G.R. No. 188839, June 22, 2015 - CESAR NAGUIT, Petitioner, v. SAN MIGUEL CORPORATION, Respondent.

THIRD DIVISION

G.R. No. 188839, June 22, 2015

CESAR NAGUIT, Petitioner, v. SAN MIGUEL CORPORATION, Respondent.

DECISION

PERALTA, J.:

Assailed in the present petition for review on certiorari under Rule 45 of the Rules of Court are the
Resolutions1 of the Court of Appeals (CA), dated February 13, 2009 and July 15, 2009 in CA-G.R. SP No.
107311. The Resolution of February 13, 2009 denied petitioner's Motion for Extension of Time to File Petition
for Certiorari,2 while the Resolution dated July 15, 2009 denied petitioner's Motion for Reconsideration.

Petitioner was employed as a machine operator of San Miguel Corporation Metal Closure and Lithography
Plant, a division of herein respondent corporation which is engaged in the business of manufacturing printed
metal caps and crowns for beer, beverage and pharmaceutical products.

Sometime in the afternoon of September 23, 2002, petitioner and one Renato Regala (Regala), also an
employee of respondent corporation, got involved in an altercation in respondent corporation's Canlubang
Plant. In his Position Paper, petitioner claimed that Regala went to the Canlubang Plant to distribute anti-
union materials that are libelous and defamatory and that, as union steward, petitioner confronted Regala,
which confrontation developed to a heated exchange of words. Petitioner then elbowed Regala, hitting him
in the face, causing him to lose his balance and fall to the ground.

As a consequence, Regala filed a complaint with respondent corporation's Human Resources Department.
Respondent corporation then conducted an administrative investigation giving both parties the opportunity
to defend themselves. However, petitioner opted to remain silent and did not address the charges against
him. On January 29, 2003, the company-designated investigator submitted his report and recommendation
finding petitioner guilty of willful injury to another employee within company premises, which is an infraction
of the company's rules and regulations. On February 7, 2003, respondent corporation served upon petitioner
a letter informing him of the termination of his employment on the basis of the findings and
recommendation of the investigator. Petitioner then filed a complaint for illegal dismissal against respondent
corporation.3

On January 4, 2005, the Labor Arbiter (LA) assigned to the case rendered a Decision 4 in favor of respondent
corporation. Accordingly, petitioner's complaint was dismissed for lack of merit.

Petitioner filed an Appeal5 with the National Labor Relations Commission (NLRC). In its Decision6 dated April
30, 2008, the NLRC dismissed petitioner's appeal and affirmed the Decision of the LA. Petitioner filed a
motion for reconsideration, but the NLRC denied it in its Resolution 7 dated October 31, 2008.

Aggrieved, petitioner intended to file a special civil action for certiorari with the CA to assail the NLRC
Decision.

On February 9, 2009, petitioner filed with the CA a Motion for Extension of Time to File Petition
for Certiorari8 Petitioner claimed that on December 10, 2008, his former counsel received a copy of the
NLRC Resolution denying his motion for reconsideration of the NLRC Decision dated April 30, 2008; that he
had until February 9, 2009 to file a certiorari petition; and, that he just hired a new counsel who still had to
study the records of the case.

On February 13, 2009, the CA promulgated a Resolution 9 denying petitioner's Motion for Extension of Time
to File Petition for Certiorari. Citing the amended provisions of Section 4, Rule 65 of the Rules of Court, the
CA held that the 60-day period to file a petition for certiorari is non-extendible.

On March 9, 2009, the CA issued another Resolution10 resolving to consider petitioner's certiorari petition as

filed out of time and declaring the questioned NLRC Decision as final and executory.

On even date, petitioner filed a Motion for Reconsideration 11 of the CA Resolution which denied his Motion for
Extension of Time to File Petition for Certiorari.

On July 15, 2009, the CA promulgated its Resolution12 denying petitioner's Motion for Reconsideration for
lack of merit.

Hence, the present petition for review on certiorari raising the following ISSUES, to wit: chanroblesvirtuallawlibrary

I. WHETHER OR NOT THE COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION WHEN IT
FAILED TO DECIDE THIS CASE ON THE MERITS IN ACCORDANCE WITH SUPREME COURT
JURISPRUDENCE AFFORDED TO LABOR CASES;

II. WHETHER OR NOT THE COURT OF APPEALS FAILED TO LOOK INTO THE SUBSTANTIAL
FACTS AND APPLICABLE LAWS OF THIS CASE;

III. WHETHER OR NOT THE PETITIONER FIAD BEEN UNLAWFULLY DISMISSED AND THUS IS
ENTITLED TO REINSTATEMENT AND FULL BACKWAGES AND OTHER BENEFITS AS WELL AS
DAMAGES AND ATTORNEY'S FEES.13

The petition lacks merit.

As to the first issue raised, which pertains to the procedural aspect of the case, the Court is not persuaded
by petitioner's contention that the CA should have decided the case on its merits and not simply dismissed
his certiorari petition by denying his motion for extension to file the said petition.

In this regard, the Court's ruling in the recent case of Thenamaris Philippines, Inc. (Formerly Intermare
Maritime Agencies, Inc.) v. Court of Appeals14 is instructive, to wit: chanroblesvirtuallawlibrary

In Republic v. St. Vincent de Paul Colleges, Inc., we had the occasion to settle the seeming conflict on
various jurisprudence touching upon the issue of whether the period for filing a petition for certiorari may be
extended. In said case, we stated that the general rule, as laid down in Laguna Metis Corporation v. Court of
Appeals, is that a petition for certiorarimust be filed strictly within 60 days from notice of judgment or from
the order denying a motion for reconsideration. This is in accordance with the amendment introduced by
A.M. No. 07-7-12-SC where no provision for the filing of a motion for extension to file a petition
for certiorari exists, unlike in the original Section 4 of Rule 65 which allowed the filing of such a motion but
only for compelling reason and in no case exceeding 15 days. Under exceptional cases, however, and as
held in Domdom v. Third and Fifth Divisions of the Sandiganbayan, the 60-day period may be extended
subject to the court's sound discretion. In Domdom, we stated that the deletion of the provisions in Rule 65
pertaining to extension of time did not make the filing of such pleading absolutely prohibited. "If such were
the intention, the deleted portion could just have simply been reworded to state that 'no extension of time
to file the petition shall be granted.' Absent such a prohibition, motions for extension are allowed, subject to
the court's sound discretion."

Then in Labao v. Flores, we laid down some of the exceptions to the strict application of the 60-day period
rule, thus:
chanroblesvirtuallawlibrary

[T]here are recognized exceptions to their strict observance, such as: (1) most persuasive and weighty
reasons; (2) to relieve a litigant from an injustice not commensurate with his failure to comply with the
prescribed procedure; (3) good faith of the defaulting party by immediately paying within a reasonable time
from the time of the default; (4) the existence of special or compelling circumstances; (5) the merits of the
case; (6) a cause not entirely attributable to the fault or negligence of the party favored by the suspension
of the rules; (7) a lack of any showing that the review sought is merely frivolous and dilatory; (8) the other
party will not be unjustly prejudiced thereby; (9) fraud, accident, mistake or excusable negligence without
appellant's fault; (10) peculiar legal and equitable circumstances attendant to each case; (11) in the name
of substantial justice and fair play; (12) importance of the issues involved; and (13) exercise of sound
discretion by the judge guided by all the attendant circumstances. Thus, there should be an effort on the
part of the party invoking liberality to advance a reasonable or meritorious explanation for his/her failure to
comply with the rules.15 cralawlawlibrary

In the instant case, petitioner asserts that, due to the unavailability of his former lawyer, he retained the
services of a new counsel who has a heavy workload and that the records were forwarded to the latter only
a week before the expiration of the period for filing of the petition with the CA.

The Court is not convinced.

Suffice it to say that workload and resignation of the lawyer handling the case are insufficient reasons to
justify the relaxation of the procedural rules.16 Heavy workload is relative and often self-serving. 17

In addition, it is also the duty of petitioner to monitor the status of his case and not simply rely on his
former lawyer, whom he already knew to be unable to attend to his duties as counsel. It is settled that
litigants represented by counsel should not expect that all they need to do is sit back and relax, and await
the outcome of their case.18 They should give the necessary assistance to their counsel, for at stake is their
interest in the case.19

Moreover, it is true that rules of procedure are tools designed to facilitate the attainment of justice. Also, the
general rule is that every litigant must be given amplest opportunity for the proper and just determination of
his cause, free from the constraints of technicalities. However, the Court agrees with the CA that petitioner's
failure to file his petition on time does not involve mere technicality but is jurisdictional. 20 Petitioner's failure
to timely file his petition renders the questioned NLRC Decision final and executory, thus, depriving the CA
of its jurisdiction over the said petition. 21

Furthermore, no one has a vested right to file an appeal or a petition for certiorari. These are statutory
privileges which may be exercised only in the manner prescribed by law. Rules of procedure must be
faithfully complied with and should not be discarded with by the mere expediency of claiming substantial
merit.22 In Lanzaderas v. Amethyst Security and General Services, Inc.,23 this Court held that: chanroblesvirtuallawlibrary

xxxx

xxx Although technical rules of procedure are not ends in themselves, they are necessary, however, for an
effective and expeditious administration of justice. It is settled that a party who seeks to avail
of certiorari must observe the rules thereon and non-observance of said rules may not be brushed aside as
"mere technicality." While litigation is not a game of technicalities, and that the rules of procedure should
not be enforced strictly at the cost of substantial justice, still it does not follow that the Rules of Court may
be ignored at will and at random to the prejudice of the orderly presentation, assessment and just resolution
of the issues. Procedural rules should not be belittled or dismissed simply because they may have resulted in
prejudice to a party's substantial rights. Like all rules, they are required to be followed except only for
compelling reasons.24 cralawlawlibrary

As to the substantive aspect of the case, petitioner, in the second and third issues raised, insists on
questioning the findings of fact of the LA and the NLRC. However, it is settled that in a petition for review
on certiorari with this Court, only questions of law may be raised. Questions of fact may not be inquired into.
While there are exceptions to this rule, to wit: chanroblesvirtuallawlibrary

(1) the findings are grounded entirely on speculations, surmises, or conjectures; (2) the inference made is
manifestly mistaken, absurd, or impossible; (3) there is a grave abuse of discretion; (4) the judgment is
based on misappreciation of facts; (5) the findings of fact are conflicting; (6) in making its findings, the
same are contrary to the admissions of both appellant and appellee; (7) the findings are contrary to those of
the trial court; (8) the findings are conclusions without citation of specific evidence on which they are based;
(9) the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by
the respondent; and (10) the findings of fact are premised on the supposed absence of evidence and
contradicted by the evidence on record.25 cralawlawlibrary

the Court finds that none exists in the instant case.

Equally settled is the rule that factual findings of quasi-judicial bodies like the NLRC, if supported by
substantial evidence, are accorded respect and even finality by this Court, more so when they coincide with
those of the LA.26
In any case, even if the case be decided on its merits, the Court still finds no cogent reason to depart from
the findings of the LA and the NLRC that petitioner was validly dismissed from his employment. As noted by
both the LA and the NLRC, substantial evidence exists to show that petitioner committed acts which are
tantamount to serious misconduct and willful disobedience of company rules and regulations. On the other
hand, the Labor Arbiter noted that, other than his bare allegations, petitioner did not submit proof to
support his allegations nor did he provide evidence to counter those which were submitted by respondent.

Lastly, the Court does not agree with petitioner's argument that the penalty of dismissal imposed upon him
is too harsh and is not commensurate to the infraction he has committed, considering that he has been in
respondent's employ for fifteen years and that this is just his first offense of this nature.

The settled rule is that fighting within company premises is a valid ground for the dismissal of an
employee.27 Moreover, the act of assaulting another employee is serious misconduct which justifies the
termination of employment.28

Also, the Court agrees with respondent's contention that if petitioner's long years of service would be
regarded as a justification for moderating the penalty of dismissal, it will actually become a prize for
disloyalty, perverting the meaning of social justice and undermining the efforts of labor to cleanse its ranks
of all undesirables.29 In addition, where the totality of the evidence was sufficient to warrant the dismissal of
the employees, the law warrants their dismissal without making any distinction between a first offender and
a habitual delinquent.30 In the present case, all the more should petitioner's years of service be taken
against him in light of the finding of the lower tribunals that his violation of an established company rule was
shown to be willful and such willfulness was characterized by a wrongful attitude. Moreover, petitioner has
never shown any feelings of remorse for what he has done, considering that the lower tribunals found no
justification on his part in inflicting injury upon a co-employee. To make matters worse, petitioner even
exhibited a seemingly arrogant attitude in insisting to remain silent and rejecting requests for him to explain
his side despite having been given numerous opportunities to do so.

On the basis of the foregoing, the Court finds no error on the part of the CA in denying petitioner's motion
for extension of time to file his petition for certiorari.
cralawred

WHEREFORE, the instant petition is DENIED. The Resolutions of the Court of Appeals, dated February 13,
2009 and July 15, 2009 in CA-G.R. SP No. 107311, are AFFIRMED.

SO ORDERED

WONDER BOOK CORPORATION, Petitioner, v. PHILIPPINE BANK OF COMMUNICATIONS,Respondent.

DECISION

REYES, J.:

This is a Petition for Review under Rule 45 of the Rules of Court assailing the Decision 1 dated March 25,
2009 of the Court of Appeals ( CA) in CA-G.R. SP No. 102860, which reversed and set aside the Order 2dated
February 15, 2008 of Branch 21 of the Regional Trial Court (RTC) of Imus, Cavite in SEC Case No. 058-06
upon a Petition for Review tiled by respondent Philippine Bank of Communications (PBCOM).

Factual Antecedents The facts are undisputed.

Petitioner Wonder Book Corporation (Wonder Book) is a corporation duly organized and existing under
Philippine laws engaged in the business of retailing books, school and office supplies, greeting cards and
other related items. It operates the chain of stores known as the Diplomat Book Center.

On February 27, 2004, Wonder Book and eight (8) other corporations, 3 collectively known as the Limtong
Group of Companies (LGC), filed a joint petition for rehabilitation with the RTC. The petition was docketed as
SEC Case No. 031-04 and raffled to Branch 21.
On March 2, 2004, a Stay Order4 was issued.

On April 30, 2004, Equitable PCI Bank (EPCI Bank), one of the creditors of LGC, filed an opposition raising,
among others, the impropriety of nine (9) corporations with separate and distinct personalities seeking joint
rehabilitation under one proceeding.5 ςrνll

On February 9, 2005, the RTC issued an Order6 approving the petition for rehabilitation, the dispositive
portion of which states: ςrαlαω

CONSIDERING THE FOREGOING, the Court hereby approves the Rehabilitation Plan of the LGC thereby
granting the LGC a moratorium of two (2) years from today in the payment of all its obligations, together
with the corresponding interests, to its creditor banks, subject to the modification that the interest charges
shall be reduced to 5% per annum. After the two-year grace period, the LGC shall commence to pay its
existing obligations with its creditor banks monthly within a period of fifteen (15) years.

LGC are enjoined to comply strictly with the provisions of the Rehabilitation Plan, perform its obligations
thereunder and take all actions necessary to carry out the Plan, failing which, the Court shall either, upon
motion, motu proprio or upon recommendation of the Rehabilitation Receiver, terminate the proceedings
pursuant to Section 27, Rule 1 of the Interim Rules of Procedure on Corporate Rehabilitation.

The Rehabilitation Receiver is directed to strictly monitor the implementation of the Plan and submit a
quarterly report on the progress thereof.

SO ORDERED.7 ςrνll

The foregoing was questioned by EPCI Bank and PBCOM before the CA by way of a Petition for Review .
EPCI Bank s petition8 was docketed as CA-G.R. SP No. 89461 and raffled to the Third Division. PBCOM s
petition9 was docketed as CA-G.R. SP No. 89507 and raffled to the Eight Division.

On October 25, 2005, the CA rendered a Decision 10 granting EPCI Bank s petition. The CA reversed the
Order dated February 9, 2005 of the RTC and dismissed LGC s petition for rehabilitation. LGC filed a Petition
for Review on Certiorari with this Court, which was later withdrawn.

On the other hand, PBCOM s petition was denied by the CA in a Decision 11 dated January 16, 2008. The
denial became final as PBCOM did not move for reconsideration or interpose an appeal to this Court. 12 ςrνll

Meantime, on September 5, 2006, Wonder Book filed a petition for Rehabilitation 13 with the RTC, which was
docketed as SEC Case No. 058-06 and raffled to Branch 21. Wonder Book cited the following as causes for
its inability to pay its debts as they fall due: (a) high interest rates, penalties and charges imposed by its
creditors; (b) low demand for gift items and greeting cards due to the widespread use of cellular phones and
economic recession; (c) competition posed by other stores; and (d) the fire on July 19, 2002 that destroyed
its inventories worth P264 Million, which are insured for P245 Million but yet to be collected. 14ςrνll

Wonder Book s rehabilitation plan put forward a payment program that guaranteed full payment of its loan
from PBCOM after fifteen (15) years at a reduced interest rate of five percent (5%) per annum with a waiver
of all penalties and moratorium on interest and principal payments for two (2) years and five (5) years,
respectively, that will be counted from the court s approval. Wonder Book proposed to pay its trade
creditors and the interest that will accrue during the two-year moratorium within ten (10) years from the
approval of its rehabilitation plan.15 Further, it committed to: (a) convert all deposits for future subscriptions
to common stock; (b) treat all its liabilities to its officers and stockholders as trade payables; (c) infuse an
additional capital of P10 Million; and (d) use 70% and 30% of its unpaid insurance claim for the payment of
its debts and capital infusion, respectively. 16ςrνll

The RTC issued a Stay Order17 on September 5, 2006.

PBCOM filed an Opposition18 dated October 18, 2006 stating that: (a) Wonder Book s petition cannot be
granted on the basis of proposals that are vague and anchored on baseless presumptions; (b) it is clear
from Wonder Book s financial statements that it is insolvent and can no longer be rehabilitated; (c) Wonder
Book s proposed capital infusion is speculative at best, as there is no reasonable expectation that it will be
paid under the insurance covering the inventory that was destroyed by fire on July 19, 2002; (d) Wonder
Book failed to present an alternative funding for its capital infusion should its insurance claim fail to
materialize; (e) Wonder Book failed to specify how its proposed sales, marketing and production strategies
would be carried out; (f) Wonder Book failed to specify its underpinnings for its claim that these strategies
would certainly lead to its expected rate of profitability; and (g) Wonder Book s proposed payment program
is too onerous.

On September 17, 2007, Wonder Book filed what it described as its detailed rehabilitation plan. 19 Wonder
Book maintained its proposed term of fifteen (15) years and reduced interest rate of 5% per annum.
However, it shortened the period on the suspension of principal payments from five (5) to three (3) years
and extended the moratorium on interest payment from two (2) to three (3) years. It also lengthened the
period for the payment of interest that will accrue during the stay from ten (10) to twelve (12) years and
proffered a waiver of penalties and interest from February 2004 up to the court s approval of its
rehabilitation plan.20
ςrνll

Wonder Book likewise intimated the sale of some real properties owned by TOL Realty and Development
Corporation (TOL), an affiliate that is likewise undergoing rehabilitation and similarly indebted to PBCOM.
The proceeds of such sale will be used for the payment of TOL s debt to PBCOM and any excess will be used
to settle Wonder s Book debt to PBCOM. 21 ςrνll

Wonder Book limited its commitments to the conversion of deposits for future subscriptions to common
stock and treatment of its payables to its officers and stockholders as trade payables. 22 ςrνll

Wonder Book undertook to implement the following changes in its internal operations by: (a) changing the
name "Diplomat Book Center" to one more appropriate for a bookstore and retailer of office and school
supplies; (b) closing down non-performing branches and opening new stores in areas with high human
traffic; (c) improving product display and variety; (d) investing in technology to properly monitor sales and
manage inventory; (e) launching customer loyalty program; (f) allocating three percent (3%) of total sales
to advertising and promotions; (g) strengthening its organization by improving its hiring, training and
incentive programs; and (h) carrying its own brand of products. 23 Wonder Books expects to accomplish the
foregoing on capital from investors and sales during the three-year moratorium. 24 ςrνll

On February 15, 2008, the RTC issued an Order, approving Wonder Book s rehabilitation plan, the
dispositive portion of which states:
ςrαlαω

CONSIDERING THE FOREGOING, the Court hereby approves the Detailed Rehabilitation Plan, together with
the receiver s report and recommendation and its clarifications and corrections and enjoins the petitioner to
strictly comply with the provisions of the plan, perform its obligations thereunder and take all actions
necessary to carry out the plan, failing which, the Court shall either, upon motion, motu proprio or upon the
recommendation of the Rehabilitation Receiver, terminate the proceedings pursuant to Section 27, Rule 1 of
the Interim Rules of Procedure on Corporate Rehabilitation.

The Rehabilitation Receiver is directed to strictly monitor the implementation of the Plan and submit a
quarterly report on the progress thereof.

SO ORDERED.25 (Citation omitted)

PBCOM filed a Petition for Review 26 of the approval of Wonder Book s rehabilitation plan, which the CA
granted in a Decision27 dated March 25, 2009. According to the CA, Wonder Book s financial statements
reveal that it is not merely illiquid but in a state of insolvency:
ςrαlαω

A perusal of the interim financial statement of Wonder Book as of August 2006 will readily show that Wonder
Book is not merely having liquidity problems, but it is actually in a state of serious insolvency. It should be
noted that this fact was never denied by Wonder Book. The RTC even mentioned in its order that as of
August 2006, the total assets of Wonder Book is only P144,922,218.00 whereas its liabilities totaled to
P306,141,399.00. In effect, the debt ratio of Wonder Book is 2.11 to 1. This means that Wonder Book has
P2.11 pesos in debt for every peso of asset. Obviously, Wonder Book is in terrible financial condition as it
does not have enough assets to pay its obligations. For a good financial status, the total debt ratio should be
1 or less.28 (Citation omitted)

The CA noted that Wonder Book failed to support its petition with reassuring "material financial
commitments", which is a requirement under Section 5 of the 2000 Interim Rules on Corporate
Rehabilitation (Interim Rules):

Indeed, page 7 of the assailed order provides the following: ςrαlαω

"Wonder Book will commit an additional amount of P10 Million as working capital. If the insurance claim in
the amount of P245 Million will be collected, 70% or the amount of P171,500,000.00 shall be used to pay
existing debts and 30% shall be used as additional working capital. The stockholders agreed that no
dividends will be paid within the rehabilitation period.

The directors and shareholders of Wonder Book are so fully committed to rehabilitate the corporation that
they have committed to convert their deposit for future subscription to common stock.

The company is highly confident that the financing will be made available by its investors once the
rehabilitation plan is given green light by the court. Its financial plan does not take into consideration the
possibility of sourcing funds outside internally generated cash nor the entry of strategic investors who have
expressed interest in the completion of the project and assist in rehabilitating the corporation."

We note, however, that the foregoing statements were mentioned in Wonder Book s original rehabilitation
plan but were no longer restated in its detailed rehabilitation plan, which was the one approved by the RTC.
True enough, the commitment of Wonder Book to put up additional P10 Million as working capital was not
reflected in the projected balance sheet of Wonder Book. There was also no mention about the expected
insurance claim in the amount of P245 Million whereby 70% thereof or the amount of P171,500,000.00
should be used to pay existing debts and the remaining 30% shall be used as additional working capital. As
a matter of fact, a full-allowance for non-recovery of said insurance claim was already provided by Wonder
Book because the latter believed that it could no longer be recovered.

It may be observed that the detailed rehabilitation plan merely provided for two management commitments,
such as, (1) all deposits for future subscriptions by the officers and directors will be converted to common
stock and (2) all liabilities (cash advances made by the stockholders (sic) to the corporation) of the
company from the officers and stockholders shall be treated just like trade payable. But these could hardly
be considered as "material financial commitments" that would support Wonder Book s rehabilitation plan.
The first commitment was not even shown in the projected balance sheet of Wonder Book. The subscribed
and paid-up capital of Wonder Book remained at P4,500,000.00 even at the end of the 15th year from the
approval of the rehabilitation plan. Even so, the deposits for future subscription is (sic) only P319,000.00,
which is very significant vis-à-vis Wonder Book s capital deficiency of P161,219,121.00 as of August 2006.
x x x29 (Citations omitted) 
chanroblesvirtuallawlibrary

The CA also noted that Wonder Book s expected profits during the rehabilitation period are not sufficient to
cover its liabilities and reverse its dismal financial state:
ςrαlαω

A careful examination of the projected balance sheet and income statement of Wonder Book for the period
of rehabilitation reveals that while Wonder Book will be earning, the same will not be sufficient to cover its
accumulated losses. At the 15th year, its profit margin will be only 2.9%
(P3,785,000.00/[P]466,277,000.00). This tells us that for every peso in sales, Wonder Book will be
generating 3 centavos net profit, which is most insubstantial to cover up its ending deficit of
P50,960,000.00. Thus, at the end of the rehabilitation period, though Wonder Book will be able to fully pay
its obligation to PBCOM, it will remain insolvent. It would still have a capital deficiency of P46,142,000.00.
Its total assets will be only P196,515,000.00 whereas its total liabilities will still be P242,657,000.00.
Consequently, its debt ratio would remain high, at 1.23 to 1. It would have P1.23 pesos in debt for every
peso of asset. Furthermore, liquidity problems would still exist because on the 15th year, its current ratio
would be 0.9353 to 1 (P83,339,000.00/P89,104,000.00), meaning Wonder Book would only have 0.9353
cents to meet every peso of its current liabilities. x x x 30 (Citations omitted)  chanroblesvirtuallawlibrary
Wonder Book instituted the present petition claiming that the CA erred in dismissing its petition for
rehabilitation. The CA allegedly has no basis in concluding that Wonder Book is insolvent, hence, incapable
of being rehabilitated considering that: (a) P162,286,966.00 of its total liabilities in the amount of
P286,944,120.00 represents advances or loans extended by affiliates that are not due and demandable
during the period of rehabilitation; (b) the prevailing rules do not preclude a corporation who is insolvent
from seeking rehabilitation; (c) there is nothing in the rules that specify a parameter for classifying a debt
as sustainable or not, hence, its apparent insolvency should not be a determinant of the feasibility of its
rehabilitation; (d) one of its shareholders paid a supplier the amount of P13,600,000.00, thus, ensuring the
continuous supply of products for sale, and was willing to postpone collection until Wonder Book is
successfully

rehabilitated;31 (e) its suppliers have agreed to supply products on credit and this indicates their faith in the
feasibility of the proposed rehabilitation plan;32 and (f) the payment posted by one of its stockholders was
more than enough to cover the promised capital infusion of P10,000,000.00.

Our Ruling

The sole issue is whether Wonder Book s petition for rehabilitation is impressed with merit and this Court
rules in the negative.

Rehabilitation contemplates a continuance of corporate life and activities in an effort to restore and reinstate
the corporation to its former position of successful operation and solvency. The purpose of rehabilitation
proceedings is to enable the company to gain a new lease on life and thereby allow creditors to be paid their
claims from its earnings. The rehabilitation of a financially distressed corporation benefits its employees,
creditors, stockholders and, in a larger sense, the general public. 33
ςrνll

Rehabilitation proceedings in our jurisdiction, much like the bankruptcy laws of the United States, have
equitable and rehabilitative purposes. On one hand, they attempt to provide for the efficient and equitable
distribution of an insolvent debtor s remaining assets to its creditors; and on the other, to provide debtors
with a "fresh start" by relieving them of the weight of their outstanding debts and permitting them to
reorganize their affairs. The rationale of Presidential Decree No. 902-A, as amended, is to "effect a feasible
and viable rehabilitation," by preserving a floundering business as going concern, because the assets of a
business are often more valuable when so maintained than they would be when liquidated. 34 ςrνll

Under Section 23, Rule 4 of the Interim Rules, a rehabilitation plan may be approved if there is a showing
that rehabilitation is feasible and the opposition entered by the creditors holding a majority of the total
liabilities is unreasonable. In determining whether the objections to the approval of a rehabilitation plan are
reasonable or otherwise, the court has the following to consider: (a) that the opposing creditors would
receive greater compensation under the plan than if the corporate assets would be sold; (b) that the
shareholders would lose their controlling interest as a result of the plan; and (c) that the receiver has
recommended approval.

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

In China Banking Corporation v. Cebu Printing and Packaging Corporation, 35 this Court declared that Cebu
Printing and Packaging Corporation can no longer be rehabilitated given its patent insolvency that appeared
irremediable because of the unfounded projections on profitability: ςrαlαω
The RTC found CEPRI to be in the state of insolvency which precludes it from being entitled to rehabilitation.
The findings of fact of the RTC must be given respect as it is clear and categorical in ruling that CEPRI is not
merely in the state of illiquidity, but in an apparent state of insolvency. There is nothing more detailed than
the contents of the said Order, which reads, in part: ςηαñrοblεš  Î½Î¹r†υαl  lαω  lιbrαrÿ

"After the aforesaid initial hearing, this Court made a careful and judicious scrutiny and evaluation as to
whether the petition for rehabilitation filed by the petitioner is impressed with merit or not. Up to this time,
this Court is not satisfied that there is merit in the said petition.
chanrobles virtual law library

Foremost of all, it appears that the petitioner does not really have enough assets, net worth and earning to
meet and settle its outstanding liabilities. As stated by it in paragraph 7.8 of the petition, it has outstanding
liabilities in the aggregate sum of P69,539,903.57 to the Bank of Philippine Islands and China Banking
Corporation. These major liabilities are broken down as follows: P20,230,000.00 to BPI and P49,309,903.57
to China Banking Corporation as of December 31, 2001. There is a strong probability that these may still
increase substantially after December 31, 2001. However, the petitioner has relatively less assets to answer
for these liabilities. As historically shown by its audited financial statements, the petitioner s assets from
1990 to 2000 were only worth as follows: P352,222.40 in 1990 (Exhibit K), P452,723.33 in 1991 (Exhibit K),
P569,948.19 in 1992 (Exhibit L), P787,300.65 in 1993 (Exhibit M), P761,310.69 in 1994 (Exhibit N),
P3,042,411.81 in 1995 (Exhibit O), P5,608,866.70 in 1996 (Exhibit P), P8,100,022.81 in 1997 (Exhibit Q),
P10,007,490.26 in 1998 (Exhibit R), P10,905,649.83 in 1999 (Exhibit S) and P11,615,251.75 in 2000
(Exhibit T). x x x For all intents and purposes, it can thus be said that the petitioner was not actually better
off in terms of its assets and equity in 2001 than in 2000. In view thereof, this Court concurs with the
oppositor, China Banking Corporation, that the petitioner is actually now in a state of insolvency, not
illiquidity. In other words, it cannot be the proper subject of rehabilitation.

Secondly, this Court is not really prepared to give full faith to the financial projections of the petitioner
(Annex H-1 of the petition). The assumption that petitioner s gross sales will increase by 25% to 30% within
the next five years is without adequate basis. It is too speculative and unrealistic. It is not borne by
petitioner s historical operations. Neither is it borne by an objective industry forecast. It is even belied by
the Packaging Industry Profile prepared by the DTI Cebu Provincial Office which the petitioner submitted to
this Court (Exhibit U). In said Packaging Industry Profile, it is categorically and explicitly stated that
"packaging demand is projected by the Strategic Industry Research and Analysis (SIRA) to increase only by
around 4.7% compound per annum over the period 1997-2003." And so, there is actually no faithful and
adequate showing by the petitioner that it has ample capacity to pay its outstanding and overdue loans to
its major creditors such as the BPI and China Banking Corporation, even if it be given a breathing spell. x x
x."36 (Citation omitted)

This Court finds no reason to accord a different treatment to Wonder Book. The figures appearing on
Wonder Book s financial documents and the nature and value of its assets are indeed discouraging. First, as
of August 2006, Wonder Book s total assets are worth P144,922,218.00 and its total liabilities amount to
P306,141,399.00 and this is a clear evidence of its actual insolvency, not mere illiquidity, and dispossession
of financial leverage. Second, bulk or approximately seventy-two percent (72%) of its current assets
consists of inventories37 and the average turn-over rate is seventy-three (73) days, hence, cannot be relied
on for a quick cash flow. Third, a majority or seventy-seven percent (77%) of its non-current assets is
comprised of deferred tax assets38 or taxes that have been paid on income that have not yet been reported,
hence, may only be used to decrease future tax liability but not for the increase of capital, the finance of
operations or the purchase of an asset. Fourth, its property and equipment comprise only two percent (2%)
of its non-current assets. Apart from the fact that these consist largely of personal properties computers and
store equipment that are certain to depreciate over time, there is no evidence that the valuation assigned to
them by Wonder Book is attributable to an independent third-party appraiser. There is likewise no mention
of their actual market values as, more often than not, they will be sold for less than their book value.

In other words, rehabilitation is not the proper remedy for Wonder Book s dire financial condition. Given that
it is actually insolvent and not just suffering from temporary liquidity problems, rehabilitation is not a viable
option.

II
Another reason for this Court s denial of Wonder Book s petition is its failure to comply with Section 5 of the
Interim Rules, which enumerates the minimum requirements of an acceptable rehabilitation plan: ςrαlαω

Sec. 5. Rehabilitation Plan. The rehabilitation plan shall include: (a) the desired business targets or goals
and the duration and coverage of the rehabilitation; (b) the terms and conditions of such rehabilitation
which shall include the manner of its implementation, giving due regard to the interests of secured
creditors; (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 thereof to
equity, restructuring of the debts, dacion en pago, or sale of assets or of the controlling interest; (e) a
liquidation analysis that estimates the proportion of the claims that the creditors and shareholders would
receive if the debtor s properties were liquidated; and (f) such other relevant information to enable a
reasonable investor to make an informed decision on the feasibility of the rehabilitation plan.

It is imperative for a distressed corporation seeking rehabilitation to present "material financial

commitments" as this is critical in determining its resolve, determination, earnestness and good faith in
financing its proposed rehabilitation plan. As discussed above, Wonder Book s "material financial
commitments" are limited to converting all deposits for future subscriptions to common stock and treating
all its payables to its officers and stockholders as trade payables. These, unfortunately, do not qualify as
sincere commitment and even betray Wonder Book s intent to fund the implementation of its rehabilitation
plan using whatever cash it will generate during the reprieve provided by the stay order and the moratorium
on the principal and interest payments. This scheme is certainly unfair as PBCOM or any of Wonder Book s
creditors cannot be compelled to finance Wonder Book s rehabilitation by a delay in the payment of their
claims or a considerable reduction in the amounts thereof.

Apart from the fact that the deposits for future subscriptions in the amount of P319,000.00 39 is insignificant
as compared to Wonder Book s capital deficiency of P161,219,121.00, 40 its projected balance sheet reveals
that Wonder Book has no intention to carry out this commitment. No adjustment in its paid-up capital is
reflected in the balance sheet attached to Wonder Book s rehabilitation plan as the amount thereof is
consistently pegged at P4,500,000.00 until the end of the rehabilitation period. Indeed, this commitment is
far from being "material" as it will not even create a dent on Wonder Book s capital deficit. Furthermore, it
will not qualify as a "commitment" and is, in fact, a mere artifice, as Wonder Book s balance sheet
unequivocally demonstrates.

On the other hand, treating its debts to its stockholders and officers as trade payables only signifies that no
priority in payment will be accorded to them but this does not provide Wonder Book with the means to
finance the activities supposedly ensuring its successful rehabilitation.

While Wonder Book mentioned that there are individuals who have expressed their interest in investing and
financing its business plans, their identities were not disclosed nor were the evidence of the existence of
these funds proved. It was alleged before this Court that one of its stockholders paid the amount of
P13,600,000.00 to one of Wonder Book s suppliers and this constitutes sufficient compliance with the
commitment of substantial capital infusion. However, apart from being belated, uncorroborated and
unreflected in Wonder Book s rehabilitation plan and balance sheet, this supposed payment will not do
wonders to change the undisputed fact that Wonder Book will still be saddled with a deficit of
P50,960,000.00 by the end of the fifteen-year period.

The foregoing only goes to show that rehabilitation is a vain waste of effort and resources and a mere
exercise in futility. Worse, that Wonder Book will still post a negative net worth after its rehabilitation plan is
fully implemented suggests that the remedy of rehabilitation is availed without a reasonable expectation
that Wonder Book will regain its prior status of viability and profitability but with a mere crapshoot that the
value of its present pool of assets will increase during the rehabilitation period. Given Wonder Book s
admission that fifteen (15) years do not suffice for it to register a positive net worth, it is logical to assume
that the only thing the stockholders are gunning for is the recovery of their investments or a portion thereof
after the corporate debts are satisfied from the liquidation of the corporate assets. This Court cannot
sanction such a selfish venture. While there is no absolute certainty in rehabilitation, the sacrifice that the
creditors are compelled to make can only be considered justified if the restoration of the corporation s
former state of solvency is feasible due to a sound business plan with an assured funding. Such cannot be
said in this case, hence, PBCOM s skepticism is not unfounded.
The RTC s approval of the subject rehabilitation plan is heavily premised on the collection of Wonder Book s
insurance claim and the conversion of the deposit for future subscription to common stocks. However,
Wonder Book has already admitted the impossibility of being paid by reducing its two (2) commitments
discussed above and by writing-off this receivable from its balance sheet. A cursory examination of Wonder
Book s balance sheet reveals its lack of sincerity insofar as these two (2) commitments are concerned and
this should have been enough for the RTC to dismiss Wonder Book s attempt at rehabilitation.

Wonder Book s undertaking to fully pay its debts through sales, which it expected to increase by ten percent
(10%) annually during the period it is under rehabilitation, hardly inspires belief. No basis was provided for
this presumptive figure such as forecasts of independent industry analysts. In fact, even Wonder Book s
performance in previous years does not indicate that its sales grow annually at such rate. Wonder Book also
failed to explain its favorable assumptions relative to its future market share and ability to contend with
large-scale corporations when it cited the competition posed by the latter as one of the reasons for its
monumental losses. Notably, the proposed changes in Wonder Book s internal operations are far from being
innovative and merely imitate the business plans of its successful competitors. Wonder Book did not explain
why it assumed that the consumers would shift their loyalties in its favor.

Wonder Book alleged that it posted pre-tax income of P1,167,765.00 and P826,714.00 in 2007 and 2008. In
its rehabilitation plan, which it submitted for approval in 2007 and approved in 2008, Wonder Book
projected that it will earn the following pre-tax income during the first five (5) years of rehabilitation: ςηαñrοblεš  Î½Î¹r† Ï…αl  lαω  lιbrαrà ¿

1st 2nd 3rd 4th 5th

P4,958,000.0 P5,804,000.0 P5,934,000.0 P6,367,000.0 P6,616,000.0
0 0 0 0 0

Apart from the fact that Wonder Book's actual income does not even approximate its projected income,
there was even a plunge in its earnings for two (2) successive years belying its anticipated annual growth
rate of ten percent (I 0%). Wonder Book is therefore mistaken in interpreting its actual income for 2007 and
2008 as a positive indicator of its viability and fitness for rehabilitation. On the contrary, it validates the
doubtful stance taken by PBCOM and the CA that Wonder Book can no longer rise from its financial debacles
even if granted a lengthy respite.

WHEREFORE, premises considered, the petition is DENIED and the Decision dated March 25, 2009 of the
Court of Appeals in CA-G.R. SP No. 102860 is AFFIRMED.

SO ORDERED.

BPI VS SARABIA (G.R. NO. 175844 JULY 29, 2013)

Bank of the Philippine Islands vs Sarabia Manor Hotel Corporation

G.R. No. 175844 July 29, 2013

J. Perlas-Bernabe

Facts: Sarabia is a corporation duly organized and existing under Philippine laws, with principal place of business at
101 General Luna Street, Iloilo City. It was incorporated on February 22, 1982, with an authorized capital stock of
P10,000,000.00, fully subscribed and paid-up, for the primary purpose of owning, leasing, managing and/or
operating hotels, restaurants, barber shops, beauty parlors, sauna and steam baths, massage parlors and such other
businesses incident to or necessary in the management or operation of hotels.

In 1997, Sarabia obtained a P150,000,000.00 special loan package from Far East Bank and Trust Company
(FEBTC) in order to finance the construction of a five-storey hotel building (New Building) for the purpose of
expanding its hotel business. An additional P20,000,000.00 stand-by credit line was approved by FEBTC in the
same year. 

The foregoing debts were secured by real estate mortgages over several parcels of land owned by Sarabia and a
comprehensive surety agreement dated September 1, 1997 signed by its stockholders. By virtue of a merger, Bank of
the Philippine Islands (BPI) assumed all of FEBTC’s rights against Sarabia. Sarabia started to pay interests on its
loans as soon as the funds were released in October 1997. However, largely because of the delayed completion of
the New Building, Sarabia incurred various cash flow problems. Thus, despite the fact that it had more assets than
liabilities at that time, it, nevertheless, filed, on July 26, 2002, a Petition for corporate rehabilitation (rehabilitation
petition) with prayer for the issuance of a stay order before the RTC as it foresaw the impossibility to meet its
maturing obligations to its creditors when they fall due.

In its proposed rehabilitation plan, Sarabia sought for the restructuring of all its outstanding loans, submitting that
the interest payments on the same be pegged at a uniform escalating rate of: (a) 7% per annum (p.a.) for the years
2002 to 2005; (b) 8% p.a. for the years 2006 to 2010; (c) 10% p.a. for the years 2011 to 2013; (d) 12% p.a. for the
years 2014 to 2015; and (e) 14% p.a. for the year 2018. Likewise, Sarabia sought to make annual payments on the
principal loans starting in 2004, also in escalating amounts depending on cash flow. Further, it proposed that it
should pay off its outstanding obligations to the government and its suppliers on their respective due dates, for the
sake of its day to day operations.

Finding Sarabia’s rehabilitation petition sufficient in form and substance, the RTC issued a Stay Order on August 2,
2002. It also appointed Liberty B. Valderrama as Sarabia’s rehabilitation receiver (Receiver). Thereafter, BPI filed
its Opposition.

Issue: Whether or not the BPI’s opposition proper.

Held: No. Recognizing the volatile nature of every business, the rules on corporate rehabilitation have been crafted
in order to give companies sufficient leeway to deal with debilitating financial predicaments in the hope of restoring
or reaching a sustainable operating form if only to best accommodate the various interests of all its stakeholders,
may it be the corporation’s stockholders, its creditors and even the general public. In this light, case law has defined
corporate rehabilitation as an attempt to conserve and administer the assets of an insolvent corporation in the hope of
its eventual return from financial stress to solvency. It contemplates the continuance of corporate life and activities
in an effort to restore and reinstate the corporation to its former position of successful operation and liquidity.
Verily, the purpose of rehabilitation proceedings is to enable the company to gain a new lease on life and thereby
allow creditors to be paid their claims from its earnings. Thus, rehabilitation shall be undertaken when it is shown
that the continued operation of the corporation is economically more feasible and its creditors can recover, by way
of the present value of payments projected in the plan, more, if the corporation continues as a going concern than if
it is immediately liquidated.

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

In order to determine the feasibility of a proposed rehabilitation plan, it is imperative that a thorough examination
and analysis of the distressed corporation’s financial data must be conducted. If the results of such examination and
analysis show that there is a real opportunity to rehabilitate the corporation in view of the assumptions made and
financial goals stated in the proposed rehabilitation plan, then it may be said that a rehabilitation is feasible. In this
accord, the rehabilitation court should not hesitate to allow the corporation to operate as an on-going concern, albeit
under the terms and conditions stated in the approved rehabilitation plan. On the other hand, if the results of the
financial examination and analysis clearly indicate that there lies no reasonable probability that the distressed
corporation could be revived and that liquidation would, in fact, better subserve the interests of its stakeholders, then
it may be said that a rehabilitation would not be feasible. In such case, the rehabilitation court may convert the
proceedings into one for liquidation. As further guidance on the matter, the Court’s pronouncement in Wonder Book
Corporation v. Philippine Bank of Communications proves instructive:

Rehabilitation… is proper and full implementation, and anchored on realistic assumptions and goals. This remedy
should be denied to corporations whose insolvency appears to be irreversible and whose sole purpose is to delay the
enforcement of any of the rights of the creditors, which is rendered obvious by the following: (a) the absence of a
sound and workable business plan; (b) baseless and unexplained assumptions, targets and goals; (c) speculative
capital infusion or complete lack thereof for the execution of the business plan; (d) cash flow cannot sustain daily
operations; and (e) negative net worth and the assets are near full depreciation or fully depreciated.

Although undefined in the Interim Rules, it may be said that the opposition of a distressed corporation’s majority
creditor is manifestly unreasonable if it counter-proposes unrealistic payment terms and conditions which would,
more likely than not, impede rather than aid its rehabilitation. The unreasonableness becomes further manifest if the
rehabilitation plan, in fact, provides for adequate safeguards to fulfill the majority creditor’s claims, and yet the
latter persists on speculative or unfounded assumptions that his credit would remain unfulfilled. 

While Section 23, Rule 4 of the Interim Rules states that the rehabilitation court shall consider certain incidents in
determining whether the opposition is manifestly unreasonable, BPI neither proposes Sarabia’s liquidation over its
rehabilitation nor questions the controlling interest of Sarabia’s shareholders or owners.

In this case, the Court finds BPI’s opposition on the approved interest rate to be manifestly unreasonable considering
that: (a) the 6.75% p.a. interest rate already constitutes a reasonable rate of interest which is concordant with
Sarabia’s projected rehabilitation; and (b) on the contrary, BPI’s proposed escalating interest rates remain hinged on
the theoretical assumption of future fluctuations in the market, this notwithstanding the fact that its interests as a
secured creditor remain well-preserved.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

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.

DECISION

PERALTA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Revised Rules of Court
which seeks to annul and set aside the Decision  of the Special First Division of the Court of Appeals
1

(CA), dated February 26, 2010, and its Resolution  dated July 21, 2010 denying petitioner's Motion
2

for Reconsideration in the case entitled Marilyn Victoria-Aquino v. Pacific Plans, Inc. and Mamerto A.
Marcelo, Jr., docketed as CA-G.R. SP No. 105237.
Respondent Pacific Plans, Inc. (now Abundance Providers and Entrepreneurs Corporation or
"APEC")  is engaged in the business of selling pre-need plans and educational plans, including
3

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
4

holder of two (2) units of respondent’s PEPTrads. 5

On April 7, 2005, foreseeing the impossibility of meeting its obligations to the availing planholders as
they fall due, respondent filed a Petition for Corporate Rehabilitation with the Regional Trial Court
(Rehabilitation Court), praying that it be placed under rehabilitation and suspension of payments
pursuant to Presidential Decree (P.D.) No. 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
6

Corporate Rehabilitation, respondent had more or less thirty four thousand (34,000) outstanding
PEPTrads. 7

On April 12, 2005, 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
8

Order also appointed respondent Mamerto A. Marcelo (Rehabilitation Receiver) as the rehabilitation
receiver and set the initial hearing of the case on May 25, 2005. 9

Pursuant to the prevailing rules on corporate rehabilitation, respondent submitted to the

Rehabilitation Court its proposed rehabilitation plan. Under the terms thereof, respondent proposed
the implementation of a "Swap,"  which will essentially give the planholder a means to exit from the
10

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. 11

On February 16, 2006, 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
fifty-percent (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
12

under the Rehabilitation Proposal or fifty-percent (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’
13

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
14

Agreement in lieu of a fixed-value plan. 15

For petitioner, she is entitled toreceive an aggregate amount consisting of: (a) the value of her total
contributions plus interest at the rate of seven percent (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 seven percent (7%) from January 1, 2006 until 2010. 16

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 17

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:

Availment Mode Ceiling (in Php)

Annual ₱20,000.00
 Semester ₱10,000.00
Trimester ₱6,000.00 18

These tuition support payments are considered advances from the Base Year-end 2004
Entitlement.19

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. 20

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 dated February 10, 2006. As no TRO/Writ of
Preliminary Injunction has been issued against the conduct of further proceedings, on April 27, 2006,
the Court issued a Decision  approving the ARP, which cradled several appeals filed with the CA,
21

and later on, to this Court that are still pending resolution.22

Nevertheless, respondent commenced with the implementation of its ARP in coordination with, and
with clearance from, the Rehabilitation Receiver. 23

In the meantime, the value of the Philippine Peso strengthened and appreciated. In view of this
development, and considering that the trust fund of respondent is mainly composed of NAPOCOR
bonds that are denominated in US Dollars, respondent submitted a manifestation with the
Rehabilitation Court on February 29, 2008, 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. 24

Thereafter, the Rehabilitation Receiver filed a Manifestation with Motion to Admit dated March 7,
2008, 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. 25

After the submission of comments/opposition by the concerned parties, the Rehabilitation Court
issued a Resolution  dated July 28, 2008 approving the MRP. In approving the same, the
26

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 involvesthe impairment of
contractual obligations. 27
Petitioner questioned the approval of the MRP before the CA on September 26, 2008. 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. 28

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 goalsof 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 Decision  states:
29

WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by us DENYING or

DISMISSING the petition for review filed in this case and AFFIRMING the corporate rehabilitation
Court’s Resolution dated July 28, 2008 in Special Proceeding No. M-6059.  Unfortunately for
30

petitioner, despite its motion for reconsideration, the CA denied the same on July 21, 2010. 31

Hence, this Petition for Review on Certiorariraising the following grounds:

The Court of Appeals 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 Modified
Rehabilitation Plan.

II

The Court of Appeals rendered a decision contrary to law when it ruled that a Petition for Review
was an improper remedy to question a final order of the Rehabilitation Court approving the Modified
Rehabilitation Plan.

III

The Court of Appeals rendered a decision not in accord with the issuances of the Supreme Court
and the usual course of judicial proceedings when it declared that Petitioner had not paid the proper
amount of filing and docket fees, despite the fact that, as clearly shown in the receipts presented by
petitioner, the proper amount of filing fees were paid. 32

In its Comment dated October 23, 2006, respondent raised various procedural infirmities on the
petition warranting its dismissal, to wit: (1) the assailed decision has become final and executory for
failure of petitioner to timely serve a copy of the Petition for Time upon the CA in violation of Section
3, Rule 45 of the Rules of Court; (2) petitioner’s motion for reconsideration on the questioned
decision raises no new arguments; thus, is merely pro formaand did not toll the running of the
reglementary period; (3) a petition for review under Rule 43 of the Rules of Court is an improper
mode to question the MRP; and (4) petitioner failed to pay the appropriate amount of docket fees
when she filed the Petition for Review with the CA. 33

On procedural grounds, this Court finds for the petitioner.

First. Respondent asseverates that the CA correctly held that the Petition for Review under Rule 43
of the Rules of Court is an improper mode to question the Resolution approving the MRP, since the
same constitutes merely as an interlocutory order and, therefore, a proper subject of a certiorari
case under Rule 65 of the Rules of Court. On the other hand, petitioner counters that such
Resolution isa final order with respect to the approval of the MRP; hence, her recourse to a Petition
for Review under Rule 43 of the Rules of Court was proper. Petitioner further argues that such
remedy is clearly in line with the directive of AM No. 04-9-07-SC,  which took effect on October 15,
34

2004 and, therefore, was the correct rule on appeals prevailing at the time petitioner filed her petition
with the CA.35

Petitioner’s contention is impressed with merit.

It bears emphasis that the governing rule at the time respondent filed its petition for rehabilitation
was the Interim Rules, which does not expressly state the mode of appeal from the decisions, orders
and resolutions of the Rehabilitation Court, either prior or after the approval of the rehabilitation plan.
Accordingly, this Court issued a Resolution, A.M. No. 04-9-07-SC,  which lays down the proper
36

mode of appeal in cases involving corporate rehabilitation and intra-corporate controversies in order
to prevent cluttering the dockets of the courts with appeals and/or petitions for certiorari. The first
paragraph thereof provides:

1. All decisions and final orders in cases falling under the Interim Rules of Corporate Rehabilitation
and the Interim Rules of Procedure Governing Intra-Corporate Controversies under Republic Act No.
8799 shall be appealable to the Court of Appeals through a petition for review under Rule 43 of the
Rules of Court. 37

Under the said Resolution, all decisions and final orders of the rehabilitation court, regardless of
whether they are issued before or after the approval of the rehabilitation court, shall be brought on
appeal to the CA via a petition for review under Rule 43 of the Rules of Court.

Subsequently, the Supreme Court issued A.M. No. 00-8-10-SC  (Rehabilitation Rules), which took
38

effect on January 16, 2009, embodying the rehabilitation rules applicable to petitions for
rehabilitation of corporations, partnerships and associations pursuant to P.D. No. 902-A, as
amended. Section 1, Rule 8 thereof unequivocally states:

SEC. 1. Motion for Reconsideration. — A party may file a motion for reconsideration of any order
issuedby the court prior to the approval of the rehabilitation plan. No relief can be extended to the
party aggrieved by the court’s order on the motion through a special civil action for certiorari under
Rule 65 of the Rules of Court. Such order can only be elevated to the Court of Appeals as an
assigned error in the petition for review of the decision or order approving or disapproving the
rehabilitation plan.

An order issued after the approval of the rehabilitation plan can be reviewed only through a special
civil action for certiorari under Rule 65 of the Rules of Court.
39

While We agree with respondent that the later rule states that orders issued after the approval of the
rehabilitation plan can be reviewed only through a special civil action for certiorari under Rule 65 of
the Rules of Court, such rule does not apply to the instant case as the same was not yet in effect at
the time petitioner filed her Petition for Review with the CA. Stated otherwise, the prevailing law at
the time petitioner filed said petition with the CA is the Interim Rules as well as A.M. No. 04-9-07-SC.
As such, the proper remedy of appeal from all decisions and final orders of the RTC was Rule 43 of
the Rules of Court, and not Rule 65 thereof.

In any case, We cannot also subscribe to respondent’s view that the approval of the MRP is merely
an interlocutory order. In Alma Jose v. Javellana,  We have already defined a final order as one that
40

puts an end to the particular matter involved, or settles definitely the matter therein disposed of, as to
leave nothing for the trial court to do other than to execute the order.  Here, it cannot be gainsaid
41

that the Resolution approving the MRP is a final order with respect to the validity thereof, specifically
on the following issues: (1) the suspension of the tuition support; (2) conversion of Philippine Peso
entitlements to U.S. Dollar entitlements; and (3) the payments in U.S. Dollars upon maturity in 2010.
In this regard, the issue as to its alleged infringement on the non-impairment clause under the
Constitution has likewise been settled. The doctrine laid down in New Frontier Sugar Corp. v.
Regional Trial Court Branch 39, Iloilo City,  cannot be used to counter the foregoing because in that
42

case, the Court merely stressed that an original action for certiorarimay be directed against an
interlocutory order of the lower court prior to an appeal from the judgment; or where there is no
appeal or any plain, speedy or adequate remedy.  New Frontier does not categorically preclude the
43

filing of a petition for review under Rule43 for decisions or orders issued after the approval of the
rehabilitation plan such as a modification thereof.

Second. We find respondent’s contention on the non-payment of the docket fees devoid of merit
because the records rather show that petitioner had, in fact, paid the appropriate amount of docket
fees for her Petition with the CA and her application for a TRO on September 12, 2008. To support
this allegation, petitioner attached copies of official receipts, representing the fees she has paid in
the aggregate amount of Four Thousand Six Hundred Eighty Pesos (₱4,680.00). Third. With respect
to respondent’s allegation that petitioner violated Section 2,  in relation to Section 3,  Rule 45 of the
44 45

Rules of Court, in particular the failure of petitioner to serve a copy ofits petition for time with the CA
within the prescribed period, the same is mislaid.

A careful examination of the records will show that said petition was personally served on the CA on
August 17, 2010, within the prescribed period pursuant to Sections 2 and 3, Rule 45 of the Rules of
Court. This is the most logical explanation since the Manifestation regarding such service, together
with the attached Petition for Time, was filed on August 18, 2010. Thus, the date "August 27, 2010"
on the stamp of the CA is clearly a clerical error and respondent’s assertion that the CA was not
timely served the Petition for Time is erroneous.

Similarly, owing to the significance of the issues raised in the instant case, We rule that any lapse on
the filing of the motion for reconsideration with the CA is not grave enough to dismiss the instant
petition on technical grounds. Moreover, it is settled that although a motion for reconsideration may
merely reiterate issues already passed upon by the court, that, by itself, does not make it pro forma.
In fact, the CA did not declare said motion for reconsideration as pro forma when it denied the same.
Hence, considering that the motion for reconsideration is not pro forma and a mere scrap of paper,
its filing tolled the running period of appeal pursuant to Section 2,  Rule 37 of the Rules of Court.
46

Fourth. Anent the Verification and Certification against Forum Shopping of the instant petition, we
recognize that petitioner failed to comply with Section 6, Rule II of A.M. No. 02-8-13-SC, otherwise
known as the Rules on Notarial Practice of 2004 (Notarial Rules), which provides that in order for a
jurat to be valid, the following requirements should be present:

SEC. 6. Jurat. - "Jurat" refers to an act in which an individual on a single occasion:

(a) appears in person before the notary public and presents an instrument or document;

(b) is personally known to the notary public or identified by the notary public through
competent evidence of identityas defined by these Rules;

(c) signs the instrument ordocument in the presence of the notary; and
 (d) takes an oath or affirmation before the notary public as to such instrument or
document.  as well as Section 12, Rule II of the Notarial Rules, which defines what
47

constitutes competent evidence of identity, to wit –

SEC. 12. Competent Evidence of Identity. - The phrase "competent evidence of identity" refers to the
identification of an individual based on:

(a) at least one current identification document issued by an official agency bearing the
photograph and signature of the individual; or

(b) the oath or affirmation of one credible witness not privy to the instrument, document or
transaction who is personally known to the notary public and who personally knows the
individual, or of two credible witnesses neither of whom is privy to the instrument, document
or transaction who each personally knows the individual and shows to the notary public
documentary identification.

While we agree with the observation of respondent that in the instant Petition, the Verification and
Certification against Forum Shopping attached thereto is defective because the jurat thereof does
not contain the required competent evidence of identity of the affiant, petitioner herein, such
omission may be overlooked in the name of judicial leniency, in order to give this Court an avenue to
dispose of the substantive issues of this case.

As to respondent’s allegation that the instant petition contained a false Certification of Non-Forum
Shopping since the same failed to disclose the pendency of a related petition pending before the CA,
the same warrants scant consideration.

While it would appear that there is substantial identity ofparties, since both petitioner and PEPCI are
creditors of respondent and both are questioning the Rehabilitation Court’s approval of the MRP, the
identity of cause of action is absent in the present case. An assiduous scrutiny of the respondent’s
Petition for Review with the CA and PEPCI’s Petition for Review dated September 3, 2008, also filed
with the CA, will show that they raised different causes of action. In Majority Stockholders of Ruby
Industrial Corporation v. Lim,  we have reiterated that no forum shopping exists when two (2) groups
48

of oppositors in a rehabilitation case act independently of each other, even when they have sought
relief from the same appellate court, thus:

On the charge of forum shopping, we have already ruled on the matter in G.R. Nos. 124185-87.
Thus:

We hold that private respondents are not guilty of forum shopping. In Ramos, Sr. v. Court of
Appeals, we ruled:

"The private respondents can be considered to have engaged in forum shopping if all of them, acting
as one group, filed identical special civil actions in the Court of Appeals and in this Court. There
must be identity of parties or interests represented, rights asserted and relief sought in different
tribunals. In the case at bar, two groups of private respondents appear to have acted independently
of each other when they sought relief from the appellate court. Both groups sought relief from the
same tribunal.

"It would not matter even if there are several divisions in the Court of Appeals. The adverse party
can always ask for the consolidation of the two cases. x xx"
In the case at bar, private respondents represent different groups with different interests - the
minority stockholders' group, represented by private respondent Lim; the unsecured creditors group,
Allied Leasing & Finance Corporation; and the old management group. Each group has distinct
rights to protect. In line with our ruling in Ramos, the cases filed by private respondents should be
consolidated. In fact, BENHAR and RUBY did just that - in their urgent motions filed on December 1,
1993 and December 6, 1993, respectively, they prayed for the consolidation of the cases before the
Court of Appeals. 49

In any case, this Court resolves tocondone any procedural lapse in the interest of substantial justice
given the nature of business of respondent and its overreaching implication to society.To deny this
Court of its duty to resolve the substantive issues would be tantamount to judicial tragedy as
planholders, like petitioner herein, would be placed in a state of limbo as to its remedies under
existing laws and jurisprudence.

Indeed, where strong considerations of substantive justice are manifest in the petition, the strict
application of the rules of procedure may be relaxed, in the exercise of its equity jurisdiction.  Thus,
50

a rigid application of the rules of procedure will not be entertained if it will only obstruct rather than
serve the broader interests of justice in the light of the prevailing circumstances in the case under
consideration.  It is a prerogative duly embedded in jurisprudence, as in Alcantara v. Philippine
51

Commercial and International Bank,  where the Court had the occasion to reiterate that:
52

x x x In appropriate cases, the courts may liberally construe procedural rules in order to meet and
advance the cause of substantial justice. Lapses in the literal observation of a procedural rule will be
overlooked when they do not involve public policy, when they arose from an honest mistake or
unforeseen accident, and when they have not prejudiced the adverse party or deprived the court of
its authority. The aforementioned conditions are present in the case at bar. x x x x

There is ample jurisprudence holding that the subsequent and substantial compliance of an
appellant may call for the relaxation of the rules of procedure. In these cases, weruled that the
subsequent submission of the missing documents with the motion for reconsideration amounts to
substantial compliance. The reasons behind the failure of the petitioners in these two cases to
comply with the required attachments were no longer scrutinized. What we found noteworthy in each
case was the fact that the petitioners therein substantially complied with the formal requirements.
We ordered the remand of the petitions in these cases to the Court of Appeals, stressing the ruling
that by precipitately dismissing the petitions "the appellate court clearly put a premium on
technicalities at the expense of a just resolution of the case."

While it is true that the rules of procedure are intended to promote rather than frustrate the ends of
justice, and the swift unclogging of court docket is a laudable objective, it nevertheless must not be
met at the expense of substantial justice. 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 thanits
frustration. A strict and rigid application of the rules must alwaysbe eschewed when it would subvert
the primary objective of the rules, that is, to enhance fair trials and expedite justice. Technicalities
should never beused 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. 53

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
54

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. 55

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 inthe 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
56

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 six (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. 57

This legal precept is not novel and has, in fact, been reinforced in recent decisions such as in Bank
of the Philippine Islands v. Sarabia Manor Hotel Corporation,  where the Court elucidated the
58

rationale behind Section 23, Rule 4 of the Interim Rules, thus:

Among other rules that foster the foregoing policies, Section 23, Rule 4 of the Interim Rules of
Procedure on Corporate Rehabilitation (Interim Rules) states that a rehabilitation plan may be
approved even over the opposition of the creditors holding a majority of the corporation’s total
liabilities if there is a showing that rehabilitation is feasible and the opposition of the creditors is
manifestly unreasonable. Also known as the "cram-down" clause, this provision, which is currently
incorporated in the FRIA, is necessary to curb the majority creditors’ natural tendency to dictate their
own terms and conditions to the rehabilitation, absent due regard to the greater long-term benefit of
all stakeholders. Otherwise stated, it forces the creditors toaccept the terms and conditions of the
rehabilitation plan, preferring long-term viability over immediate but incomplete recovery. 59
as well as in Pryce Corporation v. China Banking Corporation,  to wit:
60

In any case, the Interim Rules or the rules in effect at the time the petition for corporate rehabilitation
was filed in 2004 adopts the cramdown principle which "consists of two things: (i) approval despite
opposition and (ii) binding effect of the approved plan x x x."

First, the Interim Rules allows the rehabilitation court to "approve a rehabilitation plan even over the
opposition of creditors holding a majority of the total liabilities of the debtor if, in its judgment, the
rehabilitation of the debtor is feasible and the opposition of the creditors is manifestly unreasonable."

Second, it also provides that upon approval by the court, the rehabilitation plan and its provisions
"shall be binding upon the debtor and all persons who may be affected by it, including the creditors,
whether or not such persons have participated inthe proceedings or opposed the plan or whether or
not their claims have been scheduled."

Thus, the January 17, 2005 order approving the amended rehabilitation plan, now final and
executory resulting from the resolution of BPI v. Pryce Corporation docketed as G.R. No. 180316,
binds all creditors including respondent China Banking Corporation. 61

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 Republic Act (R.A.) No. 10142, otherwise known
as Financial Rehabilitation and Insolvency Act of 2010 (FRIA), the latest law on corporate
rehabilitation and insolvency, thus:

Section 64. Creditor Approval of Rehabilitation Plan. – The rehabilitation receiver shall notify the
creditors and stakeholders that the Plan is ready for their examination. Within twenty (2Q) days from
the said notification, the rehabilitation receiver shall convene the creditors, either as a whole or per
class, for purposes of voting on the approval of the Plan. The Plan shall be deemed rejected unless
approved by all classes of creditors w hose rights are adversely modified or affected by the Plan. For
purposes of this section,the Plan is deemed tohave been approved by a class of creditors if
members of the said class holding more than fifty percent (50%) of the total claims of the said class
vote in favor of the Plan. The votes of the creditors shall be based solely on the amount of their
respective claims based on the registry of claims submitted by the rehabilitation receiver pursuant to
Section 44 hereof.

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
interestas 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. 62

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.

It is a matter of fact and record that the Philippine Peso unexpectedly and uncharacteristically
strengthened and appreciated from Fifty-Two and 02/100 Pesos (Php52.02) to One U.S. Dollar
(USD1.00) at the time of the approval of the ARP to Forty and (63)/100 Pesos (Php40.63) to One
U.S. Dollar (USD1.00) as of March 7, 2008, the day the Rehabilitation Receiver filed his
Manifestation with Motion to Admit praying for the approval of the MRP.  There is no gainsaying that
63

during this period, the value of the U.S. Dollar-denominated NAPOCOR bonds — the assets
covering the trust fund subject of the traditional education plan — has already been substantially
diluted because of the stronger value of the Philippine Peso vis-à-visthe U.S. Dollar from the time of
the approval of the ARP.  As succinctly held by the RTC in its Resolution dated July 28, 2008, to wit:
64

First, there is in tr[u]th no quibble that the Philippine Peso has behaved in an uncharacteristic
mannerby appreciating significantly vis-àvis the United States Dollar. This fact is not disputed by any
of the parties. Further, the Court takes cognizance that at the time the Alternative Rehabilitation Plan
was approved on 27 April 2006, the exchange rate was Php52.02/US$1.00. As of 15 July 2008, the
exchange rate was Php45.35/US$1.00, or an appreciation of atleast fourteen percent (14%). Since
the NAPOCOR Bonds are denominated in United States dollars, it means that the NAPOCOR
Bonds have losttheir original value by at least fourteen percent (14%) since the approval of the
Alternative Rehabilitation Plan on 27 April 2006. Ergo, the continued payment of tuition support in
Philippine Pesos will lead to the certainty of the trust fund being substantially diluted when the
planholders avail of the same upon maturity of the NAPOCOR Bonds in 2010. 65

This defense mechanism is reasonable because sustaining the current terms of the ARP would
render the trust fund of no value given the high probability of its dilution. Resultantly, the very
foundation of the rehabilitation plan, which is to minimize the loss of all stakeholders, would be
rendered in futile since the trust funds may no longer be sufficient to meet the basic terms of the
ARP.

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 United States Dollar 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. The said conversion would
merely ensure that regardless of the performance of the Philippine Pesos, planholders of petitioner
PPI are guaranteed payment upon maturity of the NAPOCOR Bonds, without fear that their share
will be substantially diluted. In fact, the planholders may even benefit from this modification in the
rehabilitation plan if the United States dollars appreciates in 2010.66

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. 67

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. 68

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
nottake 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:

xxxx

(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;

xxxx

(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;

x x x. 69

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:

It is the strenuous proposition of the CARR that under the Interim Rules, he has the duty to
recommend any modification of an approved rehabilitation plan as he may been appropriate. Ex
concesso, the Court recognizes that under Rule 4, Section 26 of the Interim Rules, an approved
rehabilitation plan may be modified if, in the judgment of the Court, such modification is necessary to
achieve the desired targets or goals set forth therein. 70

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. Surely, we are mindful of the financial distress in 1997, which has destroyed
various institutions not only in the Philippines but across Asia, further compromising the pre-need
industry’s ability to meet its obligations under the PEPTrads. The surrounding circumstances of the
time was peculiar and may no longer be pertinent at present.

Thus, pointing fingers to respondent at this point for its alleged mismanagement of assets would be
irrational, and even counter-productive, because the feasibility of respondent’s rehabilitation has
already been duly established by the Rehabilitation Court. A subsequent allegation to the contrary
has no leg to stand on. Conversely, by virtue of the corporate rehabilitation, respondentwill have
enough breathing room to improve its operations in order to sustain its business operations and at
the same time, settle all its outstanding obligations in a just and fair manner, in accordance with the
MRP. In this regard, We find reason in respondent’s contention that the MRP will not only be
beneficial to itself, but also to its planholders and creditors as well. Anent petitioner’s argument that
the approval of the MRP is offensive to the non-impairment clause of the Constitution, the same fails
to persuade.

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.,  is instructive, thus –
71

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. x x x.
72

Here, petitioner’s claim is not cancelled or obliterated all together.  Contrary to her view, petitioner’s
1awp++i1

claim isin fact restructured in a way that would allow respondent to revive its financial health while
offering the optimal returns to its clients.
It is undisputable that the corporation is in the process of corporate rehabilitation precisely because it
is undergoing financial distress. Petitioner cannot expect to receive the contracted amount owed by
respondent because a modification of the terms and conditions of the contract is certainly
foreseeable and reasonable in a corporate rehabilitation case, as correctly held by the Rehabilitation
Court, to wit:

x x x It is an established principle in rehabilitation proceedings that rehabilitation courts have the

cram down power to approve rehabilitation plans even over the objections of creditors, which cram
down power shall nonetheless bind the latter. In fact, the CARR is given the authority to "notify
counterparties and the court asto contracts that the debtor has decided to continue to perform or
breach." A fortiori, the mere impairment of contracts is not a justification to question the modification
of a rehabilitation plan because the very nature of rehabilitation proceedings sometimes necessitates
such a course of action. 73

Indeed, the rights of petitioner arising from the contracts it entered with respondent are not in any
way weakened by the approval of the ARP, and then the MRP, despiteany reduction in the amount
of the obligation due to petitioner. As enunciated in Pacific Wide,  the reduction of the debt of the
74

debtor is one of the essential features of a rehabilitation case, and is not considered prejudicial to
the interest of a secured creditor, thus:

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.

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.:

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. x x x.

We also find no merit in PWRDC’s contention that there is a violation of the impairment clause.
Section 10, Article III of the Constitution mandates that no law impairing the obligations of contract
shall be passed. This case does not involve a law or an executive issuance declaring the
modification of the contract among debtor PALI, its creditors and its accommodation mortgagors.
Thus, the non-impairment clause may not be invoked. Furthermore, as held in Oposa v. Factoran,
Jr.even assuming that the same may be invoked, the non-impairment clause must yield to the police
power of the State. Property rights and contractual rights are not absolute. The constitutional
guaranty of nonimpairment of obligations is limited by the exercise of the police power of the State
for the common good of the general public.

Successful rehabilitation of a distressed corporation will benefit its debtors, creditors, employees,
and the economy in general.  The court may approve a rehabilitation plan evenover the opposition of
1âwphi1

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. 75

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 Modified Rehabilitation Plan
constitutes an impairment of contracts. The non-impairment clause under the Constitution applies
only to the exercise of legislative power. It does not apply to the Rehabilitation Court which exercises
judicial power over the rehabilitation proceedings. As held by the Supreme Court in Bank of the
Philippine Islands vs. Securities and Exchange Commission, [G.R. No. 164641, December 20, 2007:

"The Court reiterates that the SEC’s approval of the Rehabilitation Plan did not impair BPI’s right to
contract. As correctly contended by private respondents, the nonimpairment clause is a limit on the
exercise of legislative power and not of judicial or quasi-judicial power. The SEC, through the
hearing panel that heard the petition for approval of the Rehabilitation Plan, was acting as a quasi
judicial body and thus, its order approving the plan cannot constitute an impairment of the right and
the freedom to contract."76

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. Accordingly, the prayer for the issuance of a TRO and/or a writ of
preliminary injunction must necessarily fail.

A final note. The evolving times of corporate rehabilitation, owing to the rise and fall of economic
activity over time, calls on the Judiciary to take an active role in filling in the gaps of the law
pertaining to this issue as the inimitable factual milieu of each case would require a different
approach in the application of prevailing laws, rules and regulations on corporate rehabilitation. 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 February 26, 2010 Decision and July 21, 2010
Resolution of the Court of Appeals in CA-G.R. SP No. 105237 are hereby AFFIRMED.

SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice

WE CONCUR:

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson

MARTIN S. VILLARAMA, JR. JOSE CATRAL MENDOZA*

Associate Justice Associate Justice
 BIENVENIDO L. REYES
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court's Division.

PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I
certify that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court's Division.

MARIA LOURDES P.A. SERENO

Chief Justice

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 187581               October 20, 2014

PHILIPPINE BANK OF COMMUNICATIONS, Petitioner, 

vs.
BASIC POLYPRINTERS AND PACKAGING CORPORATION, Respondent.

DECISION

BERSAMIN, J.:

This appeal is taken from the decision promulgated on December 16, 2008 in C.A.-G.R. CV No. I
02484 entitled Philippine Bank of Communications, v. Basic Polyprinters and Packaging
Corporation,  whereby the Court of Appeals (CA) affirmed the order issued on January 11, 2008 by
1

the Regional Trial Court (RTC), Branch 21, in Imus, Cavite, viz:

WHEREFORE, the instant petition is hereby DISMISSED. ACCORDINGLY, the Order dated
January 11, 2008 of the Regional Trial Court oflmus, Cavite, Branch 21, is hereby AFFIRMED.

SO ORDERED. 2

Antecedents
Respondent Basic Polyprinters and Packaging Corporation (Basic Polyprinters) was a domestic
corporation engaged in the business of printing greeting cards, gift wrappers, gift bags, calendars,
posters, labels and other novelty items.3

On February 27, 2004, Basic Polyprinters, along with the eight other corporations belonging to the
Limtong Group of Companies (namely: Cuisine Connection, Inc., Fine Arts International, Gibson HP
Corporation, Gibson Mega Corporation, Harry U. Limtong Corporation, Main Pacific Features, Inc.,
T.O.L. Realty & Development Corp., and Wonder Book Corporation), filed a joint petition for
suspension of paymentswith approval of the proposed rehabilitation in the RTC (docketed as SEC
Case No. 031-04).  The RTC issued a stay order, and eventually approved the rehabilitation plan,
4

but the CA reversed the RTC on October 25, 2005,  and directed the petitioning corporations tofile
5

their individual petitions for suspension of payments and rehabilitation in the appropriate courts.

Accordingly, Basic Polyprinters brought its individual petition,  averring therein that: (a) its business
6

since incorporation had been very viable and financially profitable; (b) it had obtained loans from
various banks, and had owed accounts payable to various creditors; (c) the Asian currency crisis,
devaluation of the Philippine peso, and the current state of affairs of the Philippine economy,
coupled with: (i) high interest rates, penalties and charges by its creditors; (ii) low demand for gift
items and cards due to the economic recession and the use of cellular phones; (iii) direct competition
from stores like SM, Gaisano, Robinson and other malls; and (iv) the fire of July 19, 2002 that had
destroyed its warehouse containing inventories worth ₱264,000,000.00, resulting in difficulty of
meeting its obligations; (d) its operations would be hampered and would render rehabilitation difficult
should its creditors enforce their claims through legal actions, including foreclosure proceedings; (e)
included in its overall Rehabilitation Program was the full payment of its outstanding loans in favor of
petitioner Philippine Bank of Communications (PBCOM), RCBC, Land Bank, EPCI Bank and AUB
via repayment over 15 years with moratorium of two-years for the interestand five years for the
principal at 5% interest per annumand a dacion en pagoof its affiliate property in favor of EPCI Bank;
and (f) its assets worth ₱15,374,654.00 with net liabilities amounting to ₱13,031,438.00. 7

Finding the petition sufficient in formand substance, the RTC issued the stay order dated August 31,
2006.  It appointed Manuel N. Cacho III as the rehabilitation receiver, and required all creditors and
8

interested parties, including the Securities and Exchange Commission (SEC), to file their comments.

After the initial hearing and evaluation of the comments and opposition of the creditors, including
PBCOM, the RTC gave due course to the petition and referred it to the rehabilitation receiver for
evaluation and recommendation. 9

On October 18, 2007, the rehabilitation receiver submitted his report recommending the approval of
the rehabilitation plan. On December 19, 2007, the rehabilitation receiver submitted his clarifications
and corrections to his report and recommendations. 10

Ruling of the RTC

On January 11, 2008, the RTC issued an order approving the rehabilitation plan,  the pertinent
11

portion of which reads:

Petitioner’s primary business is in the printing business. Based on its updated financial report, the
financial condition has greatly improved.

However, because of the indebtedness and the slowdown in sales brought about by a depressed
economy, the present income from the operations will be insufficient to pay off its maturing
obligations. Thus, the success of the rehabilitation planlargely depends on its ability to reduce its
debt obligation to a manageable level by the suspension of payments of obligations and the
proposed "dacion en pago."

The projected cash flow attached to the report and the repayment program demonstrates the ability
of the company to settle its debt liability.

Other factors which justify the approval of the Rehabilitation Plan are as follows:

1. The petitioner has a positive net worth and inventory that can be converted into resources.

2. The Plan ensures preservation of assets, optimizes recovery of creditors’ claims and
provides ofan orderly payment of debts.

3. The plan will restore petitioner to profitability and solvency and maintain it as an on-going
concern to the benefit of the stockholders, investors and creditors.

4. The rehabilitation and the continuous operation of the company will generate employment.

5. The plan is endorsed by the Rehabilitation Receiver.

CONSIDERING THE FOREGOING, the Court hereby approves the detailed Rehabilitation Plan
including the Receiver’s Report and Recommendations and its clarifications and corrections and
enjoins the petitioner to comply strictly with the provisions of the plan, perform its obligations
thereunder and take all actions necessary to carry out the plan, failing which, the Court shall either,
upon motion, motu proprio or upon the recommendation of the Rehabilitation Receiver, terminate the
proceedings pursuant to Section 27, Rule 1 of the Interim Rules of Procedure on Corporate
Rehabilitation.

The Rehabilitation Receiver is directed to strictly monitor the implementation of the Plan and submit
a quarterly report on the progress thereon.

SO ORDERED.

PBCOM appealed to the CA in due course.

Ruling of the CA

In the assailed decision promulgated on December 16, 2008,  the CA affirmed the questioned order
12

of the RTC, agreeing with the finding of the rehabilitation receiver that there were sufficient evidence,
factors and actual opportunities in the rehabilitation plan indicating that Basic Polyprinters could be
successfully rehabilitated in due time.13

Emphasizing the equitable and rehabilitative purposes of rehabilitation proceedings, the CA stated
that Presidential Decree No. 902-A, as amended, sought to "effect a feasible and viable
rehabilitation by preserving a foundering business as going concern" because it would be more
valuable to preserve the assets of the corporation  rather than to pursue its liquidation; and
14

observed in closing:

One last word. The purpose of rehabilitation proceedings is to enable the company to gain new
lease on life and thereby allows creditors to be paid their claims from its earnings. Rehabilitation
contemplates a continuance of corporate life and activities in an effort to restore and reinstate the
financially distressed corporation to its former position of successful operation and solvency. This is
in consonance with the State’s objective to promote a wider and moremeaningful equitable
distribution of wealth to protect investments and the public. The approval of the Rehabilitation Plan
by the trial court is precisely in furtherance of the rationale behind the Interim Rules of Corporate
Rehabilitation is to effect a feasible and viable rehabilitation ofailing corporations which affect the
public welfare.15

PBCOM moved for reconsideration,  but its motion was denied.

16

Issues

Hence, this appeal by PBCOM upon the following issues, namely:

THE COURT OF APPEALS GRAVELY ERRED IN DISMISSING PETITIONER’S PETITION FOR

REVIEW AND AFFIRMING THE ORDER DATED JANUARY 11, 2008, CONSIDERING THAT:

A PETITION FILED PURSUANT TO THE INTERIM RULES OF PROCEDURE ON CORPORATE

REHABILITATION PRESUPPOSES THAT THE PETITIONING CORPORATION HAS SUFFICIENT
PROPERTY TO COVER ALL ITS INDEBTEDNESS. RESPONDENT IS INSOLVENT AS ITS
ASSETS ARE LESS THAN ITS OBLIGATIONS;

THE "DETAILED REHABILITATION PLAN" DOES NOT PROVIDE MATERIAL FINANCIAL

COMMITMENTS FROM RESPONDENT ITSELF OR WOULD-BE INVESTORS

THE TERMS AND CONDITIONS OF THE "APPROVED REHABILITATION PLAN" ARE TOO
ONEROUS PARTICULARLY THE REHABILITATION TERM OF FIFTEEN (15) YEARS AS WELL
AS THE "WAIVER" OF ALL INTEREST AND PENALTIES BEGINNING FEBRUARY 2004 UPTO
THE TIME OF ITS APPROVAL. 17

The petitioner claims that the CA did not pass upon the issues presented in its petition, particularly
Basic Polyprinters’ liquidity that was material in proceedings for corporate rehabilitation; that a
petition for rehabilitation presupposed that the petitioning corporation had sufficient property to cover
all its indebtedness, but Basic Polyprinters did not show so because its assets were much less
thanits outstanding obligations; that Basic Polyprinters had under-declared its outstanding loans, i.e.,
its total loan obligations with the petitioner was at ₱118,411,702.70 as of June 30, 2006, and not just
₱71,315,086.00 as it claimed; that the independent appraisal by the Professional Asset Valuers, Inc.
(PAVI) on Basic Polyprinters’ machineries and printing equipment mortgaged to it (PBCOM) had a
fair market value of only ₱6,531,000.00, and a prompt sale value of only ₱4,572,000.00, as
compared to the fair market value of ₱15,110,000.00 declared by Basic Polyprinters; that the
rehabilitation plandid not contain the material financial commitments required by Section 5, Rule 4 of
the Interim Rules of Procedure for Corporate Rehabilitation (Interim Rules); that, accordingly, the
proposed repayment scheme did not constitute a material financial commitment, and the proposed
dacion en pagowas not proper because the property subject thereof had been mortgaged in its
favor; and that the absence of capital infusion rendered impossible the proposal to invest in new
machineries that would increase sales and improve quality and capacity. 18

The petitioner posits that the assailed decision of the CA effectively gave Basic Polyprinters a
moratoriumfor seven years on both interest and principal payments counted from the issuance of the
stay order in 2004 that effectively prejudiced its creditors. 19

Basic Polyprinters refutes the petitioner, saying that the petitioner raises factual issues improper
under Rule 45 of the Rules of Court; that as long as the rehabilitation court found that the petitioning
corporation could still be rehabilitated, its findings of fact should be binding when they were
supported by substantial evidence; that the independent appraisal report by PAVI was unauthorized
by the RTC; and that the validity of the rehabilitation plan could be upheld for its complete
satisfaction of the requirements of Section 5, Rule4 of the Interim Rules.

In fine, we shall determine whether the approval of the rehabilitation plan was proper despite: (a) the
alleged insolvency of Basic Polyprinters; and (b) absence of a material financial commitment
pursuant to Section 5, Rule 4 of the Interim Rules.

Ruling

We reverse the judgment of the CA.

Liquidity was not an issue in a petition for rehabilitation

The petitioner contends that the sole issue in corporate rehabilitation is one of liquidity; hence, the
petitioning corporation should have sufficient assets to cover all its indebtedness because it only
foresees the impossibility of paying the indebtedness falling due. It claims that rehabilitation became
inappropriate because Basic Polyprinters was insolvent due to its assets being inadequate to cover
the outstanding obligations. 20

We disagree with the contention of the petitioner.

Under the Interim Rules, rehabilitation is the process of restoring "the debtor to a position of
successful operation and solvency, if it is shown that its continuance of operation is economically
feasible and its creditors can recover by way of the present value of payments projected in the plan
more if the corporation continues as a going concern that if it is immediately liquidated."  It
21

contemplates a continuance ofcorporate life and activities in an effort to restore and reinstate the
corporation to its former position of successful operation and solvency. 22

In Asiatrust Development Bank v. First Aikka Development, Inc.,  we said that rehabilitation
23

proceedings have a two-pronged purpose, namely: (a) to efficiently and equitably distribute the
assets of the insolvent debtor to its creditors; and (b) to provide the debtor with a fresh start, viz:
Rehabilitation proceedings in our jurisdiction have equitable and rehabilitative purposes. On the one
hand, they attempt to provide for the efficient and equitable distribution ofan insolvent debtor's
remaining assets to its creditors; and on the other, to provide debtors with a "fresh start" by relieving
them of the weight of their outstanding debts and permitting them to reorganize their affairs. The
purpose of rehabilitation proceedings is to enable the company to gain a new lease on life and
thereby allow creditors to be paidtheir claims from its earnings. 24
Consequently, the basic issues inrehabilitation proceedings concern the viability and desirability of
continuing the business operations of the petitioning corporation. The determination of such issues
was to be carried out by the court-appointed rehabilitation receiver,  who was Cacho in this case.
25

Moreover, Republic Act No. 10142 (Financial Rehabilitation and Insolvency Act (FRIA) of 2010), a
law that is applicable hereto,  has defined a corporate debtor as a corporation duly organized and
26

existing under Philippine laws that has become insolvent.  The term insolventis defined in Republic
27

Act No. 10142 as "the financial condition of a debtor that is generally unable to pay its or his
liabilities as they fall due in the ordinary course of business or has liabilities that are greater than its
or his assets." 28

As such, the contention that rehabilitation becomes inappropriate because of the perceived
insolvency of BasicPolyprinters was incorrect.

II

A material financial commitment is significant in a rehabilitation plan

The petitioner next argues that Basic Polyprinters did not present any material financial commitment
in the rehabilitation plan, thereby violating Section 5, Rule 4 of the Interim Rules, the rule applicable
at the time of the filing of the petition for rehabilitation. In that regard, Basic Polyprinters made no
commitment in relation to the infusion of fresh capital by its stakeholders,  and presented only a
29

"lopsided" protracted repayment schedule that included the dacion en pago involving an asset
mortgaged to the petitioner itself in favor of another creditor.

A material financial commitment becomes significant in gauging the resolve, determination,

earnestness and good faith ofthe distressed corporation in financing the proposed rehabilitation
plan.  This commitment may include the voluntary undertakings ofthe stockholders or the would-be
30

investors of the debtor-corporation indicating their readiness, willingness and ability to contribute
funds or property to guarantee the continued successful operation of the debtor corporation during
the period of rehabilitation. 31

Basic Polyprinters presented financial commitments, as follows:

(a) Additional ₱10 million working capital to be sourced from the insurance claim;

(b) Conversion of the directors’ and shareholders’ deposit for future subscription to common
stock;32

(c) Conversion of substituted liabilities, if any, to additional paid-in capital to increase the
company’s equity; and

(d) All liabilities (cash advances made by the stockholders) of the company from the officers
and stockholders shall be treated as trade payables. 33

However, these financial commitments were insufficient for the purpose.  We explain.
1âwphi1

The commitment to add ₱10,000,000.00 working capital appeared to be doubtful considering that
the insurance claim from which said working capital would be sourced had already been written-off
by Basic Polyprinters’s affiliate, Wonder Book Corporation.  A claim that has been written-off is
34

considered a bad debt or a worthless asset,  and cannot be deemed a material financial
35
commitment for purposes of rehabilitation. At any rate, the proposed additional ₱10,000,000.00
working capital was insufficient to cover at least half ofthe shareholders’ deficit that amounted to
₱23,316,044.00 as of June 30, 2006.

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

Book)  that the conversion of all deposits for future subscriptions to common stock and the treatment
36

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

Basic Polyprinters’s rehabilitation plan likewise failed to offer any proposal on how it intended to
address the low demands for their products and the effect of direct competition from stores like SM,
Gaisano, Robinsons, and other malls. Even the ₱245 million insurance claim that was supposed to
cover the destroyed inventories worth ₱264 million appears to have been written-off with no
probability of being realized later on.

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

Worthy of note here is that Wonder Book Corporation was a sister company of Basic Polyprinters,
being one of the corporations that had filed the joint petition for suspension of payments and
rehabilitation in SEC Case No. 031-04 adverted to earlier. Both of them submitted identical
commitments in their respective rehabilitation plans. As a result, as the Court observed in Wonder
Book,  the commitments by Basic Polyprinters could not be considered as firm assurances that
37

could convince creditors, future investors and the general public of its financial and operational
viability.

Due to the rehabilitation plan being an indispensable requirement in corporate rehabilitation

proceedings,  Basic Polyprinters was expected to exert a conscious effort in formulating the same,
38

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

ACCORDINGLY, the Court GRANTS the petition for review on certiorari; SETS ASIDE and
REVERSES the decision promulgated on December 16, 2008 and the resolution promulgated on
April 22, 2009, both by the Court of Appeals, as well as the order issued on January 11, 2008 by the
Regional Trial Court approving the rehabilitation plan submitted by Basic Polyprinters and Packaging
Corporation; DISMISSES the petition for suspension of payments and rehabilitation of Basic
Polyprinters and Packaging Corporation; and DIRECTS Basic Polyprinters and Packaging
Corporation to pay the costs of suit.
SO ORDERED.

LUCAS P. BERSAMIN
Associate Justice

WE CONCUR:

G.R. No. 206528, June 28, 2016 - PHILIPPINE ASSET GROWTH TWO, INC. (SUCCESSOR-IN-INTEREST OF
PLANTERS DEVELOPMENT BANK) AND PLANTERS DEVELOPMENT BANK, Petitioners, v. FASTECH SYNERGY
PHILIPPINES, INC. (FORMERLY FIRST ASIA SYSTEM TECHNOLOGY, INC.), FASTECH MICROASSEMBLY &
TEST, INC., FASTECH ELECTRONIQUE, INC., AND FASTECH PROPERTIES, INC., Respondents.

FIRST DIVISION

G.R. No. 206528, June 28, 2016

PHILIPPINE ASSET GROWTH TWO, INC. (SUCCESSOR-IN-INTEREST OF PLANTERS DEVELOPMENT

BANK) AND PLANTERS DEVELOPMENT BANK, Petitioners, v. FASTECH SYNERGY PHILIPPINES, INC.
(FORMERLY FIRST ASIA SYSTEM TECHNOLOGY, INC.), FASTECH MICROASSEMBLY & TEST, INC.,
FASTECH ELECTRONIQUE, INC., AND FASTECH PROPERTIES, INC., Respondents.

DECISION

PERLAS-BERNABE, J.:

For the Court's resolution is a petition for review on certiorari1 assailing the Decision2 dated September 28,
2012 and the Resolution3 dated March 5, 2013 of the Court of Appeals (CA) in CA-G.R. SP No. 122836
which: (a) approved the Rehabilitation Plan4 of respondents Fastech Synergy Philippines, Inc. (formerly First
Asia System Technology, Inc.) (Fastech Synergy), Fastech Microassembly & Test, Inc. (Fastech
Microassembly), Fastech Electronique, Inc. (Fastech Electronique), and Fastech Properties, Inc. (Fastech
Properties; collectively, respondents); (b) enjoined petitioner Planters Development Bank (PDB) from
effecting the foreclosure of respondents' properties during the implementation thereof; and (c) remanded
the case to the Regional Trial Court (RTC) of Makati City, Branch 149 (RTC-Makati) to supervise its
implementation.

The Facts

On April 8, 2011, respondents filed a verified Joint Petition 5 for corporate rehabilitation (rehabilitation
petition) before the RTC-Makati, with prayer for the issuance of a Stay or Suspension Order, 6 docketed as SP
Case No. M-7130. They claimed that: (a) their business operations and daily affairs are being managed by
the same individuals;7 (b) they share a majority of their common assets; 8 and (c) they have common
creditors and common liabilities.9
chanrobleslaw

Among the common creditors listed in the rehabilitation petition was PDB, 10 which had earlier filed a
petition11 for extrajudicial foreclosure of mortgage over the two (2) parcels of land, covered by Transfer
Certificate of Title (TCT) Nos. T-45810212 and T-45810313 and registered in the name of Fastech Properties
(subject properties),14 listed as common assets of respondents in the rehabilitation petition. 15 The
foreclosure sale was held on April 13, 2011, with PDB emerging as the highest bidder. 16 Respondents
claimed that this situation has impacted on their chance to recover from the losses they have suffered over
the years, since the said properties are being used by Fastech Microassembly and Fastech Electronique 17 in
their business operations, and a source of significant revenue for their owner-lessor, Fastech
Properties.18Hence, respondents submitted for the court's approval their proposed Rehabilitation
Plan,19 which sought: (a) a waiver of all accrued interests and penalties; (b) a grace period of two (2) years
to pay the principal amount of respondents' outstanding loans, with the interests accruing during the said
period capitalized as part of the principal, to be paid over a twelve (12)-year period after the grace period;
and (c) an interest rate of four percent (4%) and two percent (2%) per annum (p.a.) for creditors whose
credits are secured by real estate and chattel mortgages, respectively. 20 chanrobleslaw

On April 19, 2011, the RTC-Makati issued a Commencement Order with Stay Order, 21 and appointed Atty.
Rosario S. Bernaldo as Rehabilitation Receiver, which the latter subsequently accepted. 22 chanrobleslaw

After the initial hearing on May 18, 2011, and the filing of the comments/oppositions on the rehabilitation
petition,23 the RTC-Makati gave due course to the said petition, and, thereafter, referred the same to the
court-appointed Rehabilitation Receiver, who submitted in due time her preliminary report, 24 opining that
respondents may be rehabilitated, considering that their assets appear to be sufficient to cover their
liabilities, but reserved her comment to the Rehabilitation Plan's underlying assumptions, financial goals,
and procedures to accomplish said goals after the submission of a revised rehabilitation plan as directed by
the RTC-Makati,25  which respondents subsequently complied.26
cralawred chanrobleslaw

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

The RTC-Makati Ruling

In a Resolution30 dated December 9, 2011, the RTC-Makati dismissed the rehabilitation petition despite the
favorable recommendation of its appointed Rehabilitation Receiver. It found the facts and figures submitted
by respondents to be unreliable in view of the disclaimer of opinion of the independent auditors who
reviewed respondents' 2009 financial statements, 31 which it considered as amounting to a "straightforward
unqualified adverse opinion."32 In the same vein, it did not give credence to the unaudited 2010 financial
statements as the same were mere photocopied documents and unsigned by any of respondents'
responsible officers.33 It also observed that respondents added new accounts and/or deleted/omitted certain
accounts.34 Furthermore, it rejected the revised financial projections as the bases for which were not
submitted for its evaluation on the ground of confidentiality. 35
chanrobleslaw

Aggrieved, respondents appealed36 to the CA, with prayer for the issuance of a temporary restraining order
(TRO) and/or a writ of preliminary injunction (WPI), docketed as CA-G.R. SP No. 122836.

The Proceedings Before the CA

In a Resolution dated January 24, 2012, the CA issued a TRO 37 so as not to render moot and academic the
case before it in view of PDB's pending Ex-Parte Petition for Issuance of a Writ of Possession over the
subject properties before the RTC of Biñan, Laguna, docketed as LRC Case No. B-5141. 38 Thereafter, the CA
issued a WPI39 on March 22, 2012.

On April 30, 2012, the court-appointed Rehabilitation Receiver submitted a manifestation 40 before the CA,
maintaining that the rehabilitation of respondents is viable since the financial projections and procedures set
forth to accomplish the goals in their Rehabilitation Plan are attainable. 41 chanrobleslaw

After the creditors and respondents had filed their respective comments and reply to the manifestation, the
CA rendered a Decision42 dated September 28, 2012 (September 28, 2012 Decision), reversing and setting
aside the RTC-Makati ruling.43 It ruled that the RTC-Makati grievously erred in disregarding the
report/opinion of the Rehabilitation Receiver that respondents may be successfully rehabilitated, despite
being highly qualified to make an opinion on accounting in relation to rehabilitation matters. 44 It likewise
observed that the RTC-Makati failed to distinguish the difference between an adverse or negative opinion
and a disclaimer or when an auditor cannot formulate an opinion with exactitude for lack of sufficient
data.45 Finally, the CA declared that the Rehabilitation Plan is feasible and should be approved, finding that
respondents would be able to meet their obligations to their creditors within their operating cash profits and
other assets without disrupting their business operations, which will be beneficial to their creditors,
employees, stockholders, and the economy.46 chanrobleslaw
Accordingly, the CA reinstated the rehabilitation petition, approved respondents' Rehabilitation Plan, and
remanded the case to the RTC-Makati to supervise its implementation. Considering that respondents'
creditors are placed in equal footing as a necessary consequence, it permanently enjoined PDB from
"effecting the foreclosure" of the subject properties during the implementation of the Rehabilitation Plan. 47 chanrobleslaw

Dissatisfied, PDB filed a motion for reconsideration 48 which was, however, denied in a Resolution49 dated
March 5, 2013 (March 5, 2013 Resolution).

In the interim, DivinaLaw entered50 its appearance as the new lead counsel of PDB, in collaboration 51 and
with the conformity of its counsel of record, Janda Asia & Associates. 52 On April 3, 2013, DivinaLaw, on
behalf of petitioner Philippine Asset Growth Two, Inc. (PAGTI), filed a Motion for Substitution of Parties
(motion for substitution),53 averring that PAGTI had acquired PDB's claims and interests in the instant case,
hence, should be substituted as a party therein.

The Proceedings Before the Court

On April 18, 2013, PAGTI and PDB (petitioners), represented by DivinaLaw, filed the instant petition,
claiming that PDB received a copy of the March 5, 2013 Resolution on April 3, 2013. 54 chanrobleslaw

On July 10, 2013, respondents filed their Urgent Motion to Dismiss Petition for Review on Certiorari for Being
Filed Out of Time55 (urgent motion), positing that contrary to petitioners' claim that PDB received notice of
the March 5, 2013 Resolution on April 3, 2013, its counsel, Janda Asia & Associates, already received a Copy
of the said resolution on March 12, 2013. Thus, petitioners only had until March 27, 2013 to file a petition
for review on certiorari before the Court, and the petition filed on April 18, 2013 was filed out of time. 56 chanrobleslaw

Meanwhile, the Court required respondents to file their comment57 to the petition, and subsequently directed
petitioners to submit their comment on respondents' urgent motion, and reply to the latter's comment. 58 chanrobleslaw

In their Comment,59 respondents prayed for the dismissal of the petition and reiterated their stand that the
same was filed out of time, arguing that the receipt of the March 5, 2013 Resolution on March 12, 2013 by
Janda Asia & Associates, which remained as collaborating counsel of PDB, binds petitioners and started the
running of the fifteen (15)-day period within which to file a petition for review on certiorari before the Court.
Thus, the petition filed on April 18, 2013 was filed beyond the reglementary period. 60 Respondents likewise
maintained the viability of the rehabilitation plan, which will benefit not only their employees, but their
stockholders, creditors, and the general public. 61
chanrobleslaw

For their part, petitioners contended62 that: (a) the date of receipt of petitioners' lead counsel, i.e.,
DivinaLaw's receipt of the March 5, 2013 Resolution, should be the reckoning point of the fifteen (15)-day
period within which to file the instant petition, since only the lead counsel is entitled to service of court
processes,63 citing the case of Home Guaranty Corporation v. R-II Builders, Inc.;64 and (b) the CA erred in
not upholding the dismissal of the rehabilitation petition despite the insufficiency of the Rehabilitation Plan
which was based on financial statements that contained misleading statements, and financial projections
that are mere unfounded assumptions/speculations. 65 chanrobleslaw

Thereafter, respondents filed a Manifestation and Update (Re: Compliance to [the CA] Decision dated
September 28, 2012)66 before the Court, stating that it had achieved the EBITDA 67 requirement of the
Rehabilitation Plan and made quarterly payments in favor of the bank and non-bank creditors from
December 28, 2014 to September 28, 2015, totalling P27,119,481.79. 68 However, the amount of
P8,364,836.53 in favor of PDB was not accepted, and is being held by respondents. 69 chanrobleslaw

The Issues Before the Court

The essential issues for the Court's resolution are: (a) whether or not the petition for review on certiorariwas
timely filed; and (b) the Rehabilitation Plan is feasible.
The Court's Ruling 

I.
The Court first resolves the procedural issue anent the timeliness of the petition's filing.

It is a long-standing doctrine that where a party is represented by several counsels, notice to one is
sufficient, and binds the said party. 70 Notice to any one of the several counsels on record is equivalent to
notice to all, and such notice starts the running of the period to appeal notwithstanding that the other
counsel on record has not received a copy of the decision or resolution. 71 chanrobleslaw

In the present case, PDB was represented by both Janda Asia & Associates and DivinaLaw. It was not
disputed that Janda Asia & Associates, which remained a counsel of record, albeit, as collaborating counsel,
received notice of the CA's March 5, 2013 Resolution on March 12, 2013. As such, it is from this date, and
not from DivinaLaw's receipt of the notice of said resolution on April 3, 2013 that the fifteen (15)-day
period72 to file the petition for review on certiorari before the Court started to run.

Hence, petitioners only had until March 27, 2013 to file a petition for review on certiorari before the Court,
and the petition filed on April 18, 2013 was filed out of time. Notably, there is no showing that the CA had
already resolved PAGTI's motion for substitution;73 hence, it remained bound by the proceedings and the
judgment rendered against its transferor, PDB.

Generally, the failure to perfect an appeal in the manner and within the period provided for by law renders
the decision appealed from final and executory, 74 and beyond the competence of the Court to review.
However, the Court has repeatedly relaxed this procedural rule in the higher interest of substantial justice.
In Barnes v. Padilla,75 it was held that:ChanRoblesVirtualawlibrary

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

However, this Court has relaxed this rule in order to serve substantial justice[,] considering (a) matters of
life, liberty, honor or property, (b) the existence of special or compelling circumstances, (c) the merits of the
case, (d) a cause not entirely attributable to the fault or negligence of the party favored by the suspension
of the rules, (e) a lack of any showing that the review sought is merely frivolous and dilatory, and (f) the
other party will not be unjustly prejudiced thereby.76 chanroblesvirtuallawlibrary

After a meticulous scrutiny of this case, the Court finds that the unjustified rehabilitation of respondents, by
virtue of the CA ruling if so allowed to prevail, warrants the relaxation of the procedural rule violated by
petitioners in the higher interest of substantial justice. The reasons therefor are hereunder explained.

II.

Rehabilitation is statutorily defined under Republic Act No. 10142, 77 otherwise known as the "Financial
Rehabilitation and Insolvency Act of 2010" (FRIA), as follows: ChanRoblesVirtualawlibrary

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

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

and solvency, if it is shown that its continuance of operation is economically feasible and its creditors can
recover by way of the present value of payments projected in the plan, more if the debtor continues as a
going concern than if it is immediately liquidated. (Emphasis supplied)
Case law explains that corporate rehabilitation contemplates a continuance of corporate life and activities in
an effort to restore and reinstate the corporation to its former position of successful operation
and solvency, the purpose being to enable the company to gain a new lease on life and allow its
creditors to be paid their claims out of its earnings.78 Thus, the basic issues in rehabilitation
proceedings concern the viability and desirability of continuing the business operations of the distressed
corporation,79 all with a view of effectively restoring it to a state of solvency or to its former healthy financial
condition through the adoption of a rehabilitation plan.

III.

In the present case, however, the Rehabilitation Plan failed to comply with the minimum requirements, i.e.:
(a) material financial commitments to support the rehabilitation plan; and (b) a proper liquidation analysis,
under Section 18, Rule 3 of the 2008 Rules of Procedure on Corporate Rehabilitation 80 (Rules), which Rules
were in force at the time respondents' rehabilitation petition was filed on April 8, 2011: ChanRoblesVirtualawlibrary

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

A. Lack of Material Financial Commitment to Support the Rehabilitation Plan.

A material financial commitment becomes significant in gauging the resolve, determination, earnestness,
and good faith of the distressed corporation in financing the proposed rehabilitation plan. This commitment
may include the voluntary undertakings of the stockholders or the would-be investors of the debtor-
corporation indicating their readiness, willingness, and ability to contribute funds or property to guarantee
the continued successful operation of the debtor-corporation during the period of
rehabilitation.81chanrobleslaw

In this case, respondents' Chief Operating Officer, Primo D. Mateo, Jr., in his executed Affidavit of General
Financial Condition82 dated April 8, 2011, averred that respondents will not require the infusion of additional
capital as he, instead, proposed to have all accrued penalties, charges, and interests waived, and a reduced
interest rate prospectively applied to all respondents' obligations, in addition to the implementation of a two
(2)-year grace period.83 Thus, there appears to be no concrete plan to build on respondents' beleaguered
financial position through substantial investments as the plan for rehabilitation appears to be pegged merely
on financial reprieves. Anathema to the true purpose of rehabilitation, a distressed corporation cannot be
restored to its former position of successful operation and regain solvency by the sole strategy of delaying
payments/waiving accrued interests and penalties at the expense of the creditors.

The Court also notes that while respondents have substantial total assets, a large portion of the assets of
Fastech Synergy84 and Fastech Properties85 is comprised of noncurrent assets,86 such as advances to
affiliates which include Fastech Microassembly,87 and investment properties which form part of the common
assets of Fastech Properties, Fastech Electronique, and Fastech Microassembly. 88 Moreover, while there is a
claim that unnamed customers have made investments by way of consigning production equipment, and
advancing money to fund procurement of various equipment intended to increase production capacity, 89this
can hardly be construed as a material financial commitment which would inspire confidence that the
rehabilitation would turn out to be successful. Case law holds that nothing short of legally binding
investment commitment/s from third parties is required to qualify as a material financial
commitment.90Here, no such binding investment was presented.

B. Lack of Liquidation Analysis.

Respondents likewise failed to include any liquidation analysis in their Rehabilitation Plan. The total
liquidation assets and the estimated liquidation return to the creditors, as well as the fair market value vis-
a-vis the forced liquidation value of the fixed assets were not shown. As such, the Court could not ascertain
if the petitioning debtor's creditors can recover by way of the present value of payments projected in the
plan, more if the debtor continues as a going concern than if it is immediately liquidated. This is a crucial
factor in a corporate rehabilitation case, which the CA, unfortunately, failed to address.

C. Effect of Non-Compliance.

The failure of the Rehabilitation Plan to state any material financial commitment to support rehabilitation, as
well as to include a liquidation analysis, renders the CA's considerations for approving the same, i.e., that:
(a) respondents would be able to meet their obligations to their creditors within their operating cash profits
and other assets without disrupting their business operations; (b) the Rehabilitation Receiver's opinion
carries great weight; and (c) rehabilitation will be beneficial for respondents' creditors, employees,
stockholders, and the economy,91 as actually unsubstantiated, and hence, insufficient to decree the
feasibility of respondents' rehabilitation. It is well to emphasize that the remedy of rehabilitation should be
denied to corporations that do not qualify under the Rules. Neither should it be allowed to corporations
whose sole purpose is to delay the enforcement of any of the rights of the creditors.

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

IV.

The test in evaluating the economic feasibility of the plan was laid down in Bank of the Philippine Islands v.
Sarabia Manor Hotel Corporation92 (Bank of the Philippine Islands), to wit: ChanRoblesVirtualawlibrary

In order to determine the feasibility of a proposed rehabilitation plan, it is imperative that a thorough
examination and analysis of the distressed corporation's financial data must be conducted. If the results of
such examination and analysis show that there is a real opportunity to rehabilitate the corporation in view of
the assumptions made and financial goals stated in the proposed rehabilitation plan, then it may be said
that a rehabilitation is feasible. In this accord, the rehabilitation court should not hesitate to allow the
corporation to operate as an on-going concern, albeit under the terms and conditions stated in the approved
rehabilitation plan. On the other hand, if the results of the financial examination and analysis clearly indicate
that there lies no reasonable probability that the distressed corporation could be revived and that liquidation
would, in fact, better subserve the interests of its stakeholders, then it may be said that a rehabilitation
would not be feasible. In such case, the rehabilitation court may convert the proceedings into one for
liquidation.93 chanroblesvirtuallawlibrary

In the recent case of Viva Shipping Lines, Inc. v. Keppel Philippines Mining, Inc.,94 the Court took note of the
characteristics of an economically feasible rehabilitation plan as opposed to an infeasible rehabilitation
plan: ChanRoblesVirtualawlibrary

Professor Stephanie V. Gomez of the University of the Philippines College of Law suggests specific
characteristics of an economically feasible rehabilitation plan:

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

b. Liquidity issues can be addressed by a practicable business plan that will generate enough
cash to sustain daily operations.

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

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

On the other hand, this court enumerated the characteristics of a rehabilitation plan that is infeasible:
chanRoblesvirtualLawlibrary

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

(b) baseless and unexplained assumptions, targets and goals;
(c) speculative capital infusion or complete lack thereof for the execution
of the business plan;
(d) cash flow cannot sustain daily operations; and
(e) negative net worth and the assets are near full depreciation or fully
depreciated.

In addition to the tests of economic feasibility, Professor Stephanie V. Gomez also suggests that the
Financial and Rehabilitation and Insolvency Act of 2010 emphasizes on rehabilitation that provides for
better present value recovery for its creditors.

Present value recovery acknowledges that, in order to pave way for rehabilitation, the creditor will not be
paid by the debtor when the credit falls due. The court may order a suspension of payments to set a
rehabilitation plan in motion; in the meantime, the creditor remains unpaid. By the time the creditor is paid,
the financial and economic conditions will have been changed. Money paid in the past has a different value
in the future. It is unfair if the creditor merely receives the face value of the debt. Present value of the credit
takes into account the interest that the amount of money would have earned if the creditor were paid on
time.

Trial courts must ensure that the projected cash flow from a business' rehabilitation plan allows for the
closest present value recovery for its creditors. If the projected cash flow is realistic and allows the
corporation to meet all its obligations, then courts should favor rehabilitation over liquidation. However, if
the projected cash flow is unrealistic, then courts should consider converting the proceedings into that for
liquidation to protect the creditors.95
chanroblesvirtuallawlibrary

A perusal of the 2009 audited financial statements shows that respondents' cash operating position 96 was
not even enough to meet their maturing obligations. Notably, their current assets were materially lower than
their current liabilities,97 and consisted mostly of advances to related parties in the case of Fastech
Microassembly, Fastech Electronique, and Fastech Properties. 98 Moreover, the independent auditors
recognized the absence of available historical or reliable market information to support the assumptions
made by the management to determine the recoverable amount (value in use) of respondents' properties
and equipment.99 chanrobleslaw

On the other hand, respondents' unaudited financial statements for the year 2010, and the months of
February and March 2011 were unaccompanied by any notes or explanation on how the figures were arrived
at. Besides, respondents' cash operating position remained insufficient to meet their maturing obligations as
their current assets are still substantially lower than their current liabilities. 100 The Court also notes the RTC-
Makati's observation that respondents added new accounts and/or deleted/omitted certain accounts, 101 but
failed to explain or justify the same.

Verily, respondents' Rehabilitation Plan should have shown that they have enough serviceable assets to be
able to continue its business operation. In fact, as opposed to this objective, the revised Rehabilitation Plan
still requires "front load Capex spending" to replace common equipment and facility equipment to ensure
sustainability of capacity and capacity robustness, 102 thus, further sacrificing respondents' cash flow. In
addition, the Court is hard-pressed to see the effects of the outcome of the streamlining of respondents'
manufacturing operations on the carrying value of their existing properties and equipment.

In fine, the Rehabilitation Plan and the financial documents submitted in support thereof fail to show the
feasibility of rehabilitating respondents' business.

V.

The CA's reliance on the expertise of the court-appointed Rehabilitation Receiver, who opined that
respondents' rehabilitation is viable, in order to justify its finding that the financial statements submitted
were reliable, overlooks the fact that the determination of the validity and the approval of the rehabilitation
plan is not the responsibility of the rehabilitation receiver, but remains the function of the court. The
rehabilitation receiver's duty prior to the court's approval of the plan is to study the best way to rehabilitate
the debtor, and to ensure that the value of the debtor's properties is reasonably maintained;
and afterapproval, to implement the rehabilitation plan.103 Notwithstanding the credentials of the court-
appointed rehabilitation receiver, the duty to determine the feasibility of the rehabilitation of the debtor
rests with the court. While the court may consider the receiver's report favorably recommending the
debtor's rehabilitation, it is not bound thereby if, in its judgment, the debtor's rehabilitation is not feasible.

The purpose of rehabilitation proceedings is not only to enable the company to gain a new lease on life, but
also to allow creditors to be paid their claims from its earnings when so rehabilitated. Hence, the remedy
must be accorded only after a judicious regard of all stakeholders' interests; it is not a one-sided tool that
may be graciously invoked to escape every position of distress. 104 Thus, the remedy of rehabilitation should
be denied to corporations whose insolvency appears to be irreversible and whose sole purpose is to delay
the enforcement of any of the rights of the creditors, which is rendered obvious by: (a) the absence of a
sound and workable business plan; (b) baseless and unexplained assumptions, targets, and goals; and (c)
speculative capital infusion or complete lack thereof for the execution of the business plan, 105 as in this case.

VI.
In view of all the foregoing, the Court is therefore constrained to grant the instant petition, notwithstanding
the preliminary technical error as above-discussed. A distressed corporation should not be rehabilitated
when the results of the financial examination and analysis clearly indicate that there lies no reasonable
probability that it may be revived, to the detriment of its numerous stakeholders which include not only the
corporation's creditors but also the public at large. In Bank of the Philippine Islands:106
Recognizing the volatile nature of every business, the rules on corporate rehabilitation have been crafted in
order to give companies sufficient leeway to deal with debilitating financial predicaments in the hope of
restoring or reaching a sustainable operating form if only to best accommodate the various interests of all its
stakeholders, may it be the corporation's stockholders, its creditors, and even the general public. 107
chanroblesvirtuallawlibrary

Thus, the higher interest of substantial justice will be better subserved by the reversal of the CA Decision.
Since the rehabilitation petition should not have been granted in the first place, it is of no moment that the
Rehabilitation Plan is currently under implementation. While payments in accordance with the Rehabilitation
Plan were already made, the same were only possible because of the financial reprieves and protracted
payment schedule accorded to respondents, which, as above-intimated, only works at the expense of the
creditors and ultimately, do not meet the true purpose of rehabilitation.

WHEREFORE, the petition is GRANTED. The Decision dated September 28, 2012 and the Resolution dated
March 5, 2013 of the Court of Appeals in CA-G.R. SP No. 122836 are hereby REVERSED and SET ASIDE.
Accordingly, the Joint Petition for corporate rehabilitation filed by respondents Fastech Synergy Philippines,
Inc. (formerly First Asia System Technology, Inc.), Fastech Microassembly & Test, Inc., Fastech
Electronique, Inc., and Fastech Properties, Inc., before the Regional Trial Court of Makati City, Branch 149 in
SP Case No. M-7130 is DISMISSED.

SO ORDERED. chanRoblesvirtualLawlibrary

FIRST DIVISION

April 4, 2017

G.R. No. 185024

JOSELITO HERNAND M. BUSTOS, Petitioners 

vs.
MILLIANS SHOE, INC., SPOUSES FERNANDO AND AMELIA CRUZ, and the REGISTER OF
DEEDS OF MARIKINA CITY, Respondents

DECISION

SERENO, J.:

Before this Court is a Rule 45 Petition   assailing the Decision and the Resolution  of the Court of
1 2

Appeals (CA). The CA did not find any grave abuse of discretion on the part of the Regional Trial
Court, Imus, Cavite, Branch 21 (RTC). The RTC had issued Orders  refusing to exclude the subject
3

property in the Stay Order pertaining to assets under rehabilitation of respondent Millians Shoe, Inc.
(MSI).
 FACTS OF THE CASE

Spouses Fernando and Amelia Cruz owned a 464-square-meter lot covered by Transfer Certificate
of Title (TCT) No. N-126668.  On 6 January 2004, the City Government of Marikina levied the
4

prope1iy for nonpayment of real estate taxes. The Notice of Levy was annotated on the title on 8
January 2004. On 14 October 2004, the City Treasurer of Marikina auctioned off the property, with
petitioner Joselito Hernand M. Bustos emerging 'as the winning bidder.

Petitioner then applied for the cancellation of TCT No. N-126668. On 13 July 2006, the Regional
Trial Court, Marikina City, Branch 273, rendered a final and executory Decision ordering the
cancellation of the previous title and the issuance of a new one under the name of petitioner.  5

Meanwhile, notices of lis pendens were annotated on TCT No. N-126668 on 9 February

2005.  These markings indicated that SEC Corp. Case No. 036-04, which was filed before the RTC
6

and involved the rehabilitation proceedings for MSI, covered the subject property and included it in
the Stay Order issued by the RTC dated 25 October 2004. 7

On 26 September 2006, petitioner moved for the exclusion of the subject property from the Stay
Order.8 He claimed that the lot belonged to Spouses Cruz who were mere stockholders and officers
of MSL He further argued that since he had won the bidding of the property on 14 October 2004, or
before the annotation of the title on 9 February 2005, the auctioned property could no longer be part
of the Stay Order.

The RTC denied the entreaty of petitioner. It ruled that because the period of redemption up to 15
October 2005 had not yet lapsed at the time of the issuance of the Stay Order on 25 October 2004,
the ownership thereof had not yet been transferred to petitioner. 9

Petitioner moved for reconsideration,   but to no avail.   He then filed an action for certiorari before
10 11

the CA. He asserted that the Stay Order undermined the taxing powers of the local government unit.
He also reiterated his arguments that Spouses Cruz owned the property, and that the lot had already
been auctioned to him.

In the assailed Decision dated 12 June 2008, the CA brushed aside the claim that the suspension
orders undermined the power to tax. As regards petitioner's main contention, the CA ruled as
follows:

In the case at bar, the delinquent tax payers were the Cruz Spouses who were the registered
owners of the said parcel of land at the time of the delinquency sale. The sale was held on October
14, 2004 and the Cruz

Spouses had until October 15, 2005 within which to redeem the parcel of land. The stay order was
issued on October 25, 2004 and inscribed at the back of the title on February 9, 2005, which is within
the redemption period. The Cruz Spouses were still the owners of the land at the time of the
issuance of the stay order. The said parcel of land which secured several mortgage liens for the
account of MSI remains to be an asset of the Cruz Spouses, who are the stockholders and/or
officers of MSI, a close corporation. Incidentally, as an exception to the general rule, in a close
corporation, the stockholders and/or officers usually manage the business of the corporation and are
subject to all liabilities of directors, i.e. personally liable for corporate debts and obligations. Thus,
the Cruz Spouses being stockholders of MSI are personally liable for the latter's debt and
obligations.
Petitioner unsuccessfully moved for reconsideration. The CA maintained its ruling and even held that
his prayer to exclude the property was time-barred by the 10-day reglementary period to oppose
rehabilitation petitions under Rule 4, Section 6 of the Interim Rules of Procedure on Corporate
Rehabilitation

Before this Court, petitioner maintains three points: (1) the Spouses Cruz are not liable for the debts
of MSI; (2) the Stay Order undermines the taxing power of Marikina City; and (3) the time bar rule
does not apply to him, because he is not a creditor of MSI.  12

In their Comment, 13 respondents do not contest that Spouses Cruz own the subject property.
Rather, respondents assert that as stockholders and officers of a close corporation, they are
personally liable for its debts and obligations. Furthermore, they argue that since the Rehabilitation
Plan of MSI has been approved, petitioner can no longer assail the same.

ISSUE OF THE CASE

The controlling issue in this case is whether the CA correctly considered the properties of Spouses
Cruz answerable for the obligations of MSI.

If the answer is in the affirmative, then the courts a quo correctly ruled that the Stay Order involving
the assets of MSI included the property covered by TCT No. N-126668. Petitioner would also be
considered a creditor of MSI who must timely file an opposition to the proposed rehabilitation plan of
the corporation.

RULING OF THE COURT

We set aside rulings of the CA for lack of basis.

In finding the subject property answerable for the obligations of MSI, the CA characterized
respondent spouses as stockholders of a close corporation who, as such, are liable for its debts.
This conclusion is baseless.

To be considered a close corporation, an entity must abide by the requirements laid out in Section
96 of the Corporation Code, which reads:

Sec. 96. Definition and applicability of Title. - A close corporation, within the meaning of this Code, is
one whose articles of incorporation provide that: (1) All the corporation's issued stock of all
classes, exclusive of treasury shares, shall be held of record by not more than a specified number of
persons, not exceeding twenty (20); (2) all the issued stock of all classes shall be subject to one or
more specified restrictions on transfer permitted by this Title; and (3) The corporation shall not list in
any stock exchange or make any public offering of any of its stock of any class. Notwithstanding the
foregoing, a corporation shall not be deemed a close corporation when at least two-thirds (2/3) of its
voting stock or voting rights is owned or controlled by another corporation which is not a close
corporation within the meaning of this Code.x x x. (Emphasis supplied)

In San Juan Structural and Steel Fabricators. Inc. v. Court ol Appeals,  this Court held that a narrow
14

distribution of ownership does not, by itself, make a close corporation. Courts must look into the
articles of incorporation to find provisions expressly stating that (l) the number of stockholders shall
not exceed 20; or (2) a preemption of shares is restricted in favor of any stockholder or of the
corporation; or (3) the listing of the corporate stocks in any stock exchange or making a public
offering of those stocks is prohibited.
Here, neither the CA nor the R TC showed its basis for finding that MSI is a close corporation. The
courts a quo did not at all refer to the Articles of Incorporation of MSI. The Petition submitted by
respondent in the rehabilitation proceedings before the RTC did not even include those Articles of
Incorporation among its attachments.  15

In effect, the CA and the RTC deemed MSI a close corporation based on the allegation of Spouses
Cruz that it was so. However, mere allegation is not evidence and is not equivalent to proof.   For 16

this reason alone, the CA rulings should be set aside.

Furthermore, we find that the CA seriously erred in portraying the import of Section 97 of the
Corporation Code. Citing that provision, the CA concluded that "in a close corporation, the
stockholders and/or officers usually manage the business of the corporation and are subject to all
liabilities of directors, i.e. personally liable for corporate debts and obligations."  17

However, Section 97 of the Corporation Code only specifies that "the stockholders of the corporation
shall be subject to all liabilities of directors." Nowhere in that provision do we find any inference that
stockholders of a close corporation are automatically liable for corporate debts and obligations.

Parenthetically, only Section 100, paragraph 5, of the Corporation Code explicitly provides for
personal liability of stockholders of close corporation, viz:

Sec. 100. Agreements by stockholders. -

xxxx

5. To the extent that the stockholders are actively engaged in the management or operation of the

business and affairs of a close corporation, the stockholders shall be held to strict fiduciary duties to
each other and among themselves. Said stockholders shall be personally liable for corporate
torts unless the corporation has obtained reasonably adequate liability insurance. (Emphasis
supplied)

As can be read in that provision, several requisites must be present for its applicability. None of
these were alleged in the case of Spouses Cruz. Neither did the RTC or the CA explain the factual
circumstances for this Court to discuss the personally liability of respondents to their creditors
because of corporate torts." 18

We thus apply the general doctrine of separate juridical personality, which provides that a
corporation has a legal personality separate and distinct from that of people comprising it.   By virtue
19

of that doctrine, stockholders of a corporation enjoy the principle of limited liability: the corporate
debt is not the debt of the stockholder.  Thus, being an officer or a stockholder of a corporation does
20

not make one's property the property also of the corporation. 21

Situs Development Corp. v. Asiatrust Bank  is analogous to the case at bar.  We held therein that
22
1âwphi1

the parcels of land mortgaged to creditor banks were owned not by the corporation, but by the
spouses who were its stockholders. Applying the doctrine of separate juridical personality, we ruled
that the parcels of land of the spouses could not be considered part of the corporate assets that
could be subjected to rehabilitation proceedings.
In rehabilitation proceedings, claims of creditors are limited to demands of whatever nature or
character against a debtor or its property, whether for money or otherwise.  In several cases,  we
23 24

have already held that stay orders should only cover those claims directed against corporations or
their properties, against their guarantors, or their sureties who are not solidarily liable with them, to
the exclusion of accommodation mortgagors.  To repeat, properties merely owned by stockholders
25

cannot be included in the inventory of assets of a corporation under rehabilitation.

Given that the true owner the subject property is not the corporation, petitioner cannot be considered
a creditor of MSI but a holder of a claim against respondent spouses. 26

Rule 4, Section 6 of the Interim Rules of Procedure on Corporate Rehabilitation, directs creditors of
the debtor to file an opposition to petitions for rehabilitation within 10 days before the initial hearing
of rehabilitation proceedings. Since petitioner does not hold any claim over the properties owned by
MSI, the time-bar rule does not apply to him.

WHEREFORE, the Petition for review on certiorari filed by petitioner Joselito Hernand M. Bustos

is GRANTED. The Decision dated 12 June 2008 and Resolution dated 27 October 2008 of the Court
of Appeals in C.A.-G.R. SP. No. 100298 are REVERSED and SET ASIDE.

SO ORDERED.

MARIA LOURDES P.A.SERENO,

Chief Justice, Chairperson

WE CONCUR:

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

MARIANO C. DEL CASTILLO ESTELA M. PERLAS-BERNABE

Associate Justice Associate Justice

ALFREDO BENJAMIN S. CAGUIOA

Associate Justice

CERTIFICATION

91939, March 14, 2018 - ALLIED BANKING CORPORATION, Petitioner,1 v. IN THE MATTER OF THE PETITION
TO HAVE STEEL CORPORATION OF THE PHILIPPINES PLACED UNDER CORPORATE REHABILITATION WITH
PRAYER FOR THE APPROVAL OF THE PROPOSED REHABILITATION PLAN, EQUITABLE PCI BANK, INC.,
Respondent.

THIRD DIVISION
 G.R. No. 191939, March 14, 2018

ALLIED BANKING CORPORATION, Petitioner,1v. IN THE MATTER OF THE PETITION TO HAVE STEEL

CORPORATION OF THE PHILIPPINES PLACED UNDER CORPORATE REHABILITATION WITH
PRAYER FOR THE APPROVAL OF THE PROPOSED REHABILITATION PLAN, EQUITABLE PCI BANK,
INC., Respondent.

DECISION

MARTIRES, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the 22 July 2008
Decision2 and 12 April 2010 Resolution3 of the Court of Appeals (CA) in CA-G.R. SP No. 97206. The CA
affirmed the 22 November 2006 Resolution of the Regional Trial Court (RTC or the rehabilitation court),
Branch 2, Batangas City, in Spec. Proc. No. 06-7993, which ordered the bank creditors of Steel Corporation
of the Philippines (SCP) to unfreeze and restore the latter's bank accounts to the possession, control, and
custody of the rehabilitation receiver.

THE FACTS

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

EPCIB alleged, among others, that due to the onslaught of the 1997 Asian Financial Crisis, SCP began
experiencing a downward trend in its financial condition which prompted various banks and financial
institutions to grant it with term loan facilities and working capital lines; that SCP failed to make timely
payments on its term loan facilities; that SCP also defaulted on its loan obligations under the December
2002 Omnibus Agreement,4 where lending banks and other financial institutions agreed to reschedule and
restructure SCP's payments on the principal loan and interest, reinstate its working capital lines and
establish a new trade financing line; and that the petition for corporate rehabilitation is grounded on Section
1, Rule 4 of the Interim Rules of Corporate Rehabilitation, which provides that "any debtor who foresees the
impossibility of meeting its debts when they respectively fall due, or any creditor or creditors holding at least
twenty-five percent (25%) of the debtor's total liabilities, may petition the proper Regional Trial Court to
have the debtor placed under rehabilitation."

Apart from the foregoing agreements, Allied Banking Corporation (ABC) granted SCP with a revolving credit
facility denominated as a letter of credit/trust receipt line in the amount of P100 million, which SCP availed
of to finance the importation of its raw materials. Pursuant to this arrangement, SCP executed a trust
receipt (TR),5 which authorizes ABC to charge SCP's account in its possession under instances specified in
paragraph 9 thereof, viz:

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

The RTC Ruling

On 12 September 2006, the RTC issued an Order 6 (the subject order) granting EPCIB's petition, the
dispositive portion of which reads:

WHEREFORE, finding the petition to be sufficient in form and substance, this Order is hereby issued—
(a) Appointing Santiago T. Gabionza Jr., with address at Villanueva Gabionza and De Santos Law Offices,
20/F 139 Corporate Center, Valero Street, Salcedo Village, Makati City, as Rehabilitation Receiver of Steel
Corporation of the Philippines, directing him to assume his position as such upon the taking of an oath
before the Branch Clerk of this Court and after posting a bond in the amount of P300,000.00 to guarantee
the faithful discharge of his duties and obedience to the Orders of this Court;

(b) Upon acceptance by Santiago T. Gabionza, Jr. of his appointment as Rehabilitation Receiver, directing
him:

[i] to take possession, control and custody of the assets of the debtor Steel Corporation of the Philippines;

[ii] to closely oversee and monitor the operations of the said debtor corporation during the pendency of the
proceedings and to immediately report to this Court any material adverse change in its business;

[iii] to ensure that the value of the properties of Steel Corporation of the Philippines are reasonably
maintained pending the termination of whether or not it should be rehabilitated;

[iv] to investigate the acts, conduct, properties, liabilities, and financial condition of the debtor-corporation,
the operation of its business and the desirability of the continuance thereof, and any matter relevant to the
proceedings or to the formulation of a rehabilitation plan;

[v] to report to this Court any fact ascertained by him pertaining to the causes of the debtor's problems,
fraud, preferences, dispositions, encumbrances, misconduct, mismanagement, and irregularities committed
by the stockholders, directors, management, or any other person against the debtor;

[vi] to evaluate the existing assets and liabilities, earnings and operations of the said debtor-corporation;

[vii] to determine and recommend to this Court the best way to salvage and protect the interests of the
creditors, stockholders and the general public;

[viii] to exercise such powers and prerogatives stated above as may be necessary and proper under the law
and the Interim Rules of Procedure on Corporate Rehabilitation over all other corporations, persons or
entities as may be affected by these proceedings;

[ix] to apply to this Court for any order or directive that he may deem necessary or desirable to aid him in
the exercise of his powers and performance of his duties and functions.

(c) Staying all claims against SCP, by all other corporations, persons or entities insofar as they
may be affected by the present proceedings, until further notice from this Court, pursuant to Sec.
6, of Rule 4 of the Interim Rules of Procedure on Corporate Rehabilitation. Steel Corporation of the
Philippines is hereby prohibited from selling, encumbering, transferring or disposing in any manner of its
assets and properties except in the ordinary course of its business and as may be approved by the
Rehabilitation Receiver.

The suppliers of goods or services of Steel Corporation of the Philippines are prohibited from withholding
supply of goods and services in the ordinary course of business for as long as it is able to make payment for
the services and goods supplied after the issuance of this Order.

Steel Corporation of the Philippines is directed to pay in full the administrative expenses incurred after the
issuance of this Order.

The petitioner is directed to publish this Order in a newspaper of general circulation in the Philippines once a
week for two (2) consecutive weeks.

All other creditors and all interested parties, including the Securities and Exchange Commission, are directed
to file and serve on the petitioner, thru their counsels on record, Divina and Uy Law Offices, 8th Floor,
Pacific Star Building, Makati Avenue corner Sen. Gil Puyat Ave., Makati City, a verified comment on the
petition, with supporting affidavits and documents, not later than ten (10) days before the date of the initial
hearing. Failure to do so will constitute a bar on such creditors and all interested parties from participating in
the proceedings.

xxx

SO ORDERED. (emphasis supplied)

On 15 September 2006, petitioner applied the remaining proceeds of SCP's Current Account No. 1801-004-
87-6 (subject account) in the amount of P6,750,000.00, maintained with its Aguirre Branch, to its
obligations under the TR.

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

On 2 November 2006, ABC filed an opposition, mainly contending that SCP's obligations with it had become
due and demandable, rendering legal compensation valid and proper; that petitioner did not violate the stay
order, as it had no notice of its issuance at the time of the legal compensation; and that petitioner cannot be
legally compelled to extend credit to SCP against its will.

On 22 November 2006, the RTC issued a resolution (the subject resolution), finding merit in SCP's position,
to wit:

WHEREFORE, in view of all the foregoing, the Court hereby orders as follows:

xxx

3. ABC to restore SCP's Current Account No. 1801-004-87-6 at Aguirre Branch, Makati City, and to credit
back to the said account the entire deposit balance therein of P6,750,000.00 and to honor any and all
transactions of SCP in said account as may be approved by the Rehabilitation Receiver.

xxx

Aggrieved, ABC filed a petition for review under Rule 43 with the CA.

The CA Ruling

The CA affirmed the resolution of the RTC, viz:

WHEREFORE, the November 22, 2006 Resolution of the Regional Trial Court, Branch 2, Batangas City, in Sp.
Proc. No. 06-7993, is AFFIRMED.

The CA ruled that the RTC's stay order was effective from the date of its issuance on 12 September 2006,
on the basis of Section 11, Rule 4, and Section 5, Rule 3, of the Interim Rules of Corporate Rehabilitation;
thus, ABC was bound to comply with it on said date. The CA also ruled that the subject account was already
under custodia legis by virtue of the stay order, rendering ABC's unilateral application of the proceeds in the
subject account improper. On the issue of impairment of contractual rights, the CA held that no impairment
exists because no changes were made in the amount or rate of SCP's debt to ABC. Only the enforcement of
the latter's claims is being stayed or suspended.

Unconvinced, ABC filed a motion for reconsideration of the CA decision, which was denied by the CA in its
resolution; hence, the instant petition.

The present petition

ABC contends that it was deprived of its right to due process when the RTC ordered ABC to restore SCP's
current account and to credit back the amount previously set off. ABC asserts that it was not yet bound by
the 12 September 2006 stay order when it made the setoff on 15 September 2006 because jurisdiction over
it had not yet been acquired by the rehabilitation court; the stay order was only published on 16 September
2006.

ABC further contends that when it offset the proceeds in the subject account, it merely applied the
provisions of law on legal compensation, since SCP had already incurred a default in its obligations rendering
operative the terms of the TR it had issued.

ISSUES

ABC raises the following issues:

I. THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING THE LOWER COURT'S DECISION
THAT PETITIONER ABC IS BOUND BY THE SEPTEMBER 12, 2006 STAY ORDER THEREBY
UNLAWFULLY DEPRIVING THE PETITIONER OF ITS RIGHT TO DUE PROCESS OF LAW.

II. THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING THE LOWER COURT'S DECISION
THAT PETITIONER ABC IS PROHIBITED FROM APPLYING THE PROCEEDS OF THE DEPOSIT
ACCOUNT OF STEEL CORPORATION TO ITS OUTSTANDING OBLIGATIONS FROM THE DATE OF THE
ISSUANCE OF THE STAY ORDER ON 12 SEPTEMBER 2006, AS THE SAID PROCEEDS ARE ALREADY
UNDER CUSTODIA LEGIS, BY VIRTUE OF THE STAY ORDER.

THE COURT'S RULING

The central argument to the present petition is that the RTC could not invalidate an act already
consummated prior to the date that the subject order was published, since it was only on said date that the
court acquired jurisdiction over ABC. ABC primarily bases its assertion on Section 1, Rule 3 of the Interim
Rules,7 which considers rehabilitation proceedings as in rem  and jurisdiction over all those affected acquired
only upon publication of the notice commencing proceedings.

This Court is thus tasked to determine when the subject order took effect for purposes of compliance, and
whether the rehabilitation court can reverse or invalidate acts that are inconsistent with its stay order and
are made after its issuance but prior to its publication.

Applying the provisions of the present Rehabilitation Rules, the

rehabilitation court properly invalidated ABC's action.

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

On 27 August 2013, however, the Court enacted A.M. No. 12-12-11-SC, or the Financial Rehabilitation Rules
of Procedure (Rehabilitation Rules), which amended and revised the Interim Rules and the subsequent 2008
Rules of Procedure on Corporate Rehabilitation (2008 Rules), in order to incorporate the significant changes
brought about by Republic Act No. 10142 (R.A. No. 10142), otherwise known as the Financial Rehabilitation
and Insolvency Act of 2010 (FRIA).8

The Rehabilitation Rules provides that the court shall issue a commencement order once it finds the petition
for rehabilitation sufficient in form and substance.9 This commencement order primarily contains: a
declaration that the debtor is under rehabilitation, the appointment of a rehabilitation receiver, a directive
for all creditors to file their verified notices of claim, and an order staying claims against the debtor. 10 The
rehabilitation proceedings shall be deemed to have commenced from the date of filing of the
petition,11 which is also termed the commencement date.
Under the same Rules, the effects of such commencement order shall retroact to the date that the petition
was filed, and renders void any attempt to collect on or enforce a claim against the debtor or to set off any
debt by the debtor's creditors, after the commencement date, to wit:

SEC. 9. EFFECTS OF THE COMMENCEMENT ORDER. - The effects of the court's issuance of a
Commencement Order shall retroact to the date of the filing of the petition and, in addition to the effects of
a Stay or Suspension Order described in the foregoing section, shall

xxx

(B) prohibit or otherwise serve as the legal basis for rendering null and void the results of any
extrajudicial activity or process to seize property, sell encumbered property, or otherwise
attempt to collect on or enforce a claim against the debtor after the commencement date unless
otherwise allowed under these Rules, subject to the provisions of Section 49 of this Rule;

(C) serve as legal basis for rendering null and void any set-off after the commencement date of
any debt owed to the debtor by any of the debtor's creditors; (emphasis supplied)

xxx

The order issued by the RTC on 12 September 2006, which effectively initiated rehabilitation proceedings
and included a suspension of all claims against SCP, is akin to the commencement order under the
Rehabilitation Rules.

Clearly, therefore, if the Rehabilitation Rules were to be applied, the directive of the rehabilitation court
restoring SCP's current account and crediting back the offset amount is valid and proper, since the offsetting
was made on 15 September 2006, after the commencement date on 11 September 2006, when the petition
for rehabilitation was filed.

The question thus arises: May the Rehabilitation Rules be applied to resolve the present petition, when the
subject petition for rehabilitation was filed under the Interim Rules.

The Court rules in the affirmative.

Section 2, Rule 1 of the Rehabilitation Rules governs rehabilitation cases already pending, except when its
application would not prove feasible or would work injustice, to wit:

SEC. 2. SCOPE. - These Rules shall apply to petitions for rehabilitation of corporations, partnerships, and
sole proprietorships, filed pursuant to Republic Act No. 10142, otherwise known as the Financial
Rehabilitation and Insolvency Act (FRIA) of 2010.

These Rules shall similarly govern all further proceedings in suspension of payments and
rehabilitation cases already pending, except to the extent that, in the opinion of the court, its
application would not be feasible or would work injustice, in which event the procedures
originally applicable shall continue to govern. (emphasis supplied)

The above provision is consistent with the mandate under R.A. No. 10142, viz:

SEC. 146. Application to Pending Insolvency, Suspension of Payments and Rehabilitation Cases. - This Act
shall govern all petitions filed after it has taken effect. All further proceedings in insolvency,
suspension of payments and rehabilitation cases then pending, except to the extent that in the
opinion of the court their application would not be feasible or would work injustice, in which
event the procedures set forth in prior laws and regulations shall apply. (emphasis supplied)

The soundness of upholding the retroactive effect of a commencement order is easily discernible.
In Philippine Bank of Communications v. Basic Polyprinters and Packaging Corporation,12 the Court said that
rehabilitation proceedings seek to give insolvent debtors the opportunity to reorganize their affairs and to
efficiently and equitably distribute its remaining assets, viz:

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

The filing of a petition for the rehabilitation of a debtor, when the court finds that it is sufficient in form and
substance, is both (1) an acknowledgment that the debtor is presently financially distressed; and (2) an
attempt to conserve and administer its assets in the hope that it will eventually return to its former state of
successful financial operation and liquidity. 13 The inherent purpose of rehabilitation is to find ways and
means to minimize the expenses of the distressed corporation during the rehabilitation period by providing
the best possible framework for the corporation to gradually regain or achieve a sustainable operating
form.14

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

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

Accordingly, the Court finds that application of the Rehabilitation Rules to the case at bar is proper, insofar
as it clarifies the effect of an order staying claims against a debtor sought to be rehabilitated.

Such application promotes a just and sound resolution to the present controversy, bearing in mind the
inherent purpose of rehabilitation proceedings. It is also feasible, considering the subject resolution was
within the Rehabilitation Court's powers, wielded for the same purpose identified in both the Interim Rules
and the Rehabilitation Rules which is to promote a timely, fair, transparent, effective, and efficient
rehabilitation of debtors.15

Even the Interim Rules provides for the immediate effectivity of a

stay order.

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

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

xxx

The foregoing provision finds support in Section 5, Rule 3, of the Interim Rules, to wit:

Sec. 5. Executory Nature of Orders. - Any order issued by the court under these Rules is immediately
executory. A petition for review or an appeal therefrom shall not stay the execution of the order unless
restrained or enjoined by the appellate court. The review of any order or decision of the court or an appeal
therefrom shall be in accordance with the Rules of Court: Provided, however, that the reliefs ordered by the
trial or appellate courts shall take into account the need for resolution of proceedings in a just, equitable,
and speedy manner. (emphasis supplied)

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

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

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

xxx

It should be stressed that the Interim Rules was enacted to provide for a summary and non-adversarial
rehabilitation proceedings. This is in consonance with the commercial nature of a rehabilitation case, which
is aimed to be resolved expeditiously for the benefit of all the parties concerned and the economy in
general.

It is true that under the Interim Rules, similar to the Rehabilitation Rules, publication of the notice of the
commencement of the proceedings is necessary to acquire jurisdiction over all persons affected, viz:

Section 1. Nature of Proceedings. - Any proceeding initiated under these Rules shall be considered in rem.
Jurisdiction over all those affected by the proceedings shall be considered as acquired upon publication of
the notice of the commencement of the proceedings in any newspaper of general circulation in the
Philippines in the manner prescribed by these Rules.

xxx

The question posed herein is whether the immediate effectivity of the stay order is inconsistent with the
publication requirement under the Rules, such that the rehabilitation court cannot invalidate acts made after
its issuance but prior to its publication. The Court rules in the negative.

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

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

Sec. 8. Voidability of Illegal Transfers and Preferences. - Upon motion or motu proprio, the court may
declare void any transfer of property or any other conveyance, sale, payment, or agreement
made in violation of its stay order or in violation of these Rules. (emphasis supplied)

The publication requirement only means that all affected persons must, to satisfy the requirements of due
process, be notified that as of a particular date, the debtor in question requires rehabilitation and should
temporarily be exempt from paying its obligations, unless allowed by the court. Once due notice is made,
the rehabilitation court may nullify actions inconsistent with the stay order but which may have been taken
prior to publication, precisely because prior to publication, creditors may not yet be aware that they are to
desist from pursuing claims against the insolvent debtor.
Again, the immediate effectivity of the stay order can be traced to the purpose of rehabilitation: once the
necessity of rehabilitating the debtor is recognized, through a petition duly granted, it is imperative that the
necessary steps to preserve its assets are taken at the earliest possible time.

It is thus apparent that the RTC properly invalidated petitioner's action made on 15 September 2006, after
the subject order was issued.

There was no impairment of contract or deprivation of due process.

According to ABC, the subject resolution constituted an impairment of its contract with SCP because under
the TR it executed in ABC's favor, ABC had the right to charge SCP's account in case of nonpayment of any
indebtedness. ABC also claims lack of due process because the rehabilitation court directed ABC to restore
SCP's account even when the offsetting was made prior to publication of the subject order, when ABC was
not yet deemed notified of the order.

Anent the alleged impairment of contract, basic is the principle that the law is deemed written into every
contract, such that while a contract is the law between the parties, the provisions of positive law which
regulate contracts shall limit and govern their relations. 16 At the time the Trust Receipt Agreement was
entered into by ABC and SCP, the law expressly allowed corporations to be declared in a state of suspension
of payments under specific instances.17

Consequently, said law and its implementing rules are deemed incorporated in the Trust Receipt Agreement,
thereby limiting ABC's right to enforce its claim against SCP once a stay or suspension order is issued.
Clearly, the principle on inviolability of contracts was not violated.

It must also be noted that the subject order did not eliminate or reduce SCP's obligations to ABC, but merely
suspended its enforcement while rehabilitation is being undertaken. In fact, one of the purposes of
rehabilitation is to ensure the efficient and equitable distribution of the insolvent debtor's remaining assets
to its creditors.18

In Golden Merchandising Corporation v. Equitable PCI Bank,19 which involved the question of whether the
shorter redemption period, provided under R.A. No. 8791 and applied to a real mortgage contract executed
prior to the enactment of said law, constitutes a violation against the constitutional proscription on
impairment of contracts, the Court ruled that there was no impairment because the provision in question did
not divest juridical persons of their right to redeem but merely modified the time for the exercise of such
right.

Similarly, ABC was not deprived of its right to enforce its claim against SCP. The creditor's right to enforce
his claim despite the issuance of a stay order is even validated by Section 8 of the Rehabilitation Rules, to
wit:

SEC. 8. COMMENCEMENT OF PROCEEDINGS AND ISSUANCE OF COMMENCEMENT ORDER. - The

rehabilitation proceedings shall be deemed to have commenced from the date of filing of the petition.

xxx

The issuance of a stay order does not affect the right to commence actions or proceedings in
order to preserve  ad cautelam a claim against the debtor and to toll the running of the
prescriptive period to file the claim. For this purpose, the plaintiff may file the appropriate court action
or proceedings by paying the amount of One Hundred Thousand Pesos (P100,000.00) or one-tenth (1/10) of
the prescribed filing fee, whichever is lower. The payment of the balance of the filing fee shall be a
jurisdictional requirement for the reinstatement or revival of the case. (emphasis supplied)

It is also clear from the previous discussion that ABC was not deprived of due process when the RTC issued
the subject resolution.
The essence of procedural due process is one which hears before it condemns, which proceeds upon inquiry
and renders judgment only upon trial. It contemplates notice and opportunity to be heard before judgment
is rendered affecting one's person or property. 20

Rehabilitation proceedings are considered in rem.21In rem actions are against the thing itself and they are
binding upon the whole world,22 unlike in personam actions, which are against a person on the basis of his
personal liability.23 "Against the thing" means that the resolution of the case affects the direct or indirect
interests of others and assumes that those interests attach to the thing which is the subject matter of the
litigation.24

The Court has consistently held that in actions in personam, jurisdiction over the parties is required since
they seek to impose personal liability. On the other hand, courts need not acquire jurisdiction over the
person of the defendant in actions in rem because they are not directed against a specific person. The court
need only acquire jurisdiction over the res. 25 Nonetheless, some form of notice to all affected parties is
required to satisfy the requirements of due process. Under both the Rehabilitation Rules and the Interim
Rules, publication of the notice of the commencement of rehabilitation proceedings is the operative act
which vests the court with jurisdiction over all affected parties. As discussed earlier, once jurisdiction is
acquired, the court can subject all those affected to orders consistent with the rehabilitation of the insolvent
debtor, including the reversal of any transfer, payment, or sale made after the filing of the petition.

It is not disputed that the 12 September 2006 Order of the rehabilitation court was duly published on 16
September 2006; that said order contained a directive for all creditors to file their verified comment on the
petition within a stated period; and that ABC filed its verified comment on 17 October 2006.

It is therefore evident that petitioner was notified of the rehabilitation proceedings and given an opportunity
to be heard, as in fact it filed a comment thereon, thereby satisfying due process requirements. Moreover,
as previously discussed, there was no undue deprivation of property because SCP's obligation to ABC
remains.

WHEREFORE, the petition is DENIED. The 22 July 2008 Decision and 12 April 2010 Resolution of the Court
of Appeals in CA-G.R. SP No. 97206 are AFFIRMED.

SO ORDERED.

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