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interests, and penalty charges.

After Leca’s receipt of

LECA REALTY CORPORATION vs. MANUELA Adea’s Report and Recommendation, petitioner
CORPORATION questioned the reduction of Manuela’s liability,
G.R. No. 166800 September 25, 2007 “considering its contractual nature which cannot be
FACTS: impaired during the process of rehabilitation.” The trial
court eventually approved the Rehabilitation Plan. Leca’s
appeal to the Court of Appeals was dismissed for lack of
Manuela Corporation (Manuela) is a duly registered
domestic corporation, principally engaged in the business
of leasing commercial spaces in shopping malls to
retailers. At the time, respondent owned and operated M The disagreement is grounded on the fact that the rental
Star One, M Star, Starmall, Metropolis Star, and Pacific rates agreed upon by Leca and Manuela were reduced in
Mall. the Rehabilitation Plan. There was a gross discrepancy
between the amounts of rent agreed upon by the parties
and those provided in the Rehabilitation Plan.
Manuela obtained several loans from two syndicates of
lenders to finance the costs of two of its buildings. Aside
from its Php2.174 billion loan from banks, the company Leca filed another petition before the appellate court
also had Php1.476 billion indebtedness to Hero Holdings, alleging violation of its constitutional right to non-
Inc. and its trade suppliers, and other parties. impairment contract and the Interim Rules of Procedure
on Corporate Rehabilitation. The Court of Appeals, in
denying the petition, ruled:
The region was then beset by the 1997 Asian financial
crisis which prompted banks to stop their lending activities.
This severely affected Manuela whose malls did not The pendency of the rehabilitation proceedings cannot be
operate sufficiently, causing serious losses to the interpreted to impair the contractual obligations previously
company. The adjusted interest rates on Manuela’s loans entered into by the contracting parties because the
were around 18% to 30%, which contributed to its liquidity automatic stay of all actions is sanctioned by P.D. [No.]
problems. 902-A which provides that “all actions for claims against
corporations, partnerships or associations under
management or receivership pending before any court,
The company, however, exerted all efforts to cushion the
tribunal, board or body shall be suspended accordingly.”
financial blow by “closing down non-income generating
1. Thus, Leca filed a petition for review on certiorari
businesses, concentrating on its business of leasing
before the Supreme Court.
commercial spaces, intensifying collection efforts,
reducing personnel, negotiating for restructuring of loan
with creditors, and working out a viable payment scheme
without giving undue preference to any creditor.” In spite
of all these initiatives, Manuela still failed to pay its
financial obligations.
Whether the pendency of the rehabilitation proceedings
This forced the company to ask the court to issue a Stay can justify impairment of contractual obligations previously
Order and approve its proposed Rehabilitation Plan, which entered into by the parties?
if successfully implemented will “enable it to settle its
remaining obligations in an orderly manner, restore its
financial viability, and allow it to resume its normal
No, the pendency of the rehabilitation plan can no justify
operations.” The trial court subsequently issued the Stay
the impairment of contractual obligations. The amount
Order, which stated:’
provided in the rehabilitation plan is null and void.
a) a stay in the enforcement of all claims, whether for
money or otherwise and whether such enforcement is by
court action or otherwise, against petitioner MANUELA, its RATIO:
guarantors and sureties not solidarily liable with it; … Petitioner, in support of its contention, cites in its
e) directing the payment in full of all administrative Memorandum the treatises of Ateneo Law Dean Cesar L.
expenses incurred after the issuance of this Stay Order. Villanueva and former SEC Commissioner Danilo L.
Concepcion, both known authorities on Corporation Law.
In his Article which appeared in the Ateneo Law Journal,
The trial court appointed Marilou Adea as rehabilitation
Dean Villanueva said:
receiver. Adea recommended the approval of Manuela’s
The nature and extent of the power of the SEC to approve
Rehabilitation Plan and convened with Manuela’s
and enforce a rehabilitation plan is certainly an important
creditors for the latter to air their concerns.
issue. Often, a rehabilitation plan would require a
diminution, if not destruction, of contractual and property
Leca Realty Corporation (Leca) filed its Comment and/or rights of some, if not most of the various stakeholders in
Formal Claim against Manuela amounting to Php193.7 the petitioning corporation. In the absence of clear
million, comprised of unpaid rentals, security deposits, coercive legal provisions, the courts of justice and much
less the SEC would have no power to amend or destroy
the property and contractual rights of private parties, much
less relieve a petitioning corporation from its contractual

On the other hand, Professor Concepcion stated that what

is allowed in rehabilitation proceedings is only the
suspension of payments, or the stay of all actions for
claims of distressed corporations, and upon its
successful rehabilitation, the claims must be settled
in full.

The Supreme Court, in agreeing with Leca, cited its ruling

in The Insular LifeAssurance Company, Ltd. v. Court of
Appeals, which provides:

When the language of the contract is explicit leaving no

doubt as to the intention of the drafters thereof, the courts
may not read into it any other intention that would
contradict its plain import. The Court would be rewriting
the contract of lease between Insular and Sun Brothers
under the guise of construction were we to interpret the
‘option to renew’ clause as Sun Brothers propounds it,
despite the express provision in the original contract of
lease and the contracting parties’ subsequent acts. As the
Court has held in Riviera Filipina, Inc. vs. Court of Appeals,
‘a court, even the Supreme Court, has no right to make
new contracts for the parties or ignore those already made
by them, simply to avoid seeming hardships. Neither
abstract justice nor the rule of liberal construction justifies
the creation of a contract for the parties which they did not
make themselves or the imposition upon one party to a
contract of an obligation not assumed.

The Court voided the Rehabilitation Plan insofar as it

amends the rental rates agreed upon by the parties. It
opined that the change is not justified as the amount of
rent is an “essential condition of any lease contract;” thus,
any alteration on the rate is tantamount to impairment of
stipulation of the parties.