1.
PHILIPPINE BANK OF COMMUNICATIONS, Petitioner,
vs.
BASIC POLYPRINTERS AND PACKAGING
CORPORATION, Respondent.
G.R. No. 187581 October 20, 2014
Facts:
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).4 The RTC issued a stay order, and eventually approved the
rehabilitation plan, but the CA reversed the RTC on October 25, 2005,5 and
directed the petitioning corporations tofile their individual petitions for
suspension of payments and rehabilitation in the appropriate courts.
6
Accordingly, Basic Polyprinters brought its individual petition, averring
therein that: (a) its business 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
interest and 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 form and substance, the RTC issued the
stay order dated August 31, 2006.8 It appointed Manuel N. Cacho III as the
rehabilitation receiver, and required all creditors and 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.
RTC: approved the rehabilitation Plan.
PBCOM Appealed
CA: Affirmed the order of RTC
Contention-PBCOM:
-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 Poly printers was insolvent due to its assets being
inadequate to cover the outstanding obligations
- 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
1
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,29 and presented only a "lopsided" protracted repayment
schedule that included the dacion en pago involving an asset mortgaged to
the petitioner itself in favor of another creditor.
ISSUE/S:
Is the approval of rehabilitation plan 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.
HELD: CA Judgement reversed.
I. 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 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.
In Asiatrust Development Bank v. First Aikka Development, Inc.,23 we said
that rehabilitation 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,25 who was Cacho in this
case.
II. A material financial commitment is significant in a rehabilitation plan.
A material financial commitment becomes significant in gauging the
resolve, determination, earnestness and good faith ofthe distressed
corporation in financing the proposed rehabilitation plan.30 This
commitment may include the voluntary undertakings ofthe 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.31
Basic Polyprinter financial commitments were insufficient
o 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 considered a bad debt or a worthless
asset,35 and cannot be deemed a material financial 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.
o that the conversion of all deposits for future subscriptions to
common stock and the treatment 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.
o 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.
o rehabilitation plan likewise failed to offer any proposal on how it
intended to address the low demands for their products and the
2
 effect of direct competition from stores like SM, Gaisano,
Robinsons, and other malls.
o 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.
Due to the rehabilitation plan being an indispensable requirement in
corporate rehabilitation proceedings,38 Basic Polyprinters was expected to
exert a conscious effort in formulating the same, 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.
2. VIVA SHIPPING LINES, INC., Petitioner,
vs.
KEPPEL PHILIPPINES MINING, INC., METROPOLITAN BANK & TRUST
COMPANY, PILIPINAS SHELL PETROLEUM CORPORATION, CITY OF
BATANGAS, CITY OF LUCENA, PROVINCE OF QUEZON, ALEJANDRO
OLIT, NIDA MONTILLA, PIO HERNANDEZ, EUGENIO BACULO, and
HARLAN BACALTOS,Respondents.
G.R. No. 177382
FACTS:
On October 4, 2005, Viva Shipping Lines, Inc. (Viva Shipping Lines) filed a
Petition for Corporate Rehabilitation before the Regional Trial Court of
Lucena City.2 The Regional Trial Court initially denied the Petition for failure
to comply with the requirements in Rule 4, Sections 2 and 3 of the Interim
Rules of Procedure on Corporate Rehabilitation.3 On October 17, 2005,
Viva Shipping Lines filed an Amended Petition.4
In the Amended Petition, Viva Shipping Lines claimed to own and operate
19 maritime vessels5 and Ocean Palace Mall, a shopping mall in downtown
Lucena City.6 Viva Shipping Lines also declared its total properties’
assessed value at about ₱45,172,790.00.7 However, these allegations
were contrary to the attached documents in the Amended Petition.
On October 19, 2005, the Regional Trial Court found that Viva Shipping
Lines’ Amended Petition to be "sufficient in form and substance," and
issued a stay order.20 It stayed the enforcement of all monetary and judicial
claims against Viva Shipping Lines, and prohibited Viva Shipping Lines
from selling, encumbering, transferring, or disposing of any of its properties
except in the ordinary course of business.21 The Regional Trial Court also
appointed Judge Mendoza as rehabilitation receiver.
Before the initial hearing scheduled on December 5, 2005, the City of
Batangas, Keppel Philippines Marine, Inc., and Metropolitan Bank and
Trust Company (Metrobank) filed their respective comments and
oppositions to Viva Shipping Lines’ Amended Petition.22
During the initial hearing, Pilipinas Shell Petroleum Corporation (Pilipinas
Shell) moved for additional time to write its opposition to Viva Shipping
Lines’ Amended Petition.23 Pilipinas Shell later filed its
Comment/Opposition with Formal Notice of Claim.24
Luzviminda C. Cueto, a former employee of Viva Shipping Lines, also filed
a Manifestation and Registration of Monetary Claim stating that Viva
Shipping Lines owes her ₱232,000.00 as separation and 13th month
pay.25 The Securities and Exchange Commission filed a Comment
informing the Regional Trial Court that Viva Shipping Lines violated certain
laws and rules of the Commission.26
RTC:In the Order dated October 30, 2006
- lifted the stay order and dismissed Viva Shipping Lines’ Amended Petition
for failure to show the company’s viability and the feasibility of
rehabilitation.
3
- found that Viva Shipping Lines’ assets all appeared to be non-performing.
Further, it noted that Viva Shipping Lines failed to show any evidence of
consent to sell real properties belonging to its sister company.
Viva Shipping Lines filed a Petition for Review under Rule 43 of the Rules
of Court before the Court of Appeals.42 It only impleaded Hon. Adolfo V.
Encomienda, the Presiding Judge of the trial court that rendered the
assailed decision. It did not implead any of its creditors, but served copies
of the Petition on counsels for Metrobank, Keppel Philippines Marine, Inc.,
Pilipinas Shell, City of Batangas, Province of Quezon, and City of
Lucena.43 Viva Shipping Lines neither impleaded nor served a copy of the
Petition on its former employees or their counsels.
Viva Shipping Lines filed a Petition for Review under Rule 43 of the Rules
of Court before the Court of Appeals.42 It only impleaded Hon. Adolfo V.
Encomienda, the Presiding Judge of the trial court that rendered the
assailed decision. It did not implead any of its creditors, but served copies
of the Petition on counsels for Metrobank, Keppel Philippines Marine, Inc.,
Pilipinas Shell, City of Batangas, Province of Quezon, and City of
Lucena.43 Viva Shipping Lines neither impleaded nor served a copy of the
Petition on its former employees or their counsels.
ISSUES:
First, whether the Court of Appeals erred in dismissing petitioner Viva
Shipping Lines’ Petition for Review on procedural grounds; and
Second, whether petitioner was denied substantial justice when the Court
of Appeals did not give due course to its petition.
HELD:
1. New Frontier Sugar Corporation v. Regional Trial Court, Branch 39, Iloilo
City124 clarifies that an appeal from a final order or decision in corporate
rehabilitation proceedings may be dismissed for being filed under the
wrong mode of appeal.125
New Frontier Sugar doctrinally requires compliance with the procedural
rules for appealing corporate rehabilitation decisions. It is true that Rule 1,
Section 6 of the Rules of Court provides that the "[r]ules shall be liberally
construed in order to promote their objective of securing a just, speedy and
inexpensive disposition of every action and proceeding." However, this
provision does not negate the entire Rules of Court by providing a license
to disregard all the other provisions. Resort to liberal construction must be
rational and well-grounded, and its factual bases must be so clear such
that they outweigh the intent or purpose of an apparent reading of the
rules.
Rule 43 prescribes the mode of appeal for corporate rehabilitation cases:
Sec. 5. How appeal taken. – Appeal shall be taken by filing a verified
petition for review in seven (7) legible copies with the Court of
Appeals, with proof of service of a copy thereof on the adverse party and
on the court or agency a quo. The original copy of the petition intended for
the Court of Appeals shall be indicated as such by the petitioner.
....
Sec. 6. Contents of the petition. – The petition for review shall (a) state the
full names of the parties to the case, without impleading the court or
agencies either as petitioners or respondents; (b) contain a concise
statement of the facts and issues involved and the grounds relied upon for
the review; (c) be accompanied by a clearly legible duplicate original or a
certified true copy of the award, judgment, final order or resolution
appealed from, together with certified true copies of such material portions
of the record referred to therein and other supporting papers; and (d)
contain a sworn certification against forum shopping as provided in the last
paragraph of section 2, Rule 42. The petition shall state the specific
material dates showing that it was filed within the period fixed herein.
(Emphasis supplied)
Petitioner did not comply with some of these requirements. First, it did not
implead its creditors as respondents. Instead, petitioner only impleaded the
Presiding Judge of the Regional Trial Court, contrary to Section 6(a) of
Rule 43. Second, it did not serve a copy of the Petition on some of its
creditors, specifically, its former employees. Finally, it did not serve a copy
of the Petition on the Regional Trial Court.
4
Petitioner justified its failure to furnish its former employees with copies of
the Petition by stating that the former employees were late in filing their
opposition before the trial court.126 It also stated that its failure to furnish the
Regional Trial Court with a copy of the Petition was unintentional.127
The Court of Appeals correctly dismissed petitioner’s Rule 43 Petition as a
consequence of non-compliance with procedural rules. Rule 43, Section 7
of the Rules of Court states:
Sec. 7. Effect of failure to comply with requirements. – The failure of the
petitioner to comply with any of the foregoing requirements regarding the
payment of the docket and other lawful fees, the deposit of costs, proof of
service of the petition, and the contents of and the documents which should
accompany the petition shall be sufficient ground for the dismissal thereof.
2. The first rule breached by petitioner is the failure to implead all the
indispensable parties. Petitioner did not even interpose reasons why it
should be excused from compliance with the rule to "state the full names of
the parties to the case, without impleading the court . . . as . . .
respondents." Petitioner did exactly the opposite. It failed to state the full
names of its creditors as respondents. Instead, it impleaded the Presiding
Judge of the originating court.
The Rules of Court requires petitioner to implead respondents as a matter
of due process. Under the Constitution, "[n]o person shall be deprived of
life, liberty or property without due process of the law."134 An appeal to a
corporate rehabilitation case may deprive creditor-stakeholders of property.
Due process dictates that these creditors be impleaded to give them an
opportunity to protect the property owed to them.
Creditors are indispensable parties to a rehabilitation case, even if a
rehabilitation case is non-adversarial.
A corporate rehabilitation case cannot be decided without the creditors’
participation. The court’s role is to balance the interests of the corporation,
the creditors, and the general public. Impleading creditors as respondents
on appeal will give them the opportunity to present their legal arguments
before the appellate court. The courts will not be able to balance these
interests if the creditors are not parties to a case. Ruling on petitioner’s
appeal in the absence of its creditors will not result in judgment that is
effective, complete, and equitable.
This court cannot exercise its equity jurisdiction and allow petitioner to
circumvent the requirement to implead its creditors as respondents.
Tolerance of such failure will not only be unfair to the creditors, it is
contrary to the goals of corporate rehabilitation, and will invalidate the
cardinal principle of due process of law.
The failure of petitioner to implead its creditors as respondents cannot be
cured by serving copies of the Petition on its creditors. Since the creditors
were not impleaded as respondents, the copy of the Petition only serves to
inform them that a petition has been filed before the appellate court. Their
participation was still significantly truncated. Petitioner’s failure to implead
them deprived them of a fair hearing. The appellate court only serves court
orders and processes on parties formally named and identified by the
petitioner. Since the creditors were not named as respondents, they could
not receive court orders prompting them to file remedies to protect their
property rights.
3. petitioner pleaded to suspend is the rule requiring it to furnish all
parties with copies of the Rule 43 Petition. Petitioner admitted its
failure to furnish its former employees with copies of the Petition
because they belatedly filed their claims before the Regional Trial
Court.
The former employees were unable to raise their claims on time because
petitioner did not declare them as creditors. The Amended Petition did not
contain any information regarding pending litigation between petitioner and
its former employees. The only way the former employees could become
aware of the corporate rehabilitation proceedings was either through the
required publication or through news informally circulated among their
colleagues. Clearly, it was petitioner who caused the belated filing of its
former employees’ claims when it failed to notify its employees of the
corporate rehabilitation proceedings. Petitioner’s failure was conveniently
and disreputably hidden from this court.
Petitioner’s belated compliance with the requirement to serve the Petition
for Review on its former employees did not cure the procedural lapse.
There were two sets of employees with claims against petitioner:
5
Luzviminda C. Cueto and Alejandro Olit, et al. When the Court of Appeals
dismissed petitioner’s appeal, petitioner only served a copy on Alejandro
Olit, et al. Petitioner still did not serve a copy on Luzviminda C. Cueto.
We do not see how it will be in the interest of justice to allow a petition that
fails to inform some of its creditors that the final order of the corporate
rehabilitation proceeding was appealed. By not declaring its former
employees as creditors in the Amended Petition for Corporate
Rehabilitation and by not notifying the same employees that an appeal had
been filed, petitioner consistently denied the due process rights of these
employees.
Petitioner also pleaded to be excused from the requirement under Rule 6,
Section 5 of the Rules of Court to serve a copy of the Petition on the
originating court. According to petitioner, the annexes for the Petition for
Review filed before the Court of Appeals arrived from Lucena City on the
last day of filing the petition. Petitioner’s representative from Lucena City
and petitioner’s counsel rushed to compile and reproduce all the
documents, and in such rush, failed to send a copy to the Regional Trial
Court. When petitioner realized that it failed to furnish the originating court
with a copy of the Petition, a copy was immediately sent by registered
mail.137
Again, petitioner’s excuse is unacceptable. Petitioner had 15 days to file a
Rule 43 petition, which should include the proof of service to the originating
court. Rushing the compilation of the pleading with the annexes has
nothing to do with being able to comply with the requirement to submit a
proof of service of the copy of the petition for review to the originating court.
If at all, it further reflects the unprofessional way that petitioner and its
counsel treated our rules.
As this court has consistently ruled, "[t]he right to appeal is not a natural
right[,] nor a part of due process; it is merely a statutory privilege, and may
be exercised only in the manner and in accordance with the provisions of
the law."138
In line with this, liberality in corporate rehabilitation procedure only
generally refers to the trial court, not to the proceedings before the
appellate court. The Interim Rules of Procedure on Corporate
Rehabilitation covers petitions for rehabilitation filed before the Regional
Trial Court. Thus, Rule 2, Section 2 of the Interim Rules of Procedure on
Corporate Rehabilitation, which refers to liberal construction, is limited to
the Regional Trial Court. The liberality was given "to assist the parties in
obtaining a just, expeditious, and inexpensive disposition of the case."
4. The Regional Trial Court correctly dismissed the Amended Petition for
Corporate Rehabilitation. The dismissal of the Amended Petition did not
emanate from petitioner’s failure to provide complete details on its assets
and liabilities but on the trial court’s finding that rehabilitation is no longer
viable for petitioner. Under the Interim Rules of Procedure on Corporate
Rehabilitation, a "petition shall be dismissed if no rehabilitation plan is
approved by the court upon the lapse of one hundred eighty (180) days
from the date of the initial hearing."143 The proceedings are also deemed
terminated upon the trial court’s disapproval of a rehabilitation plan, "or a
determination that the rehabilitation plan may no longer be implemented in
accordance with its terms, conditions, restrictions, or assumptions."144
The Regional Trial Court correctly dismissed petitioner’s rehabilitation plan.
It found that petitioner’s assets are non-performing.152 Petitioner admitted
this in its Amended Petition when it stated that its vessels were no longer
serviceable.153 In Wonder Book Corporation v. Philippine Bank of
Communications,154 a rehabilitation plan is infeasible if the assets are
nearly fully or fully depreciated. This reduces the probability that
rehabilitation may restore and reinstate petitioner to its former position of
successful operation and solvency.
Petitioner’s rehabilitation plan should have shown that petitioner has
enough serviceable assets to be able to continue its business. Yet, the plan
showed that the source of funding would be to sell petitioner’s old vessels.
Disposing of the assets constituting petitioner’s main business cannot
result in rehabilitation. A business primarily engaged as a shipping line
cannot operate without its ships. On the other hand, the plan to purchase
new vessels sacrifices the corporation’s cash flow. This is contrary to the
goal of corporate rehabilitation, which is to allow present value recovery for
creditors. The plan to buy new vessels after selling the two vessels it
currently owns is neither sound nor workable as a business plan.
6
The other part of the rehabilitation plan entails selling properties of
petitioner’s sister company.1âwphi1 As pointed out by the Regional Trial
Court, this plan requires conformity from the sister company. Even if the
two companies have the same directorship and ownership, they are still
two separate juridical entities. In BPI Family Savings Bank v. St. Michael
Medical Center,155 this court refused to include in the financial and liquidity
assessment the financial statements of another corporation that the
petitioning-corporation plans to merge with.
3. REV. LUIS AO-AS, REV. JOSE LAKING, EUSQUICIO GALANG, REV.
ISABELO MONONGGIT, REV. EDWINO MERCADO, REV. DANIEL
PONDEVIDA, REV. TEODORICO TARAN and DR. BENJAMIN
GALAPIA,
Petitioners, versus HON. COURT OF APPEALS, THOMAS P. BATONG,
JUANITO BASALONG, AUGUSTO CATANGI, PAUL GARCIA, QUIDO
RIVERA, VICTORIO Y. SAQUILAYAN and DANILO ZAMORA,
Respondents.
4. LINGKOD MANGGAGAWA SA RUBBERWORLD, ADIDAS-ANGLO,
its officers and members as represented by SONIA ESPERANZA,
Petitioners, - versus -RUBBERWORLD (PHILS.) INC. and ANTONIO
YANG, LAYA MANANGHAYA SALGADO & CO., CPAs (In its capacity
as liquidator of Rubberworld (Phils., Inc.),
Respondents.
FACTS:
Rubberworld announced a company shutdown due to financial crisis, and a
copy of which was serve d on the recognized labor union of Rubberworld,
the Bisig Pagkakaisa-NAFLU, the union with which the corporation had a
CBA.
On September 1, 1994, Bisig Pagkakaisa-
NAFLU staged a strike .
As a result, Rubberworld's premises closed prematurely even before the
date set for the start of its temporary partial shutdown. On September 9,
1994, petitioner union, represented by
its President, Sonia Esperanza, filed a complaint against Rubberworld and
its Vice Chairperson for ULP, illegal shutdown, and non-payment of
salaries and separation pay. The said complaint was referred to Labor
Arbiter for appropriate action. On November 22, 1994, while the
aforementioned complaint was pending, Rubberworld filed with the SEC a
Petition for Declaration of a State of Suspension of Payments with
Proposed Rehabilitation Plan. Notwithstanding the SEC's aforementioned
suspension order and despite Rubberworld's submission on January 10,
1995 of a Motion to Suspend Proceedings, the Labor Arbiter went ahead
with the ULP case and rendered his decision denying respondents motion
to suspend proceedings and declaring respondent Rubberworld Phils., Inc.
to have committed ULP. Its MR having been denied by the NLRC,
Rubberworld directly went to the Supreme Court on a Petition for Certiorari.
The SEC issued an Order stating that the continuance in business of
Rubberworld would neither be profitable nor work to the best of interest of
the parties and general public. Eventually, in the assailed Decision, the CA
granted Rubberworld‘s petition on the finding that the Labor Arbiter had
indeed committed grave abuse of discretion when it proceeded with the
ULP case despite the SEC‘s suspension, hence this petition.
ISSUES:
1) Whether the CA had committed grave abuse of discretion when it gave
due course to the petition filed by Rubberworld and annulled the decisions
rendered by the labor arbiter, when the said decisions had become final
and executory warranting the outright dismissal ofthe aforesaid petition
2) Whether the CA had committed grave abuse of discretion and reversible
error when it applied Section 5(d) andSection 6 (c) of P.D. No. 902-A, as
amended, to the case at bar;
RULING:
The Court ruled in the negative and stated that CA did not commit grave
abuse of discretion. It cannot be said that the decision of the Labor Arbiter,
or the decision/dismissal order and writ of execution issued by the NLRC,
could ever attain final and executory status.
7
The Labor Arbiter completely disregarded and violated Section 6(c)of
Presidential Decree 902-A, as amended, which categorically mandates the
suspension of all actions for claims against a corporation placed under a
management committee by the SEC. The proceedings before the Labor
Arbiter and the order and writ subsequently issued by the NLRC are all null
and void for having been undertaken or issued in violation of the SEC
suspension Order. Acts executed against provisions of mandatory and
prohibitory laws are void, except when the law itself authorizes their
validity. The labor arbiters decision is void ab initio and a void judgment is
non-existent. The Court also believed that CA is correct in ruling the issue
of applicability in labor cases of the aforequoted provisions of PD 902-A. It
is plain from the foregoing provisions of the
law that ―upon the appointment by SECof a management committee or a
rehabilitation receiver,‖ all actions for claims against the corporation
pending before any court, tribunal or board shall ipso jure be suspended.
The justification for the automatic stay of all pending actions for claims ―is
to enable the management committee or the rehabilitation receiver to
effectively exercise its/his powers free from any judicial or extra-judicial
interference that might unduly hinder or prevent the rescue of the debtor
company.
The law states that upon the creation of a management committee or the
appointment of a rehabilitation receiver, all claims for actions ―shall be
suspended accordingly.‖ Since the law makes no distinction or exemptions,
neither should this Court. Ubi lex non distinguit nec nos distinguere
debemos.
Allowing labor cases to proceed clearly defeats the purpose of the
automatic stay and severely encumbers the management committee's time
and resources. The said committee would need to defend against these
suits, to the detriment of its primary and urgent duty to work towards
rehabilitating the corporation and making it viable again.
Thus, when NLRC proceeded to decide the case despite the SEC
suspension
order, the NLRC acted without or in excess of its jurisdiction to hear and
decide cases. As a consequence, any resolution, decision or order that it
rendered or issued without jurisdiction is a nullity
.
5. NEGROS NAVIGATION CO., INC.,Petitioner,- versus -
COURT OF APPEALS, SPECIAL TWELFTH DIVISION AND TSUNEISHI
HEAVY INDUSTRIES (CEBU), INC.,
Respondents.
FACTS:
On February 9, 2004, THI filed a case for sum of money and damages with
prayer for issuance of writ of attachment against NNC before the Regional
Trial Court of Cebu (Cebu RTC), docketed as Civil Case No. CEB-29899
entitled Tsuneishi Heavy Industries (Cebu), Inc. v. Negros Navigation Co.,
Inc. The action is based on the unpaid services for the repair of NNCs
vessels, otherwise known as repairmans lien.
On March 5, 2004, the Cebu RTC issued an Order granting the issuance of
a writ of preliminary attachment against the properties of NNC. It reasoned
that based on the affidavit in support of the application for the writ, NNC
committed fraud in contracting the debt or in incurring the obligation upon
which the action was brought, thus, justifying the issuance of the writ as
mandated by Section 1(d) of Rule 57. It added that the repairmans lien of
THI constituted a superior maritime lien that is enforceable by suit in rem,
as decreed by Presidential Decree No. 1521 (PD 1521).
On March 12, 2004, by virtue of the writ of preliminary attachment, Sheriff
Rogelio T. Pinar levied on one of the vessels of NNC, the M/V St. Peter the
Apostle.
On March 29, 2004, NNC filed a Petition for Corporate Rehabilitation with
Prayer for Suspension of Payments with the RTC of Manila (Manila RTC),
Branch 46, which was docketed as Special Proceeding No. 0409532. The
Manila RTC granted the NNCs petition and issued a Stay Order on April 1,
2004.
8
Upon the issuance of the stay order by the Manila RTC, NNC filed a
Manifestation and Motion to Suspend Proceedings and to Lift Preliminary
Attachment with the Cebu RTC.[14]
On April 5, 2004, THI filed an Amended Complaint[15] in the Cebu RTC. In
the amended complaint, THI impleaded the following vessels of NNC as
co-defendants in the suit: M/V San Sebastian, M/S Princess of Negros,
M/V Nossa Senhora (Nuestra Seora) De Fatima, M/V St. Peter the Apostle,
M/V Santa Ana and M/V San Paolo.
On April 13, 2004, NNC filed a Motion to Suspend Proceedings and to Lift
the Writ of Attachment and Arrest Orders[23] before the Cebu RTC by virtue
of the April 12, 2004 Order of the Manila RTC. However, on April 29, 2004,
the CA issued the Resolution[24] assailed in what is before this Court
as G.R. No. 163156, wherein the appellate court temporarily restrained the
implementation of the Orders of the Manila RTC dated April 1,
2004 and April 12, 2004.
On October 6, 2004, the CA issued the Decision[27] assailed in what is now
G.R. No. 166845, denying the petition of THI that sought to annul and
enjoin the enforcement and implementation of the Orders of the Manila
RTC dated April 1, 2004 and April 12, 2004.
Contention:
1. THI maintains that its maritime liens against the vessels of NNC
were impaired by the issuance of the stay order. THI argues that
the issuance of the stay order by the Manila RTC, acting as
rehabilitation court, was erroneous considering that maritime liens
cannot be enforced, divested, and otherwise affected or dealt with
except by an admiralty court in an admiralty proceeding in rem. THI
cited various foreign jurisprudence to the effect that maritime liens
are enforceable only by a suit in rem.[33] It further averred that the
mere suspension of the in rem proceedings in the admiralty case
prejudiced its substantive rights under Presidential Decree (PD)
1521.
2. THI argues that the Manila RTC, in granting the stay order, divested
the Cebu RTC, which is acting as an admiralty court, of its
jurisdiction over the maritime case of THI. It insists that its maritime
liens over the vessels of NNC must be upheld, notwithstanding
NNCs rehabilitation proceedings. It stresses that in in
rem proceedings to enforce maritime liens, the vessels alone may
be impleaded as defendants. The vessels themselves answer for
the liens, and lienholders like THI have the substantive statutory
right under PD 1521 to insist on the vessels responsibility because
an action in rem is a proceeding against the ship itself.
Furthermore, it emphasizes that a maritime lien is not affected by
bankruptcy or reorganization, citing Gilmore and Black as
reference.[43]
HELD:
1. There is no conflict as to which law should apply to the case at bench.
THI wishes to impress this Court that its claim for repairmans lien is a
maritime lien and, accordingly, may be enforced only in a proceeding in
rem. The Court agrees that PD 1521 is the governing law concerning its
maritime lien for the services it rendered to NNC. However, when NNC filed
a petition for corporate rehabilitation and suspension of payments, and the
Manila RTC found that the petition was sufficient in form and in substance
and appointed the rehabilitation receiver, the admiralty proceeding was
appropriately suspended in accordance with Section 6 of the Interim Rules
on Corporate Rehabilitation.[35]
Rehabilitation contemplates continuance of corporate life and activities in
an effort to restore and reinstate the corporation to its former position of
successful operation and solvency.[36] The purpose of rehabilitation
proceedings is precisely to enable the company to gain a new lease on life
and thereby allow creditors to be paid their claims from its earnings. The
9
rehabilitation of a financially distressed corporation benefits its employees,
creditors, stockholders and, in a larger sense, the general public.[37] The justification for the suspension of actions or claims, without distinction,

The governing law concerning rehabilitation and suspension of actions for pending rehabilitation proceedings is to enable the management committee

claims against corporations is PD 902-A, as amended. Republic Act No. or rehabilitation receiver to effectively exercise its/his powers free from any

8799 (RA 8799), otherwise known as The Securities Regulation Code, judicial or extra-judicial interference that might unduly hinder or prevent the

amended Section 5 of PD 902-A, thereby transferring to the Regional Trial "rescue" of the debtor company. To allow such other actions to continue

Courts the jurisdiction of the Securities and Exchange Commission (SEC) would only add to the burden of the management committee or

over cases, among others, involving petitions of corporations, partnerships rehabilitation receiver, whose time, effort and resources would be wasted in

or associations to be declared in the state of suspension of payments defending claims against the corporation instead of being directed toward

where the corporation, partnership or association possesses property to its restructuring and rehabilitation.[39]

cover all its debts but foresees the impossibility of meeting them when they
respectively fall due, or where the corporation, partnership or association It is undisputed that THI holds a preferred maritime lien over NNCs assets

has no sufficient assets to cover its liabilities, but is under the management by virtue of THIs unpaid services. The issuance of the stay order by the

of a rehabilitation receiver or a management committee. rehabilitation court does not impair or in any way diminish THIs preferred

The Court adopted the Interim Rules of Procedure on Corporate status as a creditor of NNC. The enforcement of its claim through court

Rehabilitation on December 15, 2000, and these rules apply to petitions for action was merely suspended to give way to the speedy and effective

rehabilitation filed by corporations, partnerships, and associations pursuant rehabilitation of the distressed shipping company. Upon termination of the

to PD 902-A. rehabilitation proceedings or in the event of the bankruptcy and consequent

dissolution of the company, THI can still enforce its preferred claim upon
PD 902-A[38] mandates that upon appointment of a management NNC.
committee, rehabilitation receiver, board or body, all actions for claims
against corporations, partnerships or associations under management or When a distressed company is placed under rehabilitation, the appointment

receivership pending before any court, tribunal, board or body shall be of a management committee follows to avoid collusion between the

suspended. PD 902-A does not make any distinction as to what claims are previous management and creditors it might favor, to the prejudice of the

covered by the suspension of actions for claims against corporations under other creditors. The stay order is effective on all creditors of the corporation

rehabilitation. No exception is made therein in favor of maritime claims. without distinction, whether secured or unsecured. All assets of a

Thus, since the law does not make any exemptions or distinctions, neither corporation under rehabilitation receivership are held in trust for the equal

should we. Ubi lex non distinguit nec nos distinguere debemos. benefit of all creditors to preclude one from obtaining an advantage or

10
preference over another by the expediency of attachment, execution or
otherwise. As between the creditors, the key phrase is equality in equity.
Once the corporation threatened by bankruptcy is taken over by a receiver,
all the creditors ought to stand on equal footing. Not any one of them
should be paid ahead of the others. This is precisely the reason for
suspending all pending claims against the corporation
[40]
receivership.
Rizal Commercial Banking Corporation v. Intermediate
[41]
Court, promulgated by the Court en banc before the effectivity of the
Interim Rules on Corporate Rehabilitation, is still valid case law up to the
present. It enumerates the guidelines in the treatment of claims involving
corporations undergoing rehabilitation, viz.:
1. All claims against corporations, partnerships, or
associations that are pending before any court, tribunal, or
board, without distinction as to whether or not a creditor is
secured or unsecured, shall be suspended effective upon
the appointment of a management committee, rehabilitation
receiver, board, or body in accordance with the provisions of
Presidential Decree No. 902-A.
2. Secured creditors retain their preference over unsecured
creditors, but enforcement of such preference is equally
suspended upon the appointment of a management
committee, rehabilitation receiver, board, or body. In the
event that the assets of the corporation, partnership, or
association are finally liquidated, however, secured and
preferred credits under the applicable provisions of the Civil
Code will definitely have preference over unsecured ones.[42]
2. True enough, a maritime lien is not affected by bankruptcy or
reorganization. However, in the instant case, we are not dealing with
bankruptcy or reorganization; rather, we are confronted with NNCs
rehabilitation. If we follow the argument of THI and allow the continued
enforcement of its claims against NNC, we would, in effect, violate
provisions of PD 902-A. To reiterate, the rationale behind PD 902-A is to
effect a feasible and viable rehabilitation of an ailing corporation.
There is no conflict between PD 1521 and PD 902-A. The Manila RTC
acting as a rehabilitation court merely suspended the proceedings in the
admiralty case in the Cebu RTC. It did not divest the Cebu RTC of its
jurisdiction over the maritime claims of THI against NNC. The preferred
under
maritime lien of THI can still be enforced upon the termination of the
rehabilitation proceedings, or if it such be unsuccessful, upon the
Appellate dissolution of the corporation.
6. JUANITO A. GARCIA and ALBERTO J. DUMAGO,
Petitioners,- versus -PHILIPPINE AIRLINES, INC.,
Respondent. (G.R. No. 164856. August 29, 2007)
Facts:
Petitioners Dumago and Garcia were employed by respondent PAL as
Aircraft Furnishers
Master "C" and Aircraft Inspector, respectively. In July 26, 1995, a
Notice of Administrative Charge was served on petitioners. They were
allegedly "caught in the act of sniffing shabu inside the Toolroom Section,"
then placed under preventive suspension and required to submit their
written explanation within 10 days from receipt of the notice. Petitioners
denied the allegations but they were dismissed for violation of the PAL
Code of Discipline.
Petitioners filed a complaint for illegal dismissal and damages.
While that happened, SEC placed PAL under anInterim Rehabilitation
Receiver due to severe financial losses. Later on, the Labor Arbiter ruled
in favour of petitioners‘ reinstatement and backwages and also awarded
damages and attorneys fees. Meanwhile, the SEC replaced the Interim
Rehabilitation Receiver with a Permanent Rehabilitation Receiver. On
appeal, the NLRC reversed the ruling of he Labor Arbiter, however, the
latter issued a Writ of Execution ordering for the immediate collection of the
petitioners‘ backwages and other awards and if such is not possible,
ordering for the levy of the office equipment/s of the respondent for the
satisfaction of such. PAL thereupon moved to quash the Writ and to
lift the Notice while petitioners moved to release the garnished amount.
11
PAL also filed an urgent petition for injunction with the NLRC, to which the
latter affirmed the validity of the Writ and the Notice issued by the Labor
Arbiter but suspended and referred the action to the Rehabilitation
Receiver for appropriate action. The CA however nullified the NLRC
Resolutions on two grounds:
(1) a subsequent finding of a valid dismissal removes the basis
for implementing the reinstatement aspect of a labor arbiter‘s decision and
(2) the impossibility to comply with the reinstatement order due to
corporate rehabilitation provides a reasonable justification for the failure to
exercise the options under Article 223 of the Labor Code.
Issue/s:
Whether of not the execution of the Labor Arbiter's order is legally possible
even if PAL is under receivership
Held:
Note that during the pendency of this case, PAL was placed by the SEC
first, under an Interim Rehabilitation Receiver and finally, under a
Permanent Rehabilitation Receiver. The pertinent law on this matter,
Section 5 (d) of Presidential Decree (P.D.) No. 902-A, as amended,
provides that:
SECTION 5. In addition to the regulatory and adjudicative
functions of the Securities and
Exchange Commission over corporations, partnerships and other
forms of associations registered with it as expressly granted under
existing laws and decrees, it shall haveoriginal and exclusive
jurisdiction to hear and decide cases involving:
xxx xxx xxx
d) Petitions of corporations, partnerships or associations to be
declared in the state of suspension of payments in cases where the
corporation, partnership or association possesses property to
cover all of its debts but foresees the impossibility of meeting them
when they respectively fall due or in cases where the corporation,
partnership or association has no sufficient assets to cover its
liabilities, but is under the [management of a rehabilitation receiver or]
Management Committee created pursuant to this Decree.
The same P.D., in Section 6 (c) provides that:
SECTION 6.
In order to effectively exercise such jurisdiction, the Commission shall
possess the following powers:
xxx xxx xxx
c) To appoint one or more receivers of the property, real or personal,
which is the subject of the action pending before the Commission in
accordance with the pertinent provisions of the Rules of Court in such
other cases whenever necessary in order to preserve the rights of
the parties-litigants and/or protect the interest of the investing
public and creditors: . . .
Provided, finally,That upon appointment of a management committee,
rehabilitation receiver, board or body, pursuant to this Decree, all
actions for claims against corporations, partnerships or associations
under management or receivership pending before any court,
tribunal, board or body shall be suspended accordingly.
xxx xxx xxx
Worth stressing, upon appointment by the SEC of a rehabilitation receiver,
all actions for claims against the corporation pending before any court,
tribunal or board shall ipso jurebe suspended. The purpose of the
automatic stay of all pending actions for claims is to enable the
rehabilitation receiver to effectively exercise its/his powers free from any
judicial or extra-judicial interference that might unduly hinder or prevent the
rescue of the corporation. More importantly, the suspension of all actions
for claims against the corporation embraces all phases of the suit, be it
before the trial court or any tribunal or before this Court.
No other action may be taken, including the rendition of judgment during
the state of suspension.
It must be stressed that what are automatically stayed or suspended are
the proceedings of a suit and not just the payment of claims during the
execution stage after the case had become final and executory.
Furthermore, the actions that are suspended cover all claims against the
corporation whether for damages founded on a breach of contract of
carriage, labor cases, collection suits or any other claims of a pecuniary
nature.
No exception in favor of labor claims is mentioned in the law.
This Court's adherence to the above-stated rule has been resolute and
steadfast as evidenced by its oft-repeated application in a plethora of cases
involving PAL, the most recent of which is Philippine Airlines, Inc. v.
Zamora. Since petitioners' claim against PAL is a money claim for their
12
wages during the pendency of PAL's appeal to the NLRC, the same should
have been suspended pending the rehabilitation proceedings. The Labor
Arbiter, the NLRC, as well as the CA should have abstained from resolving
petitioners' case for illegal dismissal and should instead have directed them
to lodge their claim before PAL's receiver.
7. SPOUSES EDUARDO SOBREJUANITE and FIDELA
SOBREJUANITE, Petitioners, vs. ASB DEVELOPMENT
CORPORATION, Respondent.
G.R. No. 165675 September 30, 2005
Facts:
On March 7, 2001, spouses Eduardo and Fidela Sobrejuanite
(Sobrejuanite) filed a Complaint for rescission of contract, refund of
payments and damages, against ASB Development Corporation (ASBDC)
before the Housing and Land Use Regulatory Board (HLURB).
Sobrejuanite alleged that they entered into a Contract to Sell with ASBDC
over a condominium unit and a parking space in the BSA Twin Tower-B
Condominum located at Bank Drive, Ortigas Center, Mandaluyong City.
They averred that despite full payment and demands, ASBDC failed to
deliver the property on or before December 1999 as agreed. They prayed
for the rescission of the contract; refund of payments amounting to
P2,674,637.10; payment of moral and exemplary damages, attorney‘s
fees, litigation expenses, appearance fee and costs of the suit.
ASBDC filed a motion to dismiss or suspend proceedings in view of the
approval by the Securities and Exchange Commission (SEC) on April 26,
2001 of the rehabilitation plan of ASB Group of Companies, which includes
ASBDC, and the appointment of a rehabilitation receiver. The HLURB
arbiter however denied the motion and ordered the continuation of the
proceedings.
The arbiter found that under the Contract to Sell, ASBDC should
have delivered the property to Sobrejuanite in December 1999; that
the latter had fully paid their obligations except the P50,000.00 which
should be paid upon completion of the construction; and that
rescission of the contract with damages is proper.
The dispositive portion of the Decision reads:
WHEREFORE, in view of the foregoing judgment is rendered ordering the
rescission of the contracts to sell between the parties, and further ordering
the respondent [ASBDC] to pay the complainants [Sobrejuanite] xxx
All other claims and all counter-claims are hereby dismissed.
IT IS SO ORDERED.
The HLURB Board of Commissioners affirmed the ruling of the arbiter that
the approval of the rehabilitation plan and the appointment of a
rehabilitation receiver by the SEC did not have the effect of suspending
the proceedings before the HLURB. The board held that the HLURB
could properly take cognizance of the case since whatever monetary
award that may be granted by it will be ultimately filed as a claim before
the rehabilitation receiver. The board also found that ASBDC failed to
deliver the property to Sobrejuanite within the prescribed period. The
dispositive portion of the Decision reads:
Wherefore the petition for review is denied and the decision of the
office below is affirmed. It shall be understood that all monetary awards
shall still be filed as claims before the rehabilitation receiver. ASBDC filed
an appeal before the Office of the President which was dismissed for lack
of merit. Hence, ASBDC filed a petition under Section 1, Rule 43 of the
Rules of Court before the Court of Appeals, docketed as CA-G.R. SP No.
79420.
On June 29, 2004, the Court of Appeals grantedits assailed Decision.
Issue:
Whether or not the approval of the corporate rehabilitation plan and
appointment of a receiver had the effect of suspending the proceeding in
the HLURB.
Held:
Yes, Section 6(c) of PD No. 902-A empowers the SEC:
c) To appoint one or more receivers of the property, real and personal,
which is the subject of the action pending before the Commission ...
whenever necessary in order to preserve the rights of the parties-
litigants and/or protect the interest of the investing public and creditors: ...
Provided, finally, That upon appointment of a management committee,
rehabilitation receiver, board or body, pursuant to this Decree, all
actions for claims against corporations, partnerships or associations under
management or receivership pending before any court, tribunal, board or
body shall be suspended accordingly.
[Emphasis added]
13
The purpose for the suspension of the proceedings is to prevent a creditor
from obtaining an advantage or preference over another and to protect and
preserve the rights of party litigants as well as the interest of the investing
public or creditors.
Such suspension is intended to give enough breathing space for the
management committee or rehabilitation receiver to make the
business viable again, without having to divert attention and resources
to litigations in various fora.
The suspension would enable the management committee or rehabilitation
receiver to effectively exercise its/his powers free from any judicial or extra-
judicial interference that might unduly hinder or prevent the "rescue" of
the debtor company. To allow such other action to continue would only
add to the burden of the management committee or rehabilitation
receiver, whose time, effort and resources would be wasted in defending
claims against the corporation instead of being directed toward its
restructuring and rehabilitation.
8. G.R. No. 164856 January 20, 2009
JUANITO A. GARCIA and ALBERTO J. DUMAGO,
Petitioners,
vs.
PHILIPPINE AIRLINES, INC., Respondent.
FACTS: An administrative charge was filed by PAL against its employees-
herein petitioners after they were allegedly caught in the act of sniffing
shabu when a team of company security personnel and law enforcers
raided the PAL
Technical Center’s Toolroom Section. After due notice, PAL dismissed
petitioners for transgressing the PAL Code of Discipline, prompting them to
file a complaint for illegal dismissal and damages which was resolved by
the Labor Arbiter in their favor, thus ordering PAL to immediately comply
with the reinstatement aspect of the decision. Prior to the promulgation of
the Labor Arbiter’s decision, the SEC placed PAL which was suffering from
severe financial losses. From the Labor Arbiter’s decision, PAL
appealed to the NLRC which reversed said decision of the Labor Arbiter
and dismissed petitioners’ complaint for lack of merit. Petitioners’ Motion
for Reconsideration was denied and Entry of Judgment was issued.
Subsequently, the Labor Arbiter issued a Writ of Execution respecting the
reinstatement aspect of his decision, and he issued a Notice of
Garnishment. PAL thereupon moved to quash the Writ and to lift the Notice
while petitioners moved to release the garnished amount. In a related
move, PAL filed an Urgent Petition for Injunction with the NLRC which
affirmed the validity of the Writ and the Notice issued by the Labor Arbiter
but suspended and referred the action to the Rehabilitation Receiver for
appropriate action. PAL elevated the matter to
the appellate court which reversed the NLRC’s decision. Hence, this
petition.
ISSUES:
(1) whether or not a subsequent finding of a valid dismissal removes the
basis
for implementing the reinstatement aspect of a labor arbiter’s decision?
And
(2) whether or not the impossibility to comply with the reinstatement order
due to corporate rehabilitation provides a reasonable justification for the
failure to exercise theoptions under Article 223 of the Labor Code?
HELD:
Since petitioners’ claim against PAL is a money claim for their wages
during the pendency of PAL’s appeal to the NLRC, this should have been
suspended pending the rehabilitation proceedings. It was then suspended
while ongoing rehabilitation. In view of the termination of the rehabilitation
proceedings, the Court now proceeds to resolve the remaining issue for
consideration.
As to the first issue, the court held that a subsequent finding of a valid
dismissal removes the basis for implementing the reinstatement aspect of a
labor arbiter’sdecision.
Based on jurisprudential trend applying par 3 of Article 223 of the Labor
Code which provides that ‚ “in any event, the decision of the Labor Arbiter
reinstating a dismissed or separated employee, insofar as the
reinstatement aspect is concerned, shall immediately be executory,
pending appeal. The employee shall either be admitted back to work under
the same terms and conditions prevailing prior to his dismissal or
separation or, at the option of the employer, merely reinstated in the
14
payroll. The posting of a bond by the employer shall not stay the execution
for reinstatement provided herein.”
The view as maintained in a number of cases is that ‚”Even if the order of
reinstatement of the Labor Arbiter is reversed on appeal, it is obligatory on
the part of the employer to reinstate and pay the wages of the dismissed
employee during the period of appeal until reversal by the higher court.”
On the other hand, if the employee has been reinstated during the appeal
period and such reinstatement order is reversed with finality, the employee
is not required to reimburse whatever salary he received for he is entitled to
such, more so if he actually rendered services during the period. The
provision of Article 223 is clear that an award for reinstatement shall be
immediately executory even pending appeal and the posting of a bond by
the employer shall not stay the execution for reinstatement. The legislative
intent is quite obvious, i.e., to make an award of reinstatement immediately
enforceable, even pending appeal. To require the application for and
issuance of a writ of execution as prerequisites for the execution of a
reinstatement award would certainly betray and run counter to the very
object and intent of Article 223. The reason is simple.
As to the second issue, the Court held that the peculiar predicament of a
corporate rehabilitation rendered it impossible for respondent to exercise its
option under the circumstances. The spirit of the rule on reinstatement
pending appeal animates the proceedings once the Labor Arbiter issues
the decision containing an order of reinstatement.
Reinstatement pending appeal necessitates its immediate execution during
the pendency of the appeal, if the law is to serve its noble purpose. At the
same time, any attempt on the part of the employer to evade or delay its
execution, should not be countenanced. After the labor arbiter’s decision
is reversed by a higher tribunal, the employee may be barred from
collecting the accrued wages, if it is shown that the delay in enforcing the
reinstatement pending appeal was without fault on the part of the employer.
The new NLRC Rules of Procedure, now require the employer to submit a
report of compliance within 10 calendar days from receipt of the Labor
Arbiter’s decision, disobedience to which clearly denotes a refusal to
reinstate. It is apparent that there was inaction on the part of respondent to
reinstate them, but whether such omission was justified depends on the
onset of the exigency of corporate rehabilitation. It is settled that upon
appointment by the SEC of a rehabilitation
receiver, all actions for claims before any court, tribunal or board against
the
corporation shall ipso jure be suspended. Case law recognizes that unless
there is a restraining order, the implementation of the order of
reinstatement is ministerial and \mandatory. This injunction or suspension
of claims by legislative fiat partakes of the nature of a restraining order that
constitutes
a legal justification for respondent’s non-compliance with the
reinstatement order.
Respondent’s failure to exercise the alternative options of actual
reinstatement
and payroll reinstatement was thus justified.Such being the case,
respondent’s obligation to pay the salaries pending appeal, as the normal
effect of the non-exercise of the options, did not attach.
9. MWSS vs. DAWAY AND MAYNILADG.R. No. 160732.
June 21, 2004
FACTS: MWSS granted Maynilad under a Concession Agreement to
manage, operate, repair, decommission and refurbish the existing MWSS
water delivery and sewerage services in the West Zone Service Area, for
which Maynilad undertook to pay the corresponding concession fees
which, among other things, consisted of payments of petitioners mostly
foreign loans.
To secure the concessionaires performance of its obligations, Maynilad
was required under Section 6.9 of said contract to put up a bond, bank
guarantee or other security acceptable to MWSS.
15
In compliance with this requirement, Maynilad arranged for a three-year
facility with a number of foreign banks, led by Citicorp Int’l Ltd., for the
issuance of an Irrevocable Standby Letter of Credit in favor of MWSS for
the full and prompt performance of Maynilads obligations to MWSS as
aforestated.
Later, the parties agreed to resolve the issues between them [Maynilad is
asking for a mechanism by which it hoped to recover the losses it had
allegedly incurred and would be incurring as a result of the depreciation of
the Philippine Peso against the US Dollar and in filing to get what it
desired, Maynilad unilaterally suspended the payment of the concession
fees] through an amendment of the Concession Agreement which was
based on the terms set down in MWSS Board of Trustees Resolution which
providedinter alia for a formula that would allow Maynilad to recover foreign
exchange losses it had incurred or would incur under the terms of the
Concession Agreement.
However Maynilad served upon MWSS a Notice of Event of Termination,
claiming that MWSS failed to comply with its obligations under the
Concession Agreement and its Amendment regarding the adjustment
mechanism that would cover Maynilads foreign exchange losses. Maynilad
filed a Notice of Early Termination of the concession, which was challenged
by MWSS. This matter was eventually brought before the Appeals Panel by
MWSS. the Appeals Panel ruled that there was no Event of Termination as
defined under Art. 10.2 (ii) or 10.3 (iii) of the Concession Agreement and
that, therefore, Maynilad should pay the concession fees that had fallen
due.
The award of the Appeals Panel became final. MWSS, thereafter,
submitted a written notice to Citicorp Int’l Ltd, as agent for the participating
banks, that by virtue of Maynilads failure to perform its obligations under
the Concession Agreement, it was drawing on the Irrevocable Standby
Letter of Credit and thereby demanded payment.
Prior to this, however, Maynilad had filed on a petition for rehabilitation
before the RTC of Quezon City which resulted in the issuance of the Stay
Order and the disputed Order of November 27, 2003.
ISSUE: WON the rehabilitation court sitting as such, act in excess of its
authority or jurisdiction when it enjoined herein petitioner from seeking the
payment of the concession fees from the banks that issued the Irrevocable
Standby Letter of Credit in its favor
HELD: the petition for certiorari is granted.The Order of November 27,
2003 of the RTC of Quezon City 90, is hereby declared null and voidand
set aside.
YES
First, the claim is not one against the debtor but against an entity that
respondent Maynilad has procured to answer for its non-performance of
16
certain terms and conditions of the Concession Agreement, particularly the
payment of concession fees.
Secondly, Sec. 6 (b) of Rule 4 of the Interim Rules does not enjoin the
enforcement of all claims against guarantors and sureties, but only those
claims against guarantors and sureties who are not solidarily liable
with the debtor. Respondent Maynilads claim that the banks are not
solidarily liable with the debtor does not find support in jurisprudence.
Letters of credit were developed for the purpose of insuring to a seller
payment of a definite amount upon the presentation of documentsand is
thus a commitment by the issuer that the party in whose favor it is issued
and who can collect upon it will have his credit against the applicant of the
letter, duly paid in the amount specified in the letter They are in effect
absolute undertakings to pay the money advanced or the amount for which
credit is given on the faith of the instrument. They are primary obligations
and not accessory contracts and while they are security arrangements,
they are not converted thereby into contracts of guaranty. What
distinguishes letters of credit from other accessory contracts, is the
engagement of the issuing bank to pay the seller once the draft and other
required shipping documents are presented to it. They are definite
undertakings to pay at sight once the documents stipulated therein are
presented.
The prohibition under Sec 6 (b) of Rule 4 of the Interim Rules does not
apply to herein petitioner as the prohibition is on the enforcement of claims
against guarantors or sureties of the debtors whose obligations are not
solidary with the debtor. The participating banks obligation are solidary
with respondent Maynilad in that it is a primary, direct, definite and an
absolute undertaking to pay and is not conditioned on the prior exhaustion
of the debtors assets. These are the same characteristics of a surety or
solidary obligor. And being solidary, the claims against them can be
pursued separately from and independently of the rehabilitation case.
The terms of the Irrevocable Standby Letter of Credit do not show that the
obligations of the banks are not solidary with those of respondent Maynilad.
On the contrary, it is issued at the request of and for the account of
Maynilad in favor of the MWSS as a bond for the full and prompt
performance of the obligations by the concessionaire under the
Concession Agreement and herein MWSS is authorized by the banks to
draw on it by the simple act of delivering to the agent a written certification
substantially in the form of the Letter of Credit.
Taking into consideration our own rulings on the nature of letters of credit
and the customs and usage developed over the years in the banking and
commercial practice of letters of credit, we hold that except when a letter of
credit specifically stipulates otherwise, the obligation of the banks issuing
letters of credit are solidary with that of the person or entity requesting for
its issuance, the same being a direct, primary, absolute and definite
17
undertaking to pay the beneficiary upon the presentation of the set of
documents required therein.
The public respondent, therefore, exceeded his jurisdiction, in holding that
he was competent to act on the obligation of the banks under the Letter of
Credit under the argument that this was not a solidary obligation with that
of the debtor. Being a solidary obligation, the letter of credit is excluded
from the jurisdiction of the rehabilitation court and therefore in enjoining
petitioner from proceeding against the Standby Letters of Credit to which it
had a clear right under the law and the terms of said Standby Letter of
Credit, public respondent acted in excess of his jurisdiction.

NOTES:
We held in Feati Bank & Trust Company v. Court of Appeals that the
concept of guarantee vis–vis the concept of an irrevocable letter of credit
are inconsistent with each other.The guarantee theory destroys the
independence of the banks responsibility from the contract upon which it
was opened and the nature of both contracts is mutually in conflict with
each other. In contracts of guarantee, the guarantors obligation is merely
collateral and it arises only upon the default of the person primarily liable.
On the other hand, in an irrevocable letter of credit, the bank undertakes a
primary obligation. We have also defined a letter of credit as an
engagement by a bank or other person made at the request of a customer
that the issuer shall honor drafts or other demands of payment upon
compliance with the conditions specified in the credit.

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