
physical location of the corporation's main office, the actual place of
business should control.

46.
46. WONDER BOOK CORP V PBCOM
GR 187316, July 16, 2012

FACTS:
Wonder Book filed a petition for rehabilitation. Wonder Book cited
the following as causes for its inability to pay its debts as they fall due: (a)
high interest rates, penalties and charges imposed by its creditors; (b) low
demand for gift items and greeting cards due to the widespread use of
cellular phones and economic recession; (c) competition posed by other
stores; and (d) the fire on July 19, 2002 that destroyed its inventories worth
P264 Million, which are insured for P245 Million but yet to be collected.
Wonder Book’s rehabilitation plan put forward a payment program that
guaranteed full payment of its loan from PBCOM after fifteen (15) years at a
reduced interest. RTC approved the RP.

PBCOM filed a petition for review of the approval of Wonder Book’s

rehabilitation plan, which the CA granted. According to the CA, Wonder
Book’s financial statements reveal that it is not merely illiquid but in a state
of insolvency. The CA noted that Wonder Book failed to support its petition
with reassuring “material financial commitments”. The CA also noted that
Wonder Book’s expected profits during the rehabilitation period are not
sufficient to cover its liabilities and reverse its dismal financial state.

ISSUE:
Whether or not Wonder Book’s petition for rehabilitation is
impressed with merit and this Court rules in the negative.

RULING:
NO.
Rehabilitation contemplates a continuance of corporate life and
activities in an effort to restore and reinstate the corporation to its former
position of successful operation and solvency. The purpose of rehabilitation
proceedings is to enable the company to gain a new lease on life and
thereby allow creditors to be paid their claims from its earnings. The
rehabilitation of a financially distressed corporation benefits its employees,
creditors, stockholders and, in a larger sense, the general public.

Rehabilitation is therefore available to a corporation who, while

illiquid, has assets that can generate more cash if used in its daily
operations than sold. Its liquidity issues can be addressed by a practicable
business plan that will generate enough cash to sustain daily operations,
has a definite source of financing for its proper and full implementation,
and anchored on realistic assumptions and goals. The figures appearing on
Wonder Book’s financial documents and the nature and value of its assets
are indeed discouraging

47.
ALLIED BANK V. EQUITABLE PCI
G.R NO. 191939, MARCH 14, 2018

FACTS:
Equitable PCI Bank, Inc. (EPCIB), as creditor, filed a petition for the
corporate rehabilitation of its debtor SCP with the RTC. The petition for
corporate rehabilitation is grounded on Section 1, Rule 4 of the Interim
Rules of Corporate Rehabilitation, which provides that "any debtor who
foresees the impossibility of meeting its debts when they respectively fall
due, or any creditor or creditors holding at least twenty-five percent (25%)
of the debtor's total liabilities, may petition the proper Regional Trial Court
to have the debtor placed under rehabilitation."

Apart from the foregoing agreements, Allied Banking Corporation

(ABC) granted SCP with a revolving credit facility denominated as a letter
of credit/trust receipt line in the amount of P100 million, which SCP
availed of to finance the importation of its raw materials. Pursuant to this
arrangement, SCP executed a trust receipt (TR), which authorizes ABC to
charge SCP's account in its possession under instances specified in
paragraph 9 thereof, viz:

In the event of any bankruptcy, insolvency, suspension of payment, or

failure, or assignment for the benefit of creditors, on my/our part, or of the
non-fulfillment of any obligation, or of the non-payment at maturity of any
acceptance specified hereon or under any credit issued by the ALLIED
BANKING CORPORATION for my/our account, or of the nonpayment of
any indebtedness on my/our part to the said bank, all obligations,
acceptances, indebtedness, and liabilities whatsoever shall thereupon (with
or without notice) mature and become due and payable. The ALLIED
BANKING CORPORATION is hereby constituted my/our attorney-in-fact,
with authority to examine my/our books and records, to charge my/our
account or to sell any other property of mine/ours in its possession, and to
liquidate any or all of my/our obligations under this Trust Receipt.

The RTC issued an Order (the subject order) granting EPCIB's

petition On 15 September 2006, petitioner applied the remaining proceeds
of SCP's Current Account (subject account) in the amount of
P6,750,000.00, maintained with its Aguirre Branch, to its obligations
under the TR.
On 29 October 2006, SCP filed an urgent omnibus motion alleging that
petitioner violated the rehabilitation court's stay order when it applied the
proceeds of its current account to the payment of obligations covered by the
stay order. Consequently, it prayed for ABC to immediately restore its
current account, credit back to said account the amount of P6,750,000.00,
and honor any and all transactions of SCP in said account.

The RTC issued a resolution (the subject resolution), finding merit in

SCP's position. The CA affirmed the resolution of the RTC

ISSUE/s:
1. Whether the rehabilitation court can reverse or invalidate acts
that are inconsistent with its stay order and are made after its
issuance but prior to its publication.
2. Whether the Rehabilitation Rules can be applied to resolve the
present petition, when the subject petition for rehabilitation was filed
under the Interim Rules.

RULING:
1. YES
The rehabilitation petition was filed by EPCIB under A.M. No.
00-8-10-SC dated 21 November 2000, or the 2000 Interim Rules of
Procedure on Corporate Rehabilitation (Interim Rules). However, the
Court enacted A.M. No. 12-12-11-SC, or the Financial Rehabilitation
Rules of Procedure (Rehabilitation Rules), which amended and
revised the Interim Rules and the subsequent 2008 Rules of
Procedure on Corporate Rehabilitation (2008 Rules), in order to
incorporate the significant changes brought about by Republic Act
No. 10142 (R.A. No. 10142), otherwise known as the Financial
Rehabilitation and Insolvency Act of 2010 (FRIA).

The Rehabilitation Rules provides that the court shall issue a

commencement order once it finds the petition for rehabilitation
sufficient in form and substance. This commencement order
primarily contains: a declaration that the debtor is under
rehabilitation, the appointment of a rehabilitation receiver, a
directive for all creditors to file their verified notices of claim, and an
order staying claims against the debtor. The rehabilitation
proceedings shall be deemed to have commenced from the date of
filing of the petition, which is also termed the commencement date.

Under the same Rules, the effects of such commencement order

shall retroact to the date that the petition was filed, and renders void
any attempt to collect on or enforce a claim against the debtor or to
set off any debt by the debtor's creditors, after the commencement
date.
The order issued by the RTC on 12 September 2006, which
effectively initiated rehabilitation proceedings and included a
suspension of all claims against SCP, is akin to the commencement
order under the Rehabilitation Rules. Clearly, therefore, if the
Rehabilitation Rules were to be applied, the directive of the
rehabilitation restoring SCP's current account and crediting back the
offset amount is valid and proper, since the offsetting was made on 15
September 2006, after the commencement date on 11 September
2006, when the petition for rehabilitation was filed.

2. YES.
Section 2, Rule 1 of the Rehabilitation Rules governs
rehabilitation cases already pending, except when its application
would not prove feasible or would work injustice, to wit:
SEC. 2. SCOPE. - xxx
These Rules shall similarly govern all further proceedings in
suspension of payments and rehabilitation cases already pending,
except to the extent that, in the opinion of the court, its application
would not be feasible or would work injustice, in which event the
procedures originally applicable shall continue to govern.
 The soundness of upholding the retroactive effect of a
commencement order is easily discernible. In Philippine Bank of
Communications v. Basic Polyprinters and Packaging Corporation,
the Court said that rehabilitation proceedings seek to give insolvent
debtors the opportunity to reorganize their affairs and to efficiently
and equitably distribute its remaining assets, viz:

Rehabilitation proceedings in our jurisdiction have equitable

and rehabilitative purposes. On the one hand, they attempt to provide
for the efficient and equitable distribution of an insolvent debtor's
remaining assets to its creditors; and on the other, to provide debtors
with a "fresh start" by relieving them of the weight of their
outstanding debts and permitting them to reorganize their affairs.
The purpose of rehabilitation proceedings is to enable the company to
gain a new lease on life and thereby allow creditors to be paid their
claims from its earnings.

The filing of a petition for the rehabilitation of a debtor, when

the court finds that it is sufficient in form and substance, is both (1)
an acknowledgment that the debtor is presently financially distressed;
and (2) an attempt to conserve and administer its assets in the hope
that it will eventually return to its former state of successful financial
operation and liquidity. The inherent purpose of rehabilitation is to
find ways and means to minimize the expenses of the distressed
corporation during the rehabilitation period by providing the best
possible framework for the corporation to gradually regain or achieve
a sustainable operating form.

Certainly, when a petition for rehabilitation is filed and

subsequently granted by the court, its purpose will be defeated if the
debtors are still allowed to arbitrarily dispose of their property and
pay their liabilities, outside of the ordinary course of business and
what is allowed by the court, after the filing of the said petition. Such
a scenario does not promote an environment where the debtor could
regain its operational footing, contrary to the dictates of
rehabilitation.

The petition itself, when granted by the court, is already a

recognition of the debtor's distressed financial status not only at the
time the order is issued, but also at the time the petition is filed. It is,
therefore, more consistent with the objectives of rehabilitation to
recognize that the effects of an order commencing rehabilitation
proceedings and staying claims against the debtor should retroact to
the date the petition is filed.

Accordingly, the Court finds that application of the

Rehabilitation Rules to the case at bar is proper, insofar as it clarifies
the effect of an order staying claims against a debtor sought to be
rehabilitated. Such application promotes a just and sound resolution
to the present controversy, bearing in mind the inherent purpose of
rehabilitation proceedings. It is also feasible, considering the subject
resolution was within the Rehabilitation Court's powers, wielded for
the same purpose identified in both the Interim Rules and the
Rehabilitation Rules which is to promote a timely, fair, transparent,
effective, and efficient rehabilitation of debtors.

Even if the retroactive effect under the Rehabilitation Rules is

inapplicable to the case at bar, the Interim Rules expressly provides
that the stay order is effective upon its issuance, viz:

Sec. 11. Period of the Stay Order. - The stay order shall be
effective from the date of its issuance until the dismissal of the
petition or the termination of the rehabilitation proceedings.
xxx
This Court quotes with approval the CA's disquisition on this
matter:

From the above provisions, a stay order issued by the court in a

corporate rehabilitation proceeding is effective from the date of its
issuance until the dismissal of the petition or the termination of the
rehabilitation proceedings. In fact, it is immediately executory.

In the case at bar, there is no doubt that the rehabilitation court

correctly held that the appellant is bound by the September 12, 2006
Stay Order as of the date of its issuance, the same being immediately
executory and effective without any further act, event, or condition
being necessary to compel compliance therewith as expressly
provided in Sec. 11, Rule IV and Sec. 5, Rule III of the Interim Rules
of Procedure on Corporate Rehabilitation.
Xxx

Taking into consideration the laudable objectives of

rehabilitation proceedings, the immediate effectivity of the stay order
means that the RTC, through an order commencing rehabilitation
and staying claims against the debtor, acknowledges that the debtor
requires rehabilitation immediately and therefore it can not only
prohibit but also nullify acts made after its effectivity, when such acts
are violative of the stay order, to prevent any irreparable detriment to
the debtor's successful restoration.

The foregoing is validated by the Interim Rules, where the court

can declare void any transaction made in violation of the stay order.
The publication requirement only means that all affected persons
must, to satisfy the requirements of due process, be notified that as of
a particular date, the debtor in question requires rehabilitation and
should temporarily be exempt from paying its obligations, unless
allowed by the court. Once due notice is made, the rehabilitation
court may nullify actions inconsistent with the stay order but which
 may have been taken prior to publication, precisely because prior to
publication, creditors may not yet be aware that they are to desist
from pursuing claims against the insolvent debtor.

Again, the immediate effectivity of the stay order can be traced

to the purpose of rehabilitation: once the necessity of rehabilitating
the debtor is recognized, through a petition duly granted, it is
imperative that the necessary steps to preserve its assets are taken at
the earliest possible time.
It is thus apparent that the RTC properly invalidated
petitioner's action made on 15 September 2006, after the subject
order was issued.

48.
LINGKOD MANGGAGAWA SA RUBBERWORLD vs.
RUBBERWORLD (PHILS.) INC.
G.R. NO. 153882 January 29, 2007

FACTS:
Rubberworld filed with the Department of Labor and Employment
(DOLE) a Notice of Temporary Partial Shutdown due to severe financial
crisis, therein announcing the formal actual company shutdown to take
effect on September 26, 1994. A copy of said notice was served on the
recognized labor union of Rubberworld, the Bisig Pagkakaisa-NAFLU, the
union with which the corporation had a collective bargaining agreement.

Bisig Pagkakaisa-NAFLU staged a strike. It set up a picket line in

front of the premises of Rubberworld and even welded its gate. As a result,
Rubberworld's premises closed prematurely even before the date set for the
start of its temporary partial shutdown.

Petitioner union, the Lingkod Manggagawa Sa Rubberworld, Adidas-

Anglo (Lingkod, for brevity), represented by its President, Sonia Esperanza,
filed a complaint against Rubberworld and its Vice Chairperson, Mr.
Antonio Yang, for unfair labor practice (ULP), illegal shutdown, and non-
payment of salaries and separation pay. In its complaint, docketed as
NLRC-NCR-Case No. 00-09-06637 (hereinafter referred to as ULP Case,
for brevity), petitioner union alleged that it had filed a petition for
certification election during the freedom period, which petition was granted
by the DOLE Regional Director. In the same complaint, petitioner union
claimed that the strike staged by Bisig Pagkakaisa-NAFLU was company-
instigated/supported. The said complaint was referred to Labor Arbiter
Ernesto Dinopol for appropriate action.

While the aforementioned complaint was pending with Labor Arbiter

Dinopol, Rubberworld filed with the SEC a Petition for Declaration of a
State of Suspension of Payments with Proposed Rehabilitation Plan. The
petition, docketed as SEC Case No. 11-94-4920, was granted by the SEC in
its Order 3 dated December 28, 1994, to wit:

Accordingly, with the creation of the Management Committee, all

actions for claims against Rubberworld Philippines, Inc. pending before
any court, tribunal, office, board, body, Commission or sheriff are hereby
deemed SUSPENDED.

Consequently, all pending incidents for preliminary injunctions, writ

of attachments, foreclosures and the like are hereby rendered moot and
academic.

Notwithstanding the SEC's aforementioned suspension order and

despite Rubberworld's submission on January 10, 1995 of a Motion to
Suspend Proceedings, 4 Labor Arbiter Dinopol went ahead with the ULP
case and rendered his decision 5 thereon on August 16, 1995.

ISSUE:
Whether upon the creation of a management committee or the
appointment of a rehabilitation receiver, all claims for actions "shall be
suspended accordingly, including labor cases.

RULING:
YES.
Section 5. In addition to the regulatory adjudicative functions of the
Securities and Exchange Commission over corporations, partnerships and
other forms of associations registered with it as expressly granted under
existing laws and decrees, it shall have original and exclusive jurisdiction to
hear and decide cases involving:
x x x
d) Petitions of corporations, partnerships or associations to be
declared in the state of suspension of payments in cases where the
corporation, partnership or association possesses sufficient property to
cover all its debts but foresees the impossibility of meeting them when they
respectively fall due or in cases where the corporation, partnership or
association has no sufficient assets to cover its liabilities, but is under the
management of a rehabilitation receiver or management committee created
pursuant to this Decree.

Section 6. In order to effectively exercise such jurisdiction, the

Commission shall possess the following powers:
x x x
c) To appoint one or more receivers of the property, real or personal,
which is the subject of the action pending before the Commission in
accordance with the pertinent provisions of the Rules of Court in such other
cases whenever necessary in order to preserve the rights of the parties-
litigants and/or protect the interest of the investing public and creditors: x
x x Provided, finally, That upon appointment of a management committee,
the rehabilitation receiver, board or body, pursuant to this Decree, all
actions for claims against corporations, partnerships, or associations under
management or receivership pending before any court, tribunal, board or
body shall be suspended accordingly. [Emphasis supplied]

As correctly ruled by the CA, the issue of applicability in labor cases of

the aforequoted provisions of PD 902-A, as amended, had already been
resolved by this Court in its earlier decisions in Rubberworld (Phils.), Inc.,
or Julie Yap Ong v. NLRC, Marilyn F. Arellano, et. al. 27 and Rubberworld
(Phils.), Inc. and Julie Y. Ong v. NLRC, Aquino, Magsalin, et. al, 28 supra.
In the first Rubberworld case, the Court upheld the applicability of PD 902-
A to labor cases pursuant to Section 5(d) and Section 6(c) thereof, with the
following pronouncements:
It is plain from the foregoing provisions of the law that "upon
the appointment [by the SEC] of a management committee or a
rehabilitation receiver," all actions for claims against the corporation
pending before any court, tribunal or board shall ipso jure be
suspended. The justification for the automatic stay of all pending
actions for claims "is to enable the management committee or the
rehabilitation receiver to effectively exercise its/his powers free from
any judicial or extra-judicial interference that might unduly hinder or
prevent the rescue of the debtor company. To allow such other actions
to continue would only add to the burden of the management
committee or rehabilitation receiver, whose time, effort and resources
would be wasted in defending claims against the corporation instead
of being directed toward its restructuring and rehabilitation." 29
x x x
x x x The law is clear: upon the creation of a management committee
or the appointment of a rehabilitation receiver, all claims for actions "shall
be suspended accordingly." No exception in favor of labor claims is
mentioned in the law. Since the law makes no distinction or exemptions,
neither should this Court. Ubi lex non distinguit nec nos distinguere
debemos.Allowing labor cases to proceed clearly defeats the purpose of the
automatic stay and severely encumbers the management committee's time
and resources. The said committee would need to defend against these
suits, to the detriment of its primary and urgent duty to work towards
rehabilitating the corporation and making it viable again. To rule otherwise
would open the floodgates to other similarly situated claimants and
forestall if not defeat the rescue efforts. Besides, even if the NLRC awards
the claims of private respondents, its ruling could not be enforced as long as
the petitioner is under the management committee.30

In Chua v. National Labor Relations Commission, we ruled that labor

claims cannot proceed independently of a bankruptcy liquidation
proceeding, since these claims "would spawn needless controversy, delays,
and confusion." 31 With more reason, allowing labor claims to continue in
spite of a SEC suspension order in a rehabilitation case would merely lead
to such results.
 49.
SPOUSES EDUARDO SOBREJUANITE and FIDELA
SOBREJUANITE, Petitioners, vs. ASB DEVELOPMENT
CORPORATION
G.R. No. 165675 September 30, 2005

FACTS:
Spouses Eduardo and Fidela Sobrejuanite (Sobrejuanite) filed a
Complaint1 for rescission of contract, refund of payments and damages,
against ASB Development Corporation (ASBDC) before the Housing and
Land Use Regulatory Board (HLURB).
Sobrejuanite alleged that they entered into a Contract to Sell with ASBDC
over a condominium unit and a parking space. They averred that despite
full payment and demands, ASBDC failed to deliver the property on or
before December 1999 as agreed. They prayed for the rescission of the
contract; refund of payments amounting to P2,674,637.10; payment of
moral and exemplary damages, attorney’s fees, litigation expenses,
appearance fee and costs of the suit.

ASBDC filed a motion to dismiss or suspend proceedings in view of

the approval by the Securities and Exchange Commission (SEC) on April
26, 2001 of the rehabilitation plan of ASB Group of Companies, which
includes ASBDC, and the appointment of a rehabilitation receiver. The
HLURB arbiter however denied the motion and ordered the continuation of
the proceedings.

The arbiter found that under the Contract to Sell, ASBDC should have
delivered the property to Sobrejuanite in December 1999; that the latter
had fully paid their obligations except the P50,000.00 which should be
paid upon completion of the construction; and that rescission of the
contract with damages is proper.

The HLURB Board of Commissioners affirmed the ruling of the

arbiter that the approval of the rehabilitation plan and the appointment of a
rehabilitation receiver by the SEC did not have the effect of suspending the
proceedings before the HLURB. The board held that the HLURB could
properly take cognizance of the case since whatever monetary award that
may be granted by it will be ultimately filed as a claim before the
rehabilitation receiver. The board also found that ASBDC failed to deliver
the property to Sobrejuanite within the prescribed period.

ASBDC filed an appeal before the Office of the President which was
dismissed for lack of merit. Hence, ASBDC filed a petition before the Court
of Appeals which the latter granted.

The Court of Appeals held that the approval by the SEC of the
rehabilitation plan and the appointment of the receiver caused the
suspension of the HLURB proceedings. The appellate court noted that
Sobrejuanite’s complaint for rescission and damages is a claim under the
contemplation of Presidential Decree (PD) No. 902-A or the SEC
Reorganization Act and A.M. No. 00-8-10-SC or the Interim Rules of
Procedure on Corporate Rehabilitation,because it sought to enforce a
pecuniary demand. Therefore, jurisdiction lies with the SEC and not
HLURB. It also ruled that ASBDC was obliged to deliver the property in
December 1999 but its financial reverses warranted the extension of the
period.

ISSUE/s:
1. What is the purpose for the suspension of the proceedings in view
of rehabilitation?
2. What is “claim” as defined in the Interim Rules of Procedure on
Corporate Rehabilitation?
3. Whether or not the proceedings before the HLURB be suspended
in light of the approved rehabilitation plan.

RULING:
1. The purpose for the suspension of the proceedings is to prevent
a creditor from obtaining an advantage or preference over another
and to protect and preserve the rights of party litigants as well as
the interest of the investing public or creditors. Such suspension is
intended to give enough breathing space for the management
committee or rehabilitation receiver to make the business viable
again, without having to divert attention and resources to
litigations in various fora. The suspension would enable the
management committee or rehabilitation receiver to effectively
exercise its/his powers free from any judicial or extra-judicial
interference that might unduly hinder or prevent the "rescue" of
the debtor company. To allow such other action to continue would
only add to the burden of the management committee or
rehabilitation receiver, whose time, effort and resources would be
wasted in defending claims against the corporation instead of
being directed toward its restructuring and rehabilitation.

2. The interim rules define a claim as referring to all claims or

demands, of whatever nature or character against a debtor or its
property, whether for money or otherwise. The definition is all-
encompassing as it refers to all actions whether for money or
otherwise. There are no distinctions or exemptions.
Incidentally, although the petition for rehabilitation with
prayer for suspension of actions and proceedings was filed before
the SEC on May 2, 2000,17 or prior to the effectivity of the interim
rules, the same would still apply pursuant to Section 1, Rule 1
thereof which provides:
Section 1. Scope – These Rules shall apply to petitions for
rehabilitation filed by corporations, partnerships, and associations
pursuant to Presidential Decree No. 902-A, as amended.
 3. YES.
In the decision of the HLURB arbiter, ASBDC was ordered to
pay P2,674,637.10 plus 12% interest from the date of actual payment
of each amortization, representing the refund of all the amortization
payments made by Sobrejuanite; P200,000.00 as moral damages;
P100,000.00 as exemplary damages; P100,000.00 as attorney’s fees;
and P50,000.00 as litigation expenses.

As such, the HLURB arbiter should have suspended the

proceedings upon the approval by the SEC of the ASB Group of
Companies’ rehabilitation plan and the appointment of its
rehabilitation receiver. By the suspension of the proceedings, the
receiver is allowed to fully devote his time and efforts to the
rehabilitation and restructuring of the distressed corporation.

It is well to note that even the execution of final judgments may

be held in abeyance when a corporation is under rehabilitation.
Hence, there is more reason in the instant case for the HLURB arbiter
to order the suspension of the proceedings as the motion to suspend
was filed soon after the institution of the complaint. By allowing the
proceedings to proceed, the HLURB arbiter unwittingly gave undue
preference to Sobrejuanite over the other creditors and claimants of
ASBDC, which is precisely the vice sought to be prevented by Section
6(c) of PD 902-A.

50.
Garcia vs PAL
G.R. No. 164856, August 29, 2007

FACTS:
PAL filed an administrative charged against its employees-herein
petitioners after they were allegedly caught in the act of sniffing shabu
when a team of company security personnel and law enforcers raided the
PAL Technical Centers Tool room Section.

After due notice, PAL dismissed petitioners for transgressing the PAL
Code of Discipline which prompted them to file a complaint for illegal
dismissal and damages which was granted by the Labor Arbiter and later on
an order of reinstatement was made.

However, NLRC reversed its decision. Prior to the promulgation of

the Labor Arbiters decision, the Securities and Exchange Commission
(SEC) placed PAL which was suffering from severe financial losses, under
an Interim Rehabilitation Receiver, who was subsequently replaced by a
Permanent Rehabilitation Receiver. Later on SEC granted the request of
PAL to exit from rehabilitation proceedings. Petitioners insisted for
payment of wages during the period between the Labor Arbiters order of
reinstatement pending appeal and the NLRC decision overturning that of
the Labor Arbiter.

ISSUE:
Whether or not petitioners may collect their wages during the period
between the Labor Arbiters order of reinstatement pending appeal and the
NLRC decision overturning that of the Labor Arbiter, now that PAL has
exited from rehabilitation proceedings?

RULING:
NO.
After the labor arbiter decision is reversed by a higher tribunal, the
employee may be barred from collecting the accrued wages, if it is shown
that the delay in enforcing the reinstatement pending appeal was without
fault on the part of the employer.

The test is two-fold: (1) there must be actual delay or the fact that the
order of reinstatement pending appeal was not executed prior to its
reversal; and (2) the delay must not be due to the employers unjustified act
or omission. If the delay is due to the employers unjustified refusal, the
employer may still be required to pay the salaries notwithstanding the
reversal of the Labor Arbiters decision.

In the case at bar, petitioners exerted efforts to execute the Labor

Arbiters order of reinstatement until they were able to secure a writ of
execution, albeit issued on October 5, 2000 after the reversal by the NLRC
of the Labor Arbiters decision. Technically, there was still actual delay
which brings to the question of whether the delay was due to respondents
unjustified act or omission. It is apparent that there was inaction on the
part of respondent to reinstate them, but whether such omission was
justified depends on the onset of the exigency of corporate rehabilitation. It
is settled that upon appointment by the SEC of a rehabilitation receiver, all
actions for claims before any court, tribunal or board against the
corporation shall ipso jure be suspended. As stated early on, during the
pendency of petitioners complaint before the Labor Arbiter, the SEC placed
respondent under an Interim
Rehabilitation Receiver. After the Labor Arbiter rendered his decision, the
SEC replaced the Interim Rehabilitation Receiver with a Permanent
Rehabilitation Receiver.

Case law recognizes that unless there is a restraining order, the

implementation of the order of reinstatement is ministerial and mandatory.
This injunction or suspension of claims by legislative fiat partakes of the
nature of a restraining order that constitutes a legal justification for
respondents noncompliance with the reinstatement order. Respondents
failure to exercise the alternative options of actual reinstatement and
payroll reinstatement was thus justified. Such being the case, respondents
obligation to pay the salaries pending appeal, as the normal effect of the
non-exercise of the options, did not attach.
 51.
PATRICIA CABRIETO DELA TORRE, REPRESENTED BY
BENIGNO T. CABRIETO, JR.,v. PRIMETOWN PROPERTY
GROUP, INC.
G.R. No. 221932 ; February 14, 2018

FACTS:
Primetown Property Group, Inc. (Respondent) is primarily engaged
in holding, owning and developing real estate. The ascent of respondent
was arrested and its shares were brought down by the Asian financial crisis
in 1997. It experienced financial difficulties due to the devaluation of the
Philippine peso, the increase in interest rates and lack of access to adequate
credit.

Thus, in 2003, respondent filed a petition for corporate rehabilitation

and a stay order was issued. Patricia Cabrieto dela Torre filed a Motion for
Leave to Intervene seeking judicial order for specific performance, i.e., for
respondent to execute in her favor a deed of sale covering Unit 3306,
Makati Prime Citadel Condominium which she bought from the former as
she had allegedly fully paid the purchase price.

Respondent opposed the motion arguing that it was filed out of

time considering that the Stay Order was issued on August 15, 2003
and under the Interim Rules of Procedure on Corporate Rehabilitation
(Interim Rules), any claimants and creditors shall file their claim before the
rehabilitation court not later than ten (10) days before the date of the initial
hearing; and that since the Stay Order was issued on August 15, 2003 and
the publication thereof was done in September 2003 with the initial
hearing on the petition set on September 24 2003, the motion for
intervention should have been filed on or before September 14, 2003.

RTC granted the motion for intervention. RTC denied the MR. CA
annulled and set aside the decision of the RTC and denied petitioner’s
motion for intervention.

ISSUE:
Whether or not petitioner’s claim is suspended due to the stay order

RULING:
YES.
An essential function of corporate rehabilitation is the Stay
Order which is a mechanism of suspension of all actions and claims
against the distressed corporation upon the due appointment of a
management committee or rehabilitation receiver. It is provided under the
law that if the RTC finds the petition to be sufficient in form and substance,
it shall issue, not later than five (5) days from the filing of the petition, an
Order as follows:
(a) appointing a Rehabilitation Receiver and fixing his bond;
 (b) staying enforcement of all claims, whether for money or otherwise
and whether such enforcement is by court action or otherwise, against the
debtor, its guarantors and sureties not solidarity liable with the debtor;
(c) prohibiting the debtor from selling, encumbering,
transferring, or disposing in any manner any of its properties except in
the ordinary course of business;
(d) prohibiting the debtor from making any payment of its liabilities
outstanding as at the date of filing of the petition;

In addition, it is also stated under the same Section that all creditors
and all interested parties are directed to file and serve on the debtor a
verified comment on or opposition to the petition not later than ten (10)
days before the date of the initial hearing and their failure to do so
will bar them from participating in the proceedings. In this case,
respondent filed a petition for rehabilitation and suspension of
payments with the RTC which issued a Stay Order on August 15,
2003.

The initial hearing was set on September 24, 2003; thus, any
comment or opposition to the petition should have been filed 10 days
before the initial hearing but petitioner did not file any and already barred
from participating in the proceedings. However, petitioner filed a motion
for leave to intervene on October 15, 2004, one year after, praying that
respondent be ordered to execute in her favor a deed of absolute sale over
Unit 3306 of the Makati Prime Citadel Condominium, subject matter of
their earlier contract to sell. It bears stressing that intervention is
prohibited under Section 1,14 Rule 3 of the Interim Rules.

Hence, the RTC should not have entertained the petition for
intervention at all. Petitioner's prayer in intervention for respondent to
execute the deed of sale in her favor for the condominium unit is a claim as
defined under the Interim Rules which is already stayed as early as August
15, 2003. In fact, the same order also prohibited respondent from selling,
encumbering, transferring or disposing in any manner of any of its
properties, except in the ordinary course of business. The RTC's Order
granting petitioner's intervention and directing respondent to execute a
deed of sale in her favor and to deliver the copy of the owner's duplicate
copy of the condominium certificate, with all the pertinent documents
needed to effect registration of the deed of sale and issuance of a new title
in petitioner's name, is a violation of the law. And the RTC gave undue
preference to petitioner over respondent's other creditors and claimants.
The CA correctly found that the RTC committed grave abuse of discretion
in issuing its Orders dated August 24, 2011 and April 16, 2012.

52.
JOSELITO HERNAND M. BUSTOS, Petitioner, v. MILLIANS
SHOE, INC., SPOUSES FERNANDO AND AMELIA CRUZ, AND
THE REGISTER OF DEEDS OF MARIKINA CITY, Respondents.
 G.R. No. 185024, April 24, 2017

FACTS:
Spouses Fernando and Amelia Cruz owned a 464-square-meter lot
covered by Transfer Certificate of Title (TCT) No. N-126668. On 6 January
2004, the City Government of Marikina levied the property for non-
payment of real estate taxes. Petitioner then applied for the cancellation of
TCT of the property. Marikina City RTC, rendered a final and executory
Decision ordering the cancellation of the previous title and the issuance of a
new one under the name of petitioner.

Petitioner moved for the exclusion of the subject property from the
Stay Order. He claimed that the lot belonged to Spouses Cruz who were
mere stockholders and officers of MSL He further argued that since he had
won the bidding of the property before the annotation of the title, the
auctioned property could no longer be part of the Stay Order. The RTC
denied the entreaty of petitioner. It ruled that because the period of
redemption had not yet lapsed at the time of the issuance of the Stay Order,
the ownership thereof had not yet been transferred to petitioner.

Petitioner moved for reconsideration, but to no avail. He then filed an

action for certiorari before the CA. He asserted that the Stay Order
undermined the taxing powers of the local government unit. He also
reiterated his arguments that Spouses Cruz owned the property, and that
the lot had already been auctioned to him.

The said parcel of land which secured several mortgage liens for the
account of MSI remains to be an asset of the Cruz Spouses, who are the
stockholders and officers of MSI, a close corporation. Incidentally, as an
exception to the general rule, in a close corporation, the stockholders
and/or officers usually manage the business of the corporation and are
subject to all liabilities of directors, i.e. personally liable for corporate debts
and obligations. Thus, the Cruz Spouses being stockholders of MSI are
personally liable for the latter's debt and obligations. Petitioner
unsuccessfully moved for reconsideration. The CA maintained its ruling
and even held that his prayer to exclude the property was time-barred by
the 10-day reglementary period to oppose rehabilitation petitions under
Rule 4, Section 6 of the Interim Rules of Procedure on Corporate
Rehabilitation Before this Court, petitioner maintains three points: (1) the
Spouses Cruz are not liable for the debts of MSI; (2) the Stay Order
undermines the taxing power of Marikina City; and (3) the time bar rule
does not apply to him, because he is not a creditor of MSI. In their
Comment, respondents do not contest that Spouses Cruz own the subject
property. Rather, respondents assert that as stockholders and officers of a
close corporation, they are personally liable for its debts and obligations.
Furthermore, they argue that since the Rehabilitation Plan of MSI has been
approved, petitioner can no longer assail the same.

ISSUE:
 Whether the Court of Appeals correctly considered the properties of
Spouses Cruz answerable for the obligations of MSI.

RULING:
NO.
Situs Development Corp. v. Asiatrust Bank22 is analogous to the case
at bar. We held therein that the parcels of land mortgaged to creditor banks
were owned not by the corporation. but by the spouses who were its
stockholders. Applying the doctrine of separate juridical personality, we
ruled that the parcels of land of the spouses could not be considered part of
the corporate assets that could be subjected to rehabilitation proceedings.

In rehabilitation proceedings, claims of creditors are limited to

demands of whatever nature or character against a debtor or its property,
whether for money or otherwise.23 In several cases,24 we have already held
that stay orders should only cover those claims directed against
corporations or their properties, against their guarantors, or their sureties
who are not solidarily liable with them, to the exclusion of accommodation
mortgagors.25 To repeat, properties merely owned by stockholders cannot
be included in the inventory of assets of a corporation under rehabilitation.

Given that the true owner the subject property is not the corporation,
petitioner cannot be considered a creditor of MSI but a holder of a claim
against respondent spouses.26

Rule 4, Section 6 of the Interim Rules of Procedure on Corporate

Rehabilitation, directs creditors of the debtor to file an opposition to
petitions for rehabilitation within 10 days before the initial hearing of
rehabilitation proceedings. Since petitioner does not hold any claim over
the properties owned by MSI, the time-bar rule does not apply to him.

53.
JAPRL DEVT CORP vs. SECURITY BANK
GR 190107 June 6, 2011

FACTS:
JAPRL Development Corporation applied for and was granted a
credit facility (Letter of Credit/Trust Receipt) in the amount of Php
50,000.00 with Security Bank Corporation (SBC). Limson and Arollado,
JAPRL Chairman and President, respectively, executed a Continuing
Suretyship Agreement (CSA) in favour of SBC, wherein they guaranteed
obligations under the credit facility. On JAPRL’s proposal, SBC extended
the period of settlement of his obligations.

JAPRL’s financial adviser, MRM Management Incorporated (MRM),

convened JAPRL’s creditors, SBC included, for the purpose of restructuring
JAPRL’s existing loan obligations.

SBC soon discovered material inconsistencies in the financial

statements given by MRM vis-à-vis those submitted by JAPRL when it
applied for a credit facility, drawing SBC to conclude that JAPRL
committed mirepresentation. Thus, SBC sent a formal letter of demand to
JAPRL, Limson and Arollado for the immediate payment of Php
43,926,021.41 representing JAPRL’s outstanding obligations.

Petitioners failed to comply with the demand, hence SBC filed a

complaint for sum of money with application for issuance of writ of
preliminary attachment before RTC Makati against JAPRL, Limson and
Arollado.

During pendency of the case, SBC manifested in court that it received

a copy of a Stay Order issued by RTC Quezon City wherein JAPRL’s petition
for rehabilitation was lodged.

The RTC Makati at once ordered in open court archiving SBC’s

complaint for sum of money until disposition by RTC Quezon City of
JAPRL’s petition for rehabilitation. When RTC Makati reduced to writing
its open court order, however, it instead declared dismissal of SBC’s
complaint. SBC filed a motion for reconsideration, and moved to clarify the
Makati RTC Order, positing that the suspension of the proceedings should
only be with respect to JAPRL but not with respect to Limson and Arollado.
However, RTC Makati maintained its order archiving complaint against all
petitioners.

Meanwhile, the proposed rehabilitation plan before RTC Quezon City

was disapproved. On motion, RTC Makati thus reinstated SBC’s complaint.
Later, petitioners filed a manifestation informing that a Stay Order was
issued, this time by RTC Calamba, in a new petition for rehabilitation filed
by JAPRL. Again, RTC Makati archived SBC’s complaint against
petitioners. SBC moved for reconsiderations averring that its complaint
should not have been archived with respect to sureties Limson and
Arollado.

ISSUE:
Whether or not SBC can pursue its claim against Limson and
Arollado, as sureties, despite the pendency of JAPRL’s petition for
rehabilitation.

RULING:
 YES.
SBC can pursue its claim against Limson and Arollado despite the
pendency of JAPRL’s petition for rehabilitation. For, by the CSA in favor of
SBC, it is the obligation of the sureties, who are therein stated to be solidary
with JAPRL, to see to it that JAPRL’s debt is fully paid.

On a trial court’s suspension of proceedings against a surety of a

corporation in the process of rehabilitation, Banco de Oro EPCI, Inc. vs.
JAPRL Development Corporation holds that a creditor can demand
payment from the surety solidliable liable with the corporation seeking
rehabilitation, it being not included in the list of stayed calims.

Indeed, Section 6 (b) of the Interim Rules of Procedure of Corporate

Rehabilitation provides that a stay order does not apply to sureties who are
solidarily liable with the debtor. In Limson and Aroliado’s case their
solidary liability with JAPRL is documented.

Limson and Arollado, as sureties, whose liability is solidary cannot,

therefore, claim protection from the rehabilitation court, they not being
financially distressed corporation that may be restored, not to mention that
the rehabilitation court has no jurisdiction over them.

54.
ROBINSONS BANK V. GAERLAN
G.R NO. 195289, SEPTEMBER 24, 2014

FACTS:
World Granary Corporation (WGC) is engaged in the business of
mechanized bulk handling, transport and storage, warehousing, drying, and
milling of grains. It incurred loans amounting to P2.66 billion from RBC
and other banks and entities such as herein private respondent Trade and
Investment. Development Corporation of the Philippines (TIDCORP). It
appears that RBC is both a secured and unsecured creditor, while
TIDCORP is a secured creditor. WGC filed a petition for rehabilitation in
the RTC and later on was approved. It issued a stay order for prohibiting
WGC from disposing or encumbering its properties and paying its
outstanding liabilities; prohibiting its suppliers from withholding their
goods and services; appointing a rehabilitation receiver; and directing
creditors and interested parties to file their respective comments to the
Petition.
RBC filed its Opposition to the Petition for Rehabilitation. WGC proposed a
plan of pari passu or equal sharing between the secured and unsecured
creditors. RTC gave due course to the Petition for Rehabilitation. TIDCORP
in its comment contended being a secured creditor it should enjoy
preference over the unsecured thus the law on preference of credits shall be
observed in resolving claims against corporations under rehabilitation. RBC
filed an opposition and insisted pari passu sharing.
 Thus TIDCORP filed a Petition for review on Trial Courts decision.
RBC filed an Urgent Motion for Intervention with attached Comment in
Intervention, which is anchored on its original claim and objection to
TIDCORP’s position – that the latter may not enjoy preferential treatment
over the other WGC creditors. Additionally, RBC argued that as an
unsecured creditor which stood to be affected by the outcome of
TIDCORP’s Petition, it should have been impleaded in the Petition; since it
was not impleaded, the Petition for review should be dismissed. Finally,
RBC pointed out that TIDCORP actually knew of the additional loans WGC
obtained as it approved. RBC therefore prayed that TIDCORP’s Petition for
Review be dismissed. TIDCORP maintained that intervention is not
allowed in rehabilitation proceeding under the interim rules even on
appeal, since an appeal is merely a continuation of the original action for
rehabilitation.
RBC filed a Motion for Reconsideration, arguing that the Interim Rules
covering prohibited pleadings apply only during rehabilitation proceedings
and before the rehabilitation court decides the case; after a decision is
rendered, the Rules of Court apply.

ISSUE:
Whether or not RBC has the legal right to participate in the
rehabilitation proceeding of WGC.

RULING:
YES.
To recall, TIDCORP’s Petition for Review sought to 1) nullify the pari
passus haring scheme directed by the trial court; 2) declare RBC and the
other creditor banks – which granted additional loans to WGC after the
latter executed its Indemnity Agreement with TIDCORP – guilty of
violating TIDCORP’s rights; and 3) grant preferential and special treatment
to TIDCORP over other WGC creditors. These remedies would undoubtedly
affect not merely the rights of RBC, but of all the other WGC creditors as
well, as their standing or status as creditors would be somewhat
downgraded, and the manner of recovery of their respective credits will be
altered if TIDCORP’s prayer is granted. Not to mention that some of them
are in danger of being held liable on TIDCORP’s accusations relative to its
Indemnity Agreement with WGC. Surely, if TIDCORP’s arguments are to be
considered and its remedies granted, the other creditors should be given
the opportunity to be heard by way of comment or opposition; they are
entitled to due process. “In its most basic sense, the right to due process is
simply that every man is accorded a reasonable opportunity to be heard. Its
very concept contemplates freedom from arbitrariness, as what it requires
is fairness or justice. It abhors all attempts to make an accusation
synonymous with liability.” Thus, the nature of TIDCORP’s Petition is such
that the other creditors like RBC must be allowed to participate in the
proceedings. They have an interest in the controversy where a final decree
would necessarily affect their rights. Indeed, the appellate court, on its own,
should have seen that the rights of RBC stand to be adversely affected by
the remedies prayed for by TIDCORP. Thus, the CA could have ordered
RBC to file its comment and allowed to participate therein. Just as the trial
court allowed RBC and TIDCORP to participate in the proceedings below,
the CA should have likewise allowed RBC to participate in the proceedings
before it. This is only fair and logical considering that, as admitted by
TIDCORP, RBC is already a party in the rehabilitation case, and that the
instant Petition for Review is merely a continuation of the proceedings
below.

To disallow the participation of RBC constitutes an evasion of the

appellate court’s positive duty to observe due process, a gross and patent
error that can be considered as grave abuse of discretion.

Likewise, when an adverse effect on the substantial rights of a litigant

results from the exercise of the court’s discretion, certiorari may issue. If
not, this Court possesses the prerogative and initiative to take corrective
action when necessary to prevent a substantial wrong or to do substantial
justice.

While TIDCORP is correct in arguing that intervention is not the

proper mode for RBC coming to the CA since it is already a party to the
rehabilitation proceedings, this merely highlights the former’s error in not
allowing the latter to participate in the proceedings just as it underscores
the appellate court’s blunder in not ordering that RBC be allowed to
comment or participate in the case so that they may be given the
opportunity to be heard on TIDCORP’s allegations and accusations. And
while RBC chose the wrong mode for interposing its comments and
objections in, this does not necessarily warrant the outright denial of its
chosen remedy; the Court is not so rigid as to be precluded from adopting
measures to insure that justice would be administered fairly to all parties
concerned. If TIDCORP must pursue its Petition for Review, then RBC
should be allowed to comment and participate in the proceedings. There is
no other solution to the impasse.

Finally, the CA committed another patent error in declaring that

RBC’s proper remedy was not to move for intervention, but to file a Petition
for Review of the trial court’s order. It failed to perceive the obvious fact
that there is nothing about the trial court’s order that RBC questioned;
quite the contrary, it sought to affirm the said order in toto and simply
prayed for the dismissal of TIDCORP’s Petition for Review. There is thus no
legal and logical basis for its conclusion that RBC should have resorted to a
Petition for Review just the same.

55.
REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE
SECURITIES AND EXCHANGE COMMISSION, V. PET PLANS,
INC.
G.R. No. 220782, December 05, 2018
FACTS:
Respondent PET Plans, Inc., a pre-need corporation registered with
the Securities and Exchange Commission (SEC), filed a Petition for
Corporate Rehabilitation with Prayer for Suspension of Payments before
the RTC, submitting therewith its proposed rehabilitation plan. The RTC
subsequently enjoined the enforcement of all claims against respondent
and appointed Atty. Danilo L. Concepcion as its rehabilitation receiver.

The RTC approved the rehabilitation receiver's Modified

Rehabilitation Plan (MRP) dated March 12, 2007, the salient features of
which are: (1) The continuation of respondent PET's pre-need business; (2)
Unification of respondent PET's three [3] existing trust funds [for
educational, pension and memorial plans] into a singular fund called the
Enhanced Value Fund [EVF] to be managed by the BPI Trust Department;
(3) The present pre-need plans would be converted into the Enhanced
Value Fund whose actual value would be enhanced by two [2] enhancers,
namely: [a] the earnings and growth of the unified trust fund; and [b] PET'
s annual contribution to the unified trust fund of 15% of its net income after
tax from the continuance of its pre-need business for a period of ten [1 O]
years from approval of the MRP.
Respondent filed an Omnibus Motion to revive and amend the MRP
and to exit from rehabilitation.

The rehabilitation receiver confirmed respondent's inability to

generate income from its pre-need business due to lack of license from the
SEC and the deteriorating market conditions since 2007. He recommended
the approval of the proposed amendment, finding it more favorable to the
planholders considering that the proposed amount was double the
company's projected income contribution and its effect on the EVP would
be immediate. Petitioner, however, opposed it, arguing that it was legally
impermissible under the Rules on Corporate Rehabilitation since it entailed
an alteration of a desired target under the MRP. Petitioner claimed that the
modification allowed by said Rules is limited to the means by which targets
may be achieved.

ISSUE:
Whether the Modified Rehabilitation Plan can be amended

RULING:
YES.
Section 22, Rule 3 of A.M. No. 00-8-10-SC19 or the Rules of
Procedure on Corporate Rehabilitation reads:

Sec. 22. Alteration or Modification of Rehabilitation Plan. -An

approved rehabilitation plan may, upon motion, be altered or modified, if,
in the judgment of the court, such alteration or modification is necessary to
achieve the desired targets or goals set forth therein.
 It is clear from the MRP that its goals or targets are: first, the
conversion of the three (3) existing types of pre-need plans into a single
plan to be known as the EVF, and second, the enhancement or "financial
growth"22 of the EVF. As expressly described in the MRP, the annual
contribution of 15% of petitioner's NIAT is merely one of two (2) enhancers
of the EVF. Evidently, therefore, the NIAT contribution is but a means to
achieve the goal of enhancing or augmenting the EVF.

As the CA noted, rehabilitation receivers are officers of the court,

tasked to study the best way to rehabilitate the company and to implement
the rehabilitation plan after its approval. 24 Their qualifications include
"expertise and acumen to manage and operate a business similar in size
and complexity to that of the debtor" and "knowledge in management,
finance and rehabilitation of distressed companies."25 Their
recommendation bears much weight as it is one of the factors which must
be considered by the court if it were to approve any modification of an
approved rehabilitation plan.

In fine, the questioned amendment of the MRP satisfies the standard

of Section 22, Rule 3 of the Rules of Procedure on Corporate Rehabilitation
as it has been established to be "necessary to achieve the desired targets or
goals set forth therein." Furthermore, as the CA observed, "(t)he fact that
the substitute contribution was favorable to the planholders was bolstered
by the record showing that the latter interposed no objection to the
proposal by PET Plans and the approval of the proposal by the trial court."

56.
TANTANO vs. ESPINA - CABOVERDE
G.R. No. 203585, July 29, 2013

FACTS:
Petitioners Mila CaboverdeTantano (Mila) and RosellerCaboverde
(Roseller)and their siblings, Ferdinand, Jeanny and Laluna, are the
registered owners and in possession of certain parcels of land, identified as
Lots 2, 3 and 4 located at Bantayan, Sindangan and Poblacion, Sindangan
in Zamboanga del Norte, having purchased them from their parents,
Maximo and DominaldaCaboverde. Respondents Eve and Fe Caboverde,
other siblings of petitioner, filed a complaint before the RTC of Sindangan,
Zamboanga del Norte where they prayed for the annulment of the Deed of
Sale purportedly transferring Lots 2, 3 and 4 from their parents Maximo
and Dominalda in favor of petitioners Mila and Roseller and their other
siblings, Jeanny, Laluna and Ferdinand.

During the pendency of Civil Case No. S-760, Maximo died. Eve and
Fe filed an Amended Complaint with Maximo substituted by his eight (8)
children and his wife Dominalda.
 As encouraged by the RTC, the parties executed a Partial Settlement
Agreement (PSA) where they fixed the sharing of the uncontroverted
properties among themselves, in particular, the adverted additional eight
(8) parcels of land including their respective products and improvements.
Before the RTC could act on the PSA, Dominalda, who, despite being
impleaded in the case as defendant, filed a Motion to Intervene separately
in the case. Mainly, she claimed that the verified Answer which she filed
with her co-defendants contained several material averments which were
not representative of the true events and facts of the case.

The court approved the PSA, leaving three (3) contested properties,
Lots 2, 3, and 4, for further proceedings in the main case. Fearing that the
contested properties would be squandered, Dominalda filed with the RTC
on July 15, 2008 a Verified Urgent Petition/Application to place the
controverted Lots 2, 3 and 4 under receivership. Mainly, she claimed that
while she had a legal interest in the controverted properties and their
produce, she could not enjoy them, since the income derived was solely
appropriated by petitioner Mila in connivance with her selected kin.
On August 27, 2009, the court heard the Application for Receivership and
persuaded the parties to discuss among themselves and agree on how to
address the immediate needs of their mother.6

Petitioners and their siblings filed a Manifestation formally

expressing their concurrence to the proposal for receivership on the
condition, inter alia, that Mila be appointed the receiver, and that, after
getting the 2/10 share of Dominalda from the income of the three (3)
parcels of land, the remainder shall be divided only by and among Mila,
Roseller, Ferdinand, Laluna and Jeanny. The court, however, expressed its
aversion to a party to the action acting as receiver and accordingly asked
the parties to nominate neutral persons.7

The Court granted the application for receivership and appointed

JESUS A. TAN and ANNABELLE DIAMANTE-SALDIA as receivers.
Undaunted, petitioners filed an Urgent Precautionary Motion to Stay
Assumption of Receivers dated August 9, 2010 reiterating what they stated
in their motion for reconsideration and expressing the view that the grant
of receivership is not warranted under the circumstances and is not
consistent with applicable rules and jurisprudence.

It should be stated at this juncture that after filing their Urgent

Precautionary Motion to Stay Assumption of Receivers but before the RTC
could rule on it, petitioners filed a petition for certiorari with the CA dated
September 29, 2010 seeking to declare null and void the February 8, 2010
Resolution of the RTC granting the Application for Receivership and its
July 19, 2010 Resolution denying the motion for reconsideration filed by
petitioners and appointing the receivers nominated by respondents. On
June 25, 2012, the CA rendered the assailed Decision denying the petition.

ISSUE:
 Whether or not the CA committed grave abuse of discretion in
sustaining the appointment of a receiver despite clear showing that the
reasons advanced by the applicant are not any of those enumerated by the
rules.

RULING:
YES.
The power to appoint a receiver is a delicate one and should be
exercised with extreme caution and only under circumstances requiring
summary relief or where the court is satisfied that there is imminent danger
of loss, lest the injury thereby caused be far greater than the injury sought
to be averted. The court should consider the consequences to all of the
parties and the power should not be exercised when it is likely to produce
irreparable injustice or injury to private rights or the facts demonstrate that
the appointment will injure the interests of others whose rights are entitled
to as much consideration from the court as those of the complainant.

Before appointing a receiver, courts should consider: (1) whether or

not the injury resulting from such appointment would probably be greater
than the injury ensuing if the status quo is left undisturbed; and (2)
whether or not the appointment will imperil the interest of others whose
rights deserve as much a consideration from the court as those of the
person requesting for receivership.

After carefully considering the foregoing principles and the facts and
circumstances of this case, We find that the grant of Dominalda’s
Application for Receivership has no leg to stand on for reasons discussed
below.

First, Dominalda’s alleged need for income to defray her medical

expenses and support is not a valid justification for the appointment of a
receiver. The approval of an application for receivership merely on this
ground is not only unwarranted but also an arbitrary exercise of discretion
because financial need and like reasons are not found in Sec. 1 of Rule 59
which prescribes specific grounds or reasons for granting receivership. The
RTC’s insistence that the approval of the receivership is justified under Sec.
1(d) of Rule 59, which seems to be a catch-all provision, is far from
convincing. To be clear, even in cases falling under such provision, it is
essential that there is a clear showing that there is imminent danger that
the properties sought to be placed under receivership will be lost, wasted or
injured.

Second, there is no clear showing that the disputed properties are in

danger of being lost or materially impaired and that placing them under
receivership is most convenient and feasible means to preserve, administer
or dispose of them.
 57.
Ao-As vs CA
G.R. No. 128464, June 20, 2006

FACTS:
The Lutheran Church of the Philippines (LCP) consists of the Batong
group herein private respondent, who are the duly elected board of
directors and officers of the LCP were accused with the misconduct of
causing the dissipation, loss and wastage of LCP funds and assets by the
Ao-As group herein petitioners and have served in various capacities as
directors or officers of LCP. Thus, Ao-As group filed a complaint with the
SEC for accounting and damages, as well as appointment of a management
committee.

The Ao-As group alleges that the concurrence of only two (2) other
directors to authorize the release of surplus funds and the power of the
Board of Directors of the LCP to prepare the annual budget and annual
auditing of properties of LCP pursuant to the LCP by-laws, would result to
the dissipation, loss and wastage of the assets of LCP. The SEC ruled in
favor of the Ao-As group and ordered the creation of the management
group for LCP. The SEC en banc affirmed the decision of the SEC division.

However, upon appeal with the CA, the CA reversed and set aside the
decision of the SEC en banc. Thus, the appeal to the SC by the Ao As group,
hence this petition.

ISSUE:
Whether or not the creation of the management committee for
Lutheran Church of the Philippines is valid?

RULING:
NO. The creation of the management committee for LCP is invalid.
The appointment of a receiver for a going corporation is a last resort
remedy, and should not be employed when another remedy is available.

Relief by receivership is an extraordinary remedy and is never

exercised if there is an adequate remedy at law or if the harm can be
prevented by an injunction or a restraining order. Bad judgment by
directors, or even unauthorized use and misapplication of the company’s
funds, will not justify the appointment of a receiver for the corporation if
appropriate relief can otherwise be had.

The fact that the President of the LCP needs the concurrence of only
two other directors to authorize the release of surplus funds plainly
contradicts the conclusion of conspiracy among the presently 11-man
board. Neither does the fact that the Board of Directors of the LCP prepares
the annual budget and the annual auditing of properties of the LCP justify
the conclusion that the alleged acts of respondent Batong was done in
concert with the other directors. There should have been evidence that such
dissipation took place with the knowledge and express or implied consent
of most or the entire board.

Good faith is always presumed. As it is the obligation of one who

alleges bad faith to prove it, so should he prove that such bad faith was
shared by all persons to whom he attributes the same. The last resort
remedy of replacing the entire board, therefore, with a management
committee, is uncalled for.

58.
UMALE V. ASB REALTY CORPORATION
G.R. 181126, June 15, 2011

FACTS:
Amethyst Pearl executed a Deed of Assignment in Liquidation of a
parcel of land in favor of ASB Realty in consideration of Amethyst Pearl’s
outstanding capital stock from ASB Realty making ASB Realty the owner of
the parcel of land. ASB Realty commenced an action in the MTC for
unlawful detainer against Umale. ASB Realty alleged that it entered into a
lease contract with Umale for the period June 1, 1999-May 31, 2000. Their
agreement was for Umale to conduct a pay-parking business on the
property and pay a monthly rent of P60,720.00. Upon the contract's
expiration on continued occupying the premises and paying rentals.

ASB Realty served on Umale a Notice of Termination of Lease and

Demand to Vacate and Pay. ASB Realty stated that it was terminating the
lease effective midnight of June 30, 2003.Umale failed to comply with ASB
Realty's demands and continued in possession of the subject premises, even
constructing commercial establishments thereon

ISSUE:
Can a corporate officer of ASB Realty (duly authorized by the Board of
Directors) file suit to recover an unlawfully detained corporate property
despite the fact that the corporation had already been placed under
rehabilitation?

RULING:
YES.
What petitioners argue is that the corporate officer of ASB Realty is
incapacitated to file this suit to recover a corporate property because ASB
Realty has a duly-appointed rehabilitation receiver. Allegedly, this
rehabilitation receiver is the only one that can file the instant suit. -
Corporations, such as ASB Realty, are juridical entities that exist by
operation of law. As a creature of law, the powers and attributes of a
corporation are those set out, expressly or impliedly, in the law. - Corporate
Rehabilitation’s concept of preserving the corporation’s business as a going
concern while it is undergoing rehabilitation is called debtor-in-possession
or debtor-inplace.

59.
MAJORITY STOCKHOLDERS OF RUBY INDUSTRIAL
CORPORATION, PETITIONERS, VS. MIGUEL LIM
G.R. No. 165887, June 06, 2011

FACTS:
Ruby Industrial Corporation (RUBY) is a domestic corporation
engaged in glass manufacturing.Reeling from severe liquidity problems
beginning in 1980, RUBY filed onDecember 13, 1983a petition for
suspension of payments with the Securities and Exchange Commission
(SEC) docketed as SEC Case No. 2556.On December 20, 1983, the SEC
issued an order declaring RUBY under suspension of payments and
enjoining the disposition of its properties pending hearing of the petition,
except insofar as necessary in its ordinary operations, and making
payments outside of the necessary or legitimate expenses of its business.

The SEC Hearing Panel created the management committee

(MANCOM) for RUBY, composed of representatives from Allied Leasing
and Finance Corporation (ALFC), Philippine Bank of Communications
(PBCOM), China Banking Corporation (China Bank), Pilipinas Shell
Petroleum Corporation (Pilipinas Shell), and RUBY represented by Mr. Yu
Kim Giang.The MANCOM was tasked to perform the following functions:
(1) undertake the management of RUBY; (2) take custody and control over
all existing assets and liabilities of RUBY; (3) evaluate RUBYs existing
assets and liabilities, earnings and operations; (4) determine the best way
to salvage and protect the interest of its investors and creditors; and (5)
study, review and evaluate the proposed rehabilitation plan for RUBY.

Subsequently, two (2) rehabilitation plans were submitted to the SEC:

the BENHAR/RUBY Rehabilitation Plan of the majority stockholders led by
Yu Kim Giang, and the Alternative Plan of the minority stockholders
represented by Miguel Lim (Lim).
On March 17, 2000, Lim filed a Motion informing the SEC of acts being
performed by BENHAR and RUBY through directors who were illegally
elected, despite the pendency of the appeal before this Court questioning
the SEC approval of the BENHAR/RUBY Plan and creation of a new
management committee.

The MANCOM concurred with Lim and made a similar

manifestation/comment regarding the irregular and invalid capital infusion
and extension of RUBY's corporate term approved by stockholders
representing only 60% of RUBY's outstanding capital stock. The MANCOM
concurred with Lim and made a similar manifestation/comment regarding
the irregular and invalid capital infusion and extension of RUBY's
corporate term approved by stockholders representing only 60% of RUBY's
outstanding capital stock.
 The SEC declared that since its order declaring RUBY under a state of
suspension of payments was issued on December 20, 1983, the 180-day
period provided in Sec. 4-9 of the Rules of Procedure on Corporate
Recovery had long lapsed. Being a remedial rule, said provision can be
applied retroactively in this case. The SEC also overruled the objections
raised by the minority stockholders regarding the questionable issuance of
shares of stock by the majority stockholders and extension of RUBY's
corporate term, citing the presumption of regularity in the act of a
government entity which obtains upon the SEC's approval of RUBY's
amendment of articles of incorporation. It pointed out that Lim raised the
issue only in the year 2000. Moreover, the SEC found that notwithstanding
his allegations of fraud, Lim never proved the illegality of the additional
infusion of the capitalization by RUBY so as to warrant a finding that there
was indeed an unlawful act.

ISSUE:
Whether or not RUBY should commence liquidation proceedings,
which is allowed under Sec. 4-9 of the Rules on Corporate Recovery.

RULING:
YES. Liquidation, or the settlement of the affairs of the corporation,
consists of adjusting the debts and claims, that is, of collecting all that is
due the corporation, the settlement and adjustment of claims against it and
the payment of its just debts.[69] It involves the winding up of the affairs
of the corporation, which means the collection of all assets, the payment of
all its creditors, and the distribution of the remaining assets, if any, among
the stockholders thereof in accordance with their contracts, or if there be no
special contract, on the basis of their respective interests.

Since the corporate life of RUBY as stated in its articles of

incorporation expired, without a valid extension having been effected, it
was deemed dissolved by such expiration without need of further action on
the part of the corporation or the State. With greater reason then should
liquidation ensue considering that the last paragraph of Sec. 4-9 of the
Rules of Procedure on Corporate Recovery mandates the SEC to order the
dissolution and liquidation proceedings under Rule VI. Sec. 6-1, Rule VI
likewise authorizes the SEC on motion or motu proprio, or upon
recommendation of the management committee, to order dissolution of the
debtor corporation and the liquidation of its remaining assets, appointing a
Liquidator for the purpose, if "the continuance in business of the debtor is
no longer feasible or profitable or no longer works to the best interest of the
stockholders, parties-litigants, creditors, or the general public

The majority stockholders' eagerness to have the suspension order

lifted or vacated by the SEC without any order for its liquidation evinces a
total disregard of the mandate of Sec. 4-9 of the Rules of Procedure on
Corporate Recovery, and their obvious lack of any intent to render an
accounting of all funds, properties and details of the unlawful assignment
transactions to the prejudice of RUBY, minority stockholders and the
majority of RUBY's creditors. The majority stockholders and BENHAR's
conduits must not be allowed to evade the duty to make such full disclosure
and account any money due to RUBY to enable the latter to effect a fair,
orderly and equitable settlement of all its obligations, as well as distribution
of any remaining assets after paying all its debtors.

In view of the foregoing, the SEC should now be directed to transfer

this case to the proper RTC which shall supervise the liquidation
proceedings under Sec. 122 of the Corporation Code. Under Sec. 6 (d) of
P.D. 902-A, the SEC is empowered, on the basis of the findings and
recommendations of the management committee or rehabilitation receiver,
or on its own findings, to determine that the continuance in business of a
debtor corporation under suspension of payment or rehabilitation would
not be feasible or profitable nor work to the best interest of the
stockholders, parties-litigants, creditors, or the general public, order the
dissolution of such corporation and its remaining assets liquidated
accordingly. As mentioned earlier, the procedure is governed by Rule VI of
the SEC Rules of Procedure on Corporate Recovery.

However, R.A. No. 10142[81] otherwise known as the Financial

Rehabilitation and Insolvency Act (FRIA) of 2010, now provides for court
proceedings in the rehabilitation or liquidation of debtors, both juridical
and natural persons, in a manner that will "ensure or maintain certainty
and predictability in commercial affairs, preserve and maximize the value
of the assets of these debtors, recognize creditor rights and respect priority
of claims, and ensure equitable treatment of creditors who are similarly
situated." Considering that this case was still pending when the new law
took effect last year, the RTC to which this case will be transferred shall be
guided by Sec. 146 of said law, which states:

SEC. 146. Application to Pending Insolvency, Suspension of Payments

and Rehabilitation Cases. - This Act shall govern all petitions filed after it
has taken effect. All further proceedings in insolvency, suspension of
payments and rehabilitation cases then pending, except to the extent that in
opinion of the court their application would not be feasible or would work
injustice, in which event the procedures set forth in prior laws and
regulations shall apply.

60.
KAIZEN BUILDERS, INC. vs. CA
GR 226894, September 3, 2020

FACTS:
Ofelia Ursais (Ofelia) purchased from Kaizen Builders, Inc. (Kaizen
builders) (formerly Megalopolis Properties, Inc.) a house and lot situated in
White Pine Street, Camp 7, Baguio City. In 2007, the parties executed a
contract to sell where Kaizen Builders bought back from Ofelia the property
for P2,700,000.00 and swapped it with another house and lot in Kingstone
Ville. They deducted from the price the P300,000.00 unpaid balance of
Ofelia in White Pine property and the P2,200,000.00 value of Kingstone
Ville property. The remaining P200,000.00 shall be paid in cash. Later, the
parties replaced the contract to sell with another agreement where Ofelia
invested the P2,200,000.00 in Kaizen Builders' development of the
Kingstone Ville project. In 2008, however, the parties rescinded the
investment agreement where Ofelia received P320,000.00 from Kaizen
Builders. The parties then stipulated that the amount of P380,000.00 will
be paid on installment basis while the remaining P1,500,000.00 shall bear
an interest of 1.5% or P22,500.00 per month.

Despite repeated demands, Kaizen Builders stopped remitting the

monthly interest beginning November 2009 and refused to deliver the
P380,000.00. In 2011, Ofelia filed against Kaizen Builders and its chief
executive officer Cecille F. Apostol (Cecille) a complaint for sum of money
before the RTC. The RTC ordered Kaizen Builders and Cecille solidarity
liable to pay Ofelia.

Ofelia sought partial reconsideration claiming that the RTC failed to

include the P3 80,000.00 and the payment of monthly interest up to the
present. Later, Ofelia died and was substituted by her heirs. The RTC
granted the motion.

Aggrieved, Kaizen Builders and Cecille elevated the case to the CA.
Meantime, Kaizen Builders filed before the special commerce court a
petition for corporate rehabilitation, the rehabilitation court issued a
Commencement Order which consolidated all legal proceedings by and
against Kaizen Builders and suspended all actions for the enforcement of
claim against it. Accordingly, Kaizen Builders and Cecille moved to
consolidate the appealed case which the rehabilitation proceedings. The CA
denied the motion and explained that the appeal would not affect the
rehabilitation case since the two proceedings involved different parties,
issues and reliefs. The CA resolved to hold in abeyance the proceedings in
CA-GR. CV No. 102330. Dissatisfied, Kaizen Builders and Cecille filed a
Petition for Review on Certiorari under Rule 45 on the ground that the CA
committed reversible error in holding them liable to pay Ofelia’s heirs.

ISSUE:
Whether or not the Petition for Review on certiorari should be
granted.

RULING:
YES. An essential function of corporate rehabilitation is the
mechanism of suspension of all actions and claims against the distressed
corporation. Notably, RA No. 10142 makes no distinction as to the claims
that are suspended once a Commencement Order is issued. Here, it is
undisputed that Kaizen Builders filed a petition for corporate
rehabilitation.
 Finding the petition sufficient in form and substance, the
rehabilitation court issued a Commencement Order on August 12, 2015 or
during the pendency of the appeal in CA-G.R. CV No. 102330. Yet, the CA
proceed with the case and rendered judgment. On this point we find grave
abuse of discretion. To reiterate, the Commencement Order ipso jure
suspended the proceedings in the CA at whatever stage it may be,
considering that the appeal emanated from a money claim against a
distressed corporation which is deemed stayed the rehabilitation case.
Moreover, the appeal before the CA is not one of the instances where a
suspension order is inapplicable. The CA should have abstained from
resolving the appeal. Taken together, the CA clearly defied the effects of a
Commencement Order and disregarded the state policy to encourage
debtors and their creditors to collectively and realistically resolve and
adjust competing claims and property rights. Applying the pronouncement
in Lingkod Manggagawa sa Rubberworld and La Savoie Development
Corp., the CA’s Resolution dated December 8, 2015 and Decision dated
October 1, 2018 in CA-G.R. CV No. 102330 are void for having been
rendered with grave abuse of discretion and against the provisions of a
mandatory law. With findings warranting the grant of the petition for
certiorari and prohibition in G.R. No. 247647 sans a valid judgment.