[G.R. No. 123238.

July 11, 2005]

PAL vs. CA
SECOND DIVISION
Sirs/Mesdames:
Quoted hereunder, for your information, is a resolution of this Court dated JUL 11
2005.
G.R. No. 123238 (Philippine Airlines, Inc. vs. Court of Appeals, et al.)
Before us is a Motion For Suspension of Proceedings filed by petitioner
Philippine Airlines, Inc. (PAL) dated 14 July 1998, praying that the proceedings in
the instant Petition for Review on Certiorari be suspended by virtue of the
Securities and Exchange Commission's (SEC's) orders[1] dated 23 June 1998 and
01 July 1998, appointing an Interim Rehabilitation Receiver and enjoining the
suspension of all claims for payment against petitioner, respectively.

On 19 October 1998, the First Division of the Court required private

respondents spouses Manuel S. Buncio and Aurora Buncio, Deanna R. Buncio,
and Nikolai R. Buncio to comment on the motion to suspend proceedings. [10]
On 04 December 1998, private respondents filed their comment/opposition to
said motion.
On 20 October 2003, the case was transferred to the Second Division.
In a resolution dated 08 November 2004, the Court required the parties and
the SEC to manifest whether or not petitioner corporation was still under
receivership.[11] The parties and the SEC manifested that petitioner's rehabilitation
is ongoing, with Mr. Renato Z. Francisco as its Permanent Rehabilitation Receiver.
[12]

On 25 November 1981, private respondents spouses Manuel S. Buncio and

Aurora Buncio, Deanna R. Buncio, and Nikolai R. Buncio filed before the Court of
First Instance (now Regional Trial Court) of Quezon City, Branch 90, a complaint
for damages based on breach of contract of carriage against petitioner PAL,
docketed as Civil Case No. Q-33893.[2]

Invoking Section 6(c) of P.D. No. 902-A and the case of Bank of the Philippine
Islands v. Court of Appeals,[13] petitioner contends that upon the appointment of a
management committee or rehabilitation receiver, all actions for claims against
corporations, partnerships or associations are automatically stayed. It likewise
argued that the suspension of the proceedings will enable the rehabilitation
receiver to effectively exercise his powers, free from any judicial or extrajudicial
interference that might unduly hinder its recovery.

On 02 April 1990, after trial, the trial court rendered a decision finding
petitioner liable for damages.[3]

On the other hand, private respondents opposed the motion on the following
grounds:

Petitioner appealed the decision to the Court of Appeals.

In a decision dated 20 December 1995, the Court of Appeals affirmed in
toto the decision of the trial court.[4]
Undaunted, petitioner filed the instant petition for review on certiorari under
Rule 45 of the Rules of Court on 21 February 1996.[5]
During the pendency of the petition for review, petitioner filed with the SEC a
Petition for the Approval of Rehabilitation Plan and for Appointment of a
Rehabilitation Receiver on 19 June 1998.[6]
In an order,[7] dated 23 June 1998, the SEC approved petitioner's petition.
Thereafter, on 01 July 1998, it issued an order [8] enjoining the suspension of all
claims for payment against petitioner.
By reason thereof, petitioner filed before this Court the instant Motion for
Suspension of Proceedings[9] on 23 July 1998 invoking Section 6(c) of Presidential
Decree (P.D.) No. 902-A. Said section provides, in part:
That upon appointment of 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.

1) that the instant motion has no legal or valid justification;

2) that the filing of the motion is merely intended to further delay the
termination of the case and that this case would not have reached this
Court had petitioner acknowledged its liability and had it not engaged
in the game of technicalities;
3) that the action was commenced long before the receivership, thus,
even assuming that the case falls within the legal concept of
receivership, no leave of the SEC is required to proceed with the
instant action;
4) that the SEC is an administrative body or tribunal with limited
jurisdiction, and as such could only wield such powers that are
specifically granted to it by law, hence its jurisdiction should be
interpreted in strictissimi juris;
5) that the appointment of a receiver is not intended to divest the Court
of its authority to finally adjudicate this case.
The pertinent provisions of law dealing with the suspension of actions for
claims against corporations are Section 5 and Section 6(c) of P.D. No. 902-A, [14] as
amended, which read:

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:
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:
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:.. 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. (underlining
supplied)
In BF Homes, Incorporated v. Court of Appeals, [15] although the collection suit
against the corporation was still at its initial stage in the Regional Trial Court when
its Petition for Rehabilitation and for a Declaration in a State of Suspension of
Payments was approved by the SEC, we ruled therein that suspension of the
action was in order.
The rationale behind the suspension of claims pending rehabilitation
proceedings was elaborated thus:

dismissal, unfair labor practice, damages and payment of other benefits. On the
strength of the SEC order placing it under a management committee, Rubberworld
(Phils.) moved to suspend the proceedings of the labor cases. The labor arbiter
denied the motion holding that the injunction contained in the SEC order applied
only to the enforcement of established rights and did not include suspension of
proceedings involving claims against Rubberworld (Phils.) which have yet to be
ascertained. The Labor Arbiter further held that the order of the SEC suspending
all actions for claims against Rubberworld (Phils.) did not cover the claims of
employees in the labor cases because said claims, and the concomitant liability of
Rubberworld (Phils.), are still to be determined, thus carrying no dissipation of the
assets of the latter. This Court brushed aside the Labor Arbiter's posture and held
that the actions of the workers before the labor arbiter are among the actions that
are suspended upon the placing of the employer-corporation under management
committee. The Court in unequivocal language enunciated:
Clearly, the applicable law is P.D. 902-A, as amended, the relevant provisions of which
read:
...
It is plain from the foregoing provisions of law that "upon the appointment by the SEC of a
management committee or rehabilitation receiver," all actions for claims against the
corporation pending before any court, tribunal or board shall ipso jure be
suspended. (underlining supplied)
The Court continued:
. . . 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.

In light of these powers, the reason for suspending actions for claims against the
corporation should not be difficult to discover. It is not really to enable the management
committee or rehabilitation receiver to substitute the defendant in any pending action
against it before any court, tribunal, board or body. Obviously, the real justification 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 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. (Emphasis supplied)

In Philippine Airlines v. Kurangking,[17] a case involving a suit for damages for

breach of contract of carriage filed against PAL by some of its passengers before
the case could be heard on pre-trial, PAL, claiming to have suffered serious
business losses, filed a petition for the appointment of a rehabilitation receiver. The
petition was approved by the SEC and accordingly a management committee was
created. Thereupon, PAL moved for the suspension of the proceedings in the suit
for damages. The trial court denied the motion on the ground that the claims of the
passengers were yet to be established. Rejecting the stance of the trial court, we
pronounced that upon appointment of a rehabilitation receiver for the distressed
corporation, pending proceedings before the trial court against such corporation
must be suspended.

In Rubberworld (Phils.), Inc. v. NLRC,[16] Rubberworld (Phils.) was placed

under a management committee by the SEC. Subsequently, the alleged
employees of Rubberworld (Phils.) filed before the labor arbiter suits for illegal

On all fours with the instant motion is our Resolution in Philippine Airlines, Inc.
v. NLRC, et al.[18] PAL assailed via petition for certiorari under Rule 65 of the Rules
of Court the decision of the NLRC awarding separation pay to Aida Quijano, an

employee of PAL. During the pendency of the petition, PAL filed a Motion for
Suspension of Proceedings by virtue of the SEC order which appointed an Interim
Rehabilitation Receiver for PAL. The First Division of this Court noted the motion.
The case was subsequently unloaded to the Third Division of the Court. The Third
Division required the parties to submit memoranda and to address the question of
whether or not the Court should render judgment during the state of suspension of
claims. In its memorandum, PAL was of the position that the continuance of actions
for claims during receivership would add to the burden of the rehabilitation
receiver. It maintained that if such claim were granted, the employee, as a money
judgment creditor, would be in a position to assert a preference over other
creditors. On the other hand, the employee contended that the claim for separation
pay may be awarded despite the existence of receivership since said claim was
secured by the supersedeas bond posted by petitioner. The employee also argued
that the suspension of proceedings provided in Section 6(c) of P.D. 902-A pertains
to actions for claims against corporations placed under receivership and not to
petitions for certiorari initiated by the corporation under receivership. In a resolution
dated 04 September 2000, the Court granted PAL's motion ratiocinating in this
manner:
In Rubberworld (Phils.), Inc. v. NLRC, we held that worker's claim before the NLRC and
labor arbiters are included among the actions suspended upon the placing under
receivership of the employer-corporations. Although strictly speaking, the ruling in
Rubberworld dealt with actions for claims pending before the NLRC and labor arbiters, we
find that the rationale for the automatic suspension therein set out would apply to the
instant case where the employee's claim was elevated on certiorari before this Court. . . .
The Court holds that rendition of judgment while petitioner is under a state of receivership
could render violence to the rationale for suspension of payments in Section 6 (c) of P.D.
902-A, if the judgment would result in the granting of private respondent's claim to
separation pay, thus defeating the basic purpose behind Section 6 (c) of P.D. 902-A which
is to prevent dissipation of the distressed company's resources. (Underlining supplied)

In sum, upon the appointment by the SEC of a management committee or a

rehabilitation receiver, all actions for claims against a corporation pending before
any court, tribunal or board shall ipso jure be suspended in whatever stage such
actions may be found. No other action may be taken, including the rendition of
judgment during the state of suspension. It must be stressed that what are
automatically stayed or suspended are the proceedings of a suit and not just the
payment of claims during the execution stage after the case had become final and
executory. Our adherence to this rule has been unswerving and tenacious as
evidenced by its application in a plenitude of cases. [19]
The suspension of action for claims against a corporation under rehabilitation
receiver or management committee embraces all phases of the suit, be it before
the trial court or any tribunal or before this Court. Furthermore, the actions that are
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.[20]
Indeed, it is not difficult to discern the justification of the automatic suspension
of actions during receivership. Permitting such actions to proceed would only
increase the work-load of the management committee or the rehabilitation receiver,
whose precious time and effort would be dissipated and wasted in defending suits
against the corporation, instead of being channeled toward restructuring and
rehabilitation.
We are not prepared to depart from the well-established doctrines.
As to private respondents' allegation that the instant motion is intended to
merely delay the case, the same is unmeritorious since it is the law which
categorically mandates the suspension of the proceedings before the courts.
IN VIEW THEREOF, petitioner's Motion for Suspension of Proceedings dated
14 July 1998 is GRANTED.