G.R. Nos. 200934-35, June 19, 2019 creditors.
creditors. The Rehabilitation Court approved the agreements over the opposition of
LA SAVOIE DEVELOPMENT CORPORATION, PETITIONER, v. BUENAVISTA
PROPERTIES, INC., RESPONDENT.
Spouses San Juan, and Spouses Buencamino (the landowners), entered into a (JVA) with
petitioner La Savoie over 3 parcels of land located in Bulacan. Under the JVA, petitioner
undertook to develop the properties into a commercial and residential subdivision on or
before May 5, 1995. If petitioner fails, it shall pay the landowners a penalty of P10T/day
until completion of the project. On May 26, 1994, the landowners sold the properties to
Conde, who later assigned all her rights to respondent Buenavista. Unfortunately,
petitioner did not finish the project on time. Thus, it executed an Addendum to the JVA
with respondent, extending the completion however, petitioner still failed to meet the
deadline.
Respondent filed a complaint for termination of contract and recovery of property with
damages before the QC RTC. Petitioner failed to appear during pre-trial, and was declared
in default.
Due to the 1997 Asian financial crisis, filed a petition for rehabilitation before the Makati
RTC which issued a Stay Order, and appointed Manzana as rehabilitation receiver.
Subsequently, petitioner informed the QC RTC that a Stay Order was issued by the Makati
RTC, and accordingly asked the QC RTC to suspend its proceedings.
It appears, however, that the QC RTC already rendered a Decision on June 12, 2003 in
favor of the Buenavista and against the petitioner thus terminating the JVA and the
Addendum to JVA, Ordering the defendant to deliver to the plaintiff possession of the
Buenavista; to pay the plaintiff the amount of the penalty and to pay plaintiff the as and
for attorney's fees.
Meantime, the Makati RTC lifted the Stay Order and dismissed the petition for
rehabilitation. However, on appeal, the CA, in its Decision, reversed the Makati RTC. It
remanded the case to the trial court for further proceedings.
Subsequently however, the rehabilitation receiver resigned, and petitioner filed an
omnibus motion for appointment of a new receiver. Thereafter, the case was transferred to
the Rehabilitation Court which appointed Ang-Co as petitioner's new rehabilitation
receiver.
Meanwhile, respondent moved for the execution of the QC RTC Decision which the QC
RTC issued a writ of execution to Deputy Sheriff Madolaria. In turn, petitioner filed before
the Rehabilitation Court an extremely urgent motion for the issuance of an order to
prohibit deputy Sheriff Madolaria from enforcing the writ of execution.
The Rehabilitation Court directed Sheriff Madolaria to: (a) stop the execution of the QC
RTC Decision; (b) return and restore the ejected residents of the subject property; and (c)
lift the notices of garnishment and notices of levy upon personal as well as real properties
of petitioner. Respondent challenged this Order in its petition for certiorari before the CA.
In the interim, petitioner entered into separate Compromise Agreements with two of its
respondent. Petitioner filed an Amended Revised Rehabilitation Plan (ARRP), proposing
the condonation of all past due interest, penalties and other surcharge, dacion en pago
arrangement to settle obligation with HGC, including respondent's claim against
petitioner. The rehabilitation receiver filed her recommendation with the Rehabilitation
Court.
The Rehabilitation Court issued a Resolution approving the ARRP with modifications.
Among others, it reduced into half the amount of penalty stated in the QC RTC Decision.
Respondent questioned the June 30, 2008 Resolution of the Rehabilitation Court in its
petition for review before the CA. The CA consolidated CA-G.R. SP Nos. 102114 and
104413 in a Resolution dated August 12, 2008.
The CA granted respondent's petition under CA-G.R. SP No. 102114. It annulled the Order
of the Rehabilitation Court, which enjoined Sheriff Madolaria from implementing the writ
of execution issued by the QC RTC. The CA ruled that the Rehabilitation Court does not
have the power to restrain or order a co-equal court to desist from executing its final and
executory judgment because that power lies with the higher courts. It, however, noted that
the QC RTC should have exercised prudence in issuing the writ of execution since there is
a standing Stay Order on all claims against petitioner, and the judgment in Civil Case No.
Q-98-33682 falls within the term "claim" as provided under Section 6(c) of PD 902-A. The
writ of execution was thus issued in violation of the Stay Order.
CA partly granted respondent's petition under CA-G.R. SP No. 104413. The CA rejected
respondent's claim that the Rehabilitation Court lost jurisdiction when it did not act upon
the petition for rehabilitation within the time provided in the 2000 Interim Rules of
Procedure on Corporate Rehabilitation . It stated that Rule 4, Section 11 of the Interim
Rules allows for extensions of time in resolving petitions for rehabilitations. In fact, the
OCA favorably acted upon the extensions of time sought by the Rehabilitation Court.
The CA, however, agreed with respondent that the Rehabilitation Court cannot modify the
final judgment of the QC RTC with respect to the amount of penalty to be paid by
petitioner. It ruled that the Rehabilitation Court could suspend the payment of the claim
or provide an extended period of payment. Further, the CA observed that respondent's
claim for penalties is based on the JVA. It held that the Rehabilitation Court cannot
change the rate of penalty without impairing the stipulation between the parties.
Accordingly, the CA annulled the ARRP insofar as it reduced the amount of penalty.
Petitioner sought partial reconsideration, which the CA denied.
ISSUES
(1) whether CA erred in annulling the June 30, 2008 Resolution of the Rehabilitation
Court insofar as it reduced by half the amount of penalty adjudged in the QC RTC
Decision; NO
(2) whether the CA erred in annulling the December 28, 2007 Order of the Rehabilitation
Court preventing Sheriff Madolaria from implementing the QC RTC Decision. NO
Inextricably related with the first issue is the nature of the QC RTC Decision. Respondent
submits that the QC RTC Decision had already attained finality, thus the Rehabilitation
Court cannot reduce the penalty imposed. It insists that the cram down power of the
Rehabilitation Court is irrelevant and inapplicable. A preliminary question, upon which
the resolution of the first issues depends on, therefore arises—whether the QC RTC
Decision attained finality.
On the second issue, petitioner contends that the Rehabilitation Court had the right to
assert itself and enjoin the execution of the QC RTC Decision because it was rendered in
violation of the Stay Order. Petitioner avers that the CA should have instead nullified the
writ of execution, or the improper levies made by Sheriff Madolaria pursuant to the writ.
RULING
We find the petition partly meritorious.
I.RA 10142 or the FRIA of 2010 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.
Presently, the FRIA is the prevailing law on corporate rehabilitation. In this case, since the
petition for rehabilitation was filed on April 25, 2003, the provisions of PD 902-A, as
amended, and the Interim Rules apply.
Section 6(c) of PD 902-A, as amended, provides 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." Similarly, Section 6, Rule 4 of the Interim Rules states that if the court finds
the petition for rehabilitation to be sufficient in form and substance, it shall, not later than
five days from the filing of the petition, issue an order which, inter alia, stays the
enforcement of all claims against the debtor, its guarantors and sureties not solidarity
liable with the debtor. The purpose of the suspension 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.
Here, the Rehabilitation Court issued a Stay Order during the pendency of Civil Case No.
Q-98-33682 before the QC RTC. The effect of the Stay Order is to ipso jure suspend the
proceedings in the QC RTC at whatever stage the action may be. The Stay Order
notwithstanding, the QC RTC proceeded with the case and rendered judgment. The
judgment became final and executory on July 31, 2007. Respondent relies on this alleged
finality to prevent us from looking into the effect of the Stay Order on the QC RTC
Decision. Respondent's attempt fails.
In Lingkod Manggagawa v. Rubberworld (Phils.) Inc., we ruled that proceedings and
orders undertaken and issued in violation of the SEC suspension order are null and void;
as such, they could not have achieved a final and executory status. In Lingkod, the
petitioner filed ULP case against the respondent. While the case was pending, respondent
filed a petition for declaration of state of suspension of payments with proposed
rehabilitation plan before the SEC. Thereafter, the SEC issued a suspension order, which
respondent presented to the Labor Arbiter. However, the Labor Arbiter still proceeded to
render a decision against respondent, which the NLRC affirmed. On appeal, the CA found
that the Labor Arbiter committed grave abuse of discretion when it proceeded with the
case despite the SEC suspension order.
Acts executed against the provisions of mandatory or prohibitory laws shall be void,
except when the law itself authorizes their validity. The Labor Arbiter's decision in this
case is void ab initio, and therefore, non-existent. A void judgment is in effect no
judgment at all. No rights are divested by it nor obtained from it. In other words, a void
judgment is regarded as a nullity, and the situation is the same as it would be if there were
no judgment. Having been executed against the provisions of a mandatory law, the QC
RTC Decision did not attain finality.
Necessarily, we reject respondent's contention that the Rehabilitation Court cannot
exercise its cram-down power to approve a rehabilitation plan over the opposition of a
creditor. Since the QC RTC Decision did not attain finality, there is no legal
impediment to reduce the penalties under the ARRP.
Further, we have already held that a court-approved rehabilitation plan may include a
reduction of liability. The prevailing principle is that the order or judgment of the courts,
not being a law, is not within the ambit of the non-impairment clause. Further, it is more
in keeping with the spirit of rehabilitation that courts are given the leeway to decide how
distressed corporations can best and fairly address their financial issues.
Here, sans the QC RTC Decision, the basis for the penalty award of PI0T per day of delay
is the JVA between petitioner and respondent. The Rehabilitation Court after hearing all
of the evidence on the financial status of petitioner, reduced it to P5T per day, finding the
P10T per day penalty unreasonable and unconscionable. We see nothing in the record that
persuades us to depart from their factual finding of the Rehabilitation Court.
II. On the second issue, we rule that the Rehabilitation Court cannot issue an order
preventing the QC RTC from enforcing its Decision. The QC RTC and the Rehabilitation
Court are co-equal and coordinate courts. The doctrine of judicial stability or non-
interference in the regular orders or judgments of a co-equal court is an elementary
principle in the administration of justice: no court can interfere by injunction with the
judgments or orders of another court of concurrent jurisdiction having the power to grant
the relief sought by the injunction.
Petitioner cannot argue that the Rehabilitation Court, in issuing the injunction, merely
aims to enforce the Stay Order that it earlier issued. No law confers upon the
Rehabilitation Court the authority to interfere with the order of a co-equal court . Only the
CA or this Court, in a petition appropriately filed for the purpose, may halt the execution
of the judgment of a regional trial court. Thus, we quote with approval the ruling of the
CA, viz.:
The rehabilitation court in issuing the said [December 28, 2007] order arrogated upon
itself the function of a higher court and issued the same even if it does not have any
jurisdiction to do so. Therefore, we accept the view that the rehabilitation court indeed
gravely abused its discretion in issuing the assailed order, the annulment of said order is
warranted in the foregoing circumstances.
To recapitulate, we rule that the Order of the Rehabilitation Court reducing the penalties
awarded to respondent is valid; and that the Order of the Rehabilitation Court preventing
the implementation of the QC RTC Decision is invalid for being issued with grave abuse of
discretion amounting to lack of jurisdiction.
G.R. No. 171995               April 18, 2012
STEELCASE, INC., Petitioner, vs. DESIGN INTERNATIONAL SELECTIONS,
INC., Respondent.
FACTS
Petitioner Steelcase, Inc. is a foreign corporation existing under the laws of Michigan,
U.S.A., and engaged in the manufacture of office furniture with dealers worldwide.
Respondent is a corporation existing under Philippine Laws and engaged in the furniture
business, including the distribution of furniture. Sometime in 1986 or 1987, Steelcase and
DISI orally entered into a dealership agreement whereby Steelcase granted DISI the right
to market, sell, distribute, install, and service its products to end-user customers within
the Philippines. The business relationship was terminated sometime in January 1999 after
the agreement was breached. Steelcase filed a complaint for sum of money against DISI
alleging, among others, that DISI had an unpaid account of US$600T.
In its Answer with Compulsory Counterclaims, DISI sought the following: (1) the issuance
of a TRO and a writ of preliminary injunction to enjoin Steelcase from selling its products
in the Philippines except through DISI; (2) the dismissal of the complaint for lack of
merit; and (3) the payment of damages together. DISI alleged that the complaint failed to
state a cause of action and to contain the required allegations on Steelcase’s capacity to
sue in the Philippines despite the fact that it (Steelcase) was doing business in the
Philippines without the required license to do so. Consequently, it posited that the
complaint should be dismissed because of Steelcase’s lack of legal capacity to sue in
Philippine courts.
Steelcase filed its Motion to Admit Amended Complaint which was granted by the RTC,
through then Acting Presiding Judge Roberto C. Diokno, in its Order9 dated April 26,
1999. However, Steelcase sought to further amend its complaint by filing a Motion to
Admit Second Amended Complaint10 on March 13, 1999.
In his Order, Acting Presiding Judge Maceda dismissed the complaint, granted the TRO
prayed for by DISI, set aside the April 26, 1999 Order of the RTC admitting the Amended
Complaint, and denied Steelcase’s Motion to Admit Second Amended Complaint. The RTC
stated that in requiring DISI to meet the Dealer Performance Expectation and in
terminating the dealership agreement with DISI based on its failure to improve its
performance in the areas of business planning, organizational structure, operational
effectiveness, and efficiency, Steelcase unwittingly revealed that it participated in the
operations of DISI. It then concluded that Steelcase was "doing business" in the
Philippines, as contemplated by RA No. 7042 (The Foreign Investments Act of 1991), and
since it did not have the license to do business in the country, it was barred from seeking
redress from our courts until it obtained the requisite license to do so. Its determination
was further bolstered by the appointment by Steelcase of a representative in the
Philippines. Finally, despite a showing that DISI transacted with the local customers in its
own name and for its own account, it was of the opinion that any doubt in the factual
environment should be resolved in favor of a pronouncement that a foreign corporation
was doing business in the Philippines, considering the 12 period that DISI had been
distributing Steelcase products in the Philippines.
Steelcase moved for the reconsideration of the questioned Order but the motion was
denied by the RTC in its May 29, 2000 Order.
Aggrieved, Steelcase elevated the case to the CA by way of appeal. The CA rendered its
Decision affirming the RTC orders, ruling that Steelcase was a foreign corporation doing
or transacting business in the Philippines without a license. Thus, the CA ruled that
Steelcase was barred from access to our courts for being a foreign corporation doing
business here without the requisite license to do so.
Steelcase filed a motion for reconsideration but it was denied by the CA. Hence, this
petition.
ISSUES:
(1) Whether or not Steelcase is doing business in the Philippines without a license; and
(2) Whether or not DISI is estopped from challenging the Steelcase’s legal capacity to sue.
RULING
The Court rules in favor of the petitioner. Steelcase is an unlicensed foreign corporation
NOT doing business in the Philippines.
Anent the first issue, Steelcase argues that Section 3(d) of R.A. No. 7042 or the Foreign
Investments Act of 1991 (FIA) expressly states that the phrase "doing business" excludes
the appointment by a foreign corporation of a local distributor domiciled in the
Philippines which transacts business in its own name and for its own account. Steelcase
claims that it was not doing business in the Philippines when it entered into a dealership
agreement with DISI where the latter, acting as the former’s appointed local distributor,
transacted business in its own name and for its own account. Specifically, Steelcase
contends that it was DISI that sold Steelcase’s furniture directly to the end-users or
customers who, in turn, directly paid DISI for the furniture they bought. Steelcase further
claims that DISI, as a non-exclusive dealer in the Philippines, had the right to market, sell,
distribute and service Steelcase products in its own name and for its own account. Hence,
DISI was an independent distributor of Steelcase products, and not a mere agent or
conduit of Steelcase.
The Court agrees with the petitioner.
The rule that an unlicensed foreign corporations doing business in the Philippine do not
have the capacity to sue before the local courts is well-established. Section 133 of the
Corporation Code of the Philippines explicitly states:
Sec. 133. Doing business without a license. - No foreign corporation transacting business
in the Philippines without a license, or its successors or assigns, shall be permitted to
maintain or intervene in any action, suit or proceeding in any court or administrative
agency of the Philippines; but such corporation may be sued or proceeded against before
Philippine courts or administrative tribunals on any valid cause of action recognized
under Philippine laws.
The phrase "doing business" is clearly defined in Section 3(d) of RA 7042 (Foreign
Investments Act of 1991), to wit:
d) The phrase "doing business" shall include soliciting orders, service contracts, opening
offices, whether called "liaison" offices or branches; appointing representatives or
distributors domiciled in the Philippines or who in any calendar year stay in the country
for a period or periods totalling (180) days or more; participating in the management,
supervision or control of any domestic business, firm, entity or corporation in the
Philippines; and any other act or acts that imply a continuity of commercial dealings or
arrangements, and contemplate to that extent the performance of acts or works, or the
exercise of some of the functions normally incident to, and in progressive prosecution of,
commercial gain or of the purpose and object of the business organization: Provided,
however, That the phrase "doing business" shall not be deemed to include mere
investment as a shareholder by a foreign entity in domestic corporations duly registered to
do business, and/or the exercise of rights as such investor; nor having a nominee director
or officer to represent its interests in such corporation; nor appointing a representative or
distributor domiciled in the Philippines which transacts business in its own name and for
its own account; (Emphases supplied)
This definition is supplemented by its IRR, Rule I, Section 1(f) which elaborates on the
meaning of the same phrase:
f. "Doing business" shall include soliciting orders, service contracts, opening offices,
whether liaison offices or branches; appointing representatives or distributors, operating
under full control of the foreign corporation, domiciled in the Philippines or who in any
calendar year stay in the country for a period totalling [180] days or more; participating in
the management, supervision or control of any domestic business, firm, entity or
corporation in the Philippines; and any other act or acts that imply a continuity of
commercial dealings or arrangements, and contemplate to that extent the performance of
acts or works, or the exercise of some of the functions normally incident to and in
progressive prosecution of commercial gain or of the purpose and object of the business
organization.
The following acts shall not be deemed "doing business" in the Philippines:
1. Mere investment as a shareholder by a foreign entity in domestic corporations duly
registered to do business, and/or the exercise of rights as such investor;
2. Having a nominee director or officer to represent its interest in such corporation;
3. Appointing a representative or distributor domiciled in the Philippines which transacts
business in the representative's or distributor's own name and account;
4. The publication of a general advertisement through any print or broadcast media;
5. Maintaining a stock of goods in the Philippines solely for the purpose of having the
same processed by another entity in the Philippines;
6. Consignment by a foreign entity of equipment with a local company to be used in the
processing of products for export;
7. Collecting information in the Philippines; and
8. Performing services auxiliary to an existing isolated contract of sale which are not on a
continuing basis, such as installing in the Philippines machinery it has manufactured
or exported to the Philippines, servicing the same, training domestic workers to
operate it, and similar incidental services. (Emphases supplied)
From the preceding citations, the appointment of a distributor in the Philippines is not
sufficient to constitute "doing business" unless it is under the full control of the foreign
corporation. On the other hand, if the distributor is an independent entity which buys and
distributes products, other than those of the foreign corporation, for its own name and its
own account, the latter cannot be considered to be doing business in the Philippines. It
should be kept in mind that the determination of whether a foreign corporation is doing
business in the Philippines must be judged in light of the attendant circumstances.
In the case at bench, it is undisputed that DISI was founded in 1979 and is independently
owned and managed by the spouses Leandro and Josephine Bantug. In addition to
Steelcase products, DISI also distributed products of other companies including carpet
tiles, relocatable walls and theater settings. The dealership agreement between Steelcase
and DISI had been described by the owner himself as: xxx
This clearly belies DISI’s assertion that it was a mere conduit through which Steelcase
conducted its business in the country. The only reasonable conclusion that can be reached
is that DISI was an independent contractor, distributing various products of Steelcase and
of other companies, acting in its own name and for its own account.
Finally, both the CA and DISI rely heavily on the Dealer Performance Expectation
required by Steelcase of its distributors to prove that DISI was not functioning
independently from Steelcase. The imposition of minimum standards concerning sales,
marketing, finance and operations is nothing more than an exercise of sound business
practice to increase sales and maximize profits for the benefit of both Steelcase and its
distributors. For as long as these requirements do not impinge on a distributor’s
independence, then there is nothing wrong with placing reasonable expectations on them.
Thus, it has been sufficiently demonstrated that DISI was an independent contractor
which sold Steelcase products in its own name and for its own account. As a result,
Steelcase cannot be considered to be doing business in the Philippines by its act of
appointing a distributor as it falls under one of the exceptions under R.A. No. 7042.
DISI is estopped from challenging Steelcase’s legal capacity to sue
Steelcase argues that assuming arguendo that it had been "doing business" in the
Philippines without a license, DISI was nonetheless estopped from challenging Steelcase’s
capacity to sue in the Philippines. Steelcase claims that since DISI was aware that it was
doing business in the Philippines without a license and had benefited from such business,
then DISI should be estopped from raising the defense that Steelcase lacks the capacity to
sue in the Philippines by reason of its doing business without a license.
The argument of Steelcase is meritorious.
If indeed Steelcase had been doing business in the Philippines without a license, DISI
would nonetheless be estopped from challenging the former’s legal capacity to sue.
It cannot be denied that DISI entered into a dealership agreement with Steelcase and
profited from it for 12 years from 1987 until 1999. DISI admits that it complied with its
obligations under the dealership agreement by exerting more effort and making
substantial investments in the promotion of Steelcase products. It also claims that it was
able to establish a very good reputation and goodwill for Steelcase and its products,
resulting in the establishment and development of a strong market for Steelcase products
in the Philippines. Because of this, DISI was very proud to be awarded the "Steelcase
International Performance Award" for meeting sales objectives, satisfying customer needs,
managing an effective company and making a profit.
Unquestionably, entering into a dealership agreement with Steelcase charged DISI with
the knowledge that Steelcase was not licensed to engage in business activities in the
Philippines. This Court has carefully combed the records and found no proof that, from
the inception of the dealership agreement in 1986 until September 1998, DISI even
brought to Steelcase’s attention that it was improperly doing business in the Philippines
without a license. It should, however, be noted that DISI only raised the issue of the
absence of a license with Steelcase after it was informed that it owed the latter
US$600,000.00 for the sale and delivery of its products under their special credit
arrangement.
By acknowledging the corporate entity of Steelcase and entering into a dealership
agreement with it and even benefiting from it, DISI is estopped from questioning
Steelcase’s existence and capacity to sue.
A foreign corporation doing business in the Philippines may sue in Philippine Courts
although not authorized to do business here against a Philippine citizen or entity who had
contracted with and benefited by said corporation. To put it in another way, a party is
estopped to challenge the personality of a corporation after having acknowledged the
same by entering into a contract with it. And the doctrine of estoppel to deny corporate
existence applies to a foreign as well as to domestic corporations. One who has dealt with
a corporation of foreign origin as a corporate entity is estopped to deny its corporate
existence and capacity: The principle will be applied to prevent a person contracting with
a foreign corporation from later taking advantage of its noncompliance with the statutes
chiefly in cases where such person has received the benefits of the contract.
The rule is deeply rooted in the time-honored axiom of Commodum ex injuria sua non
habere debet — no person ought to derive any advantage of his own wrong. This is as it
should be for as mandated by law, "every person must in the exercise of his rights and in
the performance of his duties, act with justice, give everyone his due, and observe honesty
and good faith."
By entering into the "Representative Agreement" with ITEC, petitioner is charged with
knowledge that ITEC was not licensed to engage in business activities in the country, and
is thus estopped from raising in defense such incapacity of ITEC, having chosen to ignore
or even presumptively take advantage of the same. (Emphases supplied)
The case of Rimbunan Hijau Group of Companies v. Oriental Wood Processing
Corporation24 is likewise instructive:
Respondent’s unequivocal admission of the transaction which gave rise to the complaint
establishes the applicability of estoppel against it. Rule 129, Section 4 of the Rules on
Evidence provides that a written admission made by a party in the course of the
proceedings in the same case does not require proof. We held in the case of Elayda v.
Court of Appeals, that an admission made in the pleadings cannot be controverted by the
party making such admission and are conclusive as to him. Thus, our consistent
pronouncement, as held in cases such as Merril Lynch Futures v. Court of Appeals, is
apropos:
The rule is that a party is estopped to challenge the personality of a corporation after
having acknowledged the same by entering into a contract with it. And the ‘doctrine of
estoppel to deny corporate existence applies to foreign as well as to domestic
corporations;’ "one who has dealt with a corporation of foreign origin as a corporate entity
is estopped to deny its existence and capacity." The principle "will be applied to prevent a
person contracting with a foreign corporation from later taking advantage of its
noncompliance with the statutes, chiefly in cases where such person has received the
benefits of the contract . . ."
All things considered, respondent can no longer invoke petitioner’s lack of capacity to sue
in this jurisdiction. Considerations of fair play dictate that after having contracted and
benefitted from its business transaction with Rimbunan, respondent should be barred
from questioning the latter’s lack of license to transact business in the Philippines.
As a matter of principle, this Court will not step in to shield defaulting local companies
from the repercussions of their business dealings. While the doctrine of lack of capacity to
sue based on failure to first acquire a local license may be resorted to in meritorious cases,
it is not a magic incantation. It cannot be called upon when no evidence exists to support
its invocation or the facts do not warrant its application. In this case, that the respondent
is estopped from challenging the petitioners’ capacity to sue has been conclusively
established, and the forthcoming trial before the lower court should weigh instead on the
other defenses raised by the respondent.
As shown in the previously cited cases, this Court has time and again upheld the principle
that a foreign corporation doing business in the Philippines without a license may still sue
before the Philippine courts a Filipino or a Philippine entity that had derived some benefit
from their contractual arrangement because the latter is considered to be estopped from
challenging the personality of a corporation after it had acknowledged the said
corporation by entering into a contract with it.
The Court had the occasion to draw attention to the common ploy of invoking the
incapacity to sue of an unlicensed foreign corporation utilized by defaulting domestic
companies which seek to avoid the suit by the former. The Court cannot allow this to
continue by always ruling in favor of local companies, despite the injustice to the overseas
corporation which is left with no available remedy.
Decision of the Court of Appeals and its March 23, 2006 Resolution are hereby
REVERSED and SET ASIDE.

G.R. No. 224764 April 24, 2017
BIR, ASCOMM ALFREDO V. MISAJON, GROUP SUPERVISOR ROLANDO M.
BALBIDO, and EXAMINER REYNANTE DP. MARTIREZ, Petitioners, vs.
LEPANTO CERAMICS, INC., Respondent.
FACTS
On December 23, 2011, respondent Lepanto - a corporation with principal office address
in Calamba City, Laguna - filed a petition for corporate rehabilitation pursuant to RA
10142 or the "FRIA of 2010," docketed before the RTC of Calamba City, Branch 34, the
designated Special Commercial Court in Laguna (Rehabilitation Court). LCI alleged that
due to the financial difficulties it has been experiencing dating back to the Asian financial
crisis, it had entered into a state of insolvency considering its inability to pay its
obligations as they become due and that its total liabilities amounting to ₱4.213B far
exceed its total assets worth ₱1.112B. LCI admitted its tax liabilities to the national
government in the amount of at least ₱6.355M.
The Rehabilitation Court issued a Commencement Order, 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 liabilities outstanding 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. Accordingly, the Commencement
Order was published in a newspaper of general circulation and the same, together with the
petition for corporate rehabilitation, were personally served upon LCI's creditors,
including the BIR.
Despite the foregoing, Misajon, of the BIR's Large Taxpayers Service, sent LCI a notice of
informal conference, informing the latter of its deficiency internal tax liabilities for the
Fiscal Year ending June 30, 2010. In response, LCI's court-appointed receiver, Mendoza,
sent BIR a letter-reply, reminding the latter of the pendency of LCI's corporate
rehabilitation proceedings, as well as the issuance of a Commencement Order.
Undaunted, the BIR sent LCI a Formal Letter of Demand, requiring LCI to pay deficiency
taxes in the amount of P567M. This prompted LCI to file a petition for indirect contempt
against petitioners before RTC Br.35. In said petition, LCI asserted that petitioners' act of
pursuing the BIR's claims for deficiency taxes against LCI outside of the pending
rehabilitation proceedings in spite of the Commencement Order issued by the
Rehabilitation Court is a clear defiance of the aforesaid Order. As such, petitioners must
be cited for indirect contempt in accordance with Rule 71 of the Rules of Court in relation
to Sec. 16 of RA 10142.
Petitioners maintained that: (a) RTC Br. 35 had no jurisdiction to cite them in contempt
as it is only the Rehabilitation Court, being the one that issued the Commencement Order,
which has the authority to determine whether or not such Order was defied; (b) the
instant petition had already been mooted by the Rehabilitation Court's Order dated
August 28, 2014 which declared LCI to have been successfully rehabilitated resulting in
the termination of the corporate rehabilitation proceedings; (c) their acts do not amount
to a defiance of the Commencement Order as it was done merely to toll the prescriptive
period in collecting deficiency taxes, and thus, sanctioned by the Rules of Procedure of the
FRIA; (d) their acts of sending a Notice of Informal Conference and Formal Letter of
Demand do not amount to a "legal action or other recourse" against LCI outside of the
rehabilitation proceedings; and (e) the indirect contempt proceedings interferes with the
exercise of their functions to collect taxes due to the govemment.
The RTC Br. 35 Ruling
The RTC Br. 35 found Misajon, et al. guilty of indirect contempt and, accordingly, ordered
them to pay a fine of ₱5,000.00 each. Preliminarily, the RTC Br. 35 ruled that it has
jurisdiction over LCI's petition for indirect contempt separately from the principal action.
Going to petitioners' other contentions, the RTC found that: (a) the supervening
termination of the rehabilitation proceedings and the consequent lifting of the
Commencement Order did not render moot the petition for indirect contempt as the acts
complained of were already consummated; (b) petitioners' acts of sending LCI a notice of
informal conference and Formal Letter of Demand are covered by the Commencement
Order as they were for the purpose of pursuing and enforcing a claim for deficiency taxes,
and thus, are in clear defiance of the Commencement Order; and (c) petitioners could
have tolled the prescriptive period to collect deficiency taxes without violating the
Commencement Order by simply ventilating their claim before the rehabilitation
proceedings, which they were adequately notified of. In this relation, the RTC Br. 35 held
that while the BIR is a juridical entity which can only act through its authorized
intermediaries, it cannot be concluded that it authorized the latter to commit the
contumacious acts complained of, i.e., defiance of the Commencement Order. Thus,
absent any contrary evidence, only those individuals who performed such acts, namely,
Misajon, et al., should be cited for indirect contempt of court.
Aggrieved, Misaj on, et al. moved for reconsideration, which was, however, denied in an
Order; hence, this petition.
ISSUE
Whether or not the RTC Br. 35 correctly found Misajon, et al. to have defied the
Commencement Order and, accordingly, cited them for indirect contempt.
RULING
The petition is without merit.
Section 4 (gg) of RA 10142 states:
(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.
"[C]ase 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."
Verily, 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. "[It] enable[s] the company to gain a new lease in life and thereby allow
creditors to be paid [t]heir claims from its earnings.
In order to achieve such objectives, Section 16 of RA 10142 provides, inter alia, that upon
the issuance of a Commencement Order - which includes a Stay or Suspension Order - all
actions or proceedings, in court or otherwise, for the enforcement of "claims" against the
distressed company shall be suspended. The 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 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."
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 conference, 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, 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. Notably, 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. As aptly put by the RTC Br. 35, 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.
WHEREFORE, the petition is DENIED.

To clarify, however, creditors of the distressed corporation are not without remedy as they
may still submit their claims to the rehabilitation court for proper consideration so that
they may participate in the proceedings, keeping in mind the general policy of the law "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."
In other words, the creditors must ventilate their claims before the rehabilitation court,
and any "[a]ttempts to seek legal or other resource against the distressed corporation shall
be sufficient to support a finding of indirect contempt of court."

In the case at bar, it is undisputed that the Rehabilitation Court issued a Commencement
Order 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. It is
likewise undisputed that the BIR - personally and by publication - was notified of the

G.R. No. 193108               December 10, 2014
MARILYN VICTORIO-AQUINO, Petitioner, vs. PACIFIC PLANS, INC. and
MAMERTO A. MARCELO, JR. (Court-Appointed Rehabilitation Receiver of
Pacific Plans, Inc.), Respondents.
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.
On April 7, 2005, respondent filed a Petition for Corporate Rehabilitation with the RTC
(Rehabilitation Court), praying that it be placed under rehabilitation and suspension of
payments pursuant to P.D. 902-A, as amended, in relation to the Interim Rules of
Procedure on Corporate Rehabilitation (Interim Rules). 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 (Rehabilitation Receiver) as the
rehabilitation receiver and set the initial hearing of the case on May 25, 2005. 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 (ARP) for the
approval of the Rehabilitation Court. Under the ARP, the benefits under the PEP Trads
shall be translated into fixed-value benefits as of December 31, 2004, which will be termed
as Base Year-end 2004 Entitlement, and shall be computed as follows: (i) for availing plan
holders, based on (50%) of Average School Fee of SY 2005-2006 for every remaining year
of availment; (ii) for nonavailing (Group 1) plan holders, based on the higher of Base Year-
end 2004 Entitlement under the Rehabilitation Proposal or (50%) of Average School Fee
of SY 2005-2006 for every year of availment; and (iii) for non-availing (Group 2) plan
holders, based on the planholders’ contributions with seven percent (7%) net interest per
annum from date of full payment on record to December 31, 2004. The Base Year-end
Entitlement will be covered by a Rehabilitation Plan Agreement in lieu of a fixed-value
plan.
For petitioner, she is entitled to receive an aggregate amount consisting of: (a) the value of
her total contributions plus interest at the rate of (7%) from the date of full payment until
December 31, 2005 (Net Translated Value); and (b) interest on the Net Translated Value
at the annual rate of (7%) from January 1, 2006 until 2010.
The ARP also provided for tuition support for each enrolment period until SY 2009-2010
depending on the prevailing market rate of the NAPOCOR Bonds and Peso-Dollar
exchange rate. The tuition support is computed as the lesser of the remaining balance of
Base Year-end 2004 Entitlement, the last-term tuition or reimbursement on record and
the following tuition support ceiling: xx
These tuition support payments are considered advances from the Base Year-end 2004
Entitlement.
As to the funding for the tuition support, the same shall be sourced from either two (2)
ways:
(1) Outright sale of the NAPOCOR bonds and conversion of Dollar proceeds to Peso, up
to the equivalent of the tuition support requirements. The payment of the tuition
support will be dependent on the terms and exchange rate under which the bonds are
liquidated; or
(2) Forward sale of the underlying Dollars to a financial institution, which then issues
notes credit linked with NAPOCOR Bonds. The notes can then be sold to interested
financial institution to provide for liquidity to fund the requirements for tuition
support.
The creditors/oppositors did not oppose/comment on the Rehabilitation Receiver’s ARP,
although the Parents Enabling Parents Coalition, Inc. (PEPCI) filed with the CA, a Petition
for Certiorari with Application for a TRO/Writ of Preliminary Injunction. As no TRO/Writ
of Preliminary Injunction has been issued against the conduct of further proceedings, on
April 27, 2006, the Court issued a Decision21 approving the ARP, which cradled several
appeals filed with the CA, and later on, to this Court that are still pending resolution.
Nevertheless, respondent commenced with the implementation of its ARP in coordination
with, and with clearance from, the Rehabilitation Receiver.
In the meantime, the value of the Philippine Peso strengthened and appreciated. Thus,
respondent submitted a manifestation with the Rehabilitation Court, stating that the
continued appreciation of the Philippine Peso has grossly affected the value of the U.S.
Dollar-denominated NAPOCOR bonds, which stood as security for the payment of the Net
TranslatedValues of the PEPTrads.
Thereafter, the Rehabilitation Receiver filed a Manifestation with Motion to Admit,
echoing the earlier tenor and substance of respondent’s manifestation, and praying that
the Modified Rehabilitation Plan (MRP) be approved by the Rehabilitation Court. Under
the MRP, the ARP previously approved by the Rehabilitation Court is modified as follows:
(a) suspension of the tuition support; (b) converting the Philippine Peso liabilities to U.S.
Dollar liabilities by assigning to each planholder a share of the remaining asset in
proportion to the share of liabilities in 2010; and (c) payments of the trust fund assets in
U.S. Dollars at maturity.
After the submission of comments/opposition by the concerned parties, the Rehabilitation
Court issued a Resolution approving the MRP. In approving the same, the Rehabilitation
Court reasoned that in view of the "cram down" power of the rehabilitation court under
Section 23 of the Interim Rules, courts have the power to approve a rehabilitation plan
over the objection of creditors and even when such proposed rehabilitation plan involves
the impairment of contractual obligations.
Petitioner questioned the approval of the MRP before the CA. It likewise prayed for the
issuance of a TRO and a writ of preliminary injunction to stay the execution of the
Resolution dated July 28, 2008.
In dismissing or denying the Petition for Review, the CA held that: (a) petitioner did not
pay the proper amount of docket fees; (b) a Petition for Review under Rule 43 is an
improper remedy to question the approval of a modified rehabilitation plan; (c) contrary
to petitioner’s claim, the alterations in the MRP are consistent with the goals of the ARP;
and (d) the approval of the MRP did not amount to an impairment of the contract between
petitioner and respondent. The falloof the assailed Decision29 states:
ISSUES
(1) The CA rendered a decision contrary to law and not in accord with the applicable
decisions of the Supreme Court when it sustained the Rehabilitation Court’s approval
of the MRP.
(2) xx
(3) xx
On procedural grounds, this Court finds for the petitioner.
This Court has time and again reiterated the doctrine that the rules of procedure are mere
tools aimed at facilitating the attainment of justice, rather than its frustration. A strict and
rigid application of the rules must always be eschewed when it would subvert the primary
objective of the rules, that is, to enhance fair trials and expedite justice. Technicalities
should never be used to defeat the substantive rights of the other party. Every party-
litigant must be afforded the amplest opportunity for the proper and just determination of
his cause, free from the constraints of technicalities. Considering that there was
substantial compliance, a liberal interpretation of procedural rules in this labor case is
more in keeping with the constitutional mandate to secure social justice.
Notwithstanding our liberal interpretation of the rules, the instant petition must fail on
substantive grounds.
Petitioner contends that the MRP is ultra vires insofar as it reduces the original claim and
even the original amount that petitioner was to receive under the ARP. She also claims
that it was beyond the authority of the Rehabilitation Court to sanction a rehabilitation
plan, or the modification thereof, when the essential feature of the plan involves forcing
creditors to reduce their claims against respondent.
Petitioner’s argument is misplaced. The "cram-down" power of the Rehabilitation Court
has long been established and even codified under Section 23, Rule 4 of the Interim Rules,
to wit: Section 23. Approval of the Rehabilitation Plan. – 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.
Such prerogative was carried over in the Rehabilitation Rules, which maintains that the
court may approve a rehabilitation plan over the objection of the creditors if, in its
judgment, the rehabilitation of the debtors is feasible and the opposition of the creditors is
manifestly unreasonable. The required number of creditors opposing such plan under the
Interim Rules (i.e.,those holding the majority of the total liabilities of the debtor) was, in
fact, removed. Moreover, the criteria for manifest unreasonableness is spelled out, to wit:
SEC. 11. Approval of Rehabilitation Plan. — The court may approve a rehabilitation plan
even over the opposition of creditors of the debtor if, in its judgment, the rehabilitation of
the debtor is feasible and the opposition of the creditors is manifestly unreasonable. The
opposition of the creditors is manifestly unreasonable if the following are present:
a) The rehabilitation plan complies with the requirements specified in Section 18 of Rule
3;
b) The rehabilitation plan would provide the objecting class of creditors with payments
whose present value projected in the plan would be greater than that which they would
have received if the assets of the debtor were sold by a liquidator within a (6) month
period from the date of filing of the petition; and
c) The rehabilitation receiver has recommended approval of the plan.
In approving the rehabilitation plan, the court shall ensure that the rights of the secured
creditors are not impaired. The court shall also issue the necessary orders or processes for
its immediate and successful implementation. It may impose such terms, conditions, or
restrictions as the effective implementation and monitoring thereof may reasonably
require, or for the protection and preservation of the interests of the creditors should the
plan fail.
The Court elucidated the rationale behind Section 23, Rule 4 of the Interim Rules, thus:
xxx 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.
Based on the aforequoted doctrines, petitioner’s outright censure of the concept of the
cram-down power of the rehabilitation court cannot be countenanced. To adhere to the
reasoning of petitioner would be a step backward — a futile attempt to address an
outdated set of challenges. It is undeniable that there is a need to move to a regime of
modern restructuring, cram-down and court supervision in the matter of corporation
rehabilitation in order to address the greater interest of the public. This is clearly
manifested in Section 64 of RA No. 10142, otherwise known as FRIA of 2010, the latest
law on corporate rehabilitation and insolvency.
Notwithstanding the rejection of the Rehabilitation Plan, the court may confirm the
Rehabilitation Plan if all of the following circumstances are present:
(a)The Rehabilitation Plan complies with the requirements specified in this Act;
(b) The rehabilitation receiver recommends the confirmation of the Rehabilitation Plan;
(c) The shareholders, owners or partners of the juridical debtor lose at least their
controlling interest as a result of the Rehabilitation Plan; and
(d) 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.
While the voice and participation of the creditors is crucial in the determination of the
viability of the rehabilitation plan, as they stand to benefit or suffer in the implementation
thereof, the interests of all stakeholders is the ultimate and prime consideration . Thus,
while we recognize the predisposition of the planholders in vacillating on the enforcement
of the MRP, since the terms and conditions stated therein have been fundamentally
changed from those stated in the Original and Amended Rehabilitation Plan, the MRP
cannot be considered an abrogation of rights to the planholders/creditors.
First. An examination of the changes proposed in the MRP would confirm that the same
is, in fact, an effective risk management tool intended to serve both the interests of
respondent and its planholders/creditors.
In addition, the MRP merely establishes the planholders’ claim on a percentage/pro rata
share of the assets of the trust fund. It does not, in any way, diminish the value of their
claims or their share in the proverbial pie. The propriety of this theory was recognized by
the Rehabilitation Court, to wit:
Second, the conversion of the Philippine Peso entitlements into USD entitlements would
not diminish the pro rata share of the planholders. Each planholder would still receive his
proportionate share of the pie, so to speak, albeitin United States Dollars. As can be
gleaned from the foregoing, the modification guarantees that each planholder has an
adequate return on his/her investment regardless of changes in the surge of the Philippine
economy.
We, therefore, agree with respondent that the proposed modification seeks to establish a
balance between adequate returns to the planholders/creditors, while ensuring that
respondent shall be an on-going concern that can eventually undergo normal operations
after the implementation of the MRP.
Second. The recommendation of the Rehabilitation Receiver cannot simply be unsung
without violating the basic tenet of Section 14, Rule 4 of the Interim Rules, which provides
the powers and functions of the Rehabilitation Receiver, thus:
Sec. 14. Powers and Functions of the Rehabilitation Receiver. - The Rehabilitation
Receiver shall not take over the management and control of the debtor but shall closely
oversee and monitor the operations of the debtor during the pendency of the proceedings,
and for this purpose shall have the powers, duties and functions of a receiver under
Presidential Decree No. 902-A, as amended, and the Rules of Court.
x x x Accordingly, he shall have the following powers and functions:
(j) To monitor the operations of the debtor and to immediately report to the court any
material adverse change in the debtor's business;
xxxx
(l) To determine and recommend to the court the best way to salvage and protect the
interests of the creditors, stockholders, and the general public;
(v) To recommend any modification of an approved rehabilitation plan as he may deem
appropriate;
(w) To bring to the attention of the court any material change affecting the debtor's ability
to meet the obligations under the rehabilitation plan;
As correctly recognized by the Rehabilitation Court in its Resolution dated July 28, 2008,
the Rehabilitation Receiver has the duty and authority to recommend any modification of
an approved rehabilitation plan as he may deem appropriate and for the purpose of
achieving the desired targets or goals set forth therein, thus:
The Rehabilitation Rules allow the modification and alteration of the rehabilitation plan
precisely because ofconditions that may supervene or affect the implementation thereof
subsequent to its approval. In the case at bar, to force through with the tuition support
would surely jeopardize the implementation of the ARP in the long-run since it would not
be feasible to keep on liquidating the NAPOCOR Bonds.
Third. We confirm that there is a substantial likelihood for respondent to be successfully
rehabilitated considering that its business remains viable and is operating on a going-
concern premise.
A careful reading of the records will show that respondent’s liquidity problems were
mostly caused by the deregulation of the education sector, which triggered sharp increases
in tuition fees of schools and universities beyond what was projected by pre-need
companies dealing with traditional educational plans.
Petitioner’s interpretation of Section 37 of the Rehabilitation Rules vis-à-vis the means
within which a rehabilitation plan may be pursued, is misplaced. As held in a plethora of
cases, a rehabilitation plan may involve a reduction of liability. On this score, the principle
enunciated in Pacific Wide Realty and Development Corporation v. Puerto Azul Land,
Inc.,71 is instructive, thus –
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.
We find 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.
to the exercise of legislative power. It does not apply to the Rehabilitation Court which
exercises judicial power over the rehabilitation proceedings.
In view of all of the foregoing, We find no basis to overturn the findings of the CA with
respect to the substantive issues in this case.
In the case at bar, we hold that the modification of the rehabilitation plan is a risk
management tool to address the volatility of the exchange rate of the Philippine Peso vis-
à-vis the U.S. Dollars, with the goal of ensuring that all planholders or creditors receive
adequate returns regardless of the tides of the Philippine market by making payment in
U.S. Dollars. This plan would prevent the trust fund of respondent from being diluted due
to the appreciation of the Philippine Peso and assure that all planholders and creditors
shall receive payment upon maturity of the NAPOCOR bonds in the most equitable
manner.
WHEREFORE, the petition is DENIED

The restructuring of the debts of PALI is part and parcel of its rehabilitation. Moreover,
per findings offact of the RTC and as affirmed by the CA, the restructuring of the debts of
PALI would notbe prejudicial to the interest of PWRDC as a secured creditor.
Enlightening is the observation of the CA in this regard, viz.:

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. x x x.

We also find no merit in PWRDC’s contention that there is a violation of the impairment
clause. 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.

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 isfeasible 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.

Similarly, the reasoning laid down by the CA for the application of the cram-down power
of the Rehabilitation Court is enlightening, thus:

This Court likewise rejects petitioner Aquino’s claims that the MRP constitutes an
impairment of contracts. The non-impairment clause under the Constitution applies only

G.R. No. 202664, November 20, 2015
MANUEL LUIS C. GONZALES AND FRANCIS MARTIN D.
GONZALES, Petitioners, v. GJH LAND, INC. (FORMERLY KNOWN AS S.J.
LAND, INC.), CHANG HWAN JANG A.K.A. STEVE JANG, SANG RAK KIM,
MARIECHU N. YAP, AND ATTY. ROBERTO P. MALLARI II, Respondent.
On August 4, 2011, petitioners filed a Complaint5 for "Injunction with prayer for Issuance
of Status Quo Order, Three (3) and (20)-Day TROs, and Writ of Preliminary Injunction
with Damages" against respondents GJH Land, Inc. respondents and before the RTC of
Muntinlupa City seeking to enjoin the sale of S.J. Land, Inc.'s shares which they
purportedly bought from S.J. Global, Inc. on February 1, 2010. Essentially, petitioners
alleged that the subscriptions for the said shares were already paid by them in full in the
books of S.J. Land, Inc.,7 but were nonetheless offered for sale on July 29, 2011 to the
corporation's stockholders.
The case was raffled to Branch 276, which is not a Special Commercial
Court. Said branch issued a TRO and later, in an granted the application for a writ of
preliminary injunction.
Respondents filed a motion to dismiss on the ground of lack of jurisdiction over the
subject matter, pointing out that the case involves an intra-corporate dispute and should,
thus, be heard by the designated Special Commercial Court of Muntinlupa City.
RTC Ruling
Branch 276 granted the motion to dismiss filed by respondents. It found that the case
involves an intra-corporate dispute that is within the original and exclusive jurisdiction of
the RTCs designated as Special Commercial Courts. It pointed out that the RTC Branch
256 was specifically designated by the Court as the Special Commercial Court, hence,
Branch 276 had no jurisdiction over the case and cannot lawfully exercise jurisdiction on
the matter, including the issuance of a Writ of Preliminary Injunction. Accordingly, it
dismissed the case.
Dissatisfied, petitioners filed a motion for reconsideration, arguing that they filed the case
with the Office of the Clerk of Court of the RTC of Muntinlupa City which assigned the
same to Branch 276 by raffle. As the raffle was beyond their control, they should not
be made to suffer the consequences of the wrong assignment of the case. They further
maintained that the RTC has jurisdiction over intra-corporate disputes under RA
8799, but since the Court selected specific branches to hear and decide such suits, the case
must, at most, be transferred or raffled off to the proper branch.
Branch 276 denied the motion for reconsideration, holding that it has no authority or
power to order the transfer of the case to the proper Special Commercial Court, hence, the
present petition.
ISSUE
Whether or not Branch 276 of the RTC of Muntinlupa City erred in dismissing the case for
lack of jurisdiction over the subject matter.
RULING The petition is meritorious.
The Court finds Branch 276 to have correctly categorized Civil Case No. 11-077 as a
commercial case, more particularly, an intra-corporate dispute, considering that it relates
to petitioners' averred rights over the shares of stock offered for sale to other stockholders,
having paid the same in full. Applying the relationship test and the nature of the
controversy test, the suit between the parties is clearly rooted in the existence of an intra-
corporate relationship and pertains to the enforcement of their correlative rights and
obligations under the Corporation Code and the internal and intra-corporate regulatory
rules of the corporation, hence, intra-corporate, which should be heard by the designated
Special Commercial Court as provided under A.M. No. 03-03-03-SC dated June 17, 2003
in relation to Item 5.2, Section 5 of RA 8799.
The present controversy lies, however, in the procedure to be followed when a
commercial case - such as the instant intra-corporate dispute -has been
properly filed in the official station of the designated Special Commercial
Court but is, however, later wrongly assigned by raffle to a regular branch of
that station.
As a basic premise, let it be emphasized that a court's acquisition of jurisdiction over a
particular case's subject matter is different from incidents pertaining to the exercise of its
jurisdiction. Jurisdiction over the subject matter of a case is conferred by law, whereas
a court's exercise of jurisdiction, unless provided by the law itself, is governed by the
Rules of Court or by the orders issued from time to time by the Court.
In Lozada v. Bracewell,27 it was recently held that the matter of whether the RTC
resolves an issue in the exercise of its general jurisdiction or of its limited
jurisdiction as a special court is only a matter of procedure and has nothing
to do with the question of jurisdiction.
Pertinent to this case is RA 8799.. By virtue of said law, jurisdiction over cases
enumerated in Section 5 of PD No. 902-A was transferred from the SEC to the RTCs,
being courts of general jurisdiction. Item 5.2, Section 5 of RA 8799 provides:
SEC. 5. Powers and Functionsof the Commission. - x x x
5.2 The Commission's jurisdiction over all cases enumerated under Section 5
of PD 902-A is hereby transferred to the Courts of general jurisdiction OR the
appropriate RTC: Provided, that the Supreme Court in the exercise of its
authority may designate the RTC branches that shall exercise jurisdiction
over the cases. The Commission shall retain jurisdiction over pending cases involving
intra-corporate disputes submitted for final resolution which should be resolved within (1)
year from the enactment of this Code. The Commission shall retain jurisdiction over
pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally
disposed.
The legal attribution of RTCs as courts of general jurisdiction stems from Section 19
(6), Chapter II of BP 129, known as "The Judiciary Reorganization Act of 1980":
Section 19. Jurisdiction in civil cases.- RTCs shall exercise exclusive original jurisdiction:
(6) In all cases not within the exclusive jurisdiction of any court, tribunal, person
or body exercising jurisdiction or any court, tribunal, person or body exercising judicial or
quasi-judicial functions; x x x
As enunciated in Durisol Philippines, Inc. v. CA:
The RTC, formerly the CFI, is a court of general jurisdiction. All cases, the jurisdiction
over which is not specifically provided for by law to be within the jurisdiction of any other
court, fall under the jurisdiction of the regional trial court.
To clarify, the word "or" in Item 5.2, Section 5 of RA 8799 was intentionally used by the
legislature to particularize the fact that the phrase "the Courts of general jurisdiction" is
equivalent to the phrase "the appropriate RTC." In other words, the jurisdiction of the SEC
over the cases enumerated under Section 5 of PD 902-A was transferred to the courts of
general jurisdiction, that is to say (or), the proper RTCs. This interpretation is supported
by San Miguel Corp. v. Municipal Council,33 wherein the Court held that:
[T]he word "or" may be used as the equivalent of "that is to say" and gives that which
precedes it the same significance as that which follows it. It is not always disjunctive and is
sometimes interpretative or expository of the preceding word.
Further, as may be gleaned from the following excerpt of the Congressional deliberations:
Senator [Raul S.] Roco: x x
x x x. The first major departure is as regards the SEC. The SEC has been authorized under
this proposal to reorganize itself. As an administrative agency, we strengthened it and at
the same time we take away the quasi-judicial functions. The quasi-judicial functions
are now given back to the courts of general jurisdiction - the RTC, except for
two categories of cases.
In the case of corporate disputes, only those that are now submitted for final
determination of the SEC will remain with the SEC. So, all those cases, both memos of the
plaintiff and the defendant, that have been submitted for resolution will continue. At the
same time, cases involving rehabilitation, bankruptcy, suspension of payments
and receiverships that were filed before June 30, 2000 will continue with the SEC. in
other words, we are avoiding the possibility, upon approval of this bill, of people filing
cases with the SEC, in manner of speaking, to select their court. x x x
Therefore, one must be disabused of the notion that the transfer of jurisdiction was made
only in favor of particular RTC branches, and not the RTCs in general.
Consistent with the foregoing, history depicts that when the transfer of SEC cases to the
RTCs was first implemented, they were transmitted to the Executive Judges of the RTCs
for raffle between or among its different branches, unless a specific branch has been
designated as a Special Commercial Court, in which instance, the cases
were transmitted to said branch. It was only on November 21, 2000 that the Court
designated certain RTC branches to try and decide said SEC cases without, however,
providing for the transfer of the cases already distributed to or filed with the regular
branches thereof. Thus, the Court issued SC Administrative Circular No. 08-
2001 directing the transfer of said cases to the designated courts (commercial SEC courts).
Later, the Court issued A.M. No. 03-03-03-SC consolidating the commercial SEC courts
and the intellectual property courts in one RTC branch in a particular locality., the
Special Commercial Court, to streamline the court structure and to promote
expediency. Accordingly, the RTC branch so designated was mandated to try and decide
SEC cases, as well as those involving violations of intellectual property rights, which were,
thereupon, required to be filed in the Office of the Clerk of Court in the  official station
of the designated Special Commercial Courts, to wit:
It is important to mention that the Court's designation of Special Commercial Courts was
made in line with its constitutional authority to supervise the administration of all courts
as provided under Section 6, Article VIII of the 1987 Constitution:
Section 6. The Supreme Court shall have administrative supervision over all courts and
the personnel thereof.
The objective behind the designation of such specialized courts is to promote
expediency and efficiency in the exercise of the RTCs' jurisdiction over the
cases enumerated under Section 5 of PD 902-A. Such designation has nothing to do with
the statutory conferment of jurisdiction to all RTCs under RA 8799 since in the first place,
the Court cannot enlarge, diminish, or dictate when jurisdiction shall be removed, given
that the power to define, prescribe, and apportion jurisdiction is, as a general
rule, a matter of legislative prerogative. Section 2, Article VIII of the 1987
Constitution provides:
Section 2. The Congress shall have the power to define, prescribe, and apportion the
jurisdiction of the various courts but may not deprive the Supreme Court of its jurisdiction
over cases enumerated in Section 5 hereof.
Here, petitioners filed a commercial case, i.e., an intra-corporate dispute, with the Office
of the Clerk of Court in the RTC of Muntinlupa City, which is the  official station of the
designated Special Commercial Court, in accordance with A.M. No. 03-03-03-SC. It is,
therefore, from the time of such filing that the RTC of Muntinlupa City
acquired jurisdiction over the subject matter or the nature of the
action. Unfortunately, the commercial case was wrongly raffled to a regular
branch, e.g., Branch 276, instead of being assigned to the sole Special
Commercial Court in the RTC of Muntinlupa City, which is Branch 256. This
error may have been caused by a reliance on the complaint's caption, i.e., "Civil Case for
Injunction with prayer for Status Quo Order, TRO and Damages," which, however,
contradicts and more importantly, cannot prevail over its actual allegations that
clearly make out an intra-corporate dispute: xxx

19. With the impending sale of the alleged unpaid subscriptions on 10 August 2011, there
is now a clear danger that MLCG and FMDG would be deprived of these
shares without legal and factual basis. xx
According to jurisprudence, "it is not the caption but the allegations in the complaint or
other initiatory pleading which give meaning to the pleading and on the basis of which
such pleading may be legally characterized." However, so as to avert any future confusion,
the Court requires that all initiatory pleadings state the action's nature both in its caption
and the body, which parameters are defined in the dispositive portion of this Decision.
Going back to the case at bar, the Court nonetheless deems that the erroneous raffling to a
regular branch instead of to a Special Commercial Court is only a matter of procedure -
that is, an incident related to the exercise of jurisdiction - and, thus, should not
negate the jurisdiction which the RTC of Muntinlupa City had already acquired.
The proper course of action was not for the commercial case to be dismissed; instead,
Branch 276 should have first referred the case to the Executive Judge for re-
docketing as a commercial case; thereafter, the Executive Judge should then
assign said case to the only designated Special Commercial Court in the
station, i.e., Branch 256.
Note that the procedure would be different where the RTC acquiring jurisdiction over the
case has multiple special commercial court branches; in such a scenario, the
Executive Judge, after re-docketing the same as a commercial case, should proceed to
order its re-raffling among the said special branches.
Meanwhile, if the RTC acquiring jurisdiction has no branch designated as a Special
Commercial Court, then it should refer the case to the nearest RTC with a designated
Special Commercial Court branch within the judicial region.Upon referral, the RTC to
which the case was referred to should re-docket the case as a commercial case, and then:
(a) if the said RTC has only one branch designated as a Special Commercial Court, assign
the case to the sole special branch; or (b) if the said RTC has multiple branches designated
as Special Commercial Courts, raffle off the case among those special branches.
The Court finds it fitting to clarify that the RTC mistakenly relied on the  Calleja case to
support its ruling. Calleja involved two different RTCs, i.e., the RTC of San Jose,
Camarines Sur and the RTC of Naga City, whereas the instant case only involves one
RTC, i.e., the RTC of Muntinlupa City, albeit involving two different branches of the same
court, i.e., Branches 256 and 276. Hence, owing to the variance in the facts attending, it
was then improper for the RTC to rely on the Calleja ruling.
SEC. 5. Powers and Functions of the Commission. –
5.2 The Commission's jurisdiction over all cases enumerated under Section 5
of PD that the Supreme Court in the exercise of its authority may designate
the RTC branches that shall exercise jurisdiction over the cases.
Similarly, the transfer of the present intra-corporate dispute from Branch
276 to Branch 256 of the same RTC of Muntinlupa City, subject to the
parameters above-discussed is proper and will further the purposes stated in
A.M. No. 03-03-03-SC of attaining a speedy and efficient administration of
justice.
For further guidance, the Court finds it apt to point out that the same principles apply to
the inverse situation of ordinary civil cases filed before the proper RTCs but
wrongly raffled to its branches designated as Special Commercial Courts. In
such a scenario, the ordinary civil case should then be referred to the Executive
Judge for re-docketing as an ordinary civil case; thereafter, the Executive
Judge should then order the raffling of the case to  all branches of the same
RTC, subject to limitations under existing internal rules, and the payment of
the correct docket fees in case of any difference. Unlike the limited
assignment/raffling of a commercial case only to branches designated as Special
Commercial Courts in the scenarios stated above, the re-raffling of an ordinary civil case
in this instance to all courts is permissible due to the fact that a particular branch which
has been designated as a Special Commercial Court does not shed the RTC's general
jurisdiction over ordinary civil cases under the imprimatur of statutory law, i.e., BP
129. To restate, the designation of Special Commercial Courts was merely intended as a
procedural tool to expedite the resolution of commercial cases in line with the
court's exercise of jurisdiction. This designation was not made by statute but only by
an internal Supreme Court rule under its authority to promulgate rules governing matters
of procedure and its constitutional mandate to supervise the administration of all courts
and the personnel thereof.53 Certainly, an internal rule promulgated by the Court cannot
go beyond the commanding statute. But as a more fundamental reason, the designation of
Special Commercial Courts is, to stress, merely an incident related to the court's exercise
of jurisdiction, which is distinct from the concept of jurisdiction over the subject matter.
The RTC's general jurisdiction over ordinary civil cases is therefore not abdicated by an
internal rule streamlining court procedure.
The petition is GRANTED. The Orders RTC of Muntinlupa City, Branch 276 are
hereby REVERSED and SET ASIDE. 
Furthermore, the Court hereby RESOLVES that henceforth, the following guidelines
shall be observed:
1. If a commercial case filed before the proper RTC is wrongly raffled to its regular branch,
the proper courses of action are as follows:
1.1 If the RTC has only one branch designated as a Special Commercial Court, then the
case shall be referred to the Executive Judge for re-docketing as a commercial case,
and thereafter, assigned to the sole special branch;
1.2 If the RTC has multiple branches designated as Special Commercial Courts, then the
case shall be referred to the Executive Judge for re-docketing as a commercial case,
and thereafter, raffled off among those special branches; and
1.3 If the RTC has no internal branch designated as a Special Commercial Court, then the
case shall be referred to the nearest RTC with a designated Special Commercial Court
branch within the judicial region. Upon referral, the RTC to which the case was
referred to should re- docket the case as a commercial case, and then: (a) if the said
RTC has only one branch designated as a Special Commercial Court, assign the case to
the sole special branch; or (b) if the said RTC has multiple branches designated as
Special Commercial Courts, raffle off the case among those special branches.
2. If an ordinary civil case filed before the proper RTC is wrongly raffled to its branch
designated as a Special Commercial Court, then the case shall be referred to the Executive
Judge for re-docketing as an ordinary civil case. Thereafter, it shall be raffled off to all
courts of the same RTC (including its designated special branches which, by statute, are
equally capable of exercising general jurisdiction same as regular branches), as provided
for under existing rules.

3. All transfer/raffle of cases is subject to the payment of the appropriate docket fees in
case of any difference. On the other hand, all docket fees already paid shall be duly
credited, and any excess, refunded.

4. Finally, to avert any future confusion, the Court requires that all initiatory pleadings
state the action's nature both in its caption and body. Otherwise, the initiatory pleading
may, upon motion or by order of the court motu proprio, be dismissed without prejudice
to its re-filing after due rectification. This last procedural rule is prospective in
application.

5. All existing rules inconsistent with the foregoing are deemed superseded.