ATTACHMENT D-3 epublic of the Philippines Supreme Court -Mlanila EN BANC PRYCE CORPORATION, Petitioner, ~versus- CHINA BANKING CORPORATION, Respondent. an eee RESOLUTION LEONEN, J: GR. No. 172302 Present: SERENO, C.J, CARPIO, VELASCO, JR. LBONARDO- “BRION, ~ PERALTA, BERSAMIN, DEL CASTILLO, ABAD, VILLARAMA, JR., PEREZ, MENDOZA, _REYES, PERLAS-BERNABE, and LEONEN, WU. Promulgated: FEBRUARY 18, 2014 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. On Leave,Resolution , a GR. No. 172302 ‘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." ‘The rchabilitation 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.* 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.’ In its disposition, the court found petitioner Pryce Corporation “eligible to be placed in a state of corporate rehabilitation.”* 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.’ On February 23, 2005, respondent China Banking Corporation elevated the case to the Court of Appeals. Its petition questioned the January 17, 2005 order that included the following terms: 1, The indebtedness. to China Banking Corporation and Bank of the Philippine Islands as well as the long term commercial papers will be paid through a dacion en pago of developed real estate assets of the’petitioner. XXXX 4, Allaccrued penalties are waived|.] 5. Interests shall accrue only up to July 13, 2004, the date of issuance of the stay order{.] 6. No interest will accrue during the pendency of petitioner's corporate reuabilitation[.] A.copy of this petition for corporate rehabilitation was attached as Annex * Rotto (vol. 1), pp. 120-1 “F" of the petition. 2 [d.at 135-136. A copy of this order dated July 13, 2004 was attached as Annex “G" of the petition, 3d, at 153155, A copy of this order dated September 13, 2004 was attuched as Annex “I" of the petition 1d, at 221-243, A copy ofthis order dated Junuury 17, 2005 was attached as Annex “KC” of the petition, 2 ta. nt 239, Id. at 239-243,GR_No. 172302 Resolution 7. Dollar-denominated loans will be converted to Philippine Pesos on the date of the issuance of this Order using the reference rate of the Philippine Dealing System as of this date. : Respondent China Banking Corporation contended that the rehabilitation plan’s approval impaired the obligations of contraets. 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.”* 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 antithctical to the avowed policies of the state to maintain a competitive financial system.”” 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. BPT called the attention of the court “to the non-impairment clause and the mutuality of contracts purportedly ran roughshod by the [approved rehabilitation plan].”'° On July 28, 2005, the Court of Appeals Seventh (7") Division'! granted respondent China Banking Corporation's petition, and reversed and set aside the rehabilitation court’s: (1) July 13, 2004 stay order that also appointed Gener T, Mendoza as rehabilitation receiver; (2) September 13, 2004 order giving due course to the petition and directing the rehabilitation receiver to evaluate and give recommendations on petitioner Pryce Corporation’s proposed rehabilitation plan; and (3) January 17, 2005 order finding petitioner Pryce Corporation eligible to be placed in a state of corporate rehabilitation, identifying assets to be disposed of, and determining the manner of liquidation to pay the liabilities.” With respect to BPI’s separate appeal, the Court of Appeals First (1° _\ Division" granted its petition initially and set aside the January 17, 2005 lorder of the rehabilitation court in its decision dated May 3, 2006." On reconsideration, the court issued a resolution dated May 23, 2007 setting aside its original decision and dismissing the petition.'* BPI clevated the 7 4a, 3239, ida id, » Id. at622, ' Rollo (G.R. No. 180316), p. 28, " Penned by Associate Justice ‘Mormachuelos and Juan Q. Enriquez, Jr. "= Rollo (vol. 1), pp. $5-70. " Penned by Associate Justice Rebecea de Guia-Salvador and concurred in by Justices Kuben T. Reyes and Aurora Santiago-lagman, % Rollo (G.R. No. 180316), pp, 84-102, "Td, at 189-188, © Q. Roxas and concurred in by Justices Portia Alino-Resolution | 4 GR.No. 1723 case to this court, docketed as G.R, No. 180316. By resolution dated January 30, 2008, the First (1°) Division of this court denied the petition.'© By resolution dated April 28, 2008, this court denied reconsideration with finality."” Meanwhile, petitioner Pryce Corporation also appealed to this court assailing the July 28, 2005 decision of the Court of Appeals Seventh (7") Division granting respondent China Banking Corporation’s petition as well as the resolution denying its motion. for reconsideration. In the decision dated February 4, 2008," the First (1°) Division of this court denied its petition with the dispositive portion as follows: WHEREFORE, we DENY the petition, The assailed Decision of the Court of Appeals in CA-G.R. SP No. 88479 is AFFIRMED with the modification discussed above. Let the records of this case be REMANDED to the RTC, Branch 138, Makati City, sitting as Commercial Court, for further procecdings with dispatch, to determine the merits of the petition for rchabilitation. No costs.!? Petitioner Pryce Corporation filed an omnibus motion for (1) reconsideration or (2) partial reconsideration and (3) referral to the court En Bane dated February 29, 2008. Respondent China Banking Corporation also filed 2 motion for reconsideration on even date, praying that the February 4, 2008 decision be set aside and reconsidered only insofar as it ordered the remand of the case for further proceedings “to determine whether petitioner's financial condition is serious and whether there is clear and imminent danger that it will lose its corporate assets.’*° By resolution dated June 16, 2008, this court denied with finality the separate motions for reconsideration filed by the parties. On September 10, 2008, petitioner Pryce Corporation filed a second motion for reconsideration praying thatthe Court of Appeals” devsion dated \ February 4, 2008 be set aside. The First Division of this court referred this case to the En Banc en consulta by resolution dated June 22, 2009. The court En Bane, in its resolution dated April 13, 2010, resolved to accept this case. 6 td, 871. Ud at 878. © Rollo (vol. 2), pp. 1,627-1,634 [Per J. Sundoval-Gutierrez, First Division). "Id. at 1,634 [Per I. SandovalGuticrez, First Division} 2 1d, a 1,644, 2 Tel at 1,804. id, at 1,805.Resolution Banki 5 GR. No. 172302 On July 30, 2013, petitioner Pryce Corporation and respondent China Corporation, through their respective counsel, filed a joint manifestation and motion to suspend proceedings. The parties requested this court to defer its ruling on petitioner Pryce Corporation’s second motion for reconsideration “so as to enable, the parties to work out a mutually acceptable arrangement.” By resolution dated August 6, 2013, this court granted the motion but only for two (2) months. The registry receipts showed that counsel for respondent China Banking Corporation and counsel for petitioner Pryce Corporation received their copies of this resolution on September 5, 20 13,4 More than two months had lapsed since September 5, 2013, but no agreement was filed by the partics. Thus, we proceed to rule on petitioner Pryce Corporation’s second motion for reconsideration. This motion raises two grounds. First, petitioner Pryce Corporation argues that the issue on the validity of the rehabilitation court orders is now res judicata. Petitioner Pryce Corporation submits that the ruling in BPI v. Pryce Corporation docketed as G.R. No. 180316 contradicts the present case, and it has rendered the issue on the validity and regularity of the rehabilitation court orders as res judicata. Second, petitioner Pryce Corporation contends that Rule 4, Section 6 of the Interim Rules of Procedure on Corporate Rehabilitation” docs not require the rehabilitation court to hold a hearing before issuing a stay order. Considering that the Interim Rules was promulgated later than Rizal Commercial Banking Corp. v. AC” that enunciated the “serious situations” test," petitioner Pryce Corporation argues that the test has effectively been abandoned by the “sufficiency in form and substance test” under the Interim. Rules.” ‘The present second motion for reconsideration involves the following issues: 1d, at 1,849, Id. at 1,884. Id. at 1,791, AM, No, 00-8-10-SC, November 21, 2000, otherwise known us the Interim Rules of Procedure on Corporate Rehabilitation, Rizal Cammercial Banking Corp. v, IAC, 378 Phil. 10 (1999) [Per J. Melo, Ea Banc]. Id. 23, Rolla (vol.2),p. 1,794.Resolution 6 G.R. No, 172302 L WHETHER THE ISSUE ON THE VALIDITY OF THE REHABILITATION ORDER DATED JANUARY 17, 2005 IS NOW RES JUDICATA IN LIGHT OF BPI V. PRYCE CORPORATION DOCKETED AS G.R. NO. 180316; I. WHETHER THE REHABILITATION COURT IS REQUIRED TO HOLD A HEARING TO COMPLY WITEI THE “SERIOUS SITUATIONS” TEST LAID DOWN IN THE CASE OF RIZAL COMMERCIAL BANKING CORP. V. IAC BEFORE ISSUING A STAY ORDER. We proceed to discuss the first issue. BPI v. Pryce Corporation docketed as G.R. No. 180316 rendered the issue on the validity of the rehabilitation court’s January 17, 2005 order approving the amended rehabilitation plan as res judicata. in BPI y, Pryce Corporation, the Court of Appeals set aside initially the January 17, 2005 order of the rehabilitation court.” On reconsideration, the court set aside its original decision and dismissed the petition”! On appeal, this court denied the petition filed by BPI with finality. An entry of judgment was made for BPI v. Pryce Corporation on June 2, 2008. In effect, this court ipa the January 17, 2005 order of the rehabilitation court. According to the doctrine of res judicata, “a final judgment or decree on the merits by a court of competent jurisdiction is conclusive of the rights of the pariies or their privics in all later suits on all points and matters determined in the former suit." The clements for res judicata to apply are as follows: (a) the former judgment was final; (b) the court that rendered it had jurisdiction over the subject mattor and the parties; (c) the judgment was based on the merits; and ! (d) between the first and the second actions, there was an identity of parties, subject matters, and causes of action. __~ Res judicata embraces two concepts: (1) bar by prior judgment” and (2) conclusiveness of judgment.*® Rollo (G.R. No. 180316), 102, Court of Appeuls decision dated May 3, 2006 3 Id. at 182-188, Court of Appeals resolution dated May 23, 2007. id, a 884, © Antonio ¥. Sayman Ve, de Monje, G.R. No. 149624, September 29, 2010, 631 SCRA 471, 479-480 [Per J. Peralta, Second Division}, citing agustin v. Delos Santos, G.R. No, 168139, January 20, 2009, 576 SCRA'S76, 585. Social Security Commission w ial Pout ai Livestock Aasocltion, tne, G-R- NO, 167050, Jue I 2011, 650 SCRA 50, 57-58 [Per. » Ruudeor cnn Paar: Rule 39 se 47 0).Resolution . 7 GR. No, 172302 Bar by prior judgment exists “wheh, as between the first ‘case where the judgment was rendered and the second case that is sought to be barred, there is identity of parties, subject matter, and causes of action.” On the other hand, the concept of conclusiveness of judgment finds application “when a fact or question has been squarely put in issue, judicially passed upon, and adjudged ih a former suit by a court of competent jurisdiction.”** This principle only needs identity of parties and issues to apply.** The elements of res judicata through bar by prior judgment are present in this case. fi On the element of identity of parties, res judicata does not require absolute identity of parties as substantial identity is enough." Substantial identity of parties exists “when there is a community of interest between a party in the first case and a party in the second case, even if the latter was not impleaded in the first case." Parties that represent the same interests in two petitions are, thus, considered substantial identity of partics for purposes of res judicata.” Definitely, one test to’ determine substantial identity of interest would be to see whether the success or failure of one party materially affects the other. In the present case, respondent China Banking Corporation and BPI are creditors of petitioner Pryce Corporation and are both questioning the rehabilitation court’s approval of the amended rehabilitation plan. Thus, there is substantial identity of parties since they are litigating for the same matter and in the same capacity as creditors of petitioner Pryce Corporation. RULES OF CIVIL PROCEDURE, Rule 39, sec. 47 (0). See also Selga v. Brar, G.R. No. 175151, September 21, 2011, 658 SCRA 108, 119. Antonio ¥. Sayman Yda, de Monje, 631 SCRA 471, 480 [Per J. Peralta, Second Division), citing ™ Consti. (1935), art. Il, see | (10). % Consti. (1973), art. IV, see. 11. i Const, art Ill sec 10. 7 See Pacifie Wide Realty and Development Corporation v, Puerto Azul Land, Inc, GR. No. 178768 ‘and, 180893, November 25. 2009, 605 SCRA 503, 516-517 [Per J. Nachura, ‘Third Division! Phitiopine National Bank v. Remigio, G.R. No. 78508, March 21, 1994, 231 SCRA 362, 368 [Per J. Vitug, Third Division]; Kabiling v. National Housing Authority, 240 Phil. $85, $90 (1987) [Per J. Yap, En Banc]; Alalayan, etal, v, National Power Corporation, et ai, 133 Phil. 279, 293-294 (1968) [Per J. Fernando, En Bane). ™ See Abella v. National Labor Relations Commission, 236 Phil, 150, 157 (1987) ® G.R.No. 178768, November 25, 2009, 605 SCRA 503 [Per J. Nachura, ‘Third "Id. 5165517. «3, Pars En Bane) ion}.Resolution 7 G.R. No. 172302 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 concems. 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 leamed from a painful experionce. 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. The cram-down principle adopted by the Interim Rules does, in effect, dilute contracts. When it permits the approval of a rehabilitation plan even over the opposition of creditors," or when it imposes a binding effect of the approved plan on all parties including those who did not participate in the proceedings," the burden of loss is shifted to the creditors to allow the corporation to rehabilitate itself from insolvency. Rather than Ict struggling ‘corporations slip and vanish, the better option. is to allow commercial courts to come in and apply the process for corporate rehabilitation. This option is preferred so as to avoid what Garrett Hardin called the ‘Tragedy of Commons. Here, Hardin submits that “coercive government regulation is necessary to prevent the degradation of common-pool resources [since] individual resource appropriators receive the full benefit of their use and bear only a share of their cost.” By analogy to the game theory, this is the prisoner’s dilemma: “Since no individual has the right to control or exclude others, each appropriator has a very high discount rate [with] little incentive to efficiently manage the resource in order to guarantee future use.” Thus, the cure is an exogenous policy to equitably distribute scarce resources. This will incentivize future creditors to continue lending, resulting ~ in something productive rather than resulting in nothing. In fact, these corporations exist within a market. The General Theory of Second Best holds that “correction for one market imperfection will not necessarily be efficiency-enhancing unléss [there is also] simultaneous 4 yTORIM RULES OF PROCEDURE ON CORPORATE: REHABILITATION (2000), Rule 4, see, 23, 1B INTERIM RULES OF PROCTDUREON Cok)OATE REHARILITATION (2000), Rule 4, see. 24 (). © See N. S. Gamett, Managing the Urban Commons, 160 U. Pa. L, Rev. 1995, 2,000-2,001 (2012), id. t2,001Resolution 18 G.R. No. 172302 [correction] for all other market imperfections.” The correction of one market imperfection may adversely affect market efficiency elsewhere, for instance, “a contract rule that corrects for an imperfection in the market for consensual agreements may [at ‘the same time] induce welfare losses elsewhere.” This theory is one justification for the passing of corporate rehabilitation Jaws allowing the suspension of payments so that corporations can get back on their fect. As in all markets, the environment is never guaranteed. There are always risks. Contracts are indeed sacred as the law between the parties. However, these contracts exist within a society where nothing is risk-free, and the government is constantly being called to attend to the realities of the times. Corporate rehabilitation is preferred for addressing social costs. Allowing the corporation room to get back on its fect will retain if not increase employment opportunities for the market as a whole. Indirectly, the services offered by the corporation will also benefit the market as “[t]he fundamental impulse that sets and keeps the capitalist engine in motion comes'from [the constant entry of] new consumers’ goods, the new methods of production or transportation, the new markets, [and] the new forms of industrial organization that capitalist enterprise creates.”*” As a final note, this is not the first time this court was made to review two separate petitions appealed from two conflicting decisions, rendered by two divisions of the Court of Appcals, and originating from the same case. In Serrano v. Ambassador Hotel, Inc.,* we ordered the Court of Appeals to adopt immediately a more efficient system in its Internal Rules to avoid situations as this. Tn this instance, it is fortunate that this court had the opportunity to correct the situation and prevent conflicting judgments from reaching impending finality with the referral to the En Banc. We reiterate the need for our courts to be “constantly vigilant in extending their judicial gaze to cases related to the matters submitted for their resolution™” as to “ensure against judicial confusion and [any] seeming conflict in the judiciary’s decisions.””” "© See T. S, Ulen, Courts, Legislatures, and the General Theory of Secand Lest in Law and Economics, 73 Chi-Kent L. Rev. 189, 220 (1998), a, " Sce'T. K. MeCraw, Classics: Jaseph Schumpeter on Competition, 8 Competition Pol'y tnt, 194, 201 a1: ™ GR.No, 197003, February 11, 2013, 690 SCRA 226 [Per J, Velasco, Third Division}.Resolution 19 G.R. No. 172302 WHEREFORE, petitioner Pryce Corporation’s motion is GRANTED. This court’s February 4, 2008 decision is RECONSIDERED and SET ASIDE. SO ORDERED. MARVIC MARIOVICTOR F. LE Associate Justice WE CONCUR: ee MARIA LOURDES P. A. SERENO Chief Justice ANTONIO T. CARPIO PRESBITERQ@ J. VELASCO, JR. Associate Justice ociate Justice (On Leave) TERESITA J. LEONARDO-DE CASTRO ARTURO D. BRION Associate Justice Associate Justice DIOSDADO\M. PERALTA Associate Justice ( Mine D MARIANO C. DEL CASTILLO ROBERTO A. ABAD Associate Justice Associate Justice Associate Justice ‘Associate JusticeResolution 20 * G.R. No, 172302 JOSE CAy INDOZA BIENVENIDO L. REYES Asst Associate Justice No Park Abe ESTELA M/ PIERLAS-BERNABE Associate Justice CERTIFICATION I certify that the conclusions in the above Resolution had been reached in consultation before the case was assigned to the writer of the opinion of the court. oe ere MARIA LOURDES P. A. SERENO Chief JusticeJuudganent Form No, 1 ATTACHMENT D-4 | "D4? Republic of the Philippines Supreme Court Manila EN BANC PRYCE CORPORATION, : Petitioner, versus G.R. No. 172302 THE COURT OF APPEALS AND CHINA BANKING CORPORATION, Respondents. NTRY OF JUDGMENT This is to certify that on February 4, 2006 a des above-entitled case was filed in this Office, the dispositive part of which reads as follows: “WHEREFORE, we DENY the petition. The assailed Decision of the Court of Appeals in CA-G.R. SP No. 88479 is AFFIRMED with the modification discussed above. Let the records of this case be REMANDED to the RTC, Branch 138, Makati City, sitting as Commercial Court, for further proceedings with dispatch to determine the merits of the petition for rehabilitation. No costs. SO ORDERED.” This is to further certify that the Court on February 18, 2014 adopted a resolution, the dispositive part of which reads as follow: “WHEREFORE, petitioner Pryce Corporation’s motion is GRANTED. This court's February 4, 2008 decision is RECONSIDERED and SET ASIDE. SO ORDERED.” and that the same has, on March 27, 2014 become final and exccutory and is hereby recorded in the Book of Entries of Judgments. Manila, Philippines. Clerk of Court: By: ecepemtcns CORAZON D. DELO$ REYES Deputy Clerk of Court & Chief, Judicial Records O! mi May 26, 2014ATTACHMENT E-1 Republic of the Philippines COURT OF APPEALS Manila FIRST DIVISION BANK OF THE PHILIPPINE CA-G.R. SP NO. 88442 Petitioner, Membors: ‘eis P.J. REYES, RT, Chairman DE GUIA-SALVADOR, and PRYCE CORPORATION, SANTIAGO-LAGMAN, JJ. Respondent. a Promulgated: way a anmng 07? CL a ata tn meee DECISION DE GULA-SALVADOR, J: Filed pursuant to Rule 43 of the £997 Rules of Civil Procedure, the Petition for review at bench primarily raises the general principle of contractual liberty and mutuality in secking the setting aside of the January 17, 2005 Order issued by the Regional Trial Court of Makati City, Branch 138, in Special Proceedings No. M-5901, finding respondent Pryce Corporation eligible for corporate rehabilitation and approving. its rehabilitation plan as well as the amendment thereto submitted by Gener Mendoza, its duly appointed Rehabilitation Receiver.' * pp 23-44, Rol.CA-GR. SP NO, 88442 DECISION PAGE 2 The Facts Respondent is 2 property holding and development company primarily engaged in the real estate business and hotel operations in Mindanao. tn addition to its main business concems which include the development and marketing of memorial parks, residential subdivisions as well as business parks, it has a subsidiary. Pryce Gases, Ine. PGI), which produces and sefls industrial gases as well as imports and distributes liquefied petroleum gas. Among respondent's creditors is petitioner Bank of the Philippine Islands to which it owes the obligation covered by Promissory No. 58657-000-99. Secured by real estate mortgages constituted on respondent's properties and bearing a December 16, 2002 maturity date. said obligation, together with interest, penalties and other charges, amounted to P100,121,141.18 as of July 28, 20047 Citing the Asian financial crisis for its inability to pay its maturing obligations, respondent filed its petition for corporate rehabilitation, with prayer for suspension of payments on July 9, 2604. it alleged, among other matters, that despite negotiations with its hank creditors for the past three years, the proposed plan of payment for its debts through dacion om page had not come to fruition due to the parties’ inability to agree on the assets to be conveyed and their valuation, the waiver of penalties and the accrual period of interests on the subject loans; and, that the ballooning of interests and penalties resulting from said impasse as well as the threatened foreclosure of the mortgages constituted on its properties will, alongside theCA-GR. SP NO. 88442 DECISION PAGE 3 pending cases against it, adversely affect ite viability as 2 gomg concern? Respondent proffered a rehabilitation plan which essentially proposed the following measures: (a) dacion of mortgaged properties, the value of which shall be the average determined by two independent appraisal companies accredited by the Central Bank, to be chosen by the creditors and found acceptable by respondent: (b) the retum to respondent of any excess in the value of said properties; (c) in case of insufficiency, the setilement of the difference by dacion of memorial ots individually valued at P16,000.00: (2) accrual of interests up to June 30, 2003 only; and, (¢) the creditor bank's asstunption of the applicable taxes and transaction fees in the event of failure to avail of the benefits provided under the Special Purpose Vehicle (SPV)." In addition to its Audited and Interim Financial Statements,* an Affidavit of General Financial Condition.’ an Inventory of Assets.’ 2 Statement of Possible Claims’ and Schedules of its Debts and Lisbilities,” of Payments and Disposition of Assets." of its Cash Flow for the immediately preceding three months" and 9 Certification on the requisite authorization for the petition,’? respondent submitted its three nominees for appointment as Rehabilitation Reoviver in accordance with Section 2 Gj), Rule 4 of the Interim Rudes on Corporate Rehabilitation. 8 pp 324-925, id "pp 110-141, Bal sb 268-270,CA-GR, SP NO, 88442 DECISION PAGES Docketed as Special Proceedings No. M-5901, the foregoing pelition for corporate rehobilitation was given «tue course by the trial court which issued the July 13, 2004 order directing the deferment of all claims against respondent, setting the initial hearing thereon for September 1, 2004, ordering the respondent's creditors nd oiher interested parties to file their opposition thereto and appointing Gener Mendoza as Rehabilitation Receiver.* On Angust 20, 2004, petitioner consequently filed its opposition/comment to the petition, contending that the impairment of the freedom of contracis therein proposed is tantamount to an unjustified resort to the State’s exercise of its police power.’ In compliance with the trial court's order dated September 13, 2004, the aforesaid Rehabilitation Receiver likewise submitted an Amended Rehabilitation Plan which contained the following recommendations, viz: (a) payment of all bank loans and long term commercial papers (“LTCP”) through dacion en page. (b) payment of all non-bank, trade and other payables amounting to at least 500,000.00 each, throngh a dacion of memorial park lots. and (c) payment in cash over a three year period, without interest, of ail non-bank trade and. other paysiles amounting to less than P500,000.00 cach, numbering 290 for an aggregate of P7.64 Million."* In receipt of the parties’ comments/oppositions to the Amended Rehabilitation Pian,"” the trial court issued the herein assailed January 17, 2005 order, the decretal portion of which states:CA-GR. SP NO. 88442 DECISION PAGES “IN VIEW OF ALL THE FOREGOING, the Court findg petitioner to be eligible to be placed in a state of corporate rehabilitation. Aasets horsinbelow identified shell be held and dispored of by the petitioner and its liabilities shall be paid and liquidated in the manner as follows: 1. The indebtedness to China Ranking Corporation and Bank of the Philippine Islands as wall as the lona-term commercial papers will ba paid through a dacion en paao of developed real astate assets of the petitioner. at least 2. The trade credits amounting t P500,000.00 will be paid through a dacion en pago of memorial park lots. Memorial lots so caded will be allecated equally across ali locations esront the one in Navan City which is mortgaged to China Banking Corporation: 3. Trade credits amounting to less then £500,000 each will be paid in cash over theee (3) years, without intere: Payment vill be made quarterly commencing 80 days from issuance of this Order. 4. ALL accrued penalties are waived. 5S. Interests shall acccue only up to duly 13, 2004, the date of issuance of the stay order. 6. No interest will accrue during the pendency oF petitioner's corporate rehabilitation; 7. Dollar-denominated loans will be converted to Philippine Pesos on the date of the issuance of this Order using the reference rate of the Philippine Dealing System as of this date. a. In ths cossion of assets, by way of dacion an pagn, the following guidelines shall be observed ~ a) ALl developed real estate assets of the patLtionac, including those which areYU CAAG.R. SP NO, 88442 DECISION PAGE 6 unencumbered shall be made available to secured creditors for dacion en pago. to b) In the event there is deficiency due lower value of the assets chosen, the deficiency Bhall be paid by way of memorial lots according to the valuation outlined and according to a pro- agreed distribution method. c) Momorial lots will be valued at P13,125 per lot for secured creditors and P17,500 per lot for unsecured creditors. 4) Real estate assets other than memorial lots will be valued on the basis of the average of separate appraisals mado by three (3) companies duly accredited by the Bangko Sentral ng Pilipinas chosen by a majority of the creditors. e) All crediters whose leans to the petitionor are eligible for incentives under’ the Special Purpose Vehicle Act of 2002 shall apply for a Certificale of Eligibility with the proper authorities For transactions not eligible for such SPV incantives, the creditor shall advance the cost of taxes and other expenses of transfer. The cost of seid taxes and related expenses shall be accrued and settled by petitioner through a dlacien an page of additional raal estates. f) Titles to properties and sales documents held by China Banking Corporation as additional security but without actual mortgage on thea properties will be released to the petitioner as soon az it is determined from the appraisal reports that the values of the assets mortgaged to said bank are sufficient to settle the obligations. q) Memorial park mother titles mortgaged to China Ranking Corporation covering portions of Mt. Ape Gardens in Davac City and Cagayan de Oro Gardens in Cagayan de Oro City will be priced on the basis of the individual memorial lots comprising those titles. These lots, af whi there are 9,576 in Cagayan and 29,$71 in Dave:CA-GR SP NO. 88442 DECISION PAGET of 213,125 per will be valued at the same rate lot. The mother titles shall pe released to the petitioners simultaneously with the execution of any and 411 dacion document/s with China Bank. 3. The Rehabilitation Receiver shall oversee the implementation of the rehabilitation plan ancl to insure orderly implementation, the Rehabilitation Receiver shall ~ a) Call a meeting among bank and bong Term Commerchal Plan creditors’ representatives within five (5) days from receipt of this Order to select three (3) oppraisal companies from the list, Annex G, Amended Rehabilitation Plan te perform the appraisal of ail‘ assets for dacion except memorial lots, which companies shall be ranked by the creditors according to theis preference. Any creditor may aloo nominate for enaagement an appraisal company of its choice outside of the list appearing on Annex G, provided a letter or certification from the BSP redarding the company’s accreditation is Presented to the Rehabilitation Receiver and the other creditors. b) Within ten (10) days from the election of the thraa (3) appraisers, he shall negotiate their professional fees to a reasonable level and confirm their engagement, subject to the completion of their work and submission of final reports within three weeks. 3) Upon ceceipt of the reports, the Rehabilitation Receiver shall tabulate the results and distribute them immediately to all secured creditors. Por the election and fixing of assats to be ceded by way of dacion en pago, the following shall be observed - a) secured creditors shall be given three weeks from receipt of the summary appraisalCA-GR. SP NO. 8842 DECISION PAGES report within which to advise the Rehabilitot.lon Receiver in writing their azsat selection; b) the assats selection shall be in two categories, primary or preferred asset list, and a secondary or next preferred 1 of assets. The aggregate appraised value of each category shall not excead the total ameunt of indebtedness of PC to the creditor, both principal and accrued interest, as of the date of the Stay Order on July 9, 2004; ) creditors who fail to submit their asset selection shall be deemed to have elected tho agsets mortgaged to them to the extent sufficient to pay off their loan exposure: d) upon receipt af the asset election from all the creditors, the Rehabilitation Receiver shall collate the selections made and finalize the asset allocation based on the following quidelines: i] all primary selections shall be considered awarded to t electing creditors if there are no conflicts with the primery choices made by the other creditors. 35) where t(r}0 of more eraditers select 9 particular acret thoiz primary choice, the eset will be awarded as follows: 7 to the creditor in whese favor the asset Ls mactgaged; and = to the creditor with the bigger total claim against petitioner. iii] creditors with one or more primary asset selections not allocated to them based on the results af ct. above. shall be allocated from among those asse! in theic secondary selection which have not otherwise been awarded, provided that where two or more creditors select a particularCA-GR SP NO. 88442 DECISION asset as their secondary choice, the asset will be awarded to the creditor in whose favor the asset Ja mortgaged; then to the creditor with the bigger total claim against the petitioner, and provided that the aqgragate value of the asvets allocated [including the secondary selection] shall nat exceed the total value of the creditor's ciaim against the petitioner; d] Any claims not satisfied’ by application of the foregoing guidelines shall be covered by memorial Lots. 4. All sacured craditors shall be neti, in writing of the results of the as: within two wae! above, The non-release by a creditor transfer certificate of title, end other documents in its poaseasion PAGE9 od set allocation from the date set out in par. 1 of the sales contracts shaJl not be a bar to the allocation by the Rocaiver and/or eventual dispesition by the Debter of the covered by those documents. SO ORDERED. “7? aasets Dissatisfied with the foregoing Order, Petitioner filed the petibn at bench, proffering the following issees for resolution: “L WHETHER OR NOT THE LOWER COURT HAD THE LEGAL AND FACTUAL BasIS TO APPROVE A DACION EN PAGO AS PART OF THE REHABILITATION PLAN, THAT WOULD CURTAILCA-GR. SP NO. 88442 DRCISTON PAGE 10 THE FREEDOM OF PARTIES TO VOLUNTARILY ENTER INTO A CONTRACT. n. WITETHER OR NOT THE LOWER COURT HAD THE LEGAL AND FACTUAL BASIS TO DISALLOW THE NON-PAYMENT OF ACCRUED INTEREST DURING THE EFFECTIVITY OF THE STAY ORDER. iL WHETHER OR NOT THE LOWER COURT HAD THE LEGAL AND FACTUAL BASIS TO DIRECT THE CREDITORS TO ADVANCE THE COST OF TAXES AND OTHER EXPENSES RELATED TO THE TRANSFER”? The Court’s Ruling We find the petition impressed with merit. Any debtor who foresees the impossibility of meeting its debts when they respectively fall due. or any creditor or creditors holding st 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.” In contrast with corporate liquidation which connotes 2 winding up or setiling with creditors and debtors so that assets are distributed to those entitled to receive them,” rehabilitation contemplates a continuance of corporute life and activities in an effort to restore and reinstate the corporation to its former position of successtil operation and solvency. All * pp 9.10, Bd > Een Ruled, 2000 baer les of Procatreom Crorate Rehabil, 3 Piiliepies Veteraats Bank Employees: Union-N TERE. vs. Vega, 360 SCRAB, 39,CA-GR SP NO. 88442 DECISION PAGEL assets of the corporation under rehabilitation receivership are, therefore, held in trust for the equal benefit of all creditors to preclude one from oblaining an advantage or preference over another by the expediency of attachment, execution or otherwise.” Thol respondent is authorized to effect payment of its obligations hy means of dacion ex pago is evident from Section 5, Rule 4 of the 2000 inuerine Rules af Procedure on Corporate Rehabilitation which provides as follows: “Section $. 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 contitiens of such cehabilitation which shall include the manner of its implementation, giving due xegard to the interests of eecured erediters: (c) the material financial commitments to support the rehabilitation plan; (d) the means for the execution of the rehabilitation plan, which may include conversion of the debts or any portion decion en pago, or sale of assets or of the controlling interest; (e) « liguidation analysis that estimates the proportion af the claims thet the creditors and shareholders would receive if the debtor's properties were liquidated; and (£) puch other relevant information to enable a reasonable investor to make an informed decision on the feasibility of the rehabilitation plan.” (emphasis supplied) Dacion en pago is essentially the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation.” As an accepted mode of extinguishment of Raby lxiuesrial Corporation vs. Court of ‘Appoats, 284 SCRASM5, 160. 2 Palfippine Nathanal Bank vs. Poscdla, 197 SCRAY. 10,CA-GR. SP NO. 88442 DECISION PAGE 12 an obligntion which is thereby novaled by a change in the object involved in the original contract," however. dacion. en page is governed by the law on sales* which, as contrnets, are perfected ai the moment there is 2 meeting of the parties’ minds over the thing which is the subject matter thereof and upon the price. At least insofar as ils rules apply to dacion ex pago, our perusal of the record shows that the rehabilitation plan spproved by the trial court totally disregards the basic consensual nature of a contract of sale. Indeed, our perusal of the record indicates that the corporate rehabilitation at bench has been resorted to by respondent as an expedient substitute for its protracted negotiations with its creditors with whom it has been admittedly unable to agree on the assets to be conveyed and their valuation as well as the waiver of penalties and the accrual period of' interests on the loans it intends to discharge by means of dacion en page. In lien of said agreement, Tespondent has procured the trial court’s imprimatur over a plan which compels the parties to abdicate their contractual prerogative to fix the valuation of the subject properties io previously selected sppraisers. Although it is ostensibly cognizant of the secured status of some of respondent’s oreditors, said plan unduly curtails petitioner's prerogatives by confining it to the passive act of asset selection from the summery appraisal report it is intended to be furmshed and, in case of failure to do so within three weeks, by imposing upon it clection of the assets mortgaged in its favor, to the extent sufficient to pay off its loan exposure. Worse, the rehabilitation plan specifically provides that “(iJhe nonrelease by the 3 Laer Tar vs. Conrt of Appeats, 293 SCRAGH, 659. 3 Aeticle 1245, CyB Code of the Philippines,CA-GR. SP NO, 88442 DECISION PAGE 13 creditor of the transfer certificate of fille, sales contracts and other documents in its possession shall not be a bar to the allocation by the receiver and/or eventual disposition by the Debtor of the assets covered by those documents.” The trial court may, admittediy. approve a rehabilitation plan even in the face of the opposition interposed by creditors like petitioner. Section 23, Rule 4 of the Interim Rules provides as follows: “Section 23. Approval of the Rehabilitation Plan. — The court may appreve a rehabilitation plan even over the opposition of creditors holding a majority of the total liabilities of the debtor if, in its judament, Fehabilitation of the dabror 4: pposition of the edi tr unreasonable. In dotermining whether or not the opposition of the creditors is manifestly unreasonable, the court shall consider the following: a. That the plan wuld likely provide the objecting class of crediters with compensation qreater than that which they would have received 4£ the assets of the debter were sold by a Lignidater within a thraa-month period; b, That the sharehe sor owners of the debtor lose at least their controlling interest a8 4 result of the plans and c. The Rehabilitation , Receiver hag recommended approval of the plan. In approving the rehabilitation plan, the court shall issue the necensary orders or processes for lts immediate and cnecezsful implementation. It may impose such terms, conditions, or restrictiens as the effective implementation and monitoring thereof mayCA-GR SP NO, 88442 DECISION PAGE J+ reasonably require, or for the protection and praservation of the interests of the creditors should the plan fail.” (underscoring supplied) The foregoing provision “is known in American Law as “cramdown” or the power of the Court to ram the rehabilitation plan down the throat of the objecting class of creditors as long as their rights are adequately protected and they would receive under the plan a better deal than what they would receive in a straight bankrupicy liquidation”.”” In the absence of a finding of how petitioner's objection is manifestly unreasonable or, at the very least, how its interests will be better served under the subject rehabilitation plan, we fail to see how its legitimale concerns as 2 secured creditor can be expediently brushed aside by respondent. It does not help respondent's cause any that, their lack of conformity thereto notwithstanding, corporate creditors like petitioner are the ones charged with advancing the cost of taxes and other expenses related to transfer under the self same plan. However much the payment schemes embodied in the plan approved by the trial court are perceived to bring about respondent's supposed financial recovery. it bears emphasizing that corporate rehabilitation is never meant to gain contractual concessions for the debtor at the expense of its creditors. This is evident from Scetion 6 (c} of Presidential Decree No. 902-A which provides as follows: “Section 6. In order to effectively exercise such jurisdiction, the Commivsion shall @ the following pow. pos: 2% KC » arturo De Castre, “Law and Procedure on Suspension of Pay ments, Rehabitation and Insolvency Proceediongs”, Journal of te Integrated Bar of the Philippines. Vol XXVIIL No.2 pr 92.CA-GR. SP NO. $8442 DECISION PAGE 15 {c) To appoint one or more receivers of the the subject roal or personal, which i peeperty, af the action pending before the Commission in acenrdance with the pertinent provisions of the Rules of Court in such other cases whenever necessary to preserve the xights of the parties- Litigants and/or protect the interest of the investing public and erediters; Provided, that the Commission may, in appropriate cases, appoint a rehabilitation receiver of corporations, partnerships or other associations nok supervised cr regulated by other governinant agencies who shall have, in addition to the powers of a regular receiver under the Rules of Court, auch functions and powers as are provided for in the succeeding paradraph (d) hereof: Provided, finally, That upon appointment of a management committae, rehabilitation receiver, board or bedy, pursuant to this Decrea, all actions fer claims ainst corporations, partnership or associations un managemont or receivership pending befure any court, tribunal, board or body shall be suspended accordingly.” (ax umended by Presidential Decrees Nos. 1673, 1788 and 1799) (omphasis supplied) hownvar, yoee aC It stands to reason that the respite from debt servicing afforded corporations undergoing rehabilitation is merely temporary and cannot prejudice and render inefieetive the status of secured creditors who, having liens over the debtor's property, are restored thereto” when rehabilitation proves to be no longer feasible and liquidation becomes inevitable.” In the case of Rizal Commercial Banking Corporation vs. Intermediate Appellate Court,® the Supreme Court. has, in fact, definitively 3 Sate Inmestment Bare, In. vs. Cbart of ‘ppc 277 SCRA209, 7 Alemar’s Stoal &:Sonss. Fim. Jems M. EDbintos. 186 SCRA9S, * 320 SCRA289.PAGE 16 CA-GR. SP NO. 88442. DLP ISION Jaid down the following guidelines for the guidance of the Bench and the Bar regarding the rights of the creditors of a distressed corporation undergoing corporate rehabilitation. 1 Wit: AXE OX cm “I. Mi claims against corporations, partnerships or associations that are pending before any court, tribunal or board, without distinction as to wheather or not a creditor 1s secured on unsecured, shall suspended affective upon the appointment of a management committes, rehabilitation receiver, beard or body in accordance with the provisions of Presidential Decree No. 902~A. Secured creriters retain their preference enforcement of such pended upon the over unsecured creditors b peeferenca is equally appointment of 4 management ' committee, rehabilitation receiver, board or body. In tha event that the assets of the corporation, partnership cr association are | finally Liguidated, however, gecurad and" preferred credits under the applicable provisions of the Clvil Coda will definitely have preference over unsecured ones. In other werds, onco a management committees, rehabilitation rcaceiver, board or bedy is appointed pursuant to PD 902-2, ali actions or claims against a distressed corporation pending before any court, tribunal, board or bedy shall ba suspended accordingly. This suspension shall not prejudice or of secured gander ineffective the status Greditor as compared fa a tobally” uno: creditor. PU S02-A hot state anything to thin effect. what it merely provides is that all actions fer claims against the corporation, partnership or agguclation shall be suspended. This should give the receiver a chance to kehabilitate the corporation if there shouldCA-G.R. SP NO. 88442 DECISION PAGE !7 ax still be a possibility for doing x However, in the event that rehabilitation is no longer feasible and claims against the distressed corporation would eventually have to be settled, the secured creditors shall enjoy preference over the unsecured creditors xxx xxx vat subject only to the provisions of the Civil Code on Concurrence and Praferences of Credit xxx axx mcr." (underscoring supplicd) AMX MEK Kx Aside from transpressing the foregoing guidelines, our perusal of the record shows that, in mandating the waiver of accrued penalties and providing for the accrual of interests only up to July 13, 2004, the subject rehabilitation plan also arbitratrily impairs the obligations arising from respondent's contracts with its creditors. To our mind, the corporate rehabilitation it has precipitately approved should not have detracted the tral court's attention from the fundamental principle that a contract is, first and foremost, the law between the contracting parties and that obligations arising therefrom should be complied with in good faith.” From the moment of its perfection, the parties are. therefore, bound not only to the fulfillment of what has been expressly stipulated therein but also to all consequences which. according to their nature. may be in keeping with good faith. usage and Iaw.¥ 3 pp 293.194, oid % Lemareamo vs. Court of Appeals, 324 SRAM A22 123. ” Incesaate Extzte of the Late Ricardo P. Presbliero, Sr. vx, Cocrt of Jppeais, 217 SCRA372, 382, © PangiTiaan ve, Comrt of Appeals. 279 SCRAS90, 599.CA-GR. SP NO, 88442 DECISION PAGE 18 On this score, we find the following pronouncements the Supreme Court enunciated in National Development Company vs. Philippine Veterans Bankt® quite instractive, viz =x “The Court is especially disturbed by Section 4 (i) of the daceee, quoted above, extinguishing all mortgages and other liens attaching to the assats of Agrix. It also notes, with equal concern, the restriction in Subscction (ii) thereof that all ‘unsecured obligations shall not bear interest’ and in Subsection (iii) that ‘all accrued interests, penalties or charges av af date horcof pertaining to the obligations, whether secured or unsecured, chall not be recognized. These provisions mat be read with the Bill af Rights, where it ie clearly provided in Section 1 that ‘no person shall be deprived of life, Liberty cz property without due process of Law nox shall any persen be denied the equal protection of the Law’ and in Section 10 that‘ no law impaizing the obligation of contract: shall be passed.’7* (emphasis supplied) AEX xxx Because the enforcement of a valid contract is imperative.” the salutary rule has always been to the effect that neither the Jaw nor the courts will excuse a party from an invwise or undesirable contract he has entered into, with all the required formalities and with full awareness of its consequences.** 192 SCRATS?. > p 261, ibid, San Andres vs, Rodrignes, 332 SCRA769, 783. ™ Martel vx. Kassco, Inc. 348 SCRA 391. 400.CA-GR. SP NO. 88442 DECISION PAGE 19 In fine, respondent would do well to remember that corporate rehabilitation is a temporary measure aimed at enabling an ailing company to regain its financial viability and 10 comply with its due and demandable obligations. While distressed corporations are. admittedly, afforded wide latitude in achieving said goals, courts should be circumspect in approving rehabilitation plans, taking care that the same is not confiscatory. oppressive and unreasonable. Respondent cannot, in the guise of corporate rehabilitation, foree terms and conditions upon its creditors in the settlement of its obligations without running afoul against the principle of mutuality and liberty of contracts and_ ultimately. the fundamental law itself. ‘WHEREFORE, the petition is GRANTED and the assailed January 17, 2005 Order is SET ASIDE. SO ORDERED. ORIGINAL SIGNED REBECCA DE GUIA-SALVADOR Associate Justice WE CONCUR: ORIGINAL SIGNED ORIGINAL SIGNED RUBEN T. REYES. AURORA SANTIAGO-LAGMAN Presiding Justice Associate JusticePAGE 20 CA-GR, SP NO. 88442 CERTIFICATION Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above decision were reached in consultation before the case was assigned to the writer of the opinion of the Court, ORIGINAL SIGNED RUBEN T. REYES Presiding Justice Chairman, Fast Division CERTIFIED TRUE COPY Beara va sei Hittin ity, iI Tammy Aon C. Reyes-Mendillo eriag Division Clark of Coust Court of AppentsoY ATTACHMENT E-2 Republic of the Philippines COURT OF APPEALS Manila FORMER FIRST DIVISION BANK OF THE PHILIPPINE CA-G.R. SP NO, 88442 ISLANDS, Petitioner, Members: REYES, Presiding Justice ULA-SALVADOR, & SANTIAGO-LAGMAN, PRYCE CORPORATION, Respondent, Promulgated: HAY 23.1 RESOLUTION DE GUIA-SALVADOR, 4: Sought to be reconsidered is our Decision dated May 3, 2006, granting the petition filed by petitioner Bank of the Phitippines of the Philippine Islands and selling aside the January 17, 2005 Order issued by the cial Proceedings ali City, Branch 158, in Regional Trial Court of Mal ition PI No. M-5901, which granted the Rehabil Rehabilitation Receiver for respondent Pryce Corpor ibmitted by the ion. In support of its May 26, 2006 motion lor reconsideration and the June 16, 2006 thereto, respondent argues that there is no dispule regarding: its ate rehabilitation and the propriety of dacion en pago as one of tis means by which « distressed corporation may nist aaa or’ exceptions to the ing, said payment arcCA-GR, SP NO. 8842 RESOLUTION sentially argues thal, pursuant to the ne, the approval of the proposed to be valued, respondent exercise of police power which underli rehabilitation plan rendered unnecessary the consent of petitioner which, by the terms thereof, is further required to advance the co: sand olher expenses of transfer for transactions not cligidle for the incentives under the Special Purpose Vehicle Law of 200: Contending that corporate rehabilitation proceedings are “veritable zero-sum games” thal entail the ditors’ collective back”, respondent the “taking, so to speak, of skin off the maintains that the non-accrual of interests during rehabilitation is consistent with the suspension of payment already decreed by the rehabilitation court.” In refutation, petitioner once again calls our alfention to the non-impairment clause and the mutuality of contracts purportedly ran roughshod by the ‘ation plan approved by the rehabilitation court.’ rehabili ed with met We find respondent’s mation impress Like respondent's eligibility for corporate rehabilitation, the proprict of dacion en pago as a means to pursue the same cannot be gainsaid, Section S, Rule 4 of the snterinm Rules of Procedure on Corporate Rehabilitation specifically provides as lollows: ion 5. Rehabilitation Plax. the cehabilitation plan shall inelude (a) khe desired business Largets or goals and the duration and coverage ef Lhe cchabilitulions (b) Lhe Lenms and abilitalion which shall conditions of q include the manner of its due regard to the interest (e) the makerial financial the rehabilitation plan; (d) the means for the execution of the rehabilitation plan, which may or any porkion implomentation, giving ol secured creditors; commitments Lo support include conversion ef the debts thereol to equity, ructuring of the debts, dacion en page, or sale of assehs or of the controlling interest: (oc) a liquidaion analysis that estimates the proportion of the claims Lhal the creditors and shareholders would receive if the debtor Liqnidated; and (F) properties were * Republic Act Na. 9182 "jp. $09-624; 633-639, Rollo “yp. 645-668, 7b,CA-GR. SP-NO, 88442, SOLUTION page 3 information bo enable a such other relevant decision or ko make an intormed ol Lie rehabilitation plar reasonable inve! on the Leasibilt With the rehabilitation court’s approval of the plan submitted by the rehabilitation receiver, we find that respondent's continuance of corpomte life and activities for the purpose of restoring and reinstating the same to a condition of successful operation and solvency” is paramount above all ial ruling that the rehabilitation plan sought to be implemented by respondent is violative of the same, we further lind that respondent correetly argues that the non-impairment clause and the prineiple of mutuality of contracts must yield to the vali underlying the enactment of Presidential Decree No. 902-A, ‘This is implicit from the fact that the rehabilitation court may approve a rehabilitation plan even over the opposition of creditors holding a majority of the tolal liabilities of the debtor." Indeed, Section 24, Rule 4 of the frterim Rules af Procedure on Corporate Rehabilitation provides as follows: exercise of police power by Industrial Corporotion vs. Court af Appeats, 284 SCRA AIS, 460 * Rule a, tmerim Rules af Procedure of Corporate Rehabilitation Section 23, Approval af the Rehabititatiox tax. “The court wy approve a rehabifitation plan even aver the eppasitins of enlitors holding, a majority of vent, he relvbilitation of the debtor ie the total lisbili is mamilostly sors Unreasonable, the court shall eonsiver the followin lass oF ereditors with a, ‘That the plan wouid likely provide the ose sof the deblor fer than that which they would have reacived ifthe asset lor wethin a three-month period fs oF the dehtor Wyse at Ket their compensation ge were sold by a liqui 1b, That the slurcholders or ov ul fr hs recommended appro nlerest as a rovult ofthe plan: The Rehabilitation Rec rte pla, In approving the rehabiitation plan, the court shall ise the necessary orders or provesses for its immediate and successtul implementation, [L may impose such terns, ditions, oF restrictions as tive invplenont , thercal nay reasonably require, or for Ure protection avid preservation oF the imteresis oF the creditors should the plan fail.CA-GR. SI" NO, 58442, RESOLUTION page 4 “Section 21. Effacts of the Rebabilitat Plan. - ‘the approval of Lhe rehabilitation plan by the court shall result in be bol lowin a. The plan and its provisions shall be binding upon the debter and ali pexsens whe may be affected by it, including the cxeditors, whether or mot suck persone have participated in the proceedings ox opposed the plan ex whether ox not: their claims breve been schecuied: b. The debror shall comply with — Lhe 3 of the plan and shall bake all ackio provision sary te cary out the plang ne 6. Payments shall be made Lo Lhe creditors in accordance with Lhe provisions ol the plan; d. Contracts and other azrangomcnts between the debtor and its cxreditexs shall be intozpreted as continuing to apply te the extent that they do not conflict with the pzevisions of the plan; and @. Any compromises = on amounts ar rescheduling of Liming ol payments by khe debtor shall be binding on creditors reqardicss of whether of nok the plan is successfully 2” (emphasis suppliod) implement dacion en pago is specifically governed by the law on objection to the rehabilitation plan should further be ings and conclusions in the trial Granted th: sales,” pelitione viewed in the light of the following lind: court’s September 13, 2004 order, to wit: imobility te pay “nue to pelition: maturing obligations, [0 wuee OF moriqaqes is imminent. In the Liquidation analysis appended to the Rehabilitation Plan (Annex J, Vetition), e realizable valuc of its petitioner computed & Assets using a formula adopted by toreigqn or ot management, groups im purchasing acquired assets of banks for purposes of pubting up 3 ¥ Article 1254, Civil Cade of the Philippines: Philippine Lawin Baus Co, vs, Court of Appeals, CR. No. 130972, January 23, 2002CA-GR, SP NO. 88442 RESOLUTION, paye 5 Special Purpose Vehicle to Liquely their ossets Using the lormula, #ke present liquidation value of the morteaced assots would amount te only PRPS54.4 Million. = x x x Ehe orderly sale of the mortgaged assets on the other hand say xesult ia a_total prics of Phpl.7 Billion based on appraised valu jul rehabilitation would be If only for the fact thal respondent's succe: it productive of a bigger and better chanee of payment to all its creditor would appear that the rehabilitation court correctly brushed aside petitioner's Hitation plan objection to the rehal Ih the terms of the subject erelo are, in point uimess Even then, we have once aj rehabilitation plan and found that petitioner's objcetions of fact, more apparent than real, Contrary to our initial impressio clearly permeates the following method proposed for the valuation of the red for the planned dacion em page, lo wit: properties lo be util “O. The Rehabilitation Receiver all oversee Lhe implementation of Lie rchabilitarion plan and to insure orderly implomentation, Lhe Rehabilitakion Receiver shall a) Call a mecting among bank and Leng ecm Commercial Plan ¢rediters’ cepresentatives: wilhin Five (s) days [rom reeaipl of bhis Order Lo seloek three (3) appraisal companies trom the List, Annex G, Amended Rehabilitation Flan to perform the appraisal ol all assets lor dacion except memorial lols, which companics shall be ranked by the creditors according Lo theie preference. Any erediter may also nominate — For al cempany ok il ide of the lisk appearing on Anni G provided a lekier or certificalion from the ose regarding the company’ accreditation — hs presented to the Rehabilitation Receiver and Lhe other creditors. engagement an appra oul pos,CA-GR. SP NO. 83 RESOLU page 6 b) Within Len (10) days from the election of three (3) appraisers, he shell negotiate r professionel fees Lo a reasonable level and continm their engagement, Wh jew Lo Lhe completion of their work and submission of final, reports within three wae! Given the parties’ prior inabilily to agree on a mutually acceptable dei en pago, the delegation of the valuation to appraisers chosen by the creditors themselves is consistent with the fact that delays and stalemate are essentially anathema to the nature and purpose of rehabilitation proceedings. It is a testament to the primacy of the objectives of rehabilitation proceedings that the suspension of payments ordered by the rehabilitation court is, in essence, a legally sanctioned derogztion of the contract between the petitioner and respondent, In Sodrejuanite vs. ASB Development Corporation,” the Supreme Court explained the rationale for suspension of payments the following wi “rhe purpose for the suspension of the proceedings is Lo prevent a creditec trom obtaining an edvantege or preterence over another and to protect and preserve bhe rights of party the interest of — bhe Litigants as well investing public of ereditors intended to give enough breathing space tor Lhe management committee oc rehubilitation receiver to make Lhe business viable again, withoul having to divert attention and resources to Litigatior in various fora. The suspension would cnable the Such suspension is monugement committee ef rehabilitation receiver to elfuetively exercise its/his powers tree from any judicial or ozkra-judicial intarfere Lhat might unduly hinder of prevent the "rescue" of the debtor company. ‘To allow such other achion te continue would only add to Lhe burden of the management. committee or rehabilitation receiver, whose time, effort and resources; would be wast. in defending claims against Lhe poration instead o£ being directed toward ike restructuring and rehabilitalion.” "p42, Rollo 1. No, 165673.CA-G.R. SP NO. 85442, RESOL TION page 7 ady in force in the case, we find the and penalties on respondent's Given the suspension of payments alr corresponding suspensian of ihe inter obligation likewise justified and nec ry. As heretofore stated, “(rehabilitation contemplates a continuance of corporate life and activities in an cflort to restos nd reinstate the corporation to ils former position of successful operation and solvency. When a distressed company is placed under rehabilitation, the appointment of'a management committee follows to avoid collusion between the pr ‘eviol management and creditors it might favor, to the prejudice of the other creditors. All asscls of a corporation under rel iation receivership a held in trust for the equal benefit of all creditors te preclude one from obtaining an advantage or preference aver another by ‘the expediency of atlachment, 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 reason under for suspending all pending receivership." WHEREFORE, respondent’s motion is GRANTED and the Court's May 3, 2006 Decision is RECONSIDERED and SET ASIDE. tn licu thercol, amother is entered DISMISSING the petition at bench SO ORDERED. ORIGINAL SIGNED REBECCA DE CUIA-SALYADOR Associate Justice WE CONCUR: sPiaienintent HAGNER ORIGINAL SIGNED REYE, AURORA SANTIAGG-LAGMAN Asso RUBEN Presiding Justice tc Justice CERTIFIED TRUE COPY™ | " Ruby Industeiad Corporation vs. Court of Appeals, 2% VIYMA S: AYALA-DASAL Division Clerk of Court GOURT OF APPEALSRepublic of the Philippines Supreme Gowct Hirst Ditision Sius/dilesdannes: Qualed rember, for your formation, 1s x resolulion of the Wiest Hisision of this Qourt dated 30 JANUARY 2008 GAR. No. 180316 (Bank of the Philippine Islands vs. Pryce Corporation). - Considering the allegations, issues, and arguments Sdduced in the petition for review on certiorari of the Resolutions dated 23 May 2007 and 23 October 2007 of the Court of Appeals in CA GR SP No. 88442, the Court resolves to DENY the petition for feiuure of petitoner to sufficiently show that the Court of Appeals committed any reversible error in the challenged resolutions a6 to sermunt the exercise of this Court's discretionary appellate jurisdiction, Besides, the issues raised are factual in nature- The Court further resolves to DELETE as party respondent in this case the Court of Appeals pursuant to Sec. 4, Rule 45, 1997 Rules vil Procedure, as amended. i Very truly yours, \ ENRIQ) Clerk of Court [ First Division EDGAR O. ARICI Assistant Clerk of First Division pM 6 BENEDIGIO VERZOSA Court oF Appeuls (9) GEALOGO & BURKLEY Manila Counsel for Petitioner (CA-G.R, SPNo. 88112) TE, BPI Bul Ayala Ave, cor Paseo de Roxas ‘aay. Ramon R. To Counsel for Respow 17H He., Pryce Ce 1179 Don, 1200 Makati City Suid Supreme Court Mr Gener P. Mendozs Rehabilitation Reesiver GNCA Holdings, tne i Lal Business Plaza 2310 Nieanor Garcia St. 1200 Makati ATTACHMENT E-3 Heaon t= ATTACHMENT E-4 Republic of the Philippines SUPREME COURT Love 2 PALEY Man FIRST DIVISION BANK OF THE PHILIPPINE TSLANDS, Petitioner, versus G.R. No. 180316 ‘CE CORPORATION, Respondent. NTRY OF JUDGMENT toleertily that on January 30, 2008 a resolution rendered in the aboves enlitled case was filed in this office, the dispositive part of which reads as follows: “G.R. No, 180316 (Bank of the Philippine Islands ve. Pryce Cozpoxation).- Considering the allegat issues, and arguments adduced in the petition for review. on certiorari of the —-Resolutions—-dated 3 May 2007 and 23 October 2007 of the Court of Appeals in CA GR SP No. 88442, the Court resolves to DENY the petition for failure of petitioner to sufficiently show that the Court of Appeals committed reversible error in the challenged resolutions as © warrant the exercise of this Court’s discretionary appellate jurisdiction, Besides, the issues raised a factual in nature. and that the same has, on June 02, 2008 _ become final and exeeutory and is hereby recorded in the Book of Entries of Judgments, Manila, Philippines. Clerk of Court 09-12.