This case involves a dispute between Leca Realty Corporation and Manuela Corporation over rental rates during Manuela's corporate rehabilitation. [1] Manuela filed for rehabilitation after financial losses from the Asian financial crisis. [2] The rehabilitation plan reduced Manuela's rental obligations to Leca. [3] The Supreme Court ruled that the pendency of rehabilitation does not justify impairing contractual obligations, and invalidated the rental rate changes in the plan.
This case involves a dispute between Leca Realty Corporation and Manuela Corporation over rental rates during Manuela's corporate rehabilitation. [1] Manuela filed for rehabilitation after financial losses from the Asian financial crisis. [2] The rehabilitation plan reduced Manuela's rental obligations to Leca. [3] The Supreme Court ruled that the pendency of rehabilitation does not justify impairing contractual obligations, and invalidated the rental rate changes in the plan.
This case involves a dispute between Leca Realty Corporation and Manuela Corporation over rental rates during Manuela's corporate rehabilitation. [1] Manuela filed for rehabilitation after financial losses from the Asian financial crisis. [2] The rehabilitation plan reduced Manuela's rental obligations to Leca. [3] The Supreme Court ruled that the pendency of rehabilitation does not justify impairing contractual obligations, and invalidated the rental rate changes in the plan.
LECA REALTY CORPORATION vs. MANUELA Adea’s Report and Recommendation, petitioner CORPORATION questioned the reduction of Manuela’s liability, G.R. No. 166800 September 25, 2007 “considering its contractual nature which cannot be FACTS: impaired during the process of rehabilitation.” The trial court eventually approved the Rehabilitation Plan. Leca’s appeal to the Court of Appeals was dismissed for lack of Manuela Corporation (Manuela) is a duly registered merit. domestic corporation, principally engaged in the business of leasing commercial spaces in shopping malls to retailers. At the time, respondent owned and operated M The disagreement is grounded on the fact that the rental Star One, M Star, Starmall, Metropolis Star, and Pacific rates agreed upon by Leca and Manuela were reduced in Mall. the Rehabilitation Plan. There was a gross discrepancy between the amounts of rent agreed upon by the parties and those provided in the Rehabilitation Plan. Manuela obtained several loans from two syndicates of lenders to finance the costs of two of its buildings. Aside from its Php2.174 billion loan from banks, the company Leca filed another petition before the appellate court also had Php1.476 billion indebtedness to Hero Holdings, alleging violation of its constitutional right to non- Inc. and its trade suppliers, and other parties. impairment contract and the Interim Rules of Procedure on Corporate Rehabilitation. The Court of Appeals, in denying the petition, ruled: The region was then beset by the 1997 Asian financial crisis which prompted banks to stop their lending activities. This severely affected Manuela whose malls did not The pendency of the rehabilitation proceedings cannot be operate sufficiently, causing serious losses to the interpreted to impair the contractual obligations previously company. The adjusted interest rates on Manuela’s loans entered into by the contracting parties because the were around 18% to 30%, which contributed to its liquidity automatic stay of all actions is sanctioned by P.D. [No.] problems. 902-A which provides that “all actions for claims against corporations, partnerships or associations under management or receivership pending before any court, The company, however, exerted all efforts to cushion the tribunal, board or body shall be suspended accordingly.” financial blow by “closing down non-income generating 1. Thus, Leca filed a petition for review on certiorari businesses, concentrating on its business of leasing before the Supreme Court. commercial spaces, intensifying collection efforts, reducing personnel, negotiating for restructuring of loan with creditors, and working out a viable payment scheme without giving undue preference to any creditor.” In spite of all these initiatives, Manuela still failed to pay its financial obligations. ISSUE: Whether the pendency of the rehabilitation proceedings This forced the company to ask the court to issue a Stay can justify impairment of contractual obligations previously Order and approve its proposed Rehabilitation Plan, which entered into by the parties? if successfully implemented will “enable it to settle its remaining obligations in an orderly manner, restore its HELD: financial viability, and allow it to resume its normal No, the pendency of the rehabilitation plan can no justify operations.” The trial court subsequently issued the Stay the impairment of contractual obligations. The amount Order, which stated:’ provided in the rehabilitation plan is null and void. a) a stay in the enforcement of all claims, whether for money or otherwise and whether such enforcement is by court action or otherwise, against petitioner MANUELA, its RATIO: guarantors and sureties not solidarily liable with it; … Petitioner, in support of its contention, cites in its e) directing the payment in full of all administrative Memorandum the treatises of Ateneo Law Dean Cesar L. expenses incurred after the issuance of this Stay Order. Villanueva and former SEC Commissioner Danilo L. Concepcion, both known authorities on Corporation Law. In his Article which appeared in the Ateneo Law Journal, The trial court appointed Marilou Adea as rehabilitation Dean Villanueva said: receiver. Adea recommended the approval of Manuela’s The nature and extent of the power of the SEC to approve Rehabilitation Plan and convened with Manuela’s and enforce a rehabilitation plan is certainly an important creditors for the latter to air their concerns. issue. Often, a rehabilitation plan would require a diminution, if not destruction, of contractual and property Leca Realty Corporation (Leca) filed its Comment and/or rights of some, if not most of the various stakeholders in Formal Claim against Manuela amounting to Php193.7 the petitioning corporation. In the absence of clear million, comprised of unpaid rentals, security deposits, coercive legal provisions, the courts of justice and much less the SEC would have no power to amend or destroy the property and contractual rights of private parties, much less relieve a petitioning corporation from its contractual commitments.
On the other hand, Professor Concepcion stated that what
is allowed in rehabilitation proceedings is only the suspension of payments, or the stay of all actions for claims of distressed corporations, and upon its successful rehabilitation, the claims must be settled in full.
The Supreme Court, in agreeing with Leca, cited its ruling
in The Insular LifeAssurance Company, Ltd. v. Court of Appeals, which provides:
When the language of the contract is explicit leaving no
doubt as to the intention of the drafters thereof, the courts may not read into it any other intention that would contradict its plain import. The Court would be rewriting the contract of lease between Insular and Sun Brothers under the guise of construction were we to interpret the ‘option to renew’ clause as Sun Brothers propounds it, despite the express provision in the original contract of lease and the contracting parties’ subsequent acts. As the Court has held in Riviera Filipina, Inc. vs. Court of Appeals, ‘a court, even the Supreme Court, has no right to make new contracts for the parties or ignore those already made by them, simply to avoid seeming hardships. Neither abstract justice nor the rule of liberal construction justifies the creation of a contract for the parties which they did not make themselves or the imposition upon one party to a contract of an obligation not assumed.
The Court voided the Rehabilitation Plan insofar as it
amends the rental rates agreed upon by the parties. It opined that the change is not justified as the amount of rent is an “essential condition of any lease contract;” thus, any alteration on the rate is tantamount to impairment of stipulation of the parties.
Third Division January 10, 2018 G.R. No. 204039 United Coconut Planters Bank, Petitioner Spouses Walter Uy and Lily Uy, Respondents Decision Martires, J.